-----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, WnF7/XEk9gqgmBOhXbUSN7joVrrvB040m/MaPl92asaaDdFEX/9xlC4fBYkphXLn MLToqz/2e1v/qu1bO1efIA== 0000944209-96-000631.txt : 19961216 0000944209-96-000631.hdr.sgml : 19961216 ACCESSION NUMBER: 0000944209-96-000631 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19961213 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: U S RENTALS INC CENTRAL INDEX KEY: 0001028726 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 943061974 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-17783 FILM NUMBER: 96680148 BUSINESS ADDRESS: STREET 1: 1581 CUMMINS DRIVE SUITE 155 CITY: MDESTO STATE: CA ZIP: 95358 BUSINESS PHONE: 2095449000 MAIL ADDRESS: STREET 1: 1581CUMMINS DR STE 155 CITY: MODESTO STATE: CA ZIP: 95358 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 13, 1996 REGISTRATION NO. 333-______ ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _____________________ U.S. RENTALS, INC. (Exact name of registrant as specified in charter) DELAWARE 7353 94-3061974 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) (Identification No.)
1581 CUMMINS DRIVE, SUITE 155 MODESTO, CALIFORNIA 95358 (209) 544-9000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive office) JOHN S. MCKINNEY 1581 CUMMINS DRIVE, SUITE 155 MODESTO, CALIFORNIA 95358 (209) 544-9000 (Name, address, including zip code, and telephone number, including area code, of agent for service) COPIES TO: KENT V. GRAHAM, ESQ. BRYANT B. EDWARDS, ESQ. O'MELVENY & MYERS LLP LATHAM & WATKINS 1999 AVENUE OF THE STARS, SUITE 700 633 WEST FIFTH STREET, SUITE 4000 LOS ANGELES, CALIFORNIA 90067 LOS ANGELES, CALIFORNIA 90071 (310) 246-6820 (213) 485-1234 ____________________ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. ____________________ If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: [_] CALCULATION OF REGISTRATION FEE
=================================================================================================================================== PROPOSED PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF AMOUNT TO BE REGISTERED OFFERING AGGREGATE REGISTRATION FEE SECURITIES TO BE REGISTERED PRICE PER OFFERING PRICE(1) SHARE - ----------------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $.01 per share ________ Shares $________ $207,000,000 $62,728 ===================================================================================================================================
(1) Estimated solely for purposes of determining the registration fee pursuant to Rule 457 under the Securities Act of 1933, as amended. ___________________________________ 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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ EXPLANATORY NOTE This Registration Statement contains a Prospectus relating to a public offering in the United States (the "U.S. Offering") of an aggregate of [ ] shares of Common Stock of U.S. Rentals, Inc. ([ ] shares if the Underwriters' over-allotment option is exercised in full) (the "Common Stock"), together with separate Prospectus pages relating to a concurrent offering outside the United States of an aggregate of [ ] shares of Common Stock (the "International Offering"). The complete Prospectus for the U.S. Offering follows immediately. After such Prospectus are the following alternate pages for the International Offering: a front cover page, a "Certain United States Federal Tax Consequences to Non-United States Holders of Common Stock" section and a back cover page. All other pages of the Prospectus for the U.S. Offering are to be used for both the U.S. Offering and the International Offering. ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED DECEMBER 13, 1996 PROSPECTUS , 1997 ____________ SHARES [U.S. RENTALS, INC. LOGO] COMMON STOCK All of the _______ shares of common stock, $.01 par value per share (the "Common Stock"), offered hereby are being sold by U.S. Rentals, Inc. ("U.S. Rentals" or the "Company"). Of the ______ shares of Common Stock offered by the Company, _______ shares are being offered for sale in the United States and Canada by the U.S. Underwriters (the "U.S. Offering") and _______ shares are being offered for sale outside the United States and Canada in a concurrent offering by the International Managers (the "International Offering" and, together with the U.S. Offering, the "Offerings"), subject to transfers between the U.S. Underwriters and the International Managers. See "Underwriting." Prior to the Offerings, there has been no public market for the Common Stock. It is currently estimated that the initial public offering price will be between $_____ and $_____ per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. Application has been made to list the Common Stock on the New York Stock Exchange under the symbol "USR." SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. 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.
- -------------------------------------------------------------------------------- PRICE UNDERWRITING PROCEEDS TO THE DISCOUNTS AND TO THE PUBLIC COMMISSIONS(1) COMPANY(2) - -------------------------------------------------------------------------------- Per Share ....................... $ $ $ Total(3) ........................ $ $ $ - --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the several U.S. Underwriters and International Managers (collectively, the "Underwriters") against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company, estimated at $___________. (3) The Company has granted to the U.S. Underwriters a 30-day option to purchase up to ____________ additional shares of Common Stock solely to cover over-allotments, if any. If such option is exercised in full, the total Price to the Public, Underwriting Discounts and Commissions, and Proceeds to the Company will be $ , $ and $ , respectively. See "Underwriting." The shares of Common Stock are being offered by the several Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, subject to various prior conditions, including their right to reject any order in whole or in part. It is expected that delivery of share certificates will be made in New York, New York, on or about ____________, 1997. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MERRILL LYNCH & CO. SALOMON BROTHERS INC IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. [Graphics] 2 PROSPECTUS SUMMARY The following summary information is qualified in its entirety by the more detailed information, including "Risk Factors" and the Combined Financial Statements and notes thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated, the information in this Prospectus (i) gives effect to the Offering Related Transactions described below, (ii) assumes no exercise of the over-allotment option granted to the U.S. Underwriters as described in "Underwriting" and (iii) assumes an initial public offering price of $_______ per share of Common Stock of the Company (the "Common Stock"), the midpoint of the offering price range set forth on the cover of this Prospectus. Unless otherwise indicated, all references to the "Company" and "U.S. Rentals" refer to U.S. Rentals, Inc. and its predecessor (the "Predecessor"). See "Offering Related Transactions." THE COMPANY U.S. Rentals is the second largest equipment rental company in the United States based on 1995 rental revenues. The Company currently operates 78 equipment rental yards ("Profit Centers") in 11 states and generates more than 100,000 rental contracts per month from a diverse base of approximately 200,000 active customers including commercial and residential construction, industrial and homeowner customers. U.S. Rentals owns more than 60,000 pieces of rental equipment, comprised of approximately 600 equipment types, including aerial work platforms, forklifts, paving and concrete equipment, compaction equipment, air compressors, hand tools and plumbing, landscaping and gardening equipment. Management believes that the Company's fleet, which had a weighted average age of approximately 28 months and an original equipment cost of approximately $360 million at September 30, 1996, is one of the most comprehensive and well- maintained equipment rental fleets in the industry. U.S. Rentals also sells new equipment manufactured by nationally known companies, used equipment from its rental fleet, and rental-related merchandise, parts and supplies. The Company's strategic objective is to continue to grow profitably in both existing and new markets by acquiring rental yards, opening start-up rental yards and expanding its equipment fleet. U.S. Rentals continually evaluates attractive markets for expansion where a leading position can be created by acquiring an existing business or opening a new rental yard. The Company has grown internally through the expansion of its equipment fleet at existing locations and through the integration of 25 start-up and acquired equipment rental yards since January 1992. As a result of the Company's strategy, total revenues increased to $242.8 million in 1995 from $120.2 million in 1992, a compound annual growth rate of 26.4%. During the same period, operating income before non-rental depreciation increased to $43.5 million from $11.7 million, a compound annual growth rate of 55.0%. U.S. Rentals has been profitable in every year since 1984. U.S. Rentals attributes its leadership position in the equipment rental industry primarily to its innovative operating philosophy, which is based upon a decentralized management structure, a unique profit sharing program available to all levels of employees, a strong emphasis on personalized customer service, and maintenance of one of the most comprehensive and modern rental fleets of brand name equipment in the industry. The Company's bottoms-up management structure allows each Profit Center manager to tailor the equipment fleet to the local market, make equipment fleet purchases and sales, and pricing and staffing decisions. Corporate headquarters coordinates equipment purchases and supports Profit Center managers by providing capital, accounting, internal audit, risk management and other services to each Profit Center. The Company's unique incentive-based profit sharing program does not limit employee compensation. This program motivates Profit Center managers to act as entrepreneurs, to purchase only equipment that can be profitably deployed, to sell rental equipment from the fleet as maintenance costs increase or as rental demand for such equipment decreases and to minimize operating expenses. In 1995, employees earned approximately $9 million of profit sharing compensation, with managers of profitable locations earning on average approximately 110% of their base salaries. Management believes that its innovative operating and compensation philosophy significantly contributed to same Profit Center revenue growth of 23.5% and 20.0% in 1994 and 1995, respectively. 3 INDUSTRY The equipment rental industry serves a wide variety of commercial and residential construction, industrial and homeowner customers. Equipment available for rent ranges from small hand tools costing less than $100 to large earth-moving equipment costing over $200,000. According to a survey conducted for the Associated Equipment Distributors ("AED"), an industry trade association, the United States equipment rental industry has grown from approximately $610 million in annual revenues in 1982 to an estimated $15 billion in annual revenues in 1995, a compound annual growth rate of approximately 28%. Management believes that this growth reflects, in part, increased outsourcing trends by commercial and industrial construction customers that increasingly seek to reduce their capital invested in equipment and to reduce the costs associated with maintaining and servicing such equipment. While equipment users traditionally have rented equipment for specific purposes, such as supplementing capacity during peak periods and in connection with special projects, the convenience and cost-saving factors of utilizing rental equipment have encouraged customers to look to suppliers such as the Company as ongoing, comprehensive sources of equipment. Management believes that demand for rental equipment by the commercial and industrial segments will continue to increase as these customers continue to outsource non-core operations. A 1995 survey conducted by The CIT Group showed that commercial construction contractors intended to increase the percentage of equipment they rent without a purchase option to an estimated 8% of their total equipment requirements in 1996, from less than 5% in 1994. The equipment rental industry is highly fragmented and primarily consists of a large number of relatively small, independent businesses serving discrete local markets and a small number of multi-yard regional and multi- regional operators. Management believes that an estimated 85% of the approximately 20,000 equipment rental operators in the United States have fewer than five locations and, therefore, believes the equipment rental industry offers substantial consolidation opportunities for large, well-capitalized rental companies such as U.S. Rentals. Relative to smaller competitors, multi- regional operators such as the Company benefit from several competitive advantages, including access to capital, the ability to offer a broad range of modern equipment, purchasing power with equipment suppliers, sophisticated management information systems, national brand identity and the ability to service national accounts. In addition, multi-regional operators such as the Company are less sensitive to local economic downturns. BUSINESS STRATEGY U.S. Rentals' strategic objective is to continue its profitable growth in both existing and new markets by acquiring rental yards, opening start-up rental yards and expanding its equipment fleet. U.S. Rentals continually evaluates attractive markets for expansion where a leading position can be created by acquiring an existing business or opening a new rental yard. Primarily due to its entrepreneurial, decentralized organizational structure that focuses on bottoms-up management and an innovative profit-driven compensation program, the Company has been profitable each of the past 11 years. Specifically, U.S. Rentals' business strategy centers upon the following factors: Profitable Expansion. The Company strives to operate the most profitable equipment rental yards in each of its markets. Management believes U.S. Rentals is well positioned to be a leader in the consolidation of the highly fragmented equipment rental industry. Management believes that there are numerous attractive acquisition opportunities available and that its reputation, stability, access to capital, sophisticated management information systems and operating expertise provide competitive advantages in making acquisitions. These strengths allow U.S. Rentals to (i) quickly integrate acquired companies into its information systems and operating structure, (ii) realize synergies in the form of reduced overhead and lower costs through greater purchasing power and (iii) significantly enhance revenue by supplying acquired yards with additional equipment to optimize the mix of rental equipment and modernize the fleet. In addition, the Company will open new rental yards when a suitable business is not available for acquisition on favorable terms. Pursuant to this strategy, U.S. Rentals has acquired 13 rental yards and has opened 12 start-up rental yards since January 1, 1992. 4 Market Leadership. Management estimates that U.S. Rentals has a leading market position in most of the markets in which its Profit Centers have been open for more than one year. The Company has been able to create this leadership position by capitalizing on its substantial competitive advantages, which include offering personalized customer service, flexible rental terms, seven-days-a-week operating hours and a diverse and modern equipment rental fleet specifically tailored to the needs of local customers. Further, U.S. Rentals' historical strength has been in small and medium-sized markets that the Company believes are not well served by its competition. Extensive Customer Base. U.S. Rentals generates in excess of 100,000 customer contracts per month and has developed a diverse customer base that includes approximately 200,000 customers that have done business with the Company within the last six months. Historically, U.S. Rentals has served a large number of small and medium-sized customers, which the Company believes are not well served by its competition. The Company is also increasing its emphasis on multi-regional and national customers through its national accounts program. In addition to the Company's strong brand name recognition, comprehensive and modern equipment rental fleet, well-located rental yards and competitive pricing, management believes that the Company's customers value the convenience of U.S. Rentals Profit Centers' seven-days-a-week operating hours and flexible rental terms. Further, U.S. Rentals offers its customers "one-stop shopping" through the sale of rental-related merchandise, parts and supplies, sales of new and used equipment and maintenance and delivery services. Innovative, Decentralized Operating Philosophy. U.S. Rentals' decentralized operating philosophy encourages entrepreneurial behavior at each Profit Center and rewards managers and employees through a profit-driven incentive compensation program. Profit Center managers are given the necessary freedom and flexibility to operate their respective equipment rental yards to maximize profits. Each Profit Center manager is responsible for every aspect of a yard's operation, including establishing rental rates, selecting equipment and determining employee compensation. Managers and employees of profitable locations are rewarded by the Company's profit sharing program that is based on each location's operating income in excess of a pre-determined return on its net assets. In 1995, the Company's employees earned approximately $9 million in profit sharing compensation, with managers of profitable locations earning on average approximately 110% of their base salaries. Strong Internal Controls. U.S. Rentals balances its decentralized organizational structure and entrepreneurial operating philosophy with extensive systems and procedures to monitor and track the performance of each Profit Center. The Company's proprietary management information systems, including the Company's point-of-sale ("POS") system, allow management and Profit Center managers to review all aspects of each Profit Center's business and assist management in closely monitoring and quickly reacting to opportunities to increase profits at each Profit Center. These systems are used to open customer accounts, generate rental contracts, track equipment usage, report customer credit histories, compile accounts receivable aging reports and monitor monthly profitability. Seven internal auditors monitor and ensure adherence to the Company's well-established, disciplined and documented policies and procedures. In addition, six independent division credit offices review and approve all credit applications submitted to the Profit Centers. Management believes that the Company's strong internal controls and proprietary management information systems lower overall costs and increase profitability for the Company. Attracting, Motivating and Retaining the Best People in the Industry. Through its decentralized, entrepreneurial approach and innovative profit sharing program, the Company believes it has generally been able to attract, motivate and retain the most successful, experienced group of employees in the industry. Management believes U.S. Rentals' successful employees are more highly compensated than those of its competitors because of the Company's unique profit sharing program. As a result, the Company has had voluntary turnover of only two Profit Center managers during the past five years. In addition, U.S. Rentals' senior operating management, which has an average of 21 years of rental experience in the industry, is among the most experienced in the industry. William F. Berry, the Company's 44-year old President and Chief Executive Officer, has over 30 years of experience in the equipment rental business and has worked in virtually every operational capacity in the Company during his career. 5 The Company was incorporated in Delaware in November 1987 but has not had operations prior to the Offerings. The Company's principal executive offices are located at 1581 Cummins Drive, Suite 155, Modesto, California 95358, and its telephone number is (209) 544-9000. See "Offering Related Transactions." 6 THE OFFERINGS Common Stock offered hereby: U.S. Offering ................................. ______________ shares International Offering ........................ ______________ shares Total........................................ ______________ shares Common Stock to be outstanding after the Offerings.. ______________ shares/(a)/ Use of proceeds .................................... The estimated net proceeds to the Company of $__ million from the Offerings will be used to repay substantially all outstanding indebtedness of the Company and for working capital and general corporate purposes, including possible future acquisitions. See "Use of Proceeds." Proposed New York Stock Exchange symbol ............ USR
____________________ (a) Excludes ________ shares reserved for future issuance under the Company's 1997 Performance Award Plan (the "1997 Plan"). See "Management - Employment Agreements" and "- 1997 Performance Award Plan." 7 SUMMARY FINANCIAL DATA The following summary historical and pro forma financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Combined Financial Statements and notes thereto and the Unaudited Pro Forma Combined Financial Statements and notes thereto, included elsewhere in this Prospectus. The financial data for each of the nine- month periods ended September 30, 1995 and 1996 are not necessarily indicative of the results which may be expected for any other interim period or for a full year.
Nine Months Year Ended December 31, Ended September 30, -------------------------------------------------- ------------------------------ Pro Forma (unaudited) Pro Forma As Adjusted(a) As Adjusted(a) 1992 1993 1994 1995 1995 1995 1996 1996 ---- ---- ---- ---- ---- ---- ---- ---- (dollars in thousands, except per share amounts) Statement of Operations Data: Total revenues......................... $120,172 $143,582 $187,758 $242,847 $242,847 $172,854 $216,462 $216,462 Gross profit........................... 27,213 36,129 55,151 74,975 74,975 52,083 57,798 57,798 Operating income....................... 8,638 12,686 23,786 38,022 38,697 28,291 28,326 28,784 Other income (expense), net............ 782 (31) (242) (1,620) (1,840) (423) 342 (60) Interest income (expense), net......... 1,219 1,236 (1,060) (5,310) 127 (3,918) (5,716) (39) Income before income taxes............. 10,639 13,891 22,484 31,092 36,984 23,950 22,952 28,685 Income taxes........................... 529 405 499 468 15,163 379 316 11,586 Net income............................. 10,110 13,486 21,985 30,624 23,571 22,636 Pro forma net income(b)................ 6,318 8,181 13,263 18,312 21,821 14,105 13,676 17,099 Pro forma net income per share......... Balance Sheet Data (end of period): Rental equipment, net.................. $ 49,326 $ 65,606 $112,563 $152,848 $203,913 $203,913 Total assets........................... 102,085 125,390 187,525 245,184 321,390 305,523 Total debt............................. 31,392 48,419 84,751 105,696 176,008 500 Total stockholder's equity............. 51,739 48,608 57,951 83,077 90,976 247,229 Selected Operating Data: Profit Centers (end of period)......... 58 58 66 73 71 77 Gross equipment capital expenditures... $ 24,279 $ 42,892 $ 83,157 $ 88,861 $ 63,859 $ 98,904 Same Profit Center revenue growth(c)... 2.6% 16.0% 23.5% 20.0% 18.8% 17.4%
(a) Gives effect to (i) the Offering Related Transactions, (ii) the sale of ________ shares of Common Stock in the Offerings (assuming no exercise of the U.S. Underwriters' over-allotment option), at an assumed initial public offering price of $___ per share, (iii) a reduction in interest expense as a result of reductions in indebtedness upon application of a portion of the net proceeds to the Company from the Offerings, (iv) change from S corporation income tax expense to C corporation income tax expense and recording of the related deferred tax liabilities and (v) termination of deferred incentive compensation agreements with certain employees. See "Use of Proceeds," "Capitalization," "Offering Related Transactions," "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Combined Financial Statements and notes thereto and the Unaudited Pro Forma Combined Financial Statements and notes thereto included elsewhere in this Prospectus. (b) The pro forma net income reflects the estimated pro forma effect of income taxes as if the Predecessor had been taxed as a C corporation for all periods presented. See "Offering Related Transactions." (c) Same Profit Center revenue growth is calculated based on the change in total revenue of all Profit Centers open as of the beginning of the preceding fiscal year. 8 RISK FACTORS In addition to the other information in this Prospectus, the following factors should be considered carefully in evaluating the Company and its business before purchasing shares of Common Stock. ECONOMIC CONDITIONS; GEOGRAPHICAL CONCENTRATION The Company believes that the equipment rental industry is sensitive to economic and competitive conditions, including national, regional and local changes in construction and industrial activity. Most of U.S. Rentals' revenues are derived from customers in industries that are cyclical in nature and subject to changes in general economic conditions. The Company's operating results may be adversely affected by events or conditions in a particular region, such as regional economic slowdowns, adverse weather and other factors. Although the Company operates in 11 states, the Company derived approximately 64.3% and 16.5% of its total revenues from its California and Texas locations, respectively, in 1995. Thus, a significant economic downturn in California or Texas may have a material adverse effect on the Company's operating results. 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. There can be no assurance that changes in economic conditions will not have a material adverse effect on the Company's operating results and financial condition. COMPETITION The equipment rental industry is highly fragmented and very competitive. The Company's competitors include national and multi-regional companies, regional competitors that operate in a small number of states, small, independent businesses with a small number of local rental locations, and equipment vendors and dealers that both sell and rent equipment directly to customers. Certain of the Company's competitors may 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. There can be no assurance that manufacturers of the equipment that the Company rents will not commence or increase their efforts to rent or sell such equipment directly to the Company's customers. In addition, to the extent existing or future competitors seek to gain or retain market share by reducing prices, the Company might be required to lower its prices, thereby affecting 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. In addition, such competitors may also compete with the Company for start-up locations, thereby limiting the number of attractive locations for expansion. See "Business - Competition." RISKS RELATING TO GROWTH A principal component of the Company's strategy is to continue to grow profitably in both existing and new markets by acquiring rental yards, opening start-up rental yards and expanding its equipment fleet. The Company's future growth will be dependent upon a number of factors including 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, successfully integrate acquired businesses and start-up locations with the Company's existing operations, expand its customer base at existing and acquired locations and obtain financing to support expansion. Historically, the Company's acquired businesses and start-up locations generally have not been profitable until after their first year of operations and there can be no assurance that future acquired businesses and start-up locations will become profitable within their first several years of operations, if at all, or achieve the results anticipated by the Company. There can be no assurance that the Company will successfully expand or that any expansion will result in profitability. The failure to identify, evaluate and integrate acquired businesses and start-up locations effectively could adversely affect the Company's operating results, possibly causing adverse effects on the market price of the Common Stock. In addition, the results 9 achieved to date by the Company may not be indicative of its prospects or its ability to penetrate new markets, many of which may have different competitive conditions and demographic characteristics than the Company's current markets. Further, the Company's emphasis on long-term business strategy may result in reduced profitability in the short-term, and there can be no assurance that its long-term strategy will result in increased profitability. As a result of acquisitions and the opening of start-up locations, the Company will experience growth in the number of its employees, the scope of its operating and financial systems, and the geographic area of its operations. 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 invest further in its operating and financial systems and to continue to expand, 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, that the Company's current operating and financial systems and controls will be adequate as the Company grows, or that any steps taken to attract and retain such employees and to improve such systems and controls will be sufficient. See "Business - Business Strategy." DEPENDENCE ON KEY PERSONNEL The Company's future performance and development will depend to a great extent on the efforts and abilities of certain members of senior management, particularly William F. Berry, President and Chief Executive Officer, and John S. McKinney, Vice President - Finance and Chief Financial Officer. 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 uses several methods to retain key employees, including employment agreements with Messrs. Berry and McKinney. The Company's ongoing success also will depend on its continuing ability to attract, train and retain skilled personnel in all areas of its business. See "Management." CONTROL BY PRINCIPAL STOCKHOLDER Upon consummation of the Offerings, Richard D. Colburn (the "Principal Stockholder") will beneficially own approximately ___% of the outstanding Common Stock (___% if the U.S. Underwriters' over-allotment option is exercised in full), and will have the same percentage of the overall voting power of the Company. Accordingly, he will be able to elect all of the directors and exercise significant control over the business, policies and affairs of the Company. Similarly, he will be in a position to prevent a takeover of the Company by one or more third parties, or sell or otherwise transfer his stock to a third party, which could deprive the Company's stockholders of a control premium that might otherwise be realized by them in connection with an acquisition of the Company. See "Principal Stockholders." SEASONALITY AND QUARTERLY FLUCTUATIONS The Company's revenues and operating results historically have fluctuated from quarter to quarter, and the Company expects them to continue to do so in the future. These fluctuations have been and will be caused by a number of factors, including seasonal rental patterns of the Company's customers (principally due to the effect of weather on construction activities), general economic conditions in the Company's markets, the timing of acquisitions and the development of start-up locations and related costs, the effectiveness of integrating acquired businesses and start-up locations, and the timing of capital expenditures for new rental equipment. The Company incurs substantial costs in establishing or integrating newly acquired or start-up locations, and the profitability of a new location is generally lower in the first year of operations than in subsequent years of operations. These factors, among others, make it likely that in some future quarters 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 market price of the 10 Common Stock. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Quarterly Results." GOVERNMENTAL AND ENVIRONMENTAL REGULATION The Company's 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 and substantial penalties for violations of such laws. 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 the Company's 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 liability to third-parties even if the Company has been indemnified by third-parties against such liabilities. The Company dispenses petroleum products from above-ground storage tanks at a majority of its Profit Centers. The remainder of its Profit Centers dispense petroleum products from underground storage tanks. 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. 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 the performance of appropriate remediation at certain of its locations. The actual cost of remediating environmental conditions may be different from that anticipated by the Company due to the difficulty in estimating such cost and due to potential changes in the status of legislation and state reimbursement programs. The Company has identified certain of its facilities as having released hazardous substances, with remediation either ongoing or likely at three facilities. The Company also uses other hazardous materials in the ordinary course of its business. In addition, the Company generates and disposes of hazardous 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. See "Business - Governmental and Environmental Regulation." DEPENDENCE ON ADDITIONAL CAPITAL TO FINANCE GROWTH Expansion of the Company through acquisitions, development of start-up locations and growth at existing locations will require significant capital expenditures. To remain competitive, the Company must provide its customers with relatively new, high-quality, well-maintained equipment and rental facilities, requiring continual capital expenditures. The Company historically has financed capital expenditures, acquisitions and start-up locations primarily through internally generated cash flow, bank borrowings and proceeds from privately placed notes (the "Senior Notes"). To implement its strategy and meet its capital needs, the Company will incur indebtedness and may issue additional equity securities (which could result in dilution to the purchasers of Common Stock offered hereby). Such additional indebtedness would increase the Company'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 have a material adverse effect on the Company's results of operations and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 11 LIABILITY AND INSURANCE The Company's business exposes it to claims for personal injury or death resulting from the use of equipment rented or sold by the Company, from injuries caused in motor vehicle accidents in which Company delivery and service personnel are involved, as well as workers' compensation claims and other employment-related claims by the Company's employees. The Company carries substantial coverage for product liability, general and automobile liability and employment-related claims from various national insurance carriers. Such coverage ranges from $3 million to $50 million per occurrence. However, claims under $3 million and certain types of claims such as claims for punitive damages or for damages arising from intentional misconduct, which are often alleged in third party lawsuits, are generally not covered by the Company's insurance. There can be no assurance that existing or future claims will not exceed the level of the Company's insurance, that the Company will have sufficient capital available to pay any uninsured claims, or that its insurance will continue to be available on economically reasonable terms, if at all. See "Business - Legal Proceedings." ANTI-TAKEOVER PROVISIONS The Company's Restated Certificate of Incorporation (the "Certificate of Incorporation") and its Bylaws ("Bylaws") include provisions that could delay, defer or prevent a takeover attempt that may be in the best interest of stockholders. These provisions include the ability of the Board of Directors to issue up to 10,000,000 shares of preferred stock without any further stockholder approval, a provision under which only the Board of Directors may call meetings of stockholders, and certain advance notice procedures for nominating candidates for election to the Board of Directors. Issuance of preferred stock could also discourage bids for the Common Stock at a premium as well as create a depressive effect on the market price of the Common Stock. In addition, under certain conditions, Section 203 of the Delaware General Corporation Law (the "DGCL") would prohibit the Company from engaging in a "business combination" with an "interested stockholder" (in general, a stockholder owning 15% or more of the Company's outstanding voting stock) for a period of three years unless the business combination is approved in a prescribed manner. See "Description of Capital Stock." NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE Prior to the Offerings, there has been no public market for the Common Stock, and there can be no assurance that an active trading market will develop as a result of the Offerings or, if a trading market does develop, that it will be sustained or that the shares of Common Stock could be resold at or above the initial public offering price. The initial public offering price of the Common Stock offered hereby will be determined through negotiations between the Company and the representatives of the Underwriters and may not be indicative of the price at which the Common Stock will actually trade after the Offerings. After completion of the Offerings, the market price of the Common Stock could be subject to significant variation due to fluctuations in the Company's operating results, changes in earnings estimates by securities analysts, the degree of success the Company achieves in implementing its business strategy, changes in business or regulatory conditions affecting the Company, its customers or its competitors, and other factors. In addition, the stock market may experience volatility that affects the market prices of companies in ways unrelated to the operating performance of such companies, and such volatility may adversely affect the market price of the Common Stock. SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS Upon consummation of the Offerings, the Company will have outstanding an aggregate of ________ shares of Common Stock (_______ shares if the U.S. Underwriters' over-allotment option is exercised in full). Future sales of substantial amounts of Common Stock by the Principal Stockholder after the Offerings, or the perception that such sales could occur, could adversely affect the market price of the Common Stock. No prediction can be made as to the effect, if any, that future sales of shares, or 12 the availability of shares for future sale, will have on the market price of the Common Stock. In addition, the Company has the authority to issue additional shares of Common Stock and shares of one or more series of preferred stock. The Company also intends to register ______shares of Common Stock reserved for issuance under the 1997 Plan as soon as practicable following the consummation of the Offerings. The issuance of such shares could result in the dilution of the voting power of the shares of Common Stock purchased in the Offerings and could have a dilutive effect on earnings per share. The Company currently has no plans to designate and/or issue any shares of preferred stock. The Company and the Principal Stockholder, subject to certain exceptions described in "Underwriting," have agreed not to directly or indirectly offer, sell, contract to sell or otherwise dispose of or transfer any capital stock of the Company, or any security convertible into, or exercisable or exchangeable for, such capital stock, or in any other manner transfer all or a portion of the economic consequences associated with the ownership of such capital stock, or to cause a registration statement covering any shares of capital stock to be filed, for a period of 180 days after the date of this Prospectus, without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"). The Principal Stockholder through a holding company is entitled to certain rights to register his shares under the Securities Act of 1933, as amended (the "Securities Act"), for resale, at the expense of the Company. The Principal Stockholder may also sell shares under Rule 144 of the Securities Act. See "Management - 1997 Performance Award Plan," "Certain Transactions - Registration Rights," "Description of Capital Stock," "Principal Stockholders," "Shares Eligible for Future Sale" and "Underwriting." SUBSTANTIAL AND IMMEDIATE DILUTION The initial public offering price is substantially higher than the pro forma net tangible book value per share of Common Stock. Investors purchasing shares of Common Stock in the Offerings will be subject to immediate dilution of $________ per share in net tangible book value. See "Dilution." ABSENCE OF DIVIDENDS The Company does not anticipate declaring or paying any cash dividends on the Common Stock following the Offerings. Future dividend policy will depend on the Company's earnings, capital requirements, financial condition and other factors considered relevant by the Board of Directors. The Company's existing credit facility (the "Credit Facility") restricts, and the Company expects that its new credit facility (the "New Credit Facility") will restrict, the payment of cash dividends on the Common Stock. See "Dividend Policy" and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." FORWARD-LOOKING STATEMENTS This Prospectus contains forward-looking statements that can be identified by the use of forward-looking terminology such as "may," "will," "should," "expect," "anticipate," "estimate" or "continue" or the negative thereof or other variations thereon or comparable terminology. The matters set forth under "Risk Factors" constitute cautionary statements identifying important factors with respect to such forward-looking statements, including certain risks and uncertainties, that could cause actual results to differ materially from those in such forward-looking statements. 13 OFFERING RELATED TRANSACTIONS The Principal Stockholder has owned all of the outstanding stock of the Predecessor, USR Holdings, Inc. (formerly named U.S. Rentals, Inc.), a California corporation, since 1984 and has been its majority shareholder since 1975. The Predecessor has been in the equipment rental business since 1969. Prior to the consummation of the Offerings, the Predecessor will transfer all of its operating assets and associated liabilities to the Company in exchange for all of the Common Stock of the Company. The Predecessor will retain only non- operating assets and liabilities, including approximately $25.5 million of notes receivable from related parties and approximately $24.0 million of notes payable to related parties and certain other assets and liabilities. These transactions (collectively, the "Offering Related Transactions") are reflected in the pro forma financial information in this Prospectus, and all references to the Company or U.S. Rentals reflect these transactions, unless otherwise indicated. In 1985, the Predecessor elected to be treated as an S corporation under the Internal Revenue Code and comparable provisions of certain state tax laws and since then has paid no federal income tax. Accordingly, federal and California taxes were paid by the Principal Stockholder and the provision for income taxes in all historical periods in the Combined Financial Statements reflects certain state taxes. Upon consummation of the Offering Related Transactions, all operating assets and liabilities will be transferred to the Company, a C corporation. Income generated by the Company will be subject to federal income taxes and applicable state income taxes, as reflected in the unaudited pro forma financial information included herein. USE OF PROCEEDS The net proceeds to the Company from the sale of the _______ shares of Common Stock offered hereby, after deducting the estimated underwriting discounts and commissions and offering expenses payable by the Company, are estimated to be $____ million ($____ million if the U.S. Underwriters' over-allotment option is exercised in full), assuming an initial public offering price of $_____ per share (the midpoint of the offering range set forth on the cover page of this Prospectus). The Company intends to use approximately $151.5 million of the net proceeds from the Offerings to repay substantially all of its outstanding indebtedness, and approximately $____ million for working capital and general corporate purposes, including possible future acquisitions. See Note 5 of Notes to Combined Financial Statements for interest rates and maturity of indebtedness being repaid. DIVIDEND POLICY The Predecessor has paid dividends on its Common Stock to the Principal Stockholder from time to time, including, but not limited to, cash dividends to cover taxes payable by the Principal Stockholder due to the Predecessor's election to be treated as an S corporation. Such cash dividends totalled $3,642,000 and $5,498,000 in the years 1994 and 1995, respectively. Future dividend policy will depend on the Company's earnings, capital requirements, financial condition and other factors considered relevant by the Company's Board of Directors. The Company intends to retain future earnings to finance its operations and growth and does not anticipate paying any cash dividends on the Common Stock in the foreseeable future. The Credit Facility restricts, and the Company expects that its New Credit Facility will restrict, the payment of cash dividends on the Common Stock. See "Risk 14 Factors - Absence of Dividends" and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." 15 DILUTION As of September 30, 1996, the Company had a pro forma net tangible book value of $__________________, or $________ per share of Common Stock based upon ___________________ shares of Common Stock outstanding. Pro forma net tangible book value per share is determined by dividing the pro forma net tangible book value of the Company (total tangible assets less total liabilities), giving effect to the Offering Related Transactions on such date, by the number of shares of Common Stock outstanding as of such date. After giving effect to the Offering Related Transactions and the sale by the Company of the shares of Common Stock offered hereby at an assumed initial public offering price of $_____ per share (after deducting estimated underwriting discounts and commissions and offering expenses payable by the Company) and the application of the net proceeds therefrom, the Company's pro forma net tangible book value as of September 30, 1996 would have been $_______ million or $_____ per share of Common Stock. This represents an immediate increase in pro forma net tangible book value of $_____ per share to the Principal Stockholder and an immediate dilution of $____ per share to new investors purchasing shares in the Offerings. The following table illustrates this per share dilution to new investors: Initial public offering price per share......... $___________ Pro forma net tangible book value per share before the Offerings.................... $____________ Increase in pro forma net tangible book value per share attributable to new investors..................................... ____________ Pro forma net tangible book value per share after giving effect to the Offerings..................................... ____________ Pro forma net tangible book value dilution per share to new investors........... $ ============
The following table sets forth, as of September 30, 1996 on a pro forma basis, the number of shares purchased from the Company, the total consideration paid and the average price per share paid by the Principal Stockholder and new investors purchasing shares of Common Stock from the Company in the Offerings.
Shares Total Purchased Consideration ------------------ ----------------------- Average Price Number Percent Amount Percent Per Share Principal Stockholder..... . % $ . % $ -------- ------ ---------- ------ -------- New investors............. . . -------- ------ ---------- ------ -------- Total.................. 100.0% $ 100.0% ======== ====== ========== ======
The foregoing table excludes ______ shares reserved for future issuance under the 1997 Plan. See "Management - Employment Agreements" and "- 1997 Performance Award Plan." 16 CAPITALIZATION The following table sets forth the capitalization of the Company as of September 30, 1996 on (i) a historical basis, (ii) a pro forma basis to give effect to the Offering Related Transactions and taxation as a C corporation and (iii) a pro forma as adjusted basis to give effect to the sale by the Company of shares of Common Stock in the Offerings and the application of the estimated net proceeds therefrom. The capitalization of the Company should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Use of Proceeds," the Combined Financial Statements and notes thereto and Unaudited Pro Forma Financial Statements included elsewhere in this Prospectus.
AS OF SEPTEMBER 30, 1996 ------------------------------------------------- PRO FORMA ACTUAL(a) PRO FORMA AS ADJUSTED --------- --------- ----------- (in thousands) Cash and cash equivalents................................ $ 3,766 $ 3,766 $16,957 ======== ======== ======== Debt: Senior Notes........................................... $ 90,000 $ 90,000 $ -- Credit Facility........................................ 58,000 58,000 -- (b) Other debt............................................. 28,008 4,043 500 -------- -------- -------- Total debt............................................... 176,008 152,043 500 -------- -------- -------- Stockholder's equity: Common stock of the Predecessor........................ 699 -- -- Preferred stock of the Company, par value $.01 per share; 10,000,000 shares authorized, none issued or outstanding as adjusted.......................................... -- -- -- Common Stock of the Company, par value $.01 per share; 100,000,000 shares authorized and _______ shares issued and outstanding as adjusted(c)....................... -- -- Additional paid-in capital.............................. 13,186 88,036 256,036 Retained earnings....................................... 77,091 (5,541) (8,807) -------- -------- -------- Total stockholder's equity............................... 90,976 82,495 247,229 -------- -------- -------- Total capitalization................................ $266,984 $234,538 $247,729 ======== ======== ========
- ------------------ (a) Reflects the Predecessor's capitalization on a historical basis. (b) In conjunction with the Offerings, the Company expects to obtain a commitment letter with its existing lenders for the New Credit Facility which will provide availability of $300 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." (c) Excludes ______ shares reserved for future issuance under the 1997 Plan. See "Management - Employment Agreements" and "- 1997 Performance Award Plan." 17 SELECTED FINANCIAL DATA The following selected financial data for the years ended December 31, 1993, 1994 and 1995 and as of December 31, 1994 and 1995 have been derived from the Combined Financial Statements of the Predecessor, which have been audited by Price Waterhouse LLP, independent accountants, included elsewhere in this Prospectus. The selected financial data for the year ended December 31, 1992 and as of December 31, 1992 and 1993 have been derived from the combined financial statements of the Predecessor, which have been audited but are not contained herein. The financial data as of September 30, 1996 and for each of the nine-month periods ended September 30, 1995 and 1996 are unaudited. Interim results, in the opinion of management, include all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial information for such periods; however, such results are not necessarily indicative of the results which may be expected for any other interim period or for a full year. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Combined Financial Statements and notes thereto and the Unaudited Pro Forma Combined Financial Statements and notes thereto included elsewhere in this Prospectus.
Nine Months Year Ended December 31, Ended September 30, ----------------------------------------------------- ------------------------------- Pro Forma (unaudited) Pro Forma As Adjusted(a) As Adjusted(a) 1992 1993 1994 1995 1995 1995 1996 1996 -------- -------- -------- -------- -------- -------- -------- -------- (dollars in thousands, except per share amounts) Revenues: Rental revenue.......................... $104,802 $127,752 $167,589 $214,849 $214,849 $153,766 $183,233 $183,233 Rental equipment sales.................. 7,047 6,323 8,098 10,832 10,832 7,664 16,165 16,165 Merchandise and new equipment sales..... 8,323 9,507 12,071 17,166 17,166 11,424 17,064 17,064 -------- -------- -------- -------- -------- -------- -------- -------- Total revenues............................ 120,172 143,582 187,758 242,847 242,847 172,854 216,462 216,462 -------- -------- -------- -------- -------- -------- -------- -------- Cost of revenues: Rental equipment expense................ 27,590 33,298 42,034 51,370 51,370 37,205 45,708 45,708 Rental equipment depreciation........... 20,231 24,300 33,754 43,885 43,885 31,866 41,054 41,054 Cost of rental equipment sales.......... 2,443 2,298 2,946 4,693 4,693 2,587 6,785 6,785 Cost of merchandise and new equipment sales....................... 4,695 5,948 7,428 11,418 11,418 7,459 12,418 12,418 Direct operating expense................ 38,000 41,609 46,445 56,506 56,506 41,654 52,699 52,699 -------- -------- -------- -------- -------- -------- -------- -------- Total cost of revenues.................... 92,959 107,453 132,607 167,872 167,872 120,771 158,664 158,664 -------- -------- -------- -------- -------- -------- -------- -------- Gross profit.............................. 27,213 36,129 55,151 74,975 74,975 52,083 57,798 57,798 Selling, general and administrative expense................................. 15,515 20,149 27,273 31,440 30,765 19,867 24,086 23,628 Non-rental depreciation and amortization.. 3,060 3,294 4,092 5,513 5,513 4,105 5,386 5,386 -------- -------- -------- -------- -------- -------- -------- -------- Operating income.......................... 8,638 12,686 23,786 38,022 38,697 28,291 28,326 28,784 Other income (expense), net............... 782 (31) (242) (1,620) (1,840) (423) 342 (60) Interest income (expense), net............ 1,219 1,236 (1,060) (5,310) 127 (3,918) (5,716) (39) -------- -------- -------- -------- -------- -------- -------- -------- Income before income taxes................ 10,639 13,891 22,484 31,092 36,984 23,950 22,952 28,685 Income taxes.............................. 529 405 499 468 15,163 379 316 11,586 -------- -------- -------- -------- -------- -------- -------- -------- Net income................................ $ 10,110 $ 13,486 $ 21,985 $ 30,624 $ 21,821 $ 23,571 $ 22,636 $ 17,099 ======== ======== ======== ======== ======== ======== ======== ======== Pro forma net income(b)................... $ 6,318 $ 8,181 $ 13,263 $ 18,312 $ 21,821 $ 14,105 $ 13,676 $ 17,099 ======== ======== ======== ======== ======== ======== ======== ======== Pro forma net income per share ======== ======== Number of shares outstanding ======== ======== Balance Sheet Data (end of period): Rental equipment, net..................... $ 49,326 $ 65,606 $112,563 $152,848 $203,913 $203,913 Total assets.............................. 102,085 125,390 187,525 245,184 321,390 305,523 Total debt................................ 31,392 48,419 84,751 105,696 176,008 500 Total stockholder's equity................ 51,739 49,608 57,951 83,077 90,976 247,229 Selected Operating Data: Beginning Profit Centers.................. 53 58 58 66 66 73 Profit Centers added...................... 5 - 8 7 5 4 -------- -------- -------- -------- -------- -------- Ending Profit Centers..................... 58 58 66 73 71 77 ======== ======== ======== ======== ======== ======== Gross equipment capital expenditures...... $ 24,279 $ 42,892 $ 83,157 $ 88,861 $ 63,859 $ 98,904 Same Profit Center revenue growth(c)...... 2.6% 16.0% 23.5% 20.0% 18.8% 17.4%
(a) Gives effect to (i) the Offering Related Transactions, (ii) the sale of ________ shares of Common Stock in the Offerings (assuming the exercise of the U.S. Underwriters' over-allotment option) at an assumed initial public offering price of $__ per share, (iii) a reduction in interest expense as a result of reductions in indebtedness upon application of a portion of the net proceeds to the Company from the Offerings, (iv) change from S corporation income tax expense to C corporation income tax expense and recording of the related deferred tax liabilities and (v) termination of deferred incentive compensation agreements with certain employees. See "Use of Proceeds," "Capitalization," "Offering Related Transactions," "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Combined Financial Statements and notes thereto and the Unaudited Pro Forma Combined Financial Statements and notes thereto included elsewhere in this Prospectus. (b) The pro forma net income reflects the estimated pro forma effect of income taxes as if the Predecessor had been taxed as a C corporation for all periods presented. (c) Same Profit Center revenue growth is calculated based on the change in total revenues of all Profit Centers open as of the beginning of the preceding fiscal year. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Combined Financial Statements and notes thereto included elsewhere in this Prospectus. GENERAL U.S. Rentals attributes its profitability, long-term growth and market leadership to its innovative operating philosophy, which is based upon a decentralized management structure, a unique profit sharing program, a strong emphasis on personalized customer service and maintenance of one of the most comprehensive and modern rental fleets of brand name equipment in the industry. From 1992 through 1995, the Company's rental revenue has grown at a compound annual growth rate of 27.0% during which period industry rental revenue grew at a compound annual growth rate of 11.9%. In the same period, the Company's pro forma net income grew to $18.3 million from $6.3 million, a compound annual growth rate of 42.5%. U.S. Rentals has been profitable every year since 1984. The Company derives revenue from three sources: (i) rental of equipment, (ii) sales of used rental equipment and (iii) sales of new equipment and rental- related merchandise, parts and supplies. The Company's primary source of revenue is the rental of equipment to commercial and residential construction, industrial and homeowner customers. Growth in rental revenue is dependent on several factors, including demand for rental equipment, the amount of equipment available for rent, rental rates and general economic conditions. The Company also generates revenues from the service and delivery of equipment as well as income associated with a customer damage waiver offered at the time of rental. The Company's revenues derived from the sale of used equipment are affected by price, general economic conditions and U.S. Rentals' fleet maintenance practices. Revenue from the sale of merchandise and new equipment, including parts and convenience consumables sold at the Company's rental locations, are affected by demand for new and rental equipment. The Company has historically financed its acquisitions, start-up locations and capital expenditures primarily through internally generated cash flow, borrowings under the Credit Facility and proceeds from the Senior Notes. During the initial phase of an acquisition or start-up location, the Company typically incurs expenses related to installing or converting information systems, training employees and increased depreciation charges resulting from upgrading or expanding the rental fleet. As a result, the Company's acquired businesses and start-up locations generally have not been profitable until after their first year of operation. The Company has accounted for all its acquisitions since 1985 as asset purchases and records acquired rental equipment at fair market value. Past acquisitions have not resulted in the recognition of a significant amount of goodwill or other intangibles (including covenants not to compete). The Company anticipates that as it continues to implement its strategy, new locations will negatively impact the Company's net income until such locations achieve profitability. Cost of revenues consists primarily of rental equipment depreciation, merchandise and equipment costs, wages and benefits, facility occupancy costs, vehicle and other equipment costs and supplies. Of these costs, rental equipment depreciation has increased over the past several years due to the Company's substantial investment in new equipment of $83.2 million, $88.9 million and $98.9 million in years ended December 31, 1994 and 1995 and the nine-month period ended September 30, 1996, respectively. The Company records rental equipment expenditures at cost and depreciates equipment using the straight-line method over an estimated useful life of seven years, after giving effect to an estimated 10% salvage value. Rental equipment acquired prior to January 1, 1996 is depreciated on a straight-line basis over an estimated useful life of five years with no estimated salvage value. In 1985, the Predecessor elected to be treated as an S corporation under the Internal Revenue Code and comparable provisions of certain state tax laws, and since then has paid no federal income tax. Accordingly, federal and California taxes were paid by the Principal Stockholder and the provisions for income taxes represented income taxes payable to certain states. Upon the consummation of the Offering Related Transactions, 19 all operating assets and liabilities will be transferred to the Company, a C corporation. Income generated by the Company will be subject to federal income taxes and applicable state income taxes which will result in the recognition of a one-time deferred income tax liability and corresponding expense of $5.5 million during the period in which the Offering Related Transactions are consummated, presently expected to be the first quarter of 1997. Because of the Company's expected change in tax status, historical results of operations, including income tax expense, are not, in all cases, comparable to or indicative of future financial results. Pro forma net income reflects the estimated pro forma effect of income taxes as if the Company had been taxed as a C corporation. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain statement of operations data expressed as a percentage of total revenues:
Nine Months Ended Years Ended December 31, September 30, -------------------------------- -------------- 1992 1993 1994 1995 1995 1996 ------ ------ ------ ------ ------ ------ Revenues: Rental revenue............................................. 87.2% 89.0% 89.3% 88.5% 89.0% 84.7% Rental equipment sales..................................... 5.9 4.4 4.3 4.5 4.4 7.5 Merchandise and new equipment sales........................ 6.9 6.6 6.4 7.0 6.6 7.8 ----- ----- ----- ----- ----- ----- Total revenues.............................................. 100.0 100.0 100.0 100.0 100.0 100.0 Cost of revenues(a)......................................... 77.4 74.8 70.6 69.1 69.9 73.3 ----- ----- ----- ----- ----- ----- Gross profit................................................ 22.6 25.2 29.4 30.9 30.1 26.7 Selling, general and administrative expense................. 12.9 14.0 14.5 12.9 11.4 11.1 Non-rental depreciation(b).................................. 2.5 2.4 2.2 2.3 2.4 2.5 ----- ----- ----- ----- ----- ----- Operating income............................................ 7.2 8.8 12.7 15.7 16.3 13.1 Other income (expense), net................................. 0.7 (0.0) (0.1) (0.7) (0.2) 0.1 Interest income (expense), net.............................. 1.0 0.9 (0.6) (2.2) (2.3) (2.6) ----- ----- ----- ----- ----- ----- Income before income taxes.................................. 8.9 9.7 12.0 12.8 13.8 10.6 Income taxes(c)............................................. 0.4 0.3 0.3 0.2 0.2 0.1 ----- ----- ----- ----- ----- ----- Net income.................................................. 8.5% 9.4% 11.7% 12.6% 13.6% 10.5% ===== ===== ===== ===== ===== ===== Pro forma net income(c)..................................... 5.3% 5.7% 7.1% 7.5% 8.2% 6.3% ===== ===== ===== ===== ===== =====
____________________ (a) Includes rental equipment depreciation. (b) Excludes rental equipment depreciation. (c) The pro forma net income reflects the estimated pro forma effect of income taxes as if the Predecessor had been taxed as a C corporation for all periods presented. NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1995 Revenues. Total revenues for the nine months ended September 30, 1996 -------- increased 25.2% to $216.5 million from $172.9 million for the same period in the prior year. Rental revenue for the nine months ended September 30, 1996 increased 19.2% to $183.2 million, as compared to rental revenue of $153.8 million for the corresponding period in 1995. Of the $29.4 million increase in 1996, $25.1 20 million was due primarily to increased equipment rental fleet at existing locations. The remaining increase of approximately $4.3 million was primarily due to five new locations which were added subsequent to September 30, 1995. Rental equipment sales of $16.2 million increased 110.9% from 1995 sales of $7.7 million in the nine months ended September 30, 1995 due to increased customer demand and increased sales efforts. Merchandise and new equipment sales increased 49.4% in the nine months ended September 30, 1996 to $17.1 million or 7.8% of total revenues compared to $11.4 million or 6.6% of total revenues in the corresponding period in 1995, primarily due to increased rental revenue and demand for new equipment. Gross Profit. Gross profit for the nine months ended September 30, 1996 ------------ increased 11.0% to $57.8 million from $52.1 million for the same period in 1995 primarily due to increased rental revenue. Gross profit as a percentage of total revenues decreased to 26.7% from 30.1% for the nine months ended September 30, 1995. This decrease was due primarily to a 28.8% increase in rental equipment depreciation resulting from the increase in rental fleet, offset in part by a change in depreciation method for acquisitions subsequent to January 1, 1996 (see Note 1 to the Notes to Combined Financial Statements). In addition, rental equipment expense increased 22.9% due to the impact of increased rental volume. Gross profit was also impacted by an increase in direct operating expenses which increased 26.5% to $52.7 million as compared to $41.7 million in the corresponding period in 1995. The increase reflects staffing costs resulting from an increased number of rental yards and higher maintenance costs necessary to support the increased size of the rental fleet. Gross profit from sales of merchandise and new equipment increased 17.2% in the nine months ended September 30, 1996 as compared to the corresponding period in 1995 due to the impact of increased rental volume on the sale of merchandise and an increase in new equipment sales. Selling, General and Administrative Expense. Selling, general and ------------------------------------------- administrative expense for the nine months ended September 30, 1996 decreased to 11.1% of total revenues from 11.4% of total revenues in the corresponding period in 1995. Selling, general and administrative expense for the nine months ended September 30, 1996 increased 22.3% to $24.1 million compared to $19.7 million for the same period in 1995. The increase was primarily due to higher advertising, bad debt and liability insurance expenses, the total of which were partially offset by lower profit sharing expense in the nine months ended September 30, 1996 as compared to the corresponding period in 1995. Interest Expense. Interest expense net of interest income for the nine ---------------- months ended September 30, 1996 increased 45.9% to $5.7 million from $3.9 million in the same period in 1995. The increase was primarily the result of higher average borrowings under the Credit Facility and other debt outstanding of $114.7 million for the nine months ended September 30, 1996 as compared to $70.4 million for the same period in the prior year. However, this increase was partially offset by a decrease in the average interest rate to 6.7% in the nine months ended September 30, 1996 as compared to 7.4% in the corresponding period in 1995. Income Taxes. Under the Predecessor's election to be taxed as an S ------------ corporation for federal and state purposes, income tax expense was approximately 1.4% of pre-tax income for the nine months ended September 30, 1996, as compared to 1.6% of pre-tax income in 1995. On a pro forma C corporation basis, the Predecessor's effective tax rate and net income would have been 40.4% and $13.7 million for the nine months ended September 30, 1996 as compared to 41.1% and $14.1 million for the corresponding period in 1995. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 Revenues. Total revenues in 1995 increased 29.3% to $242.8 million from -------- $187.8 million in 1994. Rental revenue increased 28.2% to $214.8 million in 1995 compared to $167.6 million in 1994, primarily due to the increase in average equipment available for rental along with the full year impact of eight new locations added in 1994. In addition, a total of seven new locations were opened during 1995, providing $4.9 million in rental revenue. Rental equipment sales totaled $10.8 million in 1995, an increase of 33.8% from 1994 sales of $8.1 million. Merchandise and new equipment sales increased 42.2% in 1995 to $17.2 million or 7.0% of total revenues compared to $12.1 million or 6.4% of total revenues in 1994, due to the increase in rental revenue and as a result of a new program to sell new equipment to the Company's existing rental customer base. 21 Gross Profit. Gross profit in 1995 increased 35.9% to $75.0 million from ------------ $55.2 million in 1994 due primarily to increased rental revenue which was partially offset by a 30.0% increase in rental equipment depreciation. The increased depreciation resulted from a 42.1% increase in average equipment available for rental. The impact of an increase in the number of employees to staff the 15 new locations added in 1994 and 1995 and increased maintenance costs necessary to support the increased size of the rental fleet resulted in a 21.7% increase in 1995 direct operating expenses over the prior year. Gross profit from sales of merchandise and new equipment increased in dollar contribution by 23.8% in 1995 compared to 1994 but decreased to 2.4% of total revenues in 1995 from 2.5% of total revenues in 1994, due to increased rental volume. As a result of the above factors, gross profit as a percentage of total revenues increased to 30.9% from 29.4% for 1994. Selling, General and Administrative Expense. Selling, general and ------------------------------------------- administrative expense for 1995 increased 15.3% to $31.4 million or 12.9% of total revenues compared to $27.3 million or 14.5% of total revenues for 1994. The increase was due to a $1.7 million increase in profit sharing expense in 1995 and an increase in administrative costs associated with 15 locations added in 1994 and 1995. Other Income (Expense), Net. Other income (expense), net increased by $1.4 --------------------------- million to ($1.6) million as a result of charitable contributions made at the direction of the Principal Stockholder. Interest Expense. Interest expense net of interest income increased to ---------------- $5.3 million for 1995 from $1.1 million in 1994 primarily due to the issuance of a $10.0 million note payable to the Principal Stockholder in the form of a dividend at the end 1994 that bears interest at prime plus 5.0%. This note payable will not be transferred by the Predecessor to the Company. See "Offering Related Transactions." Interest expense also increased as a result of higher average borrowings under the Credit Facility and other debt outstanding of $72.5 million during 1995 as compared to $43.9 million in 1994 as well as an average interest rate change from 5.9% to 7.2%. Income Taxes. Under the Predecessor's election to be taxed as an S ------------- corporation for federal and state purposes, income tax expense was approximately 1.5% of pre-tax income for 1995. On a pro forma C corporation basis, the Predecessor's effective tax rate and net income would have been 41.1% and $18.3 million for 1995 as compared to 41.0% and $13.3 million for 1994. YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993 Revenues. Total revenues in 1994 increased 30.8% to $187.8 million from -------- $143.6 million in 1993. Rental revenue increased 31.2% to $167.6 million compared to $127.8 million for 1993, primarily due to an expansion of the existing rental fleet. In addition, a total of eight new locations that opened in 1994 provided $9.0 million in rental revenue. Rental equipment sales of $8.1 million increased 28.1% from 1993 sales of $6.3 million. Merchandise and new equipment sales increased 27.0% in 1994 to $12.1 million, as compared to $9.5 million in 1993 due to increased rental revenues. Gross Profit. Gross profit in 1994 increased 52.7% to $55.2 million from ------------ $36.1 million in 1993 due primarily to increased rental revenue which was partially offset by a 38.9% increase in rental equipment depreciation. Direct operating expenses decreased to 24.7% of total revenue in 1994 from 29.0% of total revenue in 1993. The improvement was due to the fixed component of direct operating expenses such as facility and labor costs that do not increase with increased revenue from existing locations. Headcount at the Company's rental yards increased 19% in 1994. Gross profit from sales of merchandise and new equipment remained constant at 2.5% of total revenue in both 1994 and 1993 but increased in dollar contribution by 30.5% in 1994 due to the impact of increased rental volume. As a result of the above factors, gross profit as a percentage of total revenues increased to 29.4% in 1994 from 25.2% in 1993. Selling, General and Administrative Expense. Selling, general and ------------------------------------------- administrative expense for 1994 increased 35.4% to $27.3 million or 14.5% of total revenues as compared to $20.1 million or 14.0% of total revenues in 1993 as a result of increased rental and sales volume. The increase was due primarily to a $4.2 million increase in profit sharing expense in 1994. 22 Interest Expense. Interest expense net of interest income was $1.1 million ---------------- for the year ended December 31, 1994 compared to net interest income of $1.2 million in 1993 primarily due to the issuance of a $10.0 million note payable to the Principal Stockholder in the form of a dividend at the end of 1993 that bears interest at prime plus 5.0%. Interest expense also increased as a result of higher average borrowings under the Credit Facility during 1994 required to facilitate increases in rental fleet. Interest expense was also affected by higher average interest costs on the Credit Facility as the average rate increased from 4.68% in 1993 to 5.9% in 1994. Income Taxes. Under the Predecessor's election to be taxed as an S ------------ corporation for federal and state purposes, income tax expense was approximately 2.2% of taxable income. On a pro forma C corporation basis, the Predecessor's effective tax rate and net income would have been 41.0% and $13.3 million for the year ended December 31, 1994 as compared to 41.1% and $8.2 million for 1993. LIQUIDITY AND CAPITAL RESOURCES The Company has primarily used cash to purchase rental equipment, invest in acquired and start-up rental yards and pay dividends to the Principal Stockholder. The Company historically has financed its cash requirements primarily through net cash provided by operating activities, borrowings under the Credit Facility and the issuance of Senior Notes. During the nine months ended September 30, 1996, the Company's operating activities provided net cash flow of $43.9 million as compared to $44.7 million for the same period in the prior year. The principal causes for the variation in cash flow between the periods were increased depreciation attributable to a larger rental equipment fleet to support growth in revenues, partially offset by a decrease in accounts payable in 1996 attributable to shorter payment terms from suppliers in exchange for pricing discounts to obtain lower rental equipment purchase prices. For the years ended December 31, 1994 and 1995, net cash provided by operating activities was $65.4 million and $75.0 million, respectively. The net increase was attributable primarily to increased net income from higher revenues and an increase in depreciation, partially offset by a smaller increase in accounts payable in 1995 as compared to 1994. Net cash provided by operating activities excludes proceeds from the sale of equipment, which were $16.2 million for the nine months ended September 30, 1996 compared to $7.7 million for the same period in the prior year. Net cash used in investing activities was $97.7 million in the nine months ended September 30, 1996 as compared to $64.2 million in the same period for the prior year. The principal causes for the variation in cash flow between the periods were increased purchases of rental equipment and investment in property and equipment, partially offset by increased sales of rental equipment. Purchases of rental equipment for the nine months ended September 30, 1996 were $98.9 million as compared to $63.9 million for the corresponding period in 1995. During the years ended December 31, 1994 and 1995, the Company's net cash used in investing activities increased from $86.5 million to $89.9 million, primarily as a result of an increase in purchases of rental equipment. Net cash provided by financing activities was $54.1 million for the nine months ended September 30, 1996 as compared to $17.8 million for the nine months ended September 30, 1995. The principal cause for the variation between periods was borrowing of $29.0 million under the Credit Facility in 1996, compared to net payments of $26.9 million in 1995, partially offset by decreases in issuances of Senior Notes and an increase in dividends paid in 1996 as compared to 1995. In 1995, cash flow provided by financing activities decreased to $15.6 million from $22.1 million in 1994. The principal causes for the variation between the periods were payments on the Credit Facility in 1995 of $28.2 million as compared to net proceeds under the Credit Facility in 1994 of $35.7 million, partially offset by proceeds from issuances of Senior Notes in 1995. The principal sources of the Company's liquidity have been cash flow from operations, issuances of Senior Notes and borrowings under the Credit Facility. The Company intends to use a portion of the net proceeds from the Offerings to repay all of the Senior Notes and borrowings under the Credit Facility. In conjunction with the Offerings, the Company expects to obtain a commitment letter with its existing lenders 23 for the New Credit Facility which will provide availability of up to $300 million. The Credit Facility contains, and the New Credit Facility is expected to contain, covenants which restrict, among other things, dividends and acquisitions exceeding certain thresholds without prior written consent. The Company believes that cash flow from operations, proceeds from the Offerings and together with availability under the New Credit Facility will be sufficient to support its operations and capital liquidity requirements for at least the next 12 months. The Company incurs capital expenditures to expand the fleet at existing equipment rental yards, to satisfy the equipment needs of current and new customers, to provide for the equipment needs of new and acquired rental equipment yards and to maintain and expand the rental fleet at existing rental yards. As of September 30, 1996, the Company had open purchase orders of $5.8 million for new equipment. Such purchases will be financed through the sources of funds described above. The Company has no minimum purchase commitments for equipment. Management has budgeted $81.5 million of gross fleet capital expenditures (exclusive of acquisitions) in 1997. These expenditures are anticipated to be partially offset by expected proceeds from the sale of used equipment of approximately $29.4 million. The Company also expects to spend approximately $10.0 million in 1997 on non-rental equipment capital expenditures consisting of vehicles, buildings, land and furniture and fixtures. INFLATION AND GENERAL ECONOMIC CONDITIONS Although the Company cannot accurately anticipate the effect of inflation on its operations, the Company does not believe that inflation has had, or is likely in the foreseeable future to have, a material effect on its results of operations or financial condition. The Company's operating results may be adversely affected by events or conditions in a particular region, such as economic conditions, 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 the Credit Facility. See "Risk Factors - Economic Conditions; Geographical Concentration" and "- Seasonality and Quarterly Fluctuations." QUARTERLY RESULTS The following table sets forth certain unaudited statement of operations data for the quarters in the year ended December 31, 1995 and the nine months ended September 30, 1996. The unaudited quarterly information has been prepared on the same basis as the annual information and, in management's opinion, includes all adjustments necessary to present fairly the information for the quarters presented.
1995 Quarters Ended 1996 Quarters Ended ----------------------------------------- ------------------------------ Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 ------- ------- -------- ------- ------- ------- -------- (in thousands) Total revenues........................ $45,866 $58,144 $68,844 $69,993 $58,643 $71,172 $86,647 Gross profit.......................... 10,904 18,448 22,731 22,892 14,262 18,292 25,244 Operating income...................... 5,122 10,370 12,799 9,731 5,575 8,714 14,037 Other income (expense), net........... (145) (260) (18) (1,197) 134 74 134 Interest income (expense), net........ (1,216) (1,310) (1,392) (1,392) (1,475) (1,822) (2,419) Income before income taxes............ 3,761 8,800 11,389 7,142 4,234 6,966 11,752 Income tax expense.................... 24 308 47 89 29 131 156 Net income............................ 3,737 8,492 11,342 7,053 4,205 6,835 11,596 Pro forma net income(a)............... 2,225 5,163 6,717 4,207 2,523 4,151 7,002
____________________ (a) Reflects the estimated pro forma effect of income taxes as if the Predecessor had been taxed as a C corporation for all periods presented. 24 The Company's revenues and operating results historically have fluctuated from quarter to quarter, and the Company expects that they will continue to do so in the future. These fluctuations have been caused by a number of factors, including seasonal rental patterns of the Company's customers (principally due to the effect of weather on construction activity), general economic conditions in the Company's markets, the timing of acquisitions and the development of start-up locations and related costs, the effectiveness of integrating acquired businesses and start-up locations and the timing of capital expenditures for fleet expansion. The Company incurs substantial costs in establishing or integrating newly acquired and start-up locations. Historically, the Company's acquired businesses and start-up locations generally have not been profitable until after their first year of operation. The operating results for any historical quarter are not necessarily indicative of results for any future period. See "Risk Factors -- Seasonality and Quarterly Fluctuations." 25 BUSINESS GENERAL U.S. Rentals is the second largest equipment rental company in the United States based on 1995 rental revenues. The Company currently operates 78 Profit Centers in 11 states and generates more than 100,000 rental contracts per month from a diverse base of approximately 200,000 active customers including commercial and residential construction, industrial and homeowner customers. U.S. Rentals owns more than 60,000 pieces of rental equipment, comprised of approximately 600 equipment types, including aerial work platforms, forklifts, paving and concrete equipment, compaction equipment, air compressors, hand tools and plumbing, landscaping and gardening equipment. Management believes that the Company's fleet, which had a weighted average age of approximately 28 months and an original equipment cost of approximately $360 million at September 30, 1996, is one of the most comprehensive and well-maintained equipment rental fleets in the industry. U.S. Rentals also sells new equipment manufactured by nationally known companies, used equipment from its rental fleet, and rental-related merchandise, parts and supplies. The Company's strategic objective is to continue to grow profitably in both existing and new markets by acquiring rental yards, opening start-up rental yards and expanding its equipment fleet. U.S. Rentals continually evaluates attractive markets for expansion where a leading position can be created by acquiring an existing business or opening a new rental yard. The Company has grown internally through the expansion of its equipment fleet at existing locations and through the integration of 25 start-up and acquired equipment rental yards since January 1992. As a result of the Company's strategy, total revenues increased to $242.8 million in 1995 from $120.2 million in 1992, a compound annual growth rate of 26.4%. During the same period, operating income before non-rental depreciation increased to $43.5 million from $11.7 million, a compound annual growth rate of 55.0%. U.S. Rentals has been profitable in every year since 1984. U.S. Rentals attributes its leadership position in the equipment rental industry primarily to its innovative operating philosophy, which is based upon a decentralized management structure, a unique profit sharing program available to all levels of employees, a strong emphasis on personalized customer service, and maintenance of one of the most comprehensive and modern rental fleets of brand name equipment in the industry. The Company's bottoms-up management structure allows each Profit Center manager to tailor the equipment fleet to the local market, make equipment fleet purchases and sales, and pricing and staffing decisions. Corporate headquarters coordinates equipment purchases and supports Profit Center managers by providing capital, accounting, internal audit, risk management and other services to each Profit Center. The Company's unique incentive-based profit sharing program does not limit employee compensation. This program motivates Profit Center managers to act as entrepreneurs, to purchase only equipment that can be profitably deployed, to sell rental equipment from the fleet as maintenance costs increase or as rental demand for such equipment decreases, and to minimize operating expenses. In 1995, employees earned approximately $9 million of profit sharing compensation, with managers of profitable locations earning on average approximately 110% of their base salaries. Management believes that its innovative operating and compensation philosophy significantly contributed to same Profit Center revenue growth of 23.5% and 20.0% in 1994 and 1995. INDUSTRY The equipment rental industry serves a wide variety of commercial and residential construction, industrial and homeowner customers. Equipment available for rent ranges from small hand tools costing less than $100 to large earth-moving equipment costing over $200,000. According to a survey conducted for the Associated Equipment Distributors ("AED"), an industry trade association, the United States equipment rental industry has grown from approximately $610 million in annual revenues in 1982 to an estimated $15 billion in annual revenues in 1995, a compound annual growth rate of approximately 28%. Management believes that this growth reflects, in part, increased outsourcing trends by commercial and industrial construction customers that increasingly seek to reduce their capital invested in equipment, and to reduce the costs associated with maintaining and servicing such equipment. While equipment users 26 traditionally have rented equipment for specific purposes, such as supplementing capacity during peak periods and in connection with special projects, the convenience and cost-saving factors of utilizing rental equipment have encouraged customers to look to suppliers such as the Company as ongoing, comprehensive sources of equipment. Management believes that demand for rental equipment by the commercial and industrial segments will continue to increase as these customers continue to outsource non-core operations. A 1995 survey conducted by The CIT Group showed that commercial construction contractors intended to increase the percentage of equipment they rent without a purchase option to an estimated 8% of their total equipment requirements in 1996, from less than 5% in 1994. The equipment rental industry is highly fragmented and primarily consists of a large number of relatively small, independent businesses serving discrete local markets and a small number of multi-yard regional and multi-regional operators. Management believes that an estimated 85% of the approximately 20,000 equipment rental operators in the United States have fewer than five locations and, therefore, believes the equipment rental industry offers substantial consolidation opportunities for large, well-capitalized rental companies such as U.S. Rentals. Relative to smaller competitors, multi-regional operators such as the Company benefit from several competitive advantages, including access to capital, the ability to offer a broad range of modern equipment, purchasing power with equipment suppliers, sophisticated management information systems, national brand identity and the ability to service national accounts. In addition, multi-regional operators such as the Company are less sensitive to local economic downturns. BUSINESS STRATEGY U.S. Rentals' strategic objective is to continue its profitable growth by acquiring rental yards, opening start-up rental yards in both existing and new markets and expanding its equipment fleet. U.S. Rentals continually evaluates attractive markets for expansion where a leading position can be created by acquiring an existing business or opening a new rental yard. Primarily due to its entrepreneurial, decentralized organizational structure that focuses on bottoms-up management and an innovative profit-driven compensation policy, the Company has been profitable each of the past 11 years. Specifically, U.S. Rentals' business strategy centers upon the following factors: Profitable Expansion. The Company strives to operate the most profitable equipment rental yards in each of its markets. Management believes U.S. Rentals is well positioned to be a leader in the consolidation of the highly fragmented equipment rental industry. Management believes that there are numerous attractive acquisition opportunities available and that its reputation, stability, access to capital, sophisticated management information systems and operating expertise provide competitive advantages in making acquisitions. These strengths allow U.S. Rentals to (i) quickly integrate acquired companies into its information systems and operating structure, (ii) realize synergies in the form of reduced overhead and lower costs through greater purchasing power and (iii) significantly enhance revenue by supplying acquired yards with additional equipment to optimize the mix of rental equipment and modernize the fleet. In addition, the Company will open new rental yards when a suitable business is not available for acquisition on favorable terms. Pursuant to this strategy, U.S. Rentals has acquired 13 rental yards and has opened 12 start-up rental yards since January 1, 1992. The Company continually analyzes potential acquisitions of rental yards but is not a party to any material acquisition agreement. See "Risk Factors -- Risks Relating to Growth" and "-- Dependence on Additional Capital to Finance Growth." Market Leadership. Management estimates that U.S. Rentals has a leading market position in most of the markets in which its Profit Centers have been open for more than one year. The Company has been able to create this leadership position by capitalizing on its substantial competitive advantages, which include offering personalized customer service, flexible rental terms, seven-days-a-week operating hours and a diverse and modern equipment rental fleet specifically tailored to the needs of local customers. Further, U.S. Rentals' historical strength has been in small and medium-sized markets that the Company believes are not well served by its competition. 27 Extensive Customer Base. U.S. Rentals generates in excess of 100,000 customer contracts per month and has developed a diverse customer base that includes approximately 200,000 customers that have done business with the Company within the last six months. U.S. Rentals' historical strength has been with small and medium-sized customers, which the Company believes are not well served by its competition. The Company is also increasing its emphasis on multi-regional and national customers through its national accounts program. In addition to the Company's strong brand name recognition, comprehensive and modern equipment rental fleet, well-located rental yards and competitive pricing, management believes that the Company's customers value the convenience of U.S. Rentals Profit Centers' seven-days-a-week operating hours and flexible rental terms. Further, U.S. Rentals offers its customers "one-stop shopping" through the sale of rental-related merchandise, parts and supplies, sales of new and used equipment and maintenance and delivery services. Innovative, Decentralized Operating Philosophy. U.S. Rentals' decentralized operating philosophy encourages entrepreneurial behavior at each Profit Center and rewards managers and employees through a profit-driven incentive compensation program. Profit Center managers are given the necessary freedom and flexibility to operate their respective equipment rental yards to maximize profits. Each Profit Center manager is responsible for every aspect of a yard's operation, including establishing rental rates, selecting equipment and determining employee compensation. Managers and employees of profitable locations are rewarded by the Company's profit sharing program that is based on each location's operating income in excess of a pre-determined return on its net assets. In 1995, the Company's employees earned approximately $9 million in profit sharing compensation, with managers of profitable locations earning on average approximately 110% of their base salaries. Strong Internal Controls. U.S. Rentals balances its decentralized organizational structure and entrepreneurial operating philosophy with extensive systems and procedures to monitor and track the performance of each Profit Center. The Company's proprietary management information systems, including the Company's POS system, allow management and Profit Center managers to review all aspects of each Profit Center's business and assist management in closely monitoring and quickly reacting to opportunities to increase profits at each Profit Center. These systems are used to open customer accounts, generate rental contracts, track equipment usage, report customers' credit histories, compile accounts receivable aging reports, and monitor monthly profitability. Seven internal auditors monitor and ensure adherence to the Company's well- established, disciplined and documented policies and procedures. In addition, six independent division credit offices review and approve all credit applications submitted to the Profit Centers. Management believes that the Company's strong internal controls and proprietary management information systems result in lower overall costs and increase profitability for the Company. Attracting, Motivating and Retaining the Best People in the Industry. Through its decentralized, entrepreneurial approach and innovative profit sharing program, the Company believes it has generally been able to attract, motivate and retain the most successful, experienced group of employees in the industry. Management believes U.S. Rentals' successful employees are more highly compensated than those of its competitors because of the Company's unique profit sharing program. As a result, the Company has had voluntary turnover of only two Profit Center managers during the past five years. In addition, U.S. Rentals' senior operating management, which has an average of 21 years of rental experience in the industry, is among the most experienced in the industry. William F. Berry, the Company's 44-year-old President and Chief Executive Officer, has over 30 years of experience in the equipment rental business and has worked in virtually every operational capacity in the Company during his career. See "Risk Factors -- Risks Relating to Growth" and "-- Dependence on Key Personnel." CUSTOMERS U.S. Rentals estimates that more than 200,000 customers, ranging from Fortune 100 companies to small contractors and homeowners, have done business with the Company in the last six months. During 1995, no one customer accounted for more than 1% of the Company's total revenues, and the top 10 customers represented less than 4% of total revenues. Customers look to U.S. Rentals as an ongoing, 28 comprehensive source of rental equipment because of the economic advantages and convenience of renting, as well as the high costs associated with equipment ownership. The Company classifies its customer base into the following categories: (i) commercial and residential construction, including contractors; (ii) industrial, including manufacturers, petrochemical facilities, chemical companies, paper mills, and public utilities; and (iii) homeowners and others. In addition to maintaining its historically strong relationships with small and medium-sized customers, the Company is increasing its emphasis on larger national and multi-regional accounts. Management estimates that in 1995, commercial and residential construction, industrial, and homeowner and other customers accounted for approximately 67%, 17% and 16%, respectively, of the Company's total revenues. Commercial and Residential Construction. U.S. Rentals' commercial and residential construction customers include national and regional contractors and subcontractors involved in commercial and residential construction projects such as residential developments, apartment buildings, schools, hospitals, airports, roads, bridges and highways, chemical plants and other manufacturing facilities. U.S. Rentals' commercial construction customers range from Fortune 100 companies to local independent businesses. A 1995 survey conducted by The CIT Group estimated that contractors intended to increase the percentage of equipment they rent without a purchase option to an estimated 8% of their total equipment requirements in 1996 from less than 5% in 1994. Management believes U.S. Rentals is one of the largest suppliers of rental equipment to contractors in its markets and is well positioned to benefit from the increased rental of equipment by contractors and other commercial construction customers. Industrial. The Company's industrial customers, many of which operate 24 hours per day, utilize U.S. Rentals to outsource equipment requirements to reduce their capital investment and minimize the ongoing maintenance, repair and storage costs associated with equipment ownership. Management believes that, as the second largest equipment rental company in the United States based on 1995 rental revenues, the Company is well-positioned to take advantage of the increasing trend among customers to outsource equipment needs. Generally, U.S. Rentals' industrial customers tend to rent for longer periods of time than commercial construction customers, contractors or homeowners. While historically not a primary focus, the Company believes its recently increased emphasis on national and multi-regional accounts will enhance its ability to provide an ongoing, comprehensive supply of equipment to industrial customers. Homeowners and Others. U.S. Rentals rents landscaping, plumbing, remodeling and home improvement tools to homeowners and other customers. The Company believes these customers value the convenience of U.S. Rentals' seven- days-a-week operating hours, pick up and delivery service and flexible rental terms. Rentals to homeowners are often for periods as short as two hours and provide higher gross margins relative to other customer segments. The Company believes that its rental yards, which are generally highly visible and well- located, its comprehensive and well-maintained rental fleet and the Company's brand name recognition provide a significant competitive advantage in attracting the homeowner segment of the market. PRODUCTS AND SERVICES Equipment rental represents U.S. Rentals' principal line of business. In 1995, equipment rental revenue together with rental-related revenue such as repair services, delivery and damage waiver income accounted for approximately 89% of the Company's total revenues. U.S. Rentals also acts as a distributor of new equipment on behalf of certain nationally known equipment manufacturers. Revenues from the sale of parts, merchandise and new equipment accounted for approximately 7% of U.S. Rentals' total revenues in 1995. The balance of U.S. Rentals' 1995 total revenues (4%) was derived from the sale of used rental equipment. Rental Equipment. U.S. Rentals rents over 600 different types of equipment, and management believes that the Company's rental fleet, which consists of more than 60,000 pieces of equipment, is one of the most comprehensive and well-maintained fleets in the equipment rental industry. The original equipment cost of the Company's rental fleet was approximately $360 million at September 30, 1996. 29 Five categories of equipment represented approximately 75% of U.S. Rentals' total rental equipment fleet (based on original equipment cost) as of December 31, 1995: (i) earth-moving equipment (23%); (ii) aerial work platforms (17%); (iii) forklifts (17%); (iv) trucks (12%); and (v) compaction rollers (6%). The mix of rental equipment at each of U.S. Rentals' 78 Profit Centers is tailored to meet the demands of the local customer base. U.S. Rentals seeks to maintain a modern, efficient rental fleet through regular sales of used rental equipment and ongoing capital investment in new rental equipment. At September 30, 1996, the weighted average age of the Company's rental equipment fleet was approximately 28 months. In addition, management believes U.S. Rentals has one of the most advanced preventive maintenance programs in the equipment rental industry. This program extends the useful life of the Company's rental equipment, typically resulting in higher resale prices. U.S. Rentals also generates revenues from maintenance service for its customers that own equipment and from delivery charges, particularly for larger pieces of equipment. Sales of Used Equipment. U.S. Rentals routinely sells used rental equipment to adjust the size and composition of its rental fleet to changing market conditions and as part of its ongoing commitment to maintain a new, top quality fleet. The Company achieves favorable sales prices for its used equipment due to its strong preventive maintenance program and its practice of selling used equipment before it becomes irreparable or obsolete. The incentives created by the Company's profit sharing program motivate Profit Center managers to optimize the timing of sales of used rental equipment by taking into account maintenance costs, rental demand patterns and resale prices. The Company sells used equipment to its existing rental customers, as well as to domestic and international used equipment buyers. Sales of Parts and Merchandise. U.S. Rentals also sells a wide range of parts, supplies and merchandise, including diamond and regular saw blades, drill bits, shovels, goggles, hard hats and other safety gear and coolers, as a complement to its core equipment rental business. This sales activity allows the Company to attract and retain customers by offering the convenience of "one- stop shopping." Sales of New Equipment. In addition to equipment rental, the Company is a distributor for certain equipment manufacturers, including Upright and Genie Industries (booms and high reach equipment), Sky Trak (rough terrain forklifts and skid-steer loaders), LeRoi and Atlas-Copco (air compressors), and Multiquip and Ingersoll Rand (earth compaction equipment and portable generators). U.S. Rentals is also the exclusive distributor for certain manufacturers in several of its markets. The Company believes that the volume of its equipment purchases creates significant purchasing power with suppliers, which leads to favorable prices and terms on equipment purchased for its rental fleet and for sale as new equipment. The Company's ability to sell new equipment offers flexibility to its customers while enhancing U.S. Rentals' customer relations. OPERATIONS The Company's equipment rental yards occupy an average of over 2.2 acres and include: (i) a customer service center and showroom displaying selected rental equipment, new equipment offered for sale and related merchandise; (ii) an equipment service area; and (iii) storage facilities for equipment requiring protection from inclement weather. Each Profit Center is staffed by an average of approximately 20 full-time employees and two part-time employees, including a manager, assistant manager, sales assistants, back office clerks, truck drivers, mechanics and yard personnel. Each equipment rental yard offers a broad range of equipment for rental, with the actual equipment mix tailored to meet the anticipated needs of the customers in each location. The rental yard employees' knowledge of the equipment enables them to recommend the best equipment for a customer's particular application. The Company's yards are open seven days a week and provide customers with 24-hour maintenance, repair and support services, including service at the customer's job site. Each Profit Center manager is responsible for every aspect of the yard's operation, including establishing rental rates, selecting equipment, and determining employee compensation at such location. The Company's 78 Profit Center managers have an average of 16 years of rental experience in the industry. 30 The Company operates all of its Profit Centers under the name USRentals(R). SALES, MARKETING AND ADVERTISING U.S. Rentals strives to create a partnership with each customer in order to satisfy all the customer's equipment needs. As a result of the Company's innovative profit sharing program, employees are motivated to know the customers in their markets and tailor the equipment fleet to local demand patterns. Since U.S. Rentals believes that many customers choose to rent in order to reduce their capital investment and maintenance costs and to maximize flexibility, the Company offers flexible rental terms to its customers. Customers may rent equipment by the hour, day, week or month, with the periodic cost declining as the duration of the rental term increases. The Company, through its six regional credit offices, offers credit to its commercial and residential construction and industrial customers. The Company markets its products and value-added services locally primarily through its sales force of approximately 165 field-based salespersons and approximately 865 store-based customer service representatives. The Company's sales force is knowledgeable about all of U.S. Rentals' services and products, including the rental of equipment, sales of new and used equipment, sales of parts and merchandise, and U.S. Rentals' value-added services, including equipment training, delivery and maintenance. The field-based sales force calls regularly on contractors' offices and job sites and industrial facilities, regularly assisting customers in planning for their equipment requirements. U.S. Rentals also provides its sales force with extensive training, including frequent in-house training by supplier representatives about the operating features and maintenance requirements of new equipment. The Company's sales force does not earn commissions on equipment rentals; instead, they participate in the Company's profit sharing program along with all other employees in the Company. Management believes that the Company's sales personnel, through the Company's innovative profit sharing program, are among the most highly compensated in the industry. U.S. Rentals recently began a national accounts program that is dedicated to marketing to customers with a multi-regional or national presence. The national accounts program supplements the efforts of the Profit Centers, which deal directly with management of the local facilities of multi-regional and national firms. National account sales personnel call on the corporate headquarters of U.S. Rentals' large commercial and residential and industrial customers in order to expand existing business relationships to include additional facilities and construction sites. The national accounts program simplifies billing and pricing for large customers while allowing their local representatives to continue to deal primarily with local Profit Centers. The Company promotes its services primarily in the telephone directories in the markets it serves, as well as by direct mail, and advertising in newspapers and on local television and radio. Each Profit Center manager determines the frequency and type of advertising in the local market. Profit Centers also host open houses, customer appreciation events and other special promotional events. The Company also selectively advertises in national industry publications and trade journals, and provides a toll-free telephone number (1-800-US-RENTS) that automatically connects each caller to the Company's closest equipment rental yard. In addition to its principal marketing methods, the Company has launched an Internet web page (www.usrentals.com) that describes the Company's locations, product lines and used equipment available for sale. PURCHASING AND SUPPLIERS The Company's size and stature in the equipment rental industry, as well as its strong and long-standing vendor relationships, enable it to purchase equipment directly from manufacturers at what management believes are among the best prices and terms in the industry. The Company employs a Director of Vendor Relations to negotiate favorable terms with preferred vendors. However, individual Profit Center managers operate independently in evaluating and selecting additional fleet based on local 31 demand. U.S. Rentals has developed strong relationships with many leading equipment manufacturers, which has led to exclusive distribution rights for certain lines of equipment in several of its markets. Management believes that the favorable pricing, service, training and information that U.S. Rentals receives from its suppliers represent a significant competitive advantage for the Company. During 1995, the Company purchased approximately $89 million of new rental equipment, of which approximately 53% was obtained from its top 10 suppliers. No single supplier accounted for more than 14% of the Company's total purchases. U.S. Rentals believes it could readily replace any of its existing suppliers if it were to lose its ability to purchase equipment from such supplier. INFORMATION SYSTEMS U.S. Rentals' proprietary POS system was initially installed in the Company's equipment rental yards in 1992 and is used for the day-to-day management of its more than 60,000 pieces of rental equipment. The data generated from each Profit Center's POS system is uploaded daily to the Company's mainframe computer at its headquarters. The Company's proprietary management information systems, including the Company's POS system, allow management and Profit Center managers to review all aspects of each Profit Center's business, including profitability, equipment utilization rates, rental rates, number of contracts generated and collection of receivables. Management at all levels uses these systems to generate rental contracts, track equipment usage, report customer credit histories, compile accounts receivables aging reports, and monitor monthly profitability. Access to such data significantly assists management in closely monitoring and quickly reacting to the ongoing operations at each Profit Center. Additionally, the statements generated by the Company's management information systems are consistently reviewed by corporate, regional and divisional managers, as well as by each Profit Center manager, to monitor profit sharing earnings and detect areas for improvement at each location. This type of decentralized processing, with centralized management information system reporting, provides for timely and effective reporting of information for auditing and control purposes. U.S. Rentals' data processing center, located at its headquarters in Modesto, California, utilizes a Hewlett Packard mainframe computer for its flexibility and capacity to accommodate the Company's future systems needs. The Company's computer system is updated and maintained by a staff of three systems development professionals, who also developed U.S. Rentals' customized and proprietary management information systems software. LOCATIONS AND PROPERTIES The Company operates 78 Profit Centers in the following 11 states: Arizona (2), Arkansas (3), California (46), Idaho (1), Kansas (1), Louisiana (3), Nevada (6), New Mexico (1), Oklahoma (1), Texas (13) and Washington (1). U.S. Rentals owns 32 of its rental locations and leases 46 of its rental locations, as well as its approximately 8,300 square foot headquarters space in Modesto, California. The Company's leases have terms expiring from 1997 to 2001, with the majority of its leases having multiple five-year renewal options. The Company also maintains six credit offices, all of which are leased. The net book value of owned facilities was approximately $18.5 million at September 30, 1996, and the average annual base rent on each leased facilities was approximately $65,000 in 1995. Management believes that none of U.S. Rentals' leased facilities, individually, is material to the Company's operations. In addition, as of September 30, 1996 U.S. Rentals owned a fleet of approximately 550 non-rental delivery, fleet service and sales personnel vehicles. COMPETITION The equipment rental industry is highly fragmented and competitive. Each market in which U.S. Rentals operates is served by numerous competitors, ranging from national and multi-regional companies such as Hertz Equipment Rental Corporation, an affiliate of Ford Motor Company, to small, independent businesses with a limited number of locations. Management believes that participants in the equipment rental industry compete on the basis of customer relationships, customer service, breadth and 32 quality of product line and price. In general, the Company believes that national and multi-regional operators, especially larger operators such as U.S. Rentals, enjoy substantial competitive advantages over small, independent rental businesses that cannot afford to maintain the comprehensive rental equipment fleet and high level of maintenance and service that U.S. Rentals offers. U.S. Rentals believes that its commitment to personalized customer service, highly motivated and experienced employees, decentralized management structure, proprietary information systems and the breadth and the quality of its rental fleet enable it to compete successfully. See "Risk Factors -- Competition." EMPLOYEES At September 30, 1996, U.S. Rentals had a total of 1,789 employees, of which 285 were salaried and 1,504 were hourly personnel. U.S. Rentals' work force is not unionized, and management believes that its relationship with employees is excellent. The Company is committed to, and has realized significant benefits from, its formal employee training programs. Management believes that this investment in training and safety awareness programs for employees is a competitive advantage that positions U.S. Rentals to be responsive to customer needs. MATERIAL PATENTS, LICENSES, FRANCHISES AND CONCESSIONS The Company does not hold or depend upon any material patent, government license, franchise or concession, except for the "USRentals(R)" service mark, which is registered with the U.S. Patent and Trademark Office. GOVERNMENTAL AND ENVIRONMENTAL REGULATION The Company's 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. The Company is often indemnified against environmental liabilities as a purchaser or lessee of the properties it acquires or leases. In connection with its acquisitions and start-up locations that include the purchase of real property, the Company usually obtains Phase I environmental assessment reports prepared by independent environmental consultants for each piece of real property it purchases. 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. The Company dispenses petroleum products from above-ground storage tanks at a majority of its Profit Centers. The remainder of its Profit Centers dispense petroleum products from underground storage tanks. 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. The Company also uses other hazardous materials in the ordinary course of its business. In addition, the Company generates and disposes of hazardous 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. See "Risk Factors -- Governmental and Environmental Regulation." The Company incurs ongoing expenses associated with the removal of older underground storage tanks and the performance of appropriate remediation at certain of its locations. The Company has identified certain of its facilities as having released hazardous substances, with remediation either ongoing or likely at three facilities. The Company has reserved approximately $1.1 million for such remediation and removal of additional underground storage tanks and associated potential liability. The 33 Company does not believe that costs associated with such remediation and potential liability will have a material adverse effect on the Company's results of operations or financial condition. See "Risk Factors -- Governmental and Environmental Regulation." LEGAL PROCEEDINGS The Company is involved in numerous claims and potential claims that have arisen in the ordinary course of the Company's business. Claims (including litigation) for property damage, personal injury and death from users of its equipment and the estates of such users, as well as employee claims relating to workers' compensation and other employee-related issues, are inherent in the nature of the Company's business. The Company cannot predict the ultimate outcome of any of its current claims; however, due to the amount of the Company's self-insurance reserves and the existence of insurance for claims between $3 million and $50 million, management does not believe that any of such claims, either alone or in the aggregate, will have a material adverse effect on the Company's results of operations or financial condition. See "Risk Factors - - - Liability and Insurance." 34 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth the executive officers and directors of the Company:
NAME AGE POSITION ---- --- -------- Richard D. Colburn 85 Chairman of the Board William F. Berry 44 President, Chief Executive Officer and Director John S. McKinney 42 Vice President - Finance, Chief Financial Officer and Director Bernard E. Lyons 62 Vice President, Secretary and Director Grace M. Crickette 35 Vice President - Risk Management William F. Locklin 44 Vice President and Region Manager Steven E. Nadelman 34 Vice President and Region Manager
Richard D. Colburn purchased the Company (under its previous name of Leasing Enterprises, Inc.) on December 31, 1975 and has been Chairman of the Board since that date. Mr. Colburn, a private investor, currently owns 100% of the Company. William F. Berry has been an employee of the Company and one of its predecessors since 1966, became the Company's President and Chief Executive Officer in January 1987 and became a Director in 1996. In his over 30 years with the Company and its predecessor, Mr. Berry has held virtually every operational position in the Company. John S. McKinney has been the Vice President - Finance and Chief Financial Officer of the Company since 1990 and became a Director in 1996. Mr. McKinney joined the Company in 1988 as Controller, and held that position until being promoted to his current positions. Prior to joining the Company, Mr. McKinney served as the controller of an electrical wholesale company, held various financial positions with Iomega Corporation and spent several years as a certified public accountant with Arthur Andersen & Co. Bernard E. Lyons has been a Director, Vice President, Secretary and the General Counsel of the Company since 1976. Mr. Lyons, a corporate lawyer, has represented numerous clients in his over 35 years of legal practice. Grace M. Crickette has been the Company's Vice President - Risk Management since March 1996. Ms. Crickette served as a Risk Management Director from 1994 until March 1996 and Risk Management Analyst from 1991 to 1994. Prior to joining the Company, Ms. Crickette was a legal assistant for five years at a Southern California law firm that specializes in insurance defense. William F. Locklin has been a Vice President and Region Manager since joining the Company in 1987. Mr. Locklin has over 19 years of experience in the equipment rental business. Prior to joining the Company, Mr. Locklin held numerous management positions in the equipment rental industry over a seven-year period with Hertz Equipment Rental Corporation. Steven E. Nadelman has been a Vice President and Region Manager since 1993. Mr. Nadelman joined the Company in 1991 and served as a Profit Center Manager and a Division Manager before being promoted to his current position. Mr. Nadelman has over 17 years of experience in the equipment rental business. Prior to joining the Company, Mr. Nadelman held numerous service, sales and management positions in the equipment rental industry, including over seven years with Hertz Equipment Rental Corporation. 35 The executive officers of the Company serve at the discretion of its Board of Directors. Each director of the Company serves until such director's successor is elected and qualified or until the director's death, retirement, resignation or removal. The Company intends to appoint an independent director within three months of the consummation of the Offerings and an additional independent director within one year of the consummation of the Offerings. COMMITTEES OF THE BOARD OF DIRECTORS Audit Committee. Following the Offerings, the Board of Directors intends to establish an audit committee (the "Audit Committee"), to be comprised of at least two independent directors, to make recommendations concerning the engagement of independent public accountants, review with the independent public accountants the plans and results of the audit engagement, approve professional services provided by the independent public accountants, review 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. Compensation Committee. Following the Offerings, the Board of Directors intends to establish a compensation committee (the "Compensation Committee"), to be comprised of at least two independent directors, to determine compensation of the Company's executive officers and to administer the 1997 Plan. The current executive officer salaries were set by the Board of Directors prior to establishment of the Compensation Committee. DIRECTOR COMPENSATION Following the Offerings, the Company does not intend to pay additional remuneration to employees who also serve as directors. The Company will reimburse all directors for their out-of-pocket expenses incurred in connection with their duties as directors. Non-employee directors will receive an annual retainer of $_________ in cash and $_________ for each regular or special meeting attended as well as annual stock option grants under the 1997 Plan. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION In 1996, the Company had no compensation committee or other committee of the Board of Directors performing similar functions. Decisions concerning compensation of executive officers were made by the Company's Board of Directors. Other than William F. Berry, John S. McKinney and Bernard E. Lyons, there are no officers or employees of the Company who participated in deliberations concerning such compensation matters. EXECUTIVE COMPENSATION The following table shows the compensation paid by the Company to the Chief Executive Officer and each of the Company's other three most highly compensated executive officers (collectively, the "Named Executive Officers") with respect to fiscal 1995. 36 SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ------------------- ALL OTHER NAME AND PRINCIPAL POSITION SALARY BONUSES(1) COMPENSATION --------------------------- ------ --------- ------------ William F. Berry President and Chief Executive Officer......................... $120,000 $400,000 $70,730 (2)(3) John S. McKinney Vice President - Finance and Chief Financial Officer......... 100,000 110,000 35,565 (2)(3) William F. Locklin Vice President and Region Manager.................. 100,000 110,000 600 (2) Steven E. Nadelman Vice President and Region Manager.................. 100,000 110,000 600 (2)
_______________ (1) All amounts were earned in 1995 pursuant to the Company's profit sharing program, but were paid in 1996. (2) Includes matching amounts contributed by the Company pursuant to the Company's 401(k) plan. (3) Includes director and executive committee fees paid for 1995, as well as deferred compensation earned in 1995. See "-- Employment Agreements." EMPLOYMENT AGREEMENTS The Company will enter into seven-year employment agreements with each of William F. Berry and John S. McKinney effective upon consummation of the Offerings. Messrs. Berry and McKinney will have the option to extend their respective agreements for up to three years. During the term of Mr. Berry's employment agreement, his compensation will consist of a minimum annual base salary of $150,000, participation in the Company's profit sharing program, deferred compensation (as described below), a percentage of the Company's net income (as described below), and fringe benefits similar to those of other senior executives of the Company. If Mr. Berry's employment is terminated, he will also be subject to a two-year restriction on competition upon termination. Under Mr. Berry's agreement, he will be entitled to receive deferred compensation (the "Deferred Compensation") of $1,402,605 on the earliest of 2007, death, disability, a Change of Control (as defined in 1997 Plan) or termination without cause (each a "Trigger Event Date"). If, however, Mr. Berry voluntarily terminates his employment with the Company or if he is terminated for cause, he will be entitled to an amount equal to the vested portion of such amount, initially equal to 10% and increasing 10% per year. In addition, Mr. Berry will be entitled to receive an amount equal to 10% of the Company's cumulative net income from January 1, 1997 through a Trigger Event Date, reduced by an amount equal to the appreciation in the price of the Common Stock from the date of this Prospectus to the Trigger Event Date multiplied by ________ shares of Common Stock. Mr. McKinney's employment agreement will be substantially identical to Mr. Berry's except that Mr. McKinney's Deferred Compensation will be $701,302, his minimum annual base salary will be $105,000 and he will be entitled to receive 5% of cumulative net income reduced by an amount equal to the appreciation in the price of the Common Stock from the date of this Prospectus to the Trigger Event Date multiplied by ________ shares of Common Stock. See "--1997 Performance Award Plan." Upon consummation of the Offerings, Messrs. Berry and McKinney will be issued 10-year options to purchase _______ and _____ shares, respectively, of Common Stock under the 1997 Plan with an exercise price equal to the initial public offering price. The options will vest in 10 equal installments over a 10- year period commencing upon the consummation of the Offerings. 37 PROFIT SHARING PROGRAM An integral part of the Company's operating philosophy is an innovative profit sharing program applicable to all levels of employees. Profit sharing is earned at each Profit Center location based on each Profit Center's operating income in excess of a pre-determined return on net assets at such location. Profit sharing is accrued throughout the year and paid in cash in March of the following year. The program does not limit the amount of profit sharing compensation an employee may earn. For example, at the Company's top performing Profit Center in 1995, the Profit Center manager earned approximately 3.6 times his base salary in profit sharing. In 1995 the Company's employees earned approximately $9 million in profit sharing compensation, with managers of profitable locations earning an average of approximately 110% of their base salaries. Profit sharing is paid only to locations that are profitable, with discretionary exceptions in some cases for start-up locations that generally are not profitable until after their first year of operation. Unprofitable locations generally must make up cumulative prior losses for the prior two years before becoming eligible for profit sharing. 401(k) SAVINGS AND THRIFT PLAN The Company has a defined contribution 401(k) plan that covers substantially all full-time employees who have been employed by the Company for over one year and have worked at least 1,000 hours. The 401(k) plan allows all employees to defer amounts up to the statutory limit each year. The Company has a discretionary matching program under which, in 1995, the Company matched 50% of employee contributions up to a maximum contribution by the Company of $600 per employee. 1997 PERFORMANCE AWARD PLAN The Company has established the 1997 Plan to attract, reward and retain talented and experienced officers, other key employees and certain other eligible persons ("Eligible Persons") who may be granted awards from time to time by the Company's Board of Directors or the Committee (as defined below). Awards under the 1997 Plan may be in the form of nonqualified stock options, incentive stock options, stock appreciation rights ("SARs"), restricted stock, performance shares, stock bonuses, or cash bonuses based on performance. Awards may be granted singly or in combination with other awards. Any cash bonuses would be paid based upon the extent to which performance goals set by the Committee are met during the performance period. Awards under the 1997 Plan generally will be nontransferable by a holder (other than by will or the laws of descent and distribution) and rights thereunder generally will be exercisable, during the holder's lifetime, only by the holder, subject to such exceptions as may be authorized by the Committee. Administration; Change in Control. The 1997 Plan provides that it will be administered by the Board of Directors or a committee appointed by the Company's Board of Directors (the "Committee"). The Board of Directors intends to appoint the Company's Compensation Committee to serve as the Committee under the 1997 Plan. The Committee will have the authority to (i) designate recipients of awards, (ii) determine or modify the provisions of awards, including vesting provisions, terms of exercise of an award and expiration dates, (iii) approve the form of award agreements, and (iv) construe and interpret the 1997 Plan. The Committee has the discretion to accelerate and extend the exercisability or term and establish the events of termination or reversion of outstanding awards. Upon a Change in Control Event each option and SAR will become immediately exercisable, restricted stock will immediately vest free of restrictions and the number of shares, cash or other property covered by each performance share award will be issued to the grantee of such award, unless the Committee determines to the contrary. A "Change in Control Event" is defined generally to include the acquisition of 50% or more of the outstanding voting securities of the Company by any person other than 38 the Principal Stockholder, a transfer of substantially all of the Company's assets, the dissolution or liquidation of the Company, or a merger, consolidation or reorganization whereby stockholders immediately prior to such event own less than 50% of the outstanding voting securities of the surviving entity after such event. Plan Amendment; Termination and Term. The Company's Board of Directors will have the authority to amend, suspend or discontinue the 1997 Plan at any time, but no such action will affect any outstanding award in any manner adverse to the participant without the consent of the participant. The 1997 Plan may be amended by the Board of Directors without stockholder approval unless such approval is required by applicable law. The 1997 Plan will remain in existence as to all outstanding awards until such awards are exercised or terminated. The maximum term of unvested or unexercised options, SARs and other rights to acquire Common Stock under the 1997 Plan is 10 years after the initial date of award. No award can be made after the tenth anniversary of the date on which the Board of Directors approved the 1997 Plan. Authorized Shares and Other Provisions. The maximum number of shares of Common Stock that may be issued in respect of awards under the 1997 Plan is ________ shares. The maximum number of shares of Common Stock subject to options and SARs granted to any individual in any calendar year is _______ and after 1997 the maximum number of shares of Common Stock that may be subject to awards granted in any calendar year is _________. The number and kind of shares available for grant and the shares subject to outstanding awards (as well as individual share and share unit limits on awards, performance standards and exercise prices of awards) will be adjusted to reflect the effect of a stock dividend, stock split, recapitalization, merger, consolidation, reorganization, combination or exchange of shares, extraordinary dividend or other distribution or other similar transaction. If any award expires or is cancelled or terminated without having been exercised or paid in full, or if any Common Stock subject to a restricted stock award does not vest or is not delivered, the unpurchased, unvested or undelivered shares will again be available for award under the 1997 Plan. No award may be granted at a price that is less than fair market value, as determined by the Committee, on the date of grant. No award, other than awards granted in lieu of cash bonuses, may vest more quickly than 25% per year. Automatic Annual Grants to Non-Employee Directors. Under the 1997 Plan, each non-employee director will be granted a 10-year stock option to purchase _________ shares of Common Stock upon becoming a director at an exercise price equal to the market price on that date. In addition, on the first business day in each calendar year beginning in 1998 and continuing for each subsequent year during the term of the 1997 Plan, each person who is a non-employee director as of such date will be granted a stock option to purchase ________ shares of Common Stock at the then current fair market value of the Common Stock. All non-employee director stock options will vest in _____ equal installments over a _____ year period commencing on the first anniversary of the grant date. If a non-employee director's services are terminated for any reason [other than _____], stock options held by such director shall remain exercisable for ___ months after such option terminates or until the expiration of the 10-year term of such option, whichever occurs first. Federal Tax Consequences. The current federal income tax consequences of awards authorized under the 1997 Plan follow certain basic patterns. Generally, awards under the 1997 Plan that are includable in income of the recipient at the time of award or exercise (such as nonqualified stock options, SARs, restricted stock and performance awards) are deductible by the Company, and awards that are not required to be included in income of the recipient at such times (such as incentive stock options) are not deductible by the Company. Grant of Options. As of the date of this Prospectus, the Committee granted 10-year options relating to approximately ________ shares of Common Stock to Eligible Persons. The exercise price of each option granted is the initial public offering price per share of the Common Stock offered hereby. Such options vest in equal installments over a period of __ years. 39 CERTAIN TRANSACTIONS While the following is a description of certain agreements involving the Principal Stockholder, the Company's directors and officer, the Company and certain of its affiliates, the descriptions set forth below do not purport to be a complete summary of all such agreements. REGISTRATION RIGHTS AGREEMENT The Principal Stockholder and the Company have entered into a Registration Rights Agreement under which the Principal Stockholder (and subsequent holders of his shares, if any, through the Predecessor, will be entitled to certain rights with respect to the registration of his shares under the Securities Act. Under this agreement, the Principal Stockholder will have the right to cause the Company to file a registration statement on Form S-1 with respect to his Common Stock on two separate occasions after the expiration of his lock-up agreement. Additionally, if the Company proposes to register any of its securities under the Securities Act, either for its own account or for the account of others, the Principal Stockholder is entitled, subject to certain limitations and exceptions, to notice of such registration and is entitled to include shares of Common Stock therein. In addition, at any time after the Company becomes eligible to file registration statements on Form S-3 under the Securities Act, the Principal Stockholder may require from time to time that the Company file such a registration statement with respect to his shares of Common Stock. All fees, costs and expenses of any such registration (other than underwriting fees and commissions) will be borne by the Company. AGREEMENT REGARDING PRE-OFFERING TAXES The Company and the Principal Stockholder have entered into a tax-related agreement effective as of the consummation of the Offerings. Under this agreement, if any adjustment is made after the consummation of the Offerings to the Predecessor's taxable income attributable to the operating assets and liabilities transferred to the Company for any period prior to the consummation of the Offerings that results in additional taxes being owed by the Principal Stockholder, the Company will pay the Principal Stockholder an amount equal to such additional taxes. NOTES PAYABLE AND RECEIVABLE The Predecessor made a dividend in the form of a subordinated note in the principal amount of $10.0 million in favor of the Principal Stockholder, in each of 1993 and 1994. Such notes bear interest at prime plus 5.0%. The notes, which mature on December 31, 2013 and 2014, respectively, were subsequently donated to a charitable organization. None of the obligations under such notes will be transferred to the Company. See "Offering Related Transactions." Certain notes have also been issued from time to time in favor of affiliates of the Principal Stockholder. None of the Predecessor's obligations under such notes will be transferred to the Company. See "Offering Related Transactions" and Note 5 to Notes to Combined Financial Statements. In 1984, the Predecessor received notes in connection with transactions with an affiliate of the Principal Stockholder. Interest on these notes is due quarterly at the rate of 13.5%. Annual principal payments of $100,000 are due through December 31, 2013 and the remaining unpaid principal balance is due on December 31, 2014. The notes provide for positive or negative annual adjustments of principal based on the change in the Consumer Price Index, limited to certain percentages of the issuer's cumulative net income from December 31, 1984. Principal adjustments of such notes receivable reflected in other 40 income totalled $402,000 for the nine months ended September 30, 1996. None of the notes will be transferred by the Predecessor to the Company. See "Offering Related Transactions." The Predecessor received two notes in connection with transactions with an immediate family member of the Principal Stockholder on May 1, 1995 and August 6, 1996, respectively. The first note, with an outstanding principal balance as of December 31, 1995 of approximately $840,000, was repaid in full in 1996. The second note, issued for $300,000 in August 1996, bears interest at the Predecessor's borrowing rate from Bank of America NT&SA. Principal payments of $3,000 plus all accrued interest are due monthly until July 31, 1998, at which time all amounts outstanding under the note will be due. The second note will not be distributed by the Predecessor to the Company. See "Offering Related Transactions." REAL PROPERTY The Predecessor leases two pieces of property from each of Mr. Berry, the Company's President and Chief Executive Officer, and a member of his immediate family. The total annual lease payments for 1996 to Mr. Berry and to such family member are expected to be approximately $103,500 and $88,750, respectively. Further, Mr. Berry purchased one of the aforementioned properties from the Predecessor in March 1996 for $640,000, a price the Predecessor believed to be the fair market value. The Predecessor leases two pieces of property from an immediate family member of the Principal Stockholder. The total annual lease payments made to such family member in 1996 were approximately $63,500. The Company believes that these leases are on commercially fair and reasonable terms. All four leases will be transferred by the Predecessor to the Company prior to consummation of the Offerings. MISCELLANEOUS The Predecessor estimates that it paid legal fees of approximately $67,750 to an affiliate of the Principal Stockholder as reimbursement to such affiliate for legal services rendered during the 12 months ended October 31, 1996 for the Predecessor by Bernard E. Lyons, a Director and officer of the Company. Prior to the 1996 merger of USR Leasing Company ("USRL") (an entity owned by the Principal Stockholder) into the Predecessor, the Predecessor had a $2,500,000 revolving credit arrangement with USRL (which provided for interest at a bank reference rate plus 0.5%), leased non-rental vehicles from USRL under operating leases and agreed with USRL's lender to guarantee up to $7 million of USRL's indebtedness. Lease charges from USRL amounted to $3,802,000 and $2,555,000 for 1995 and the nine months ended September 30, 1996, respectively. USRL's accounts have been combined with those of the Predecessor in the Combined Financial Statements. See Note 1 to Notes to Combined Financial Statements. The Predecessor has made various investments in unrelated businesses through entities controlled by the Principal Stockholder. Such investments will not be transferred by the Predecessor to the Company. FUTURE TRANSACTIONS The Company has implemented a policy requiring that any material transaction with an affiliated party is subject to approval by a majority of the directors not interested in such transaction, who must determine that the terms of any such transaction are no less favorable to the Company than those that could be obtained from an unaffiliated third party. 41 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding beneficial ownership of the Common Stock after giving effect to the Offering Related Transactions and as adjusted to reflect the Offerings by (i) the Principal Stockholder, (ii) each of the Company's directors and executive officers, and (iii) all directors and executive officers as a group. Except as otherwise indicated, the persons named in the table have sole voting and investment power with respect to all shares beneficially owned.
OWNERSHIP AFTER OFFERINGS ------------------------- NUMBER OF NAME AND ADDRESS OF BENEFICIAL OWNER (1) SHARES PERCENTAGE - ---------------------------------------- --------- ---------- Richard D. Colburn (2)..................... % William F. Berry........................... * * John S. McKinney........................... * * Bernard E. Lyons........................... * * Grace M. Crickette......................... * * William F. Locklin......................... * * Steven E. Nadelman......................... * * All directors and executive officers as a group (7 persons)..................
______________ * Less than one percent (1) The business address of each of the persons listed in the table (other than Bernard E. Lyons) is 1581 Cummins Drive, Suite 155, Modesto, California 95358. Mr. Lyons' address is 1516 Pontius Avenue, Los Angeles, California 90025. (2) The Principal Stockholder owns 100% of the Predecessor, which was the sole stockholder of the Company prior to the Offerings. See "Offering Related Transactions." DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 100,000,000 shares of Common Stock, par value $.01 per share, and 10,000,000 shares of Preferred Stock, which can be issued in one or more series. Immediately following the completion of the Offerings, an aggregate of _________ shares of Common Stock will be issued and outstanding, and no shares of Preferred Stock will be issued or outstanding (assuming no exercise of the U.S. Underwriters' over-allotment option). The following description of the Company's capital stock is a summary of the material terms of such stock. It does not purport to be complete and is subject in all respects to applicable Delaware law and to the provisions of the Company's Certificate of Incorporation and Bylaws, copies of which have been filed as exhibits to the Registration Statement of which this Prospectus is a part. COMMON STOCK The Board of Directors of Company in its sole discretion may issue shares of Common Stock from the authorized and unissued shares of Common Stock. Holders of Common Stock are entitled to one vote per share on all matters to be voted upon by the stockholders, including the election of directors. The Company's Certificate of Incorporation does not provide for cumulative voting in the election of directors. 42 Holders of Common Stock are entitled to receive such dividends as may be declared from time to time by the Board of Directors out of funds legally available therefor. The Company does not anticipate paying any cash dividends in the foreseeable future. See "Dividend Policy" and "Risk Factors -- Absence of Dividends." In the event of liquidation, dissolution or winding up of the Company, holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities and after satisfaction of the liquidation preference of any outstanding Preferred Stock. Holders of Common Stock have no preemptive, conversion or redemption rights and are not subject to further assessments by the Company. Upon consummation of the Offerings, all of the then outstanding shares of Common Stock will be validly issued, fully paid and nonassessable. PREFERRED STOCK The Company's Board of Directors is authorized to issue from time to time, without stockholder authorization, in one or more designated series, any or all of the authorized but unissued shares of Preferred Stock with such dividend, redemption, conversion and exchange provisions as may be provided for the particular series. Any series of Preferred Stock may possess voting, dividend, liquidation and redemption rights superior to those of the Common Stock. The rights of holders of Common Stock will be subject to and may be adversely affected by the rights of the holders of any Preferred Stock that may be issued in the future. Issuance of a new series of Preferred Stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could make it more difficult for a third party to acquire, or discourage a third party from acquiring, the outstanding voting stock of the Company, and make removal of the present Board of Directors more difficult. The Company has no present plans to issue any shares of Preferred Stock. See "Risk Factors -- Anti-takeover Provisions." CERTAIN PROVISIONS OF DELAWARE LAW The Company is a Delaware corporation and is subject to Section 203 of the DGCL. In general, Section 203 prevents an "interested stockholder" (defined generally as a person owning 15% or more of a corporation's outstanding voting stock) from engaging in a "business combination" (as defined) with a Delaware corporation for three years following the date such person became an interested stockholder unless (i) before such person became an interested stockholder, the board of directors of the corporation approved the transaction in which the interested stockholder became an interested stockholder or approved the business combination, (ii) upon consummation of the transaction that resulted in the interested stockholder becoming an interested stockholder, the interested stockholder owns at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding shares owned by persons who are both officers and directors of the corporation and shares held by certain employee stock ownership plans) or (iii) following the transaction in which such person became an interested stockholder, the business combination is approved by the board of directors of the corporation and authorized at a meeting of stockholders by the affirmative vote of the holders of at least two-thirds of the outstanding voting stock of the corporation not owned by the interested stockholder. LIMITATION OF LIABILITY AND INDEMNIFICATION AGREEMENTS The Company's Certificate of Incorporation provides that to the fullest extent permitted by the DGCL, 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. Under the DGCL, liability of a director may not be limited (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) in respect of certain unlawful dividend payments or stock redemptions or repurchases and (iv) for any transaction from which the director derives an improper personal benefit. The effect of the provisions of the Company's Certificate of Incorporation is to eliminate the rights of the Company and its stockholders (through stockholders' derivative suits on behalf of the Company) to recover monetary 43 damages against a director for breach of the fiduciary duty of care as a director (including breaches resulting from negligent or grossly negligent behavior), except in the situations described in clauses (i) through (iv) above. This provision does not limit or eliminate the rights of the Company or any stockholder to seek nonmonetary relief such as an injunction or rescission in the event of a breach of a director's duty of care. In addition, the Company's Certificate of Incorporation provides that the Company shall indemnify its directors, officers, employees and agents against losses incurred by any such person by reason of the fact that such person was acting in such capacity. The Company has entered into agreements with each of the directors and officers of the Company pursuant to which the Company has agreed to indemnify such director or officer from claims, liabilities, damages, expenses, losses, costs, penalties or amounts paid in settlement incurred by such director or officer in or arising out of his capacity as a director, officer, employee and/or agent of the Company or any other corporation of which such person is a director or officer at the request of the Company to the maximum extent provided by applicable law. In addition, such director or officer is entitled to an advance of expenses to the maximum extent authorized or permitted by law. CERTAIN ANTI-TAKEOVER EFFECTS The provisions of the Certificate of Incorporation and the Bylaws of the Company summarized above may be deemed to have anti-takeover effects and may delay, defer or prevent a tender offer or takeover attempt that a stockholder might consider to be in such stockholder's best interest, including those attempts that might result in a premium over the market price for the shares held by stockholders. See "Risk Factors -- Anti-takeover Provisions." TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Common Stock is _________________. LISTING There is no public trading market for the Common Stock. Application has been made to list the Common Stock on the New York Stock Exchange ("NYSE") under the symbol "USR." 44 SHARES ELIGIBLE FOR FUTURE SALE Upon the consummation of the Offerings, the Company will have outstanding ________ shares of Common Stock (assuming no exercise of the U.S. Underwriters' over-allotment option). All of the shares of Common Stock sold in the Offerings will be freely tradeable under the Securities Act, unless purchased by "affiliates" of the Company as that term is defined under the Securities Act. Upon the expiration of lock-up agreements between the Company and the Principal Stockholder and the Underwriters, which will occur 180 days after the date of this Prospectus (the "Effective Date"), all of the ________ shares of Common Stock owned by the Principal Stockholder, through the Predecessor (the "Restricted Shares"), will become eligible for sale, subject to compliance with Rule 144 of the Securities Act as described below. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned Restricted Shares for at least two years, will be entitled to sell in any three-month period a number of shares that does not exceed the greater of: (i) 1% of the number of shares of Common Stock then outstanding (approximately _________ shares immediately after the Offerings) or (ii) the average weekly trading volume of the Company's Common Stock on the NYSE during the four calendar weeks immediately preceding the date on which the notice of sale is filed with the Securities and Exchange Commission. Sales pursuant to Rule 144 are subject to certain requirements relating to manner of sale, notice and availability of current public information about the Company. A person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of the Company at any time during the 90 days immediately preceding the sale and who has beneficially owned Restricted Shares for at least three years is entitled to sell such shares pursuant to Rule 144(k) without regard to the limitations and requirements described above. If a proposed amendment to Rule 144 is adopted, the two- and three-year holding period requirements described above will be reduced to one and two years, respectively. The Principal Stockholder has agreed with the Underwriters that until 180 days after the Effective Date he will not directly or indirectly, offer, sell, contract to sell, grant any option to purchase or otherwise dispose of any Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or in any manner transfer all or a portion of the economic consequences associated with the ownership of the Common Stock, or cause a registration statement covering any shares of Common Stock to be filed, without the prior written consent of DLJ, subject to certain limited exceptions. The Company has also agreed not to directly or indirectly, offer, sell, contract to sell, grant any option to purchase or otherwise dispose of any Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or, in any manner, transfer all or a portion of the economic consequences associated with the ownership of the Common Stock or cause a registration statement covering any shares of Common Stock to be filed, for a period of 180 days after the Effective Date, without the prior written consent of DLJ, subject to certain limited exceptions including grants of options pursuant to, and issuance of shares of Common Stock upon exercise of options under, the 1997 Plan. The lock-up agreements may be released at any time as to all or any portion of the shares subject to such agreements at the sole discretion of DLJ. See "Risk Factors -- Shares Eligible for Future Sale; Registration Rights." 45 UNDERWRITING Subject to certain terms and conditions contained in an underwriting agreement (the "Underwriting Agreement"), the U.S. Underwriters named below (the "U.S. Underwriters") for whom DLJ, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon Brothers Inc are acting as representatives (the "U.S. Representatives"), and the international managers named below (the "International Managers"), for whom DLJ, Merrill Lynch International and Salomon Brothers International Limited are acting as representatives the ("International Representatives" and together with the U.S. Representatives, the "Representatives") have severally agreed to purchase from the Company the number of shares of Common Stock set forth opposite their names below.
NAME NUMBER OF SHARES ---- ---------------- U.S. Underwriters - ---------------- Donaldson, Lufkin & Jenrette Securities Corporation... ---------------- Merrill Lynch, Pierce, Fenner & Smith Incorporated.... ---------------- Salomon Brothers Inc.................................. ---------------- U.S. Offering subtotal........................... ---------------- International Managers - ---------------------- Donaldson, Lufkin & Jenrette Securities Corporation... ---------------- Merrill Lynch International........................... ---------------- Salomon Brothers International Limited................ ---------------- International Offering subtotal.................. ---------------- TOTAL....................................... ================
The Underwriting Agreement provides that the obligations of the several Underwriters to purchase shares of Common Stock are subject to the approval of certain legal matters by counsel and to certain other conditions. If any of the shares of Common Stock are purchased by the Underwriters pursuant to the Underwriting Agreement, all such shares of Common Stock (other than the shares of Common Stock covered by the over-allotment option described below) must be so purchased. The offering price and underwriting discounts and commissions per share for the U.S. Offering and the International Offering are identical. Prior to the Offerings, there has been no established trading market for the Common Stock. The initial price to the public for the Common Stock offered hereby will be determined by negotiation between the Company and the Representatives. The factors to be considered in determining the initial price to the public include the history of and the prospects for the industry in which the Company competes, the ability of the Company's management, the past and present operations of the Company, the historical results of operations of the Company, the prospects for future earnings of the Company, the general condition of the securities markets at the time of the Offerings and the recent market prices of securities of generally comparable companies. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the Underwriters may be required to make in respect thereof. The Company has been advised by the Representatives that the Underwriters propose to offer the shares of Common Stock to the public initially at the price to the public set forth on the cover page of this Prospectus and to certain dealers (who may include the Underwriters) at such price less a concession not to exceed $___ per share. The Underwriters may allow, and such dealers may reallow, discounts not in excess of $__ per share to any other Underwriter and certain other dealers. 46 The Company has granted to the U.S. Underwriters an option to purchase up to an aggregate of ________ additional shares of Common Stock at the initial public offering price less underwriting discounts and commissions solely to cover over-allotments. Such option may be exercised in whole or in part from time to time during the 30-day period after the date of this Prospectus. To the extent that the U.S. Underwriters exercise such option, each of the U.S. Underwriters will be committed, subject to certain conditions, to purchase a number of option shares proportionate to such U.S. Underwriter's initial commitment as indicated in the preceding table. The Company and the Principal Stockholder have agreed not to offer, sell, contract to sell or otherwise dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or in any manner transfer all or a portion of the economic consequences associated with the ownership of such Common Stock, or to cause a registration statement covering any shares of Common Stock to be filed, for 180 days after the Effective Date without the prior written consent of DLJ, subject to certain limited exceptions, and provided that the Company may grant options pursuant to, and issue shares of Common Stock upon the exercise of options under, the 1997 Plan. See "Shares Eligible for Future Sale." Pursuant to an Agreement Between U.S. Underwriters and International Managers, each U.S. Underwriter has represented and agreed that, with respect to the shares included in the U.S. Offering and with certain exceptions, (a) it is not purchasing any Common Stock for the account of anyone other than a U.S. or Canadian Person (as defined below) and (b) it has not offered or sold, and will not offer or sell, directly or indirectly, any Common Stock or distribute this Prospectus outside of the U.S. or Canada or to anyone other than a U.S. or Canadian Person. Pursuant to the Agreement Between U.S. Underwriters and International Managers, each International Manager has represented and agreed that, with respect to the shares included in the International Offering and with certain exceptions, (a) it is not purchasing any Common Stock for the account of any U.S. or Canadian Person and (b) it has not offered or sold, and will not offer or sell, directly or indirectly, any Common Stock or distribute this Prospectus within the U.S. or Canada or to any U.S. or Canadian Person. The foregoing limitations do not apply to stabilization transactions and to certain other transactions among the International Managers and the U.S. Underwriters. As used herein, "U.S. or Canadian Person" means any national or resident of the U.S. or Canada or any corporation, pension, profit-sharing or other trust or other entity organized under the laws of the U.S. or Canada or of any political subdivision thereof (other than a branch located outside the U.S. or Canada of any U.S. or Canadian Person) and includes any U.S. or Canadian branch of a person who is not otherwise a U.S. or Canadian Person, and "U.S." means the United States of America, its territories, its possessions and all areas subject to its jurisdiction. Pursuant to the Agreement Between U.S. Underwriters and International Managers, sales may be made between the U.S. Underwriters and the International Managers of any number of shares of Common Stock to be purchased pursuant to the Underwriting Agreement as may be mutually agreed. The per share price and currency of settlement of any shares so sold shall be the public offering price set forth on the cover page of this Prospectus, in U.S. dollars, less an amount not greater than the per share amount of the concession to the dealers set forth above. Pursuant to the Agreement Between U.S. Underwriters and International Managers, each U.S. Underwriter has represented that it has not offered or sold, and has agreed not to offer or sell, any Common Stock, directly or indirectly in Canada in contravention of the securities laws of Canada or any province or territory thereof and has represented that any offer of Common Stock in Canada will be made only pursuant to an exemption from the requirement to file a prospectus in the province or territory of Canada in which such offer is made. Each U.S. Underwriter has further agreed to send to any dealer who purchases from it any Common Stock a notice stating in substance that, by purchasing such Common Stock, such dealer represents and agrees that it has not offered or sold, and will not offer or sell, directly or indirectly, any of such Common Stock in Canada in contravention of the securities laws of Canada or any province or territory thereof and that any offer of Common Stock in Canada will be made only pursuant to an exemption from the requirement to file a prospectus in the province or territory of Canada in which such offer is made, and that such dealer will deliver to any other dealer to whom it sells any of such Common Stock a notice to the foregoing effect. Pursuant to the Agreement Between U.S. Underwriters and International Managers, each International Manager has represented that (i) it has not offered or sold and during the period of six months from the date of this Prospectus will not offer or sell any shares of Common Stock to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which do not constitute an offer to the public in the United Kingdom for the purposes of the Public Offers of Securities Regulations 1995 (the "Regulations"); (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 of Great Britain and the Regulations with respect to anything done by it in relation to the Common Stock in, from or otherwise involving the United Kingdom; and (iii) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issue of the Common Stock to a person who is of a kind described in Article 8 of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) (No. 2) Order 1995 of Great Britain or is a person to whom such document may otherwise lawfully be issued or passed on. The Representatives have informed the Company that they do not expect to make sales to accounts over which they exercise discretionary authority in excess of 5% of the number of shares of Common Stock offered hereby. The Company has applied for listing of the Common Stock on the NYSE. In order to meet the requirements for listing on the NYSE, the Underwriters will undertake to sell lots of 100 or more shares of Common Stock to a minimum of 2,000 beneficial holders. 47 LEGAL MATTERS The validity of the shares of the Common Stock offered hereby will be passed upon for the Company by O'Melveny & Myers LLP, Los Angeles, California. Certain legal matters will be passed upon for the Underwriters by Latham & Watkins, Los Angeles, California. EXPERTS The financial statements as U.S. Rentals, Inc., the Predecessor, as of December 31, 1994 and 1995 and for each of the three years in the period ended December 31, 1995 and of U.S. Rentals, Inc. as of September 30, 1996 included in this Prospectus have been so included in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-1 (together with all amendments, exhibits, schedules and supplements thereto, the "Registration Statement"), of which this Prospectus forms a part, covering the Common Stock to be sold pursuant to the Offerings. As permitted by the rules and regulations of the Commission, this Prospectus omits certain information, exhibits and undertakings contained in the Registration Statement. Such additional information, exhibits and undertakings can be inspected at and obtained from the Commission at prescribed rates at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at certain regional offices of the Commission located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 13th Floor, 7 World Trade Center, New York, New York, 10048. The Commission maintains a Web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. In addition, application has been made to list the Common Stock on the NYSE, and reports and other information concerning the Company may be inspected at the offices of such exchange. For additional information with respect to the Company, the Common Stock and related matters and documents, reference is made to the Registration Statement. Statements contained herein concerning any such document are not necessarily complete and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement. Each such statement is qualified in its entirety by such reference. The Company will issue annual reports and unaudited quarterly reports to its stockholders for the first three quarters of each fiscal year. Annual reports will include audited consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States and a report of its independent public accountants with respect to the examination of such financial statements. In addition, the Company will issue such other interim reports as it deems appropriate. 48 U.S. RENTALS INC. INDEX TO FINANCIAL STATEMENTS
Page ---- U.S. Rentals, Inc. (Predecessor): Report of Independent Accountants...................................... F-2 Combined Balance Sheets................................................ F-3 Combined Statements of Operations...................................... F-4 Combined Statements of Stockholder's Equity............................ F-5 Combined Statements of Cash Flows...................................... F-6 Notes to Combined Financial Statements................................. F-7 U.S. Rentals, Inc.: Report of Independent Accountants...................................... F-16 Balance Sheet.......................................................... F-17 Note to Balance Sheet.................................................. F-18 Unaudited Pro Forma Combined Financial Statements: Pro Forma Combined Balance Sheets as of September 30, 1996............. F-19 Pro Forma Combined Statements of Operations for the year ended December 31, 1995..................................................... F-20 Pro Forma Combined Statements of Operations for the nine-month period ended September 30, 1996....................................... F-21 Notes to Pro Forma Combined Financial Statements....................... F-22
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of U.S. Rentals, Inc. In our opinion, the accompanying combined balance sheets and the related combined statements of operations, of stockholder's equity and of cash flows present fairly, in all material respects, the financial position of U.S. Rentals, Inc. at December 31, 1994 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of management of U.S. Rentals, Inc.; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP Sacramento, California May 24, 1996 F-2 U.S. RENTALS, INC. COMBINED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE AMOUNTS)
Pro Forma December 31, (Note 1) ---------------------- September 30, September 30, 1994 1995 1996 1996 ------ ------ ---- ---- (unaudited) (unaudited) ASSETS Cash.................................................. $ 2,714 $ 3,479 $ 3,766 $ 3,766 Accounts receivable, net.............................. 21,496 28,581 39,401 39,401 Notes receivable from affiliate....................... 24,823 24,891 25,212 - Notes receivable, other............................... 276 1,350 848 196 Inventories........................................... 2,525 3,938 4,278 4,278 Rental equipment, net................................. 112,563 152,848 203,913 203,913 Property and equipment, net........................... 20,916 26,370 38,504 38,504 Prepaid expenses and other assets..................... 2,212 3,727 5,468 2,274 -------- -------- -------- -------- Total assets.......................................... $187,525 $245,184 $321,390 $292,332 ======== ======== ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Accounts payable and other liabilities................ $ 44,823 $ 56,411 $ 54,406 $ 52,253 Notes payable to related parties...................... 23,852 23,884 23,965 - Notes payable, other.................................. 60,899 81,812 152,043 152,043 Deferred taxes........................................ - - - 5,541 -------- -------- -------- -------- Total liabilities..................................... 129,574 162,107 230,414 209,837 -------- -------- -------- -------- Commitments and contingencies (Note 7) Stockholder's equity: Common stock 2,500 shares authorized, 900 shares issued and outstanding, at stated value........................................ 699 699 699 - Paid-in capital...................................... 13,186 13,186 13,186 88,036 Retained earnings.................................... 44,066 69,192 77,091 (5,541) -------- -------- -------- -------- Total stockholder's equity............................ 57,951 83,077 90,976 82,495 -------- -------- -------- -------- Total liabilities and stockholder's equity............ $187,525 $245,184 $321,390 $292,332 ======== ======== ======== ========
See accompanying notes. F-3 U.S. RENTALS, INC. COMBINED STATEMENTS OF OPERATIONS (IN THOUSANDS)
Nine Months Ended Year Ended December 31, September 30, ----------------------- ------------------- 1993 1994 1995 1995 1996 ---- ---- ---- ---- ---- (unaudited) Revenues: Rental revenue.................................... $127,752 $167,589 $214,849 $153,766 $183,233 Rental equipment sales............................ 6,323 8,098 10,832 7,664 16,165 Merchandise and new equipment sales............... 9,507 12,071 17,166 11,424 17,064 -------- -------- -------- -------- -------- Total revenues..................................... 143,582 187,758 242,847 172,854 216,462 -------- -------- -------- -------- -------- Cost of revenues: Rental equipment expense.......................... 33,298 42,034 51,370 37,205 45,708 Rental equipment depreciation..................... 24,300 33,754 43,885 31,866 41,054 Cost of rental equipment sales.................... 2,298 2,946 4,693 2,587 6,785 Cost of merchandise and new equipment sales....... 5,948 7,428 11,418 7,459 12,418 Direct operating expense.......................... 41,609 46,445 56,506 41,654 52,699 -------- -------- -------- -------- -------- Total cost of revenues............................. 107,453 132,607 167,872 120,771 158,664 -------- -------- -------- -------- -------- Gross profit....................................... 36,129 55,151 74,975 52,083 57,798 Selling, general and administrative expense........ 20,149 27,273 31,440 19,687 24,086 Non-rental depreciation............................ 3,294 4,092 5,513 4,105 5,386 -------- -------- -------- -------- -------- Operating income................................... 12,686 23,786 38,022 28,291 28,326 Other income (expense), net........................ (31) (242) (1,620) (423) 342 Interest income.................................... 3,314 3,506 3,566 2,537 2,570 Interest expense................................... (2,078) (4,566) (8,876) (6,455) (8,286) -------- -------- -------- -------- -------- Income before income taxes......................... 13,891 22,484 31,092 23,950 22,952 Income taxes....................................... 405 499 468 379 316 -------- -------- -------- -------- -------- Net income......................................... $ 13,486 $ 21,985 $ 30,624 $ 23,571 $ 22,636 ======== ======== ======== ======== ======== Unaudited pro forma data (Note 6): Historical income before income taxes............. $ 13,891 $ 22,484 $ 31,092 $ 23,950 $ 22,952 Provision for income taxes........................ 5,710 9,221 12,780 9,845 9,276 -------- -------- -------- -------- -------- Pro forma net income.............................. $ 8,181 $ 13,263 $ 18,312 $ 14,105 $ 13,676 ======== ======== ======== ======== ========
See accompanying notes. F-4 U.S. RENTALS, INC. COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY (DOLLARS IN THOUSANDS)
Common Stock Total ---------------------- Paid-In Retained Stockholder's Shares Stated Value Capital Earnings Equity ------ ------------- --------- --------- ------------- Balance at December 31, 1992................... 900 $699 $13,186 $ 37,854 $ 51,739 Net income..................................... 13,486 13,486 Dividends...................................... (15,617) (15,617) --- ---- ------- -------- -------- Balance at December 31, 1993................... 900 699 13,186 35,723 49,608 Net income..................................... 21,985 21,985 Dividends...................................... (13,642) (13,642) --- ---- ------- -------- -------- Balance at December 31, 1994................... 900 699 13,186 44,066 57,951 Net income..................................... 30,624 30,624 Dividends...................................... (5,498) (5,498) --- ---- ------- -------- -------- Balance at December 31, 1995................... 900 699 13,186 69,192 83,077 Net income (unaudited)......................... 22,636 22,636 Dividends (unaudited).......................... (14,737) (14,737) --- ---- ------- -------- -------- Balance at September 30, 1996 (unaudited)...... 900 $699 $13,186 $ 77,091 $ 90,976 === ==== ======= ======== ========
See accompanying notes. F-5 U.S. RENTALS, INC. COMBINED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Nine Months Ended Year Ended December 31, September 30, ------------------------- ----------------- 1993 1994 1995 1995 1996 ---- ---- ---- ---- ---- (unaudited) Operating activities: Net income............................................. $ 13,486 $ 21,985 $ 30,624 $ 23,571 $ 22,636 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................ 27,594 37,846 49,398 35,971 46,440 Gain on sale of equipment........................... (4,289) (5,322) (6,342) (4,624) (9,838) Principal adjustment on notes receivable............ (534) (243) (220) (165) (402) Provision for doubtful accounts..................... 3,463 2,807 3,441 2,431 4,176 Changes in operating assets and liabilities: Accounts receivable................................ (7,059) (8,633) (10,526) (15,660) (14,996) Inventories........................................ (497) (514) (1,413) (363) (340) Prepaid expenses and other assets.................. 404 17 (1,515) (1,085) (1,741) Accounts payable and other liabilities............. 8,409 17,462 11,588 4,641 (2,005) -------- -------- -------- -------- -------- Net cash provided by operating activities.............. 40,977 65,405 75,035 44,717 43,930 Investing activities: Purchases of rental equipment......................... (42,892) (83,157) (88,861) (63,859) (98,904) Proceeds from sale of rental equipment................ 6,323 8,098 10,832 7,664 16,165 Purchases of property and equipment, net.............. (5,821) (10,514) (10,764) (7,940) (17,064) Funding of notes receivable, net...................... (26) (922) (1,061) (91) 2,086 -------- -------- -------- -------- -------- Net cash used in investing activities.................. (42,416) (86,495) (89,854) (64,226) (97,717) Financing activities: Proceeds from (payments on) line of credit, net....... 18,122 35,697 (28,200) (26,859) 28,979 Proceeds from senior notes............................ - - 50,000 50,000 40,000 Payments on other obligations......................... (10,646) (9,975) (718) (410) (168) Dividends paid........................................ (5,617) (3,642) (5,498) (4,940) (14,737) -------- -------- -------- -------- -------- Net cash provided by financing activities.............. 1,859 22,080 15,584 17,791 54,074 -------- -------- -------- -------- -------- Net increase (decrease) in cash........................ 420 990 765 (1,718) 287 Cash at beginning of period............................ 1,304 1,724 2,714 2,714 3,479 -------- -------- -------- -------- -------- Cash at end of period.................................. $ 1,724 $ 2,714 $ 3,479 $ 996 $ 3,766 ======== ======== ======== ======== ======== Supplemental non-cash flow information: Dividends declared to stockholder in the form of notes payable (subsequently assigned to The Colburn School of Performing Arts)................ $ 10,000 $ 10,000 - - - Note payable issued as partial payment for property purchased.................................... - 1,000 - - - Note payable issued as partial payment for assets acquired in conjunction with a business acquisition........................................... - 500 - - -
See accompanying notes. F-6 U.S. RENTALS, INC. (Predecessor) NOTES TO COMBINED FINANCIAL STATEMENTS (The information presented as of September 30, 1995 and 1996 and for each of the nine-month periods then ended is unaudited) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION U.S. Rentals, Inc. (the "Predecessor") is a California corporation primarily involved in the short-term rental of general purpose construction equipment, and to a lesser extent, selling complementary parts, merchandise, new and used equipment to commercial and residential construction, industrial and homeowner customers. At September 30, 1996, the Company operated 77 equipment rental yards located in 10 states across the western and southern regions of the United States. PLANNED OFFERING In connection with the planned initial public offering (the "Offerings"), the Predecessor intends to transfer all of its operating assets and associated liabilities to U.S. Rentals, Inc. ("U.S. Rentals"), a Delaware corporation, in exchange for all of the outstanding shares of common stock of U.S. Rentals. In addition, prior to the Offerings, USR Leasing Company ("USRL"), a special purpose entity, will be merged into the Predecessor. Because the Predecessor and USRL are under common control, the merger will be accounted for as pooling of interests. RELATED PARTY TRANSACTIONS As disclosed in these financial statements, the Predecessor has participated in certain transactions with related parties during the current and previous years. In the opinion of management, all transactions with related parties have been conducted on terms which are fair and equitable; however, the transactions are not necessarily on the same terms as those which would have been made between wholly unrelated parties. COMBINATION The combined financial statements of U.S. Rentals, Inc. include the accounts of the Predecessor and USR Leasing Company, a special purpose entity under common control. All intercompany accounts and transactions are eliminated in combination. FINANCIAL STATEMENT PRESENTATION The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. PRO FORMA AMOUNTS The pro forma amounts presented on the combined balance sheets reflect the transfer of all of the operating assets and associated liabilities to U.S. Rentals as discussed above and the recognition of a deferred tax liability of $5,541,000 related to federal and state income taxes as if the Predecessor had been taxed as a C corporation rather than an S corporation since inception. A pro forma provision for income taxes has been presented on the combined statement of operations as if the Company had been taxed as a C corporation rather than an S corporation for all periods presented. INTERIM FINANCIAL DATA (UNAUDITED) The Combined Balance Sheet as of September 30, 1996 and the Combined Statements of Operations and of Cash Flows for the nine-month periods ended September 30, 1995 and 1996 have been prepared on the same basis as the audited combined financial statements and, in the opinion of management, include all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations, F-7 U.S. RENTALS, INC. (Predecessor) NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued) in accordance with generally accepted accounting principles. All data disclosed in the Notes to the Combined Financial Statements at such dates and for such periods is unaudited. RENTAL REVENUE Rental revenue is recognized upon the earliest occurrence of either the return of the equipment or the end of one month's rental term. RENTAL EQUIPMENT Rental equipment is recorded at cost. Depreciation for rental equipment acquired prior to January 1, 1996 is computed using the straight-line method over an estimated five-year useful life with no salvage value. Rental equipment acquired subsequent to January 1, 1996 is depreciated using the straight-line method over an estimated seven-year useful life, after giving effect to an estimated salvage value of 10%. Included in purchases of rental equipment are the costs of minor equipment which are fully depreciated in the month of acquisition. Accumulated depreciation on rental equipment was $107,003,000, $136,573,000, and $156,047,000 at December 31, 1994 and 1995 and September 30, 1996, respectively. Ordinary maintenance and repair costs are charged to operations as incurred. When rental equipment is disposed of, the related cost and accumulated depreciation are removed from the respective accounts. Proceeds from the disposal and the related net book value of the equipment are recognized in the period of disposal and reported as revenue from rental equipment sales and cost of equipment sales in the statement of operations. PROPERTY AND EQUIPMENT Property and equipment is recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The estimated useful lives for property and equipment range from 10 to 39 years for buildings, 1 to 8 years for vehicles, delivery and yard equipment, and 5 to 10 years for fixtures and leasehold improvements. Ordinary maintenance and repairs costs are charged to operations as incurred. When property and equipment is disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gains or losses are included in results of operations. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT On January 1, 1996, the Predecessor adopted Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the assets' carrying amounts exceed the undiscounted cash flows estimated to be generated by those assets. SFAS No. 121 also requires impairment losses to be recorded when the carrying amount of long-lived assets that are expected to be disposed of, exceed their fair values, net of disposal costs. Adoption of SFAS No. 121 did not have a material impact on the Predecessor's financial position at September 30, 1996 or results of operations for the period then ended. F-8 U.S. RENTALS, INC. (Predecessor) NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued) INVENTORIES The Predecessor's inventories primarily consist of items such as hand tools and accessories held for resale. Inventories are stated at the lower of cost, determined by the first-in, first-out method, or market. SELF-INSURANCE The Predecessor is self-insured for general liability, workers' compensation and group medical insurance claims up to specified per claim and aggregate amounts. Self-insurance costs are accrued based upon the aggregate liability for reported claims incurred and an estimated liability for claims incurred but not reported. These liabilities are not discounted. EARNINGS PER SHARE Historical earnings per share data have not been presented due to the planned change in capital structure as previously described. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts reported in the combined balance sheets for trade accounts receivable, accounts payable and other liabilities approximate fair value due to the immediate to short-term maturity of these financial instruments. The fair value of notes receivable and notes payable is determined using current interest rates for similar instruments as of December 31, 1995 and approximates the carrying value of these notes due to the fact that the underlying instruments include provisions to adjust note balances and interest rates to approximate fair market value. CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Predecessor to significant concentrations of credit risk consist primarily of trade accounts receivable from construction and industrial customers. Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of customers and the Predecessor's geographic dispersion. The Predecessor performs credit evaluations of its customers' financial condition and generally does not require collateral on accounts receivable. The Predecessor maintains an allowance for doubtful accounts on its receivables based upon expected collectibility. Allowance for doubtful accounts was $5,201,000, $6,166,000 and $10,397,000 at December 31, 1994 and 1995 and September 30, 1996, respectively. ADVERTISING COSTS The Company advertises primarily through trade journals and the media. Advertising costs are expensed as incurred. INCOME TAXES The Predecessor has elected S corporation status under the U.S. Internal Revenue Code. Pursuant to this election (and similar elections in California and certain other states), the Predecessor's income, deductions, and credits are reported on the income tax return of the Predecessor's stockholder for federal purposes and, accordingly, no provision for federal income taxes has been made. F-9 U.S. RENTALS, INC. (Predecessor) NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued) California assesses a corporate level income tax on S corporations and certain states in which the Company does business do not recognize S corporation status. Therefore, the Company remains subject to, and has made provision for, taxes in those states. Because of certain transactions discussed under Planned Offering, historical results of operations, including income taxes, is not, in all cases, indicative of future results. The unaudited pro forma income tax provision is computed using the asset and liability method under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between tax bases and financial reporting bases of assets and liabilities. 2. NOTES RECEIVABLE FROM AFFILIATE Interest on notes receivable from affiliate is due quarterly at the rate of 13.5%. Annual principal payments of $100,000 are due through December 31, 2013 and the remaining unpaid principal balance is due on December 31, 2014. The Company earned interest income from the affiliate of $3,268,000, $3,324,000, $3,343,000, $2,500,000 and $2,515,000 for each of the three years in the period ended December 31, 1995, and for the nine-month periods then ended September 30, 1995 and 1996, respectively. The notes provide for positive or negative annual adjustments of principal based on the change in the Consumer Price Index, limited to certain percentages of the affiliated entity's cumulative net income from December 31, 1984. The accompanying financial statements include principal adjustments in notes receivable and other income in the amounts of $534,000, $243,000, $220,000, $165,000 and $402,000 for each of the three years in the period ended December 31, 1995, and for the nine-month periods ended September 30, 1995 and 1996, respectively. 3. PROPERTY AND EQUIPMENT Property and equipment, net, consists of the following (in thousands):
December 31, ------------------------------ September 30, 1994 1995 1996 ------------- -------------- ------------- (unaudited) Land................................ $ 7,707 $ 8,233 $ 13,442 Buildings........................... 6,265 9,736 11,786 Vehicles and delivery equipment..... 16,088 20,111 26,228 Yard equipment...................... 2,376 2,660 2,883 Furniture and fixtures.............. 3,105 3,826 4,401 Leaseholds.......................... 4,934 5,672 7,718 -------- -------- -------- 40,475 50,238 66,458 Less accumulated depreciation....... (19,559) (23,868) (27,954) -------- -------- -------- $ 20,916 $ 26,370 $ 38,504 ======== ======== ========
F-10 U.S. RENTALS, INC. (Predecessor) NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued) 4. ACCOUNTS PAYABLE AND OTHER LIABILITIES Accounts payable and other liabilities consist of the following (in thousands):
December 31, -------------------- September 30, 1994 1995 1996 ------- ------- ------------- (unaudited) Trade payables and other accruals.................... $25,473 $36,556 $36,487 Profit sharing accrual............................... 7,249 8,945 4,624 Self-insurance reserve............................... 12,101 10,910 13,295 ------- ------- ------ $44,823 $56,411 $54,406 ======= ======= =======
5. NOTES PAYABLE Notes payable consist of the following (in thousands):
December 31, --------------------- September 30, 1994 1995 1996 ---------- --------- ------------- (unaudited) Notes payable to related parties: Subordinated note payable to The Colburn School of Performing Arts, interest payable quarterly at prime rate plus 5%, due in 2013 and 2014 (13.5% at December 31, 1995)........................... $20,000 $20,000 $20,000 Demand notes payable to related parties, interest at various rates tied to the Predecessor's average bank borrowing rate. Interest rates ranged from 8.45% to 10.5% at December 31, 1995.................... 3,852 3,884 3,965 ------- ------- ------- 23,852 23,884 23,965 ------- ------- -------
F-11 U.S. RENTALS, INC. (Predecessor) NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED) 5. NOTES PAYABLE (CONTINUED) Notes payable, other: Senior notes payable to various parties, interest payable semi-annually ranging from 6.82% to 7.76%, due 1999 to 2002......................................... - 50,000 90,000 Revolving line of credit, interest payable monthly at reference rate plus .125% (8.5% at December 31, 1995)....................................... - 3,900 - Revolving line of credit, interest payable monthly at money market rate (6.375% at December 31, 1995)....... 55,900 23,000 58,000 Notes payable to a bank, interest and principal payable monthly at rates ranging from 5.74% to 9.51% due 1997........................................... 3,499 4,162 3,543 Notes payable related to the purchase of certain businesses, imputed interest averaging 7%, due through 1999............................................. 1,500 750 500 ------- -------- -------- 60,899 81,812 152,043 ------- -------- -------- $84,751 $105,696 $176,008 ======= ======== ========
The Predecessor's agreement with the bank provides for a secured line of credit of $110,000,000 maturing no later than October 31, 1997. The bank and senior note agreements include restrictions as to limitations upon certain ratios of liabilities to net worth and upon the minimum net worth of the Predecessor. The Predecessor is in compliance with covenants in all agreements. Substantially all rental equipment, property and equipment, and notes and accounts receivable of the Predecessor are pledged as collateral for the bank line of credit, senior notes, demand notes, and notes related to purchases of certain businesses. The Predecessor pays a commitment fee of 0.125% on the unused portion of the outstanding line of credit balance less outstanding letters of credit calculated quarterly based on the average daily balance. The Predecessor incurred interest expense of $1,275,000, $2,899,000, $4,078,000, $3,378,000, and $2,306,000 on borrowings from related parties for each of the three years in the period ended December 31, 1995 and for the nine-month periods ended September 30, 1995 and 1996, respectively. Cash paid for interest was $1,871,000, $4,535,000, $7,340,000, $5,692,000 and $7,760,000 for each of the three years in the period ended December 31, 1995 and for the nine-month periods ended September 30, 1995 and 1996, respectively. Maturities of debt are as follows at December 31, 1995 (in thousands): 1996............................. $ 53,275 1997............................. 1,516 1998............................. 805 1999............................. 10,100 2000............................. 10,000 Thereafter....................... 30,000 -------- $105,696 ========
6. INCOME TAXES The income tax provision is comprised of current state income tax expense of $405,000, $499,000, $468,000, $379,000 and $316,000 for each of the three years in the period ended December 31, 1995 and for the nine-month periods ended September 30, 1995 and 1996, respectively. Deferred taxes for such periods have been immaterial. F-12 U.S. RENTALS, INC. (Predecessor) NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued) Cash payments of state income taxes made by the Predecessor were $575,000, $353,000, $597,000, $184,000 and $107,000 for each of the three years in the period ended December 31, 1995 and for the nine-month periods ended September 30, 1995 and 1996, respectively. The unaudited pro forma provision for income taxes included in the accompanying combined statements of operations shows the results as if the Predecessor had always been subject to income taxes as a C corporation. The unaudited pro forma provision for income taxes differs from the amount of income tax determined by applying the U.S. statutory federal income tax rate of 35% to income before income taxes as a result of the following (in thousands):
Year ended December 31, -------------------------- 1993 1994 1995 ------- ------- ------ Federal income taxes.................. 35.0% 35.0% 35.0% State income taxes, net of federal benefit.............................. 5.5% 5.3% 5.3% Other................................. .6% .7% .8% ----- ----- ----- 41.1% 41.0% 41.1% ===== ===== =====
Deferred income tax assets and liabilities are computed based on temporary differences between the financial statement and income tax bases of assets and liabilities using the enacted marginal income tax rate in effect for the year in which the differences are expected to reverse. Deferred income tax expenses or credits are based on the changes in the deferred income tax assets or liabilities from period to period. Pro forma deferred taxes are provided for the temporary differences between the financial reporting bases and the tax bases of the Predecessor's assets and liabilities. Pro forma deferred tax assets (liabilities) are as follows (in thousands):
September 30, 1996 ------------- (unaudited) Self-insurance reserves...................... $ 5,329 Compensation related accruals................ 1,288 Allowances for doubtful accounts............. 2,772 State income taxes........................... 1,014 Others, net.................................. 965 -------- 11,368 Depreciation................................. (16,909) -------- $ (5,541) ========
F-13 U.S. RENTALS, INC. (Predecessor) NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued) 7. COMMITMENTS AND CONTINGENCIES OPERATING LEASES The Predecessor leases certain facilities under operating leases which contain renewal options and provide for periodic cost of living adjustments. Rental expense was $2,986,000, $3,160,000, $3,365,000, $2,481,000 and $2,687,000 for each of the three years in the period ended December 31, 1995 and for the nine-month periods ended September 30, 1995 and 1996, respectively. Future minimum rental commitments as of December 31, 1995 under noncancelable operating leases are (in thousands): 1996....................... $ 6,941 1997....................... 5,179 1998....................... 2,122 1999....................... 1,789 2000....................... 1,059 Thereafter................. 1,238 ------- $18,328 =======
LEGAL MATTERS The Predecessor is party to legal proceedings and potential claims arising in the ordinary course of its business. In the opinion of management, the Predecessor has adequate legal defense, reserves or insurance coverage with respect to these matters so that the ultimate resolution will have no material adverse effect on the Predecessor's financial position, results of operations or cash flows. The Predecessor has accrued $8,247,000, $7,730,000 and $9,384,000 at December 31, 1994 and 1995 and September 30, 1996, respectively, to cover the uninsured portion of possible costs arising from these pending claims and other potential unasserted claims. ENVIRONMENTAL MATTERS The Predecessor and its operations are subject to various laws and related regulations governing environmental matters. Under such laws, an owner or lessee of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in, or emanating from, such property, as well as investigation of property damage. The Predecessor incurs ongoing expenses associated with the removal of underground storage tanks and the performance of appropriate remediation at certain of its locations. The Predecessor does not believe that such removal and remediation will have a material adverse effect on the Predecessor's financial position or results of operations. F-14 U.S. RENTALS, INC. (Predecessor) NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued) 8. EMPLOYEE BENEFIT PLANS The Predecessor sponsors a defined contribution 401(k) retirement plan (the Plan) which is subject to the provisions of ERISA. Under the plan, which was implemented in 1994, the Predecessor matches a minimum of 50% of the participants' contributions up to a specified amount as determined by the Board of Directors. Predecessor contributions to the plan were $533,000 and $246,000 for each of the two years in the period ended December 31, 1995, and $68,000 for the nine-months ended September 30, 1996. F-15 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of U.S. Rentals, Inc. In our opinion, the accompanying balance sheet presents fairly, in all material respects, the financial position of U.S. Rentals, Inc., a Delaware corporation, at September 30, 1996, in conformity with generally accepted accounting principles. This financial statement is the responsibility of the management of U.S. Rentals, Inc.; our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit of this statement in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. Price Waterhouse LLP Sacramento, California December 6, 1996 F-16 U.S. RENTALS, INC. (the Company) BALANCE SHEET
September 30, 1996 ---- ASSETS Total assets............................................... $ -- ======== LIABILITIES AND STOCKHOLDER'S EQUITY Total liabilities.......................................... $ -- -------- Stockholder's equity: Preferred stock, $.01 par value; no shares authorized, no shares issued or outstanding.......................... -- Common stock, $.01 par value; 1,000 shares authorized, no shares issued or outstanding.......................... -- Paid-in capital.......................................... -- -------- Total stockholder's equity................................. -- -------- Total liabilities and stockholder's equity................. $ -- ========
See accompanying note. F-17 U.S. RENTALS, INC. (the Company) NOTE TO BALANCE SHEET As of September 30, 1996 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION U.S. Rentals, Inc. (the "Company") is a Delaware Corporation and primarily involved in the short-term rental of general purpose construction equipment, and to a lesser extent, selling complementary parts, merchandise, new and used equipment to commercial and residential construction companies, industrial enterprises, homeowners and other customers. At September 30, 1996, the Company owned 77 equipment rental yards located in 10 states across the western and southern regions of the United States. The Company was incorporated in 1987 in anticipation of a reorganization of certain entities under common control. The reorganization will be undertaken in connection with the planned offerings of Common Stock. The balance sheet should be read in conjunction with the historical Combined Financial Statements of U.S. Rentals, Inc. (the "Predecessor") included elsewhere in this registration statement. FINANCIAL STATEMENT PRESENTATION The preparation of the balance sheet 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 balance sheet. Actual results could differ from those estimates. INCOME TAXES Income taxes are computed using the asset and liability method under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between tax bases and financial reporting bases of assets and liabilities. STOCK-BASED COMPENSATION The Company has adopted Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), Accounting for Stock-Based Compensation effective January 1, 1996. SFAS No. 123 becomes effective during 1996. The Company will measure compensation expense for its stock-based employee compensation plans using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and will provide pro forma disclosures of net income and net income per share as if the fair value-based method prescribed by SFAS No. 123 had been applied in measuring compensation expense. F-18 U.S. RENTALS, INC. (THE COMPANY) UNAUDITED PRO FORMA COMBINED BALANCE SHEETS AS OF SEPTEMBER 30, 1996 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Pro Forma for the Pro Forma Offering Adjustments Pro Forma Pro Forma Related for the Offering for the Adjustments Transactions The The Related Offering Related for the and the Company Predecessor Transactions Transactions Offerings Offerings ------- ----------- ---------------- ---------------- ----------- ------------ ASSETS Cash............................... $ - $ 3,766 $ - $ 3,766 $ 13,191 (e) $ 16,957 Accounts receivable, net........... 39,401 39,401 39,401 Notes receivable from affiliate......................... - 25,212 (25,212) (a) - - - Notes receivables, other........... - 848 (652) (a) 196 - 196 Inventories........................ - 4,278 4,278 4,278 Rental equipment, net.............. - 203,913 - 203,913 - 203,913 Property and equipment, net........ - 38,504 - 38,504 - 38,504 Prepaid expenses and other assets............................ - 5,468 (3,194) (a) 2,274 - 2,274 ------- -------- -------- -------- --------- -------- Total assets....................... $ - $321,390 $(29,058) $292,332 $ 13,191 $305,523 ======= ======== ======== ======== ========= ======== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities Accounts payable and other liabilities.................... $ - $ 54,406 $ (2,153) (a) $ 52,253 $ - $ 52,253 Notes payable to related parties........................ - 23,965 (23,965) (a) - - - Notes payable, other............. - 152,043 - 152,043 (151,543) (e) 500 Deferred taxes................... - - 5,541 (b) 5,541 - 5,541 ------- -------- -------- -------- --------- -------- Total liabilities.................. - 230,414 (20,577) 209,837 (151,543) 58,294 ------- -------- -------- -------- --------- -------- Stockholder's equity Common stock of Predecessor...... - 699 (699) (a) - - - Preferred stock, par value $.01 per share; no shares authorized or outstanding................. - - - - - - Common stock; par value $.01 per share; 1,000 shares authorized and none outstanding.................... - - - Paid-in capital.................. - 13,186 74,850 (d) 88,036 168,000 (f) 256,036 Retained earnings................ - 77,091 (2,241) (a) (5,541) (3,266) (g) (8,807) - - - (74,850) (d) - - - (5,541) (b) - - - ------- -------- -------- -------- --------- -------- Total stockholder's equity......... - 90,976 (8,481) 82,495 164,734 247,229 ------- -------- -------- -------- --------- -------- Total liabilities and stockholder's equity............. $ - $321,390 $(29,058) $292,332 $ 13,191 $305,523 ======= ======== ======== ======== ========= ========
See accompanying notes. F-19 U.S. RENTALS, INC. (THE COMPANY) UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Pro Forma for the Pro Forma Offering Adjustments Pro Forma Pro Forma Related for the Offering for the Adjustments Transactions The The Related Offering Related for the and the Company Predecessor Transactions Transactions Offerings Offerings ------- ----------- ---------------- ---------------- ------------ ----------- Revenues: Rental revenue................. $ - $214,849 $ - $214,849 $ - $214,849 Rental equipment sales......... - 10,832 - 10,832 - 10,832 Merchandise and new equipment sales............... - 17,166 - 17,166 - 17,166 ------- -------- -------- -------- ------ -------- Total revenues................... - 242,847 - 242,847 - 242,847 ------- -------- -------- -------- ------ -------- Cost of Revenues: Rental equipment expense....... - 51,370 - 51,370 - 51,370 Rental equipment depreciation.. - 43,885 - 43,885 - 43,885 Cost of rental equipment sales. - 4,693 - 4,693 - 4,693 Cost of merchandise and new equipment sales.............. - 11,418 - 11,418 - 11,418 Direct operating expense....... - 56,506 - 56,506 - 56,506 ------- -------- -------- -------- ------ -------- Total cost of revenues........... - 167,872 - 167,872 - 167,872 ------- -------- -------- -------- ------ -------- Gross profit..................... - 74,975 - 74,975 - 74,975 Selling, general and administrative expense.......... - 31,440 - 31,440 (675) (j) 30,765 Non-rental depreciation.......... - 5,513 - 5,513 5,513 ------- -------- -------- -------- ------ -------- Operating income................. - 38,022 38,022 675 38,697 Other income (expense), net...... - (1,620) (220) (c) (1,840) (1,840) Interest income.................. - 3,566 (3,400) (c) 166 166 Interest expense................. - (8,876) 4,078 (c) (4,798) 4,759 (i) (39) ------- -------- -------- -------- ------ -------- Income before income taxes....... - 31,092 458 31,550 5,434 36,984 Income taxes..................... - 468 12,467 (h) 12,935 2,228 (i) 15,163 ------- -------- -------- -------- ------ -------- Net income....................... $ - $ 30,624 $(12,009) $ 18,615 $3,206 $ 21,821 ======= ======== ======== ======== ====== ======== Net income per share............. $ - ======== Weighted average common shares outstanding.............. - ========
See accompanying notes. F-20 U.S. RENTALS, INC. (THE COMPANY) UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Pro Forma Pro Forma for the Offering Adjustments Pro Forma Pro Forma Related for the Offering for the Adjustments Transactions The The Related Offering Related for the and the Company Predecessor Transactions Transactions Offerings Offerings ------- ----------- ---------------- ----------------- ----------- ---------------- Revenues: Rental revenue................ $ - $183,233 $ - $183,233 $ - $183,233 Rental equipment sales........ - 16,165 - 16,165 - 16,165 Merchandise and new equipment sales.............. - 17,064 - 17,064 - 17,064 ------- -------- ------- -------- ------ -------- Total revenues................. - 216,462 - 216,462 - 216,462 ------- -------- ------- -------- ------ -------- Cost of Revenues: Rental equipment expense...... - 45,708 - 45,708 - 45,708 Rental equipment depreciation. - 41,054 - 41,054 - 41,054 Cost of rental equipment sales - 6,785 - 6,785 - 6,785 Cost of merchandise and new equipment sales.............. - 12,418 - 12,418 - 12,418 Direct operating expense...... - 52,699 - 52,699 - 52,699 ------- -------- ------- -------- ------ -------- Total cost of revenues......... - 158,664 - 158,664 - 158,664 ------- -------- ------- -------- ------ -------- Gross profit................... - 57,798 - 57,798 - 57,798 Selling, general and administrative expense........ - 24,086 - 24,086 (458) (j) 23,628 Non-rental depreciation........ - 5,386 - 5,386 - 5,386 ------- -------- ------- -------- ------ -------- Operating income............... - 28,326 - 28,326 458 28,784 Other income (expense), net.... - 342 (402) (c) (60) - (60) Interest income................ - 2,570 (2,570) (c) - - - Interest expense............... - (8,286) 2,306 (c) (5,980) 5,941 (i) (39) ------- -------- ------- -------- ------ -------- Income before income taxes..... - 22,952 (666) 22,286 6,399 28,685 Income taxes................... - 316 8,685 (h) 9,001 2,585 (i) 11,586 ------- -------- ------- -------- ------ -------- Net income..................... $ - $ 22,636 $(9,351) $13,285 $3,814 $ 17,099 ======= ======== ======= ======== ====== ======== Net income per share........... $ - ======== Weighted average common shares outstanding............. - ========
See accompanying notes. F-21 U.S. RENTALS, INC. (THE COMPANY) NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEETS AND STATEMENTS OF OPERATIONS 1. Basis of Presentation Prior to the initial public offerings (the "Offering"), U.S. Rentals, Inc. (the "Predecessor") will transfer all of its operating assets and associated liabilities to U.S. Rentals, Inc. (the "Company"), a Delaware corporation, in exchange for all of the outstanding shares of common stock of the Company. In addition, prior to the Offerings, USR Leasing Company ("USRL"), a special purpose entity, will be merged into the Predecessor. Because the Predecessor and USRL are under common control, the merger will be accounted for as pooling of interests. The unaudited pro forma financial data reflects the offering related transactions and the Offerings as if such transactions had been completed as of September 30, 1996 for pro forma combined balance sheet data purposes and as of January 1, 1995 for pro forma combined statement of operations data purposes. These data do not necessarily reflect the results of operations or financial position of the Company that would have resulted had such transactions actually been consummated as of such dates. Also, these data are not necessarily indicative of the future results of operations or future financial position of the Company. 2. PRO FORMA ADJUSTMENTS Offering related transactions a) Reflects the planned transfer of all operating assets and associated liabilities of the Predecessor to the Company in exchange for all the outstanding Common Stock of the Company. b) Reflects the recognition of a deferred tax liability relating to federal and state income taxes as if the Company had been taxed as a C corporation rather than as an S corporation since inception. c) Reflects the pro forma effect on interest expense, interest income and other income from the planned transfer of all operating assets and associated liabilities of the Predecessor to the Company. d) Reflects the reclassification of retained earnings of the Predecessor to paid-in capital of the Company in connection with the transfer of all operating assets and associated liabilities of the Predecessor in exchange for all the outstanding Common Stock of the Company. Offerings e) Reflects the retirement of debt as described in i) below with a portion of the proceeds from the Offerings. f) Reflects the net proceeds to the Company from the Offerings less the retirement of debt as described below in h). F-22 U.S. RENTALS, INC. (THE COMPANY) NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEETS AND STATEMENTS OF OPERATIONS g) Reflects the pro forma effect on retained earnings of the penalty associated with early repayment of senior notes. h) Adjustment to record the pro forma C corporation tax provision, including effects of adjustments from (c) above. i) Reflects the pro forma effect on interest expense and the related tax effect of retiring debt with a portion of the net proceeds from the Offerings. Such debt includes bank borrowings under a credit and security agreement, senior notes payable and other notes payable. j) Reflects the pro forma effect on selling, general and administrative expense related to the termination of deferred incentive compensation agreements with certain employees. Such compensation agreements are intended to be replaced with stock options which will be granted at fair value resulting in no compensation expense to the Company. 3. PRO FORMA NET INCOME PER SHARE Pro forma per share data is computed based on _________________ shares of Common Stock outstanding and Common Stock equivalents after giving effect to the Offering Related Transactions and the Offerings and options granted to executive officers of the Company to purchase _____________ shares of Common Stock. F-23 ================================================================================ No dealer, salesperson or other person has been authorized to give any information or to make any representations other than those contained in this Prospectus, and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or the Underwriters. This Prospectus does not constitute an offer to sell, or a solicitation of any offer to buy, the Common Stock in any jurisdiction where, or to any person to whom, it is unlawful to make such an offer or solicitation. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has not been any change in the facts set forth in this Prospectus or in the affairs of the Company since the date hereof. _______________ TABLE OF CONTENTS PAGE ---- Prospectus Summary..................................................... Risk Factors........................................................... Offering Related Transactions.......................................... Use of Proceeds........................................................ Dividend Policy........................................................ Dilution............................................................... Capitalization......................................................... Selected Financial Data................................................ Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. Business............................................................... Management............................................................. Certain Transactions................................................... Principal Stockholders................................................. Description of Capital Stock........................................... Shares Eligible for Future Sale........................................ Underwriting........................................................... Legal Matters.......................................................... Experts................................................................ Available Information.................................................. Index to Financial Statements.......................................... ____________________________ Until _____, 1997 (25 days after the date of this Prospectus), all dealers effecting transactions in the Common Stock, whether or not participating in this distribution, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as Underwriters and with respect to their unsold allotments or subscriptions. ================================================================================ ================================================================================ __________ Shares [U.S. RENTALS, INC. LOGO] Common Stock ______________ PROSPECTUS ______________ DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MERRILL LYNCH & CO. SALOMON BROTHERS INC , 1997 ================================================================================ INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. [ALTERNATE SECTION FOR INTERNATIONAL PROSPECTUS] SUBJECT TO COMPLETION, DATED DECEMBER 13, 1996 PROSPECTUS , 1997 ____________ SHARES [U.S. RENTALS, INC. LOGO] COMMON STOCK All of the _______ shares of common stock, $.01 par value per share (the "Common Stock"), offered hereby are being sold by U.S. Rentals, Inc. ("U.S. Rentals" or the "Company"). Of the ______ shares of Common Stock offered by the Company, _______ shares are being offered for sale in the United States and Canada by the U.S. Underwriters (the "U.S. Offering") and _______ shares are being offered for sale outside the United States and Canada in a concurrent offering by the International Managers (the "International Offering" and, together with the U.S. Offering, the "Offerings"), subject to transfers between the U.S. Underwriters and the International Managers. See "Underwriting." Prior to the Offerings, there has been no public market for the Common Stock. It is currently estimated that the initial public offering price will be between $_____ and $_____ per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. Application has been made to list the Common Stock on the New York Stock Exchange under the symbol "USR." SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. 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.
- ------------------------------------------------------------------------------- PRICE UNDERWRITING PROCEEDS TO THE DISCOUNTS AND TO THE PUBLIC COMMISSIONS(1) COMPANY(2) - ------------------------------------------------------------------------------- Per Share.......................... $ $ $ Total(3)........................... $ $ $ - -------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the several U.S. Underwriters and International Managers (collectively, the "Underwriters") against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company, estimated at $___________. (3) The Company has granted to the U.S. Underwriters a 30-day option to purchase up to ____________ additional shares of Common Stock solely to cover over-allotments, if any. If such option is exercised in full, the total Price to the Public, Underwriting Discounts and Commissions, and Proceeds to the Company will be $ , $ and $ , respectively. See "Underwriting." The shares of Common Stock are being offered by the several Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, subject to various prior conditions, including their right to reject any order in whole or in part. It is expected that delivery of share certificates will be made in New York, New York, on or about ____________, 1997. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MERRILL LYNCH INTERNATIONAL SALOMON BROTHERS INTERNATIONAL LIMITED [ALTERNATE SECTION FOR INTERNATIONAL PROSPECTUS] CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS OF COMMON STOCK The following is a general summary of certain United States federal income and estate tax consequences of the ownership, sale or other disposition of Common Stock by a person (a "non-U.S. holder") that, for United States federal income tax purposes, is a nonresident alien individual, a foreign corporation, a foreign partnership or a foreign estate or trust, as such terms are defined in the Internal Revenue Code of 1986, as amended (the "Code"). This summary does not address all aspects of United States federal income and estate taxes that may be relevant to non-U.S. holders in light of their particular facts and circumstances or to certain types of non-U.S. holders that may be subject to special treatment under United States federal income tax laws (for example, individual non-U.S. holders who are former citizens or former long-term residents of the United States, insurance companies, tax exempt organizations, financial institutions or broker-dealers). Furthermore, this summary does not discuss any aspects of foreign, state or local taxation. This summary is based on current provisions of the Code, existing and proposed regulations promulgated thereunder and administrative and judicial interpretations thereof, all of which are subject to change, possibly retroactively. DIVIDENDS Dividends paid to a non-U.S. holder of Common Stock will generally be subject to withholding of United States federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty, unless the dividends are effectively connected with the conduct of a trade or business of the non-U.S. holder within the United States. To claim the benefit of an applicable tax treaty rate, a non-U.S. holder may have to file with the Company or its dividend paying agent an exemption or reduced treaty rate certificate or letter in accordance with the terms of such treaty. Dividends that are effectively connected with such holder's conduct of a trade or business in the United States are generally subject to tax on a net income basis (that is, after allowance for applicable deductions) at rates applicable to United States citizens, resident aliens and domestic United States corporations, and are not generally subject to withholding. Any such effectively connected dividends received by a non-U.S. corporation may also, under certain circumstances, be subject to an additional "branch profits tax" at a 30% rate on such lower rate as may be specified by an applicable income tax treaty. Under current United States Treasury regulations, dividends paid to an address outside the United States are presumed to be paid to a resident of such country for purposes of the withholding discussed above (unless the payor has knowledge to the contrary). Under the current interpretation of United States Treasury regulations, the same presumption applies for purposes of determining the applicability of a tax treaty rate; however, under proposed United States Treasury regulations not currently in effect, a non-U.S. holder of Common Stock who wishes to claim the benefit of an applicable treaty rate would be required to satisfy applicable certification and other requirements. Certain certification and disclosure requirements must be complied with in order to be exempt from withholding under the effectively connected income exemption discussed above. A non-U.S. holder of Common Stock that is eligible for a reduced rate of United States tax withholding pursuant to an income tax treaty may obtain a refund of any excess amounts currently withheld by filing an appropriate claim for refund with the United States Internal Revenue Service. DISPOSITION OF COMMON STOCK A non-U.S. holder generally will not be subject to United States federal income tax in respect of gain recognized on the disposition of Common Stock unless (i) the gain is effectively connected with the conduct of a trade or business of a non-U.S. holder in the United States, and if a tax treaty applies, attributable to a permanent establishment maintained by the non-U.S. holder, (ii) in the case of a non-U.S. holder who is a nonresident alien individual and holds Common Stock as a capital asset, such holder is present in the United States for 183 or more days in the taxable year of the sale and either (a) such [ALTERNATE SECTION FOR INTERNATIONAL PROSPECTUS] individual's "tax home" for United States federal income tax purposes is in the United States or (b) the gain is attributable to an office or other fixed place of business maintained in the United States by such individual, or (iii) if the Company is or has been a "U.S. real property holding corporation" for federal income tax purposes at any time during the five-year period ending on the date of the disposition or, if shorter, the period during which the non-U.S. holder held the Common Stock and the non-U.S. holder holds, actually or constructively, at any time during the applicable period, more than 5% of the Common Stock. Although the Company owns some real estate assets, it is not now and does not expect in the foreseeable future to be a United States real property holding corporation for United States federal tax purposes. FEDERAL ESTATE TAXES Common Stock owned or treated as owned by a holder who is neither a United States citizen nor a United States resident (as specially defined for United States federal estate tax purposes) at the time of death will be included in such holder's gross estate for United States federal estate tax purposes, unless an applicable estate tax treaty provides otherwise. UNITED STATES INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX The Company must report annually to the Internal Revenue Service and to each non-U.S. holder the amount of dividends paid to such holder and the tax withheld with respect to such dividends. These information reporting requirements apply regardless of whether withholding is required. Copies of the information returns reporting such dividends and withholding may also be made available to the tax authorities in the country in which the non-U.S. holder resides under the provisions of an applicable income tax treaty. United States backup withholding (which generally is imposed at a 31% rate) generally will not apply to (i) the payment of dividends paid on Common Stock to a non-U.S. holder at an address outside the United States or (ii) the payment of the proceeds of the sale of Common Stock to or through the foreign office of a foreign broker. In the case of the payment of proceeds from such a sale of Common Stock through foreign offices of United States brokers, or foreign brokers with certain types of relationships to the United States, however, information reporting (but not backup withholding) is required with respect to the payment unless the broker has documentary evidence in its files that the owner is a non-U.S. holder (and has no actual knowledge to the contrary) and certain other requirements are met or the holder otherwise establishes an exemption. The payment of the proceeds of a sale of shares of Common Stock to or through a U.S. office of a broker is subject to information reporting and possible backup withholding at a rate of 31% unless the owner certifies its non- U.S. status under penalties of perjury or otherwise establishes an exemption. Any amounts withheld under the backup withholding rules from a payment to a non- U.S. holder will be allowed as a refund or a credit against such non-U.S. holder's United States federal income tax liability, provided that the required information is furnished to the Internal Revenue Service. The United States Treasury has recently issued proposed regulations regarding the withholding and information reporting rules discussed above. In general, the proposed regulations do not alter the substantive withholding and information reporting requirements but unify current certification procedures and forms and clarify and modify reliance standards. For instance, the proposed regulations would, among other changes, eliminate the presumption under current regulations with respect to dividends paid to addresses outside the United States. If finalized in their current form, the proposed regulations would generally be effective for payments made after December 31, 1997, subject to certain transition rules. THE FOREGOING SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY. ACCORDINGLY, INVESTORS ARE URGED TO CONSULT WITH THEIR TAX ADVISORS WITH RESPECT TO THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF COMMON STOCK, INCLUDING THE APPLICATION AND EFFECT OF THE LAWS OF ANY STATE, LOCAL, FOREIGN OR OTHER TAXING JURISDICTION. [ALTERNATE SECTION FOR INTERNATIONAL PROSPECTUS] ================================================================================ No dealer, salesperson or other person has been authorized to give any information or to make any representations other than those contained in this Prospectus, and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or the Underwriters. This Prospectus does not constitute an offer to sell, or a solicitation of any offer to buy, the Common Stock in any jurisdiction where, or to any person to whom, it is unlawful to make such an offer or solicitation. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has not been any change in the facts set forth in this Prospectus or in the affairs of the Company since the date hereof. _______________ TABLE OF CONTENTS PAGE ---- Prospectus Summary..................................................... Risk Factors........................................................... Offering Related Transactions.......................................... Use of Proceeds........................................................ Dividend Policy........................................................ Dilution............................................................... Capitalization......................................................... Selected Financial Data................................................ Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. Business............................................................... Management............................................................. Certain Transactions................................................... Principal Stockholders................................................. Description of Capital Stock........................................... Shares Eligible for Future Sale........................................ Certain United States Federal Tax Consequences to Non-United States Holders of Common Stock........................................ Underwriting........................................................... Legal Matters.......................................................... Experts................................................................ Available Information.................................................. Index to Financial Statements ________________________ Until _____, 1997 (25 days after the date of this prospectus), all dealers effecting transactions in the Common Stock, whether or not participating in this distribution, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as Underwriters and with respect to their unsold allotments or subscriptions. ================================================================================ ================================================================================ __________ Shares [U.S. RENTALS, INC. LOGO] Common Stock ______________ PROSPECTUS ______________ DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MERRILL LYNCH INTERNATIONAL SALOMON BROTHERS INTERNATIONAL LIMITED , 1997 ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the expenses, other than underwriting discounts and commissions, payable by the Company in connection with the issuance and distribution of the Common Stock being registered. All amounts are estimates except the SEC registration fee, the NASD filing fee and the NYSE listing fee. Securities and Exchange Commission registration fee $62,728 NASD filing fee 21,200 NYSE listing fee Accounting fees and expenses * Legal fees and expenses * Blue Sky qualification fees and expenses * Printing and engraving expenses * Transfer agent and registrar fees * D&O Insurance * Miscellaneous * ------- Total $ * =======
___________ * To be completed by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company's Certificate of Incorporation provides that to the fullest extent permitted by the DGCL, 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. Under the DGCL, liability of a director may not be limited (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) in respect of certain unlawful dividend payments or stock redemptions or repurchases and (iv) for any transaction from which the director derives an improper personal benefit. The effect of the provisions of the Company's Certificate of Incorporation is to eliminate the rights of the Company and its stockholders (through stockholders' derivative suits on behalf of the Company) to recover monetary damages against a director for breach of the fiduciary duty of care as a director (including breaches resulting from negligent or grossly negligent behavior), except in the situations described in clauses (i) through (iv) above. This provision does not limit or eliminate the rights of the Company or any stockholder to seek nonmonetary relief such as an injunction or rescission in the event of a breach of a director's duty of care. In addition, the Company's Certificate of Incorporation provides that the Company shall indemnify its directors, officers, employees and agents against losses incurred by any such person by reason of the fact that such person was acting in such capacity. The Company has entered into agreements (the "Indemnification Agreements") with each of the directors and officers of the Company pursuant to which the Company has agreed to indemnify such director or officer from claims, liabilities, damages, expenses, losses, costs, penalties or amounts paid in settlement incurred by such director or officer in or arising out of such person's capacity as a director, II-1 officer, employee and/or agent of the Company or any other corporation of which such person is a director or officer at the request of the Company to the maximum extent provided by applicable law. In addition, such director or officer is entitled to an advance of expenses to the maximum extent authorized or permitted by law. To the extent that the Board of Directors or the stockholders of the Company wish to limit or repeal the ability of the Company to provide indemnification as set forth in the Company's Certificate of Incorporation, such repeal or limitation may not be effective as to directors and officers who are parties to the Indemnification Agreements, because their rights to full protection would be contractually assured by the Indemnification Agreements. It is anticipated that similar contracts may be entered into, from time to time, with future directors of the Company. The Form of Underwriting Agreement filed as Exhibit 1.1 to this Registration Statement provides for indemnification by the Underwriters of the Company and its directors and officers for certain liabilities arising under the Securities Act or otherwise. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Immediately prior to the closing of the Offerings, in connection with a reorganization of the Company, the Company intends to issue an aggregate of ______________ shares of the Company's Common Stock to the Principal Stockholder. See "Offering Related Transactions." The Company intends to issue the shares without registration under the Securities Act, in reliance upon the exemption provided by Section 4(2) of the Securities Act. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) EXHIBITS. Exhibit Number Description of Exhibit - -------------- ---------------------- 1.1* Form of Underwriting Agreement 3.1* Restated Certificate of Incorporation of the Company 3.2* Bylaws of the Company 4.1* Specimen Common Stock certificate 5.1* Opinion of O'Melveny & Myers LLP 10.1* Form of Indemnification Agreement between the Company and each of its executive officers and directors 10.2* Form of Agreement Regarding Pre-Offering Taxes 10.3* Form of Registration Rights Agreement 10.4* 1997 Performance Award Plan 10.5* Form of Employment Agreement 10.6 Second Amended and Restated Credit Agreement 10.7 Privately Placed Note Agreement 10.8* Security Agreement 10.9* Form of Intercreditor Agreement 10.10 Schedule to Forms of Note Agreement and Intercreditor Agreement 23.1 Consent of Price Waterhouse LLP 23.3* Consent of O'Melveny & Myers LLP (included in Exhibit 5.1) 24.1 Power of Attorney (contained on page II-4) 27.1 Financial Data Schedule - -------------------- *To be filed by amendment II-2 (b) FINANCIAL STATEMENT SCHEDULES All schedules are omitted because they are not required, are not applicable, or the information is included in the Financial Statements or notes thereto. ITEM 17. UNDERTAKINGS (a) The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. (b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. If a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act, and will be governed by the final adjudication of such issue. (c) The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of the registration statement as of the time it was declared effective. (2) For purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 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 Modesto, State of California, on December 13, 1996. U.S. RENTALS, INC. By: /s/ John S. McKinney --------------------------- John S. McKinney Chief Financial Officer POWER OF ATTORNEY We, the undersigned directors and officers of U.S. Rentals, Inc. hereby constitute and appoint Richard D. Colburn, William F. Berry, John S. McKinney, and Bernard E. Lyons or any of them, our true and lawful attorneys and agents, to do any and all acts and things in our name and behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, that said attorneys and agents, or either of them, may deem necessary or advisable to enable said corporation to comply with the Securities Act of 1933, as amended, and any rules, regulations, and requirements of the SEC, in connection with this Registration Statement, including specifically, but not limited to, power and authority to sign for us or any of us in our names and in the capacities indicated below, any and all amendments (including post-effective amendments) to this Registraton Statement, or any related registration statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended; and we hereby ratify and confirm all that the said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. II-4 Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ Richard D. Colburn Chairman of the Board December 13, 1996 - -------------------------- Richard D. Colburn /s/ William F. Berry President, Chief Executive December 13, 1996 - -------------------------- Officer and Director William F. Berry /s/ John S. McKinney Vice President - Finance, December 13, 1996 - -------------------------- Chief Financial Officer, and John S. McKinney Director (chief financial officer and principal accounting officer) /s/ Bernard E. Lyons Director December 13, 1996 - -------------------------- Bernard E. Lyons II-5 EX-10.6 2 SECOND AMENDED AND RESTATED CREDIT AGREEMENT EXHIBIT 10.6 ================================================================================ SECOND AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF AUGUST 21, 1996 AMONG U.S. RENTALS, INC., BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION AS ADMINISTRATIVE AGENT, COLLATERAL AGENT AND LETTER OF CREDIT ISSUING BANK AND THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO [LOGO FOR BANK OF AMERICA] TABLE OF CONTENTS -----------------
Page ---- SECTION 1 DEFINITIONS................................................. 1 1.01 Certain Defined Terms............................ 1 1.02 Other Interpretive Provisions.................... 23 1.03 Accounting Principles............................ 23 SECTION 2 THE CREDITS................................................. 24 2.01 Amounts and Terms of Commitments................. 24 2.02 Loan Accounts.................................... 24 2.03 Procedure for Borrowing.......................... 25 2.04 Conversion and Continuation Elections............ 25 2.05 Voluntary Termination or Reduction of Commitments...................................... 27 2.06 Optional Prepayments............................. 27 2.07 Mandatory Prepayments of Loans; Cash Collateralization of L/C Obligations............. 27 2.08 Repayment........................................ 28 2.09 Interest......................................... 28 2.10 Fees............................................. 28 (a) Arrangement, Agency Fees.................... 28 (b) Commitment Fees............................. 28 2.11 Computation of Fees and Interest................. 29 2.12 Payments by the Borrower......................... 29 2.13 Payments by the Banks to the Administrative Agent............................. 30 2.14 Sharing of Payments, Etc......................... 31 2.15 Security......................................... 31 SECTION 3 THE LETTERS OF CREDIT....................................... 31 3.01 The Letter of - Credit Subfacility............... 31 3.02 Issuance, Amendment and Renewal of Letters of Credit........................................ 33 3.03 Existing BofA Letters of Credit; Risk Participations, Drawings and Reimbursements...... 35
-i- 3.04 Repayment of Participations...................... 37 3.05 Role of the Issuing Bank......................... 38 3.06 Obligations Absolute............................. 39 3.07 Cash Collateral Pledge........................... 40 3.08 Letter of Credit Fees............................ 40 3.09 Uniform Customs and Practice..................... 41 SECTION 4 TAXES, YIELD PROTECTION AND ILLEGALITY...................... 41 4.01 Taxes............................................ 41 4.02 Illegality....................................... 42 4.03 Increased Costs and Reduction of Return.......... 43 4.04 Funding Losses................................... 43 4.05 Inability to Determine Rates..................... 44 4.06 Survival......................................... 44 SECTION 5 CONDITIONS PRECEDENT........................................ 45 5.01 Conditions of Initial Credit Extension........... 45 (a) Credit Agreement and Notes.................. 45 (b) Resolutions; Incumbency..................... 45 (c) Organization Documents; Good Standing....... 45 (d) Collateral Documents........................ 45 (e) Legal Opinion............................... 46 (f) Payment of Fees............................. 46 (g) Certificate................................. 46 (h) Subordination Agreements.................... 46 (i) Other Documents............................. 46 5.02 Conditions to All Credit Extensions.............. 46 (a) Notice, Application......................... 46 (b) Continuation of Representations and Warranties.................................. 47 (c) No Existing Default......................... 47 SECTION 6 REPRESENTATIONS AND WARRANTIES.............................. 47 6.01 Corporate Existence and Power.................... 47 6.02 Corporate Authorization; No Contravention........ 47 6.03 Governmental Authorization....................... 48 6.04 Binding Effect................................... 48 6.05 Litigation....................................... 48 6.06 No Default....................................... 48 6.07 ERISA Compliance................................. 48
-ii- 6.08 Use of Proceeds; Margin Regulations.............. 49 6.09 Title to Properties.............................. 49 6.10 Taxes............................................ 49 6.11 Financial Condition.............................. 50 6.12 Environmental Matters............................ 50 6.13 Regulated Entities............................... 50 6.14 No Burdensome Restrictions....................... 50 6.15 Copyrights, Patents, Trademarks and Licenses, etc.................................... 50 6.16 Subsidiaries..................................... 51 6.17 Insurance........................................ 51 6.18 Collateral Documents............................. 51 6.19 Full Disclosure.................................. 51 SECTION 7 AFFIRMATIVE COVENANTS....................................... 51 7.01 Financial Statements............................. 52 7.02 Certificates; Other Information.................. 52 7.03 Notices.......................................... 52 7.04 Preservation of Corporate Existence, Etc......... 53 7.05 Maintenance of Property.......................... 54 7.06 Insurance........................................ 54 7.07 Payment of Obligations........................... 54 7.08 Compliance with Laws............................. 54 7.09 Compliance with ERISA............................ 54 7.10 Inspection of Property and Books and Records..... 54 7.11 Environmental Laws............................... 55 7.12 Use of Proceeds.................................. 55 7.13 Collateral....................................... 55 SECTION 8 NEGATIVE COVENANTS.......................................... 55 8.01 Limitation on Liens.............................. 56 8.02 Disposition of Assets............................ 57 8.03 Consolidations and Mergers....................... 57 8.04 Loans and Investments............................ 57 8.05 Limitation on Indebtedness....................... 58 8.06 Transactions with Affiliates..................... 59 8.07 Use of Proceeds.................................. 59 8.08 Joint Ventures................................... 59 8.09 Lease Obligations................................ 59 8.10 Restricted Payments.............................. 59
-iii- 8.11 ERISA............................................ 60 8.12 Change in Business............................... 60 8.13 Asset Coverage Ratio............................. 60 8.14 Consolidated Tangible Net Worth.................. 60 8.15 Fixed Charge Coverage Ratio...................... 60 8.16 Leverage Ratio................................... 61 8.17 Accounting Changes............................... 61 SECTION 9 EVENTS OF DEFAULT........................................... 61 9.01 Event of Default................................. 61 (a) Non-Payment................................. 61 (b) Representation or Warranty.................. 61 (c) Specific Defaults........................... 61 (d) Other Defaults.............................. 61 (e) Cross-Default............................... 61 (f) Insolvency; Voluntary Proceedings........... 62 (g) Involuntary Proceedings..................... 62 (h) ERISA....................................... 62 (i) Monetary Judgments.......................... 62 (j) Non-Monetary Judgments...................... 63 (k) Collateral.................................. 63 (l) Adverse Change.............................. 63 (m) Ownership by R.D. Colburn................... 63 9.02 Remedies......................................... 63 9.03 Rights Not Exclusive............................. 64 SECTION 10 THE ADMINISTRATIVE AGENT AND THE COLLATERAL AGENT........................................ 64 10.01 Appointment and Authorization................... 64 10.02 Delegation of Duties............................ 65 10.03 Liability of Administrative Agent and the Collateral Agent................................ 65 10.04 Reliance by Administrative Agent and the Collateral Agent................................ 65 10.05 Notice of Default............................... 66 10.06 Credit Decision................................. 66 10.07 Indemnification of Administrative Agent and the Collateral Agent............................ 67
-iv- 10.08 Administrative Agent and the Collateral Agent in Individual Capacity.................... 68 10.09 Successor Administrative Agent and the Collateral Agent................................ 68 10.10 Withholding Tax................................. 69 10.11 Collateral Matters.............................. 70 SECTION 11 MISCELLANEOUS............................................... 71 11.01 Amendments and Waivers.......................... 71 11.02 Notices......................................... 72 11.03 No Waiver; Cumulative Remedies.................. 73 11.04 Costs and Expenses.............................. 73 11.05 Borrower Indemnification........................ 74 11.06 Payments Set Aside.............................. 74 11.07 Successors and Assigns.......................... 75 11.08 Assignments, Participations, etc................ 75 11.09 Confidentiality................................. 77 11.10 Set-off......................................... 77 11.11 Automatic Debits of Fees........................ 78 11.12 Notification of Addresses, Lending Offices, Etc............................................. 78 11.13 Counterparts.................................... 78 11.14 Severability.................................... 78 11.15 No Third Parties Benefited...................... 78 11.16 Governing Law and Jurisdiction.................. 79 11.17 Waiver of Jury Trial............................ 79 11.18 Entire Agreement................................ 79 11.19 Amendment and Restatement of Existing Agreement....................................... 80
-v- EXHIBIT 10.6 SECOND AMENDED AND RESTATED CREDIT AGREEMENT -------------------------------------------- This SECOND AMENDED AND RESTATED CREDIT AGREEMENT is entered into as of August 21, 1996 among U.S. RENTALS, INC., a California corporation (the "Borrower"), the several financial institutions from time to time party to this - --------- Agreement (collectively, the "Banks"; individually, a "Bank"), Bank of America ----- National Trust and Savings Association, as Administrative Agent for the Banks and Collateral Agent, and Bank of America National Trust and Savings Association as Issuing Bank, and amends and restates that certain First Amended and Restated Credit Agreement dated as of August 11, 1995, as amended, between the Borrower and Bank of America National Trust and Savings Association ("BofA"), which amended and restated the letter loan agreement dated February 18, 1992 between the Borrower and BofA (the "Existing Agreement"). ------------------ RECITAL ------- The parties hereto desire to amend and restate the Existing Agreement on the terms and conditions set forth in this Agreement. The Obligations under this Agreement will be secured by the Collateral Documents. NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties agree as follows: SECTION 1 DEFINITIONS ----------- 1.01 Certain Defined Terms. The following terms have the following --------------------- meanings: "Acquisition" means any transaction or series of related transactions ----------- for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or -1- substantially all of the assets of a Person, or of any business or division of a Person, (b) the acquisition of in excess of 50% of the capital stock, partnership interests, membership interests or equity of any Person, or otherwise causing any Person to become a Subsidiary, or (c) a merger or consolidation or any other combination with another Person (other than a Person that is a Subsidiary) provided that the Borrower or the Subsidiary is the surviving entity. "Administrative Agent" means BofA in its capacity as agent for the -------------------- Banks hereunder, and any successor agent arising under Section 10.09. "Administrative Agent's Payment Office" means the address for ------------------------------------- payments set forth on Schedule 11.02 or such other address as the -------------- Administrative Agent may from time to time specify. "Affiliate" means, as to any Person, any other Person which, directly --------- or indirectly, is in control of, is controlled by, or is under common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, membership interests, by contract, or otherwise. "Agent-Related Persons" means BofA and any successor administrative --------------------- agent and collateral agent arising under Section 10.09, together with their respective Affiliates (including, in the case of BofA, the Arranger), and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates. "Agreement" means this Credit Agreement. --------- "Applicable Amount" means, for any period, the per annum interest ----------------- rates, fees and commissions set forth below under Applicable Amount opposite the Fixed Charge Coverage Ratio, as set forth in the certificate delivered on the Closing Date pursuant to Section 5.01(g) and, thereafter, in the most recent Compliance Certificate received by the -2- Administrative Agent pursuant to Section 7.02(b); provided, however, that -------- ------- until the Administrative Agent's receipt of the Compliance Certificate for fiscal quarter ending March 31, 1997, such interest rates, fees and commissions shall not be less than those indicated for Level II under the Fixed Charge Coverage Ratio: provided that if the Administrative Agent does not receive a Compliance -------- Certificate within the time allowed in Section 7.02(b), then, commencing on the date such Compliance Certificate was due until (but only until) such Compliance Certificate is received, the Applicable Amount shall be based on level IV under the heading "Fixed Charge Coverage Ratio." From and after the date such Compliance Certificate is thereafter received, the Applicable Amount shall, subject to the other provisions of this Agreement, be as determined from such Compliance Certificate. "Arranger" means BA Securities, Inc., a Delaware corporation. -------- "Assignee" has the meaning specified in Section 11.08(a). -------- "Attorney Costs" means and includes all fees and disbursements of any -------------- law firm or other external counsel, the allocated cost of internal legal services and all disbursements of internal counsel. "Banks" means the institutions specified in the introductory clause ----- hereto. "Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11 --------------- U.S.C. (S)101, et seq.). ------- "Base Rate" means, for any day, the higher of: --------- (a) 0.50% per annum above the latest Federal Funds Rate; and (b) the rate of interest in effect for such day as publicly announced from time to time by BofA in San Francisco, California, as its "reference rate." (The "reference rate" is a rate set by BofA based upon various factors including BofA's costs and desired return, general economic conditions and other factors, and is used as a reference point for -3- pricing some loans, which may be priced at, above, or below such announced rate.) Any change in the reference rate announced by BofA shall take effect at the opening of business on the day specified in the public announcement of such change. "Base Rate Loan" means a Loan that bears interest based on the Base -------------- Rate. "BofA" means Bank of America National Trust and Savings Association, ---- a national banking association. "Book Value of Consolidated Total Assets" means Consolidated Total --------------------------------------- Assets less interest bearing and noninterest bearing notes receivable from Affiliates to the Borrower or any of its Subsidiaries. "Borrowing" means a borrowing hereunder consisting of Loans of the --------- same Type made to the Borrower on the same day by the Banks under Section 2, and, other than in the case of Base Rate Loans, having the same Interest Period. "Borrowing Date" means any date on which a Borrowing occurs under -------------- Section 2.03. "Business Day" means any day other than a Saturday, Sunday or other ------------ day on which commercial banks in New York City or San Francisco are authorized or required by law to close and, if the applicable Business Day relates to any Offshore Rate Loan, means such a day on which dealings are carried on in the applicable offshore dollar interbank market. "Capital Adequacy Regulation" means any guideline, request or --------------------------- directive of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law, in each case, regarding capital adequacy of any bank or of any corporation controlling a bank. "Capitalized Lease" means any lease where the obligation of the ----------------- Borrower is required to be capitalized on -4- a consolidated balance sheet of the lessee and its subsidiaries in accordance with GAAP. "Capitalized Rentals" of any Person means as of the date of any ------------------- determination thereof the amount at which the aggregate Rentals due and to become due under all Capitalized Leases under which such Person is a lessee would be reflected as a liability on a consolidated balance sheet of such Person. "Cash Collateralize" means to pledge and deposit with or deliver to ------------------ the Administrative Agent, for the benefit of the Administrative Agent, the Collateral Agent, the Issuing Bank and the Banks, as additional collateral for the L/C Obligations, cash or deposit account balances in an amount equal to the Effective Amount of the L/C Obligations pursuant to documentation in form and substance satisfactory to the Administrative Agent and the Issuing Bank (which documents are hereby consented to by the Banks). Derivatives of such term shall have corresponding meaning. The Borrower hereby grants the Administrative Agent, for the benefit of the Administrative Agent, the Issuing Bank and the Banks, a security interest in all such cash and deposit account balances. Cash collateral shall be maintained in blocked, non-interest bearing deposit accounts at BofA. "CD Rate" means, for any Interest Period with respect to CD Rate ------- Loans comprising part of the same Borrowing, the rate of interest (rounded upward to the next 1/100th of 1%) determined as follows: CD Rate = Certificate of Deposit Rate + Assessment --------------------------- 1.00 - Reserve Percentage Rate Where: "Assessment Rate" means, for any day of such Interest --------------- Period, the rate determined by the Administrative Agent as equal to the annual assessment rate in effect on such day payable to the FDIC by a member of the Bank Insurance Fund that is classified as adequately capitalized and within supervisory subgroup "All (or a comparable successor assessment -5- risk classification within the meaning of 12 C.F.R. (S)327.3) for insuring time deposits at offices of such member in the United States; or, in the event that the FDIC shall at any time hereafter cease to assess time deposits based upon such classifications or successor classifications, equal to the maximum annual assessment rate in effect on such day that is payable to the FDIC by commercial banks (whether or not applicable to any particular Bank) for insuring time deposits at offices of such banks in the United States. "Certificate of Deposit Rate" means the rate of interest --------------------------- per annum determined by the Administrative Agent to be the arithmetic mean (rounded upward to the next 1/100th of 1%) of the rates notified to the Administrative Agent as the rates of interest bid by two or more certificate of deposit dealers of recognized standing selected by the Administrative Agent for the purchase at face value of dollar certificates of deposit issued by major United States banks, for a maturity comparable to such Interest Period and in the approximate amount of the CD Rate Loans to be made, at the time selected by the Administrative Agent on the first day of such Interest Period. "Reserve Percentage" means, for any day of such Interest ------------------ Period, the maximum reserve percentage (expressed as a decimal, rounded upward to the next 1/100th of l%), as determined by the Administrative Agent, in effect on such day (including any ordinary, marginal, emergency, supplemental, special and other reserve percentages), prescribed by the FRB for determining the maximum reserves to be maintained by member banks of the Federal Reserve System with deposits exceeding $1,000,000,000 for new non-personal time deposits for a period comparable to such Interest Period and in an amount of $100,000 or more. The CD Rate shall be adjusted, as to all CD Rate Loans then outstanding, automatically as of the effective date of any change in the Assessment Rate or the Reserve Percentage. -6- "CD Rate Loan" means a Loan that bears interest based on the CD Rate. ------------ "CED Borrowings" means all extensions of credit made by the Borrower -------------- or any of its Subsidiaries to Consolidated Electrical Distributors, Inc. "Closing Date" means the date on which all conditions precedent set ------------ forth in Section 5.01 are satisfied or waived by all Banks (or, in the case of Section 5.01(f), waived by the Person entitled to receive such payment). "Code" means the Internal Revenue Code of 1986, and regulations ---- promulgated thereunder. "Collateral" means all property and interests in property and ---------- proceeds thereof now owned or hereafter acquired in or upon which a Lien now or hereafter exists in favor of the Collateral Agent on behalf of the Secured Parties, whether under any Collateral Document, this Agreement or under any other documents executed by any such Person and delivered to the Collateral Agent. "Collateral Agent" means BofA in its capacity as collateral agent for ---------------- the Secured Parties, and any successor collateral agent arising under Section 10.09. "Collateral Documents" means the Intercreditor Agreement, the -------------------- Security Agreement, and all other security agreements, patent and trademark assignments, lease assignments, guarantees and other similar agreements between any Person and/or in favor of the Collateral Agent now or hereafter delivered to the Collateral Agent for the benefit of the Secured Parties pursuant to or in connection with the transactions contemplated hereby, and all financing statements (or comparable documents now or hereafter filed in accordance with the Uniform Commercial Code or comparable law) as debtor in favor of the Collateral Agent for the benefit of the Secured Parties, all in form and substance satisfactory to the Collateral Agent, and (ii) any amendments, supplements, modifications, renewals, replacements, consolidations, substitutions and extensions of any of the foregoing. -7- "Commitment", as to each Bank, has the meaning specified in Section ---------- 2.01. "Compliance Certificate" means a certificate substantially in the ---------------------- form of Exhibit C. --------- "Consolidated Fixed Charges" for any period means on a consolidated -------------------------- basis the sum of (a) all Rentals (other than Rentals on Capitalized Leases) paid during such period by the Borrower and its Subsidiaries pursuant to Long-Term Leases, and (b) all Interest Expense on all Indebtedness (including the interest component of Rentals on Capitalized Leases) of the Borrower and its Subsidiaries paid during such period. "Consolidated Funded Debt" means, at any date, all indebtedness for ------------------------ borrowed money of Borrower and its Subsidiaries, drawn but unreimbursed drawings under all letters of credit and surety bonds and the current portion of mandatory redeemable preferred stock and Capitalized Leases. "Consolidated Net Income" for any period means the gross revenues of ----------------------- the Borrower and its Subsidiaries for such period less all expenses and other proper charges (including taxes on income), determined on a consolidated basis after eliminating earnings or losses attributable to outstanding Minority Interest, but excluding in any event: (a) any gains or losses on the sale or other disposition of Investments or fixed or capital assets, and any taxes on such excluded gains and any tax deductions or credits on account of any such excluded losses; (b) the proceeds of any life insurance policy; (c) net earnings and losses of any Subsidiary accrued prior to the date it became a Subsidiary; (d) net earnings and losses of any corporation, substantially all the assets of which have been acquired in any manner by the Borrower or any -8- Subsidiary, realized by such corporation prior to the date of such acquisition; (e) net earnings and losses of any corporation with which the Borrower or a Subsidiary shall have consolidated or which shall have merged into or with the Borrower or a Subsidiary prior to the date of such consolidation or merger; (f) net earnings of any business entity in which the Borrower or any Subsidiary has an ownership interest unless such net earnings shall have actually been received by the Borrower or such Subsidiary in the form of cash distributions; (g) any portion of the net earnings of any Subsidiary which for any reason is unavailable for payment of dividends to the Borrower or any other Subsidiary; (h) earnings resulting from any reappraisal, revaluation or write-up of assets; (i) any deferred or other credit representing any excess of the equity in any Subsidiary at the date of acquisition thereof over the amount invested in such Subsidiary; (j) any gain arising from the acquisition of any Securities of the Borrower or any Subsidiary; (k) any reversal of any contingency reserve, except to the extent that provision for such contingency reserve shall have been made from income arising during such period; and (l) any other extraordinary gain or loss. "Consolidated Net Income Available for Fixed Charges" for any period --------------------------------------------------- means the sum of (a) Consolidated Net Income during such period plus (to ---- the extent deducted in determining Consolidated Net Income), (b) all provisions for any Federal, state or other income taxes made by the -9- Borrower and its Subsidiaries during such period and (c) Consolidated Fixed Charges during such period. "Consolidated Secured Indebtedness" means all Indebtedness of the --------------------------------- Borrower and its Subsidiaries which is secured by a mortgage, trust deed, deed of trust, deed to secure debt, security agreement, pledge, conditional sale or other title retention agreement or other like agreement granting or conveying a Lien upon property, whether real, personal or mixed, of the Borrower or any of its Subsidiaries. "Consolidated Tangible Net Worth" means as of the date of any ------------------------------- determination thereof, the arithmetic sum of: (a) the amount of the capital stock accounts (net of treasury stock, at cost) plus (or minus in the case of deficit) the surplus ---- ----- and retained earnings of the Borrower and its Subsidiaries, MINUS (b) the net book value, after deducting any reserves applicable thereto, of all items of the following character which are included in the assets of the Borrower and its Subsidiaries, to wit: (i) the incremental increase in an asset resulting from any reappraisal, revaluation or write-up of assets, provided -------- that the incremental increase of any such reappraisal, revaluation or write-up of assets need not be deducted in any computation of "Consolidated Tangible Net Worth" if the Borrower's independent public accountants shall have concurred in such reappraisal, revaluation or write-up; and (ii) goodwill, patents, patent applications, permits, trademarks, trade names, copyrights, licenses, franchises, experimental expense, organizational expense, unamortized debt discount and expense, the excess of costs of shares acquired over book value of related assets -10- and such other assets are properly classified as "intangible assets" in accordance with GAAP, in any such case acquired after December 31, 1995. all determined in accordance with GAAP. "Consolidated Total Assets" means as of the date of any determination ------------------------- thereof total assets of the Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP. "Contingent Obligation" means, as to any Person, any direct or --------------------- indirect liability of that Person, whether or not contingent, with or without recourse, (a) with respect to any Indebtedness, lease, dividend, letter of credit or other obligation (the "primary obligations") of another Person (the "primary obligor"), including any obligation of that Person (i) to purchase, repurchase or otherwise acquire such primary obligations or any security therefor, (ii) to advance or provide funds for the payment or discharge of any such primary obligation, or to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (iv) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof (each, a "Guaranty Obligation"); (b) with respect to any Surety Instrument ------------------- issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings or payments; (c) to purchase any materials, supplies or other property from, or to obtain the services of, another Person if the relevant contract or other related document or obligation requires that payment for such materials, supplies or other property, or for such services, shall be made regardless of whether delivery of such materials, supplies or other property is ever made or tendered, or such services are ever performed or tendered, or (d) in respect of any Swap Contract. -11- "Contractual Obligation" means, as to any Person, any provision of ---------------------- any security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument, document or agreement to which such Person is a party or by which it or any of its property is bound. "Conversion/Continuation Date" means any date on which, under Section ---------------------------- 2.04, the Borrower (a) converts Loans of one Type to another Type, or (b) continues as Loans of the same Type, but with a new Interest Period, Loans having Interest Periods expiring on such date. "Default" means any event or circumstance which, with the giving of ------- notice, the lapse of time, or both, would (if not cured or otherwise remedied during such time) constitute an Event of Default. "Dollars", "dollars" and "$" each mean lawful money of the United ------- ------- - States. "EII Indebtedness" means all unsecured extensions of credit made by ---------------- Edmondson International, Inc. to the Borrower or any of its Subsidiaries. "Effective Amount" means (i) with respect to any Loans on any date, ---------------- the aggregate outstanding principal amount thereof after giving effect to any Borrowings and prepayments or repayments of Loans occurring on such date; and (ii) with respect to any outstanding L/C Obligations on any date, the amount of such L/C Obligations on such date after giving effect to any Issuances of Letters of Credit occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements of outstanding unpaid drawings under any Letters of Credit or any reductions in the maximum amount available for drawing under Letters of Credit taking effect on such date. "Eligible Assignee" means (a) a commercial bank organized under the ----------------- laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000; (b) a commercial bank organized under -12- the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000, provided that such bank is acting through a branch or agency located in the United States; and (c) a Person that is primarily engaged in the business of commercial banking and that is (i) a Subsidiary of a Bank, (ii) a Subsidiary of a Person of which a Bank is a Subsidiary, or (iii) a Person of which a Bank is a Subsidiary. "Environmental Claims" means all claims, however asserted, by any -------------------- Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law, or for release or injury to the environment. "Environmental Laws" means all federal, state or local laws, ------------------ statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health, safety and land use matters. "ERISA" means the Employee Retirement Income Security Act of 1974, ----- and regulations promulgated thereunder. "ERISA Affiliate" means any trade or business (whether or not --------------- incorporated) under common control with the Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code). "ERISA Event" means (a) a Reportable Event with respect to a Pension ----------- Plan; (b) a withdrawal by the Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in, which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA Affiliate -13- from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate. "Event of Default" means any of the events or circumstances specified ---------------- in Section 9.01. "Existing BofA Letters of Credit" means the letters of credit ------------------------------- described in Schedule 3.03. ------------- "FDIC" means the Federal Deposit Insurance Corporation, and any ---- Governmental Authority succeeding to any of its principal functions. "Federal Funds Rate" means, for any day, the rate set forth in the ------------------ weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, "H.15(519)") on the preceding Business Day opposite the caption "Federal Funds (Effective)"; or, if for any relevant day such rate is not so published on any such preceding Business Day, the rate for such day will be the arithmetic mean as determined by the Administrative Agent of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Administrative Agent. "Fee Letters" has the meaning specified in Section 2.10(a). ----------- -14- "Fixed Charge Coverage Ratio" means, as of the end of any fiscal --------------------------- quarter, the ratio of Consolidated Net Income Available for Fixed Charges for the four consecutive fiscal quarters ending on such date to Consolidated Fixed Charges for such four fiscal quarter period. "FRB" means the Board of Governors of the Federal Reserve System, and --- any Governmental Authority succeeding to any of its principal functions. "Further Taxes" means any and all present or future taxes, levies, ------------- assessments, imposts, duties, deductions, fees, withholdings or similar charges (including, without limitation, net income taxes and franchise taxes), and all liabilities with respect thereto, imposed by any jurisdiction on account of amounts payable or paid pursuant to Section 4.01. "GAAP" means generally accepted accounting principles set forth from ---- time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the Closing Date. "Governmental Authority" means any nation or government, any state or ---------------------- other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "Guaranty Obligation" has the meaning specified in the definition of ------------------- "Contingent Obligation." "Indebtedness" of any Person means, without duplication, (a) all ------------ indebtedness for borrowed money; (b) -15- all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business on ordinary terms); (c) all non-contingent reimbursement or payment obligations with respect to Surety Instruments; (d) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (e) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to property acquired by the Person (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property); (f) all obligations with respect to Capitalized Leases; (g) all net obligations with respect to Swap Contracts; (h) all indebtedness referred to in clauses (a) through (g) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contracts rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; and (i) all Guaranty Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (a) through (g) above. "Indemnified Liabilities" has the meaning specified in Section 11.05. ----------------------- "Indemnified Person" has the meaning specified in Section 11.05. ------------------ "Independent Auditor" has the meaning specified in Section 7.01(a). ------------------- "Insolvency Proceeding" means, with respect to any Person, (a) any --------------------- case, action or proceeding with respect to such Person before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, -16- or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors; undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code. "Intercreditor Agreement" means the Intercreditor Agreement dated as ----------------------- of August 15, 1995, as amended, among the Collateral Agent, BofA, the Massachusetts Mutual Life Insurance Company, Jefferson-Pilot Life Insurance Company, Principal Mutual Life Insurance Company, Phoenix Home Life Mutual Insurance Company, Phoenix American Life Insurance Company, and Alexander Hamilton Life Insurance Company of America, and other parties becoming a party thereto from time to time, substantially in the form of Exhibit E --------- hereto, either as originally executed or as the same may, from time to time, be supplemented, modified, amended, renewed, extended or supplanted. "Interest Expense" of the Borrower and its Subsidiaries for any ---------------- period means all interest and all amortization of debt discount and expense on any particular Indebtedness (including, without limitation, payment-in- kind, zero coupon and other like Securities) for which such calculations are being made. "Interest Payment Date" means, as to any Loan other than a Base Rate --------------------- Loan, the last day of each Interest Period applicable to such Loan and, as to any Base Rate Loan, the last Business Day of each calendar quarter and each date such CD Rate Loan or Offshore Rate Loan is converted into another Type of Loan; provided, however, that if any Interest Period for a CD Rate -------- ------- Loan or Offshore Rate Loan exceeds 90 days or three months, respectively, the date that falls 90 days or three months, respectively, after the beginning of such Interest Period and after each Interest Payment Date thereafter is also an Interest Payment Date. "Interest Period" means, (a) as to any Offshore Rate Loan, the period --------------- commencing on the Borrowing Date of such Loan or on the Conversion/Continuation Date on which the Loan is converted into or continued as an Offshore Rate Loan, and ending on the date one, two, three or six months thereafter as selected by the Borrower in its Notice of -17- Borrowing or Notice of Conversion/Continuation; and (b) as to any CD Rate Loan, the period commencing on the Borrowing Date of such Loan or on the Conversion/Continuation Date on which the Loan is converted into or continued as a CD Rate Loan, and ending 30, 60, 90 or 180 days thereafter, as selected by the Borrower in its Notice of Borrowing or Notice of Conversion/Continuation; provided that: -------- (i) if any Interest Period would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the following Business Day unless, in the case of an Offshore Rate Loan, the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; (ii) any Interest Period pertaining to an Offshore Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and (iii) no Interest Period for any Loan shall extend beyond the Maturity Date. "Investments" means all investments, in cash or by delivery of ----------- property, made directly or indirectly in any property or assets or in any Person, whether by acquisition of shares of capital stock, Indebtedness or other obligations or Securities or by loan, advance, capital contribution or otherwise. "IRS" means the Internal Revenue Service, and any Governmental --- Authority succeeding to any of its principal functions under the Code. Issue" means to (a) incorporate the Existing BofA Letters of Credit ----- into this Agreement, and (b) with respect -18- to any Letter of Credit (including the Existing BofA Letters of Credit), to issue or to extend the expiry of, or to renew or increase the amount of, such Letter of Credit; and the terms "Issued, "Issuing" and "Issuance" have corresponding meanings. "Issuing Bank" means BofA in its capacity as issuer of one or more ------------ Letters of Credit hereunder, together with any replacement letter of credit issuer arising under Section 10.01(b) or Section 10.09. "Joint Venture" means a single-purpose corporation, partnership, ------------- limited liability company, joint venture or other legal arrangement (whether created by contract or conducted through a separate legal entity) now or hereafter formed by the Borrower or any of its Subsidiaries with another Person in order to conduct a common venture or enterprise with such Person. "L/C Advance" means each Bank's participation in any L/C Borrowing in ----------- accordance with its Pro Rata Share. "L/C Amendment Application" means an application form for amendment ------------------------- of outstanding standby or commercial documentary letters of credit as shall at any time be in use at the Issuing Bank, as the Issuing Bank shall request. "L/C Application" means an application form for issuances of standby --------------- or commercial documentary letters of credit as shall at any time be in use at the Issuing Bank, as the Issuing Bank shall request. "L/C Borrowing" means an extension of credit resulting from a drawing ------------- under any Letter of Credit which shall not have been reimbursed on the date when made nor converted into a Borrowing of Loans under Section 3.03(c). "L/C Commitment" means the commitment of the Issuing Bank to Issue, -------------- and the commitment of the Banks severally to participate in, Letters of Credit (including the Existing BofA Letters of Credit) from time to time Issued or outstanding under Section 3, in an Effective Amount not to exceed on any date the amount of $40,000,000, as the same -19- shall be reduced as a result of a reduction in the L/C Commitment pursuant to Section 2.05; provided that the Effective Amount of evergreen Letters of -------- Credit shall not exceed $10,000,000 at any time; provided, further, that -------- ------- the L/C Commitment is a part of the combined Commitments, rather than a separate, independent commitment. "L/C Obligations" means at any time the sum of (a) the aggregate --------------- undrawn amount of all Letters of Credit then outstanding, plus (b) the amount of all unreimbursed drawings under all Letters of Credit, including all outstanding L/C Borrowings. "L/C-Related Documents" means the Letters of Credit, the L/C --------------------- Applications, the L/C Amendment Applications and any other document relating to any Letter of Credit, including any of the Issuing Bank's standard form documents for letter of credit issuances. "Lending Office" means, as to any Bank, the office or offices of such -------------- Bank specified as its "Lending Office" or "Domestic Lending Office" or "Offshore Lending Office", as the case may be, on Schedule 11.02, or such -------------- other office or offices as the Bank may from time to time notify the Borrower and the Administrative Agent. "Letters of Credit" means the Existing BofA Letters of Credit and any ----------------- letters of credit (whether standby letters of credit or commercial documentary letters of credit) Issued by the Issuing Bank pursuant to Section 3. "Lien" means any security interest, mortgage, deed of trust, pledge, ---- hypothecation, assignment, charge or deposit arrangement, encumbrance, lien (statutory or other) or preferential arrangement of any kind or nature whatsoever in respect of any property (including those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a Capitalized Lease, any financing lease having substantially the same economic effect as any of the foregoing, or the filing of any financing statement naming the owner of the asset to which such lien relates as debtor, under the Uniform Commercial Code or any comparable law) and any -20- contingent or other agreement to provide any of the foregoing, but not including the interest of a lessor under an operating lease. "Loan" has the meaning specified in Section 2.01, and may be a Base ---- Rate Loan, CD Rate Loan or an Offshore Rate Loan (each, a "Type" of Loan) ---- or L/C Advance. "Loan Documents" means this Agreement, the Collateral Documents, the -------------- Letters of Credit, the Subordination Agreements, any Compliance Certificate, any Notes, the Fee Letters, the L/C-Related Documents, and all other documents delivered to the Administrative Agent or any Bank in connection herewith. "Long-Term Lease" shall mean any lease of real or personal property --------------- (other than a Capitalized Lease) having an original term, including any period for which the lease may be renewed or extended at the option of the lessor, of more than one year. "Majority Banks" means at any time Banks then holding at least 66- -------------- 2/3% of the then aggregate unpaid principal amount of the Loans, or, if no such principal amount is then outstanding, Banks then having at least 66- 2/3% of the Commitments. "Margin Stock" means "margin stock" as such term is defined in ------------ Regulation G, T, U or X of the FRB. "Material Adverse Effect" means (a) a material adverse change in, or ----------------------- a material adverse effect upon, the operations, business, properties, condition (financial or otherwise) or prospects of the Borrower or the Borrower and its Subsidiaries taken as a whole; (b) a material impairment of the ability of the Borrower to perform under any Loan Document and to avoid any Event of Default; (c) a material adverse effect upon the legality, validity, binding effect or enforceability against the Borrower of any Loan Document; or (d) the perfection or priority of any Lien granted under any of the Collateral Documents. -21- "Maturity Date" means the earliest to occur of (a) July 31, 1999 and ------------- (b) the date on which the Commitments terminate in accordance with the provisions of this Agreement. "Maximum Available Amount" means, as of any date of determination, ------------------------ the amount which may at any time be drawn under the Letters of Credit (whether or not any beneficiary thereof shall have presented, or shall be entitled at such time to present, the drafts or other documents required to draw under the Letters of Credit). "Minority Interest" means any shares of stock of any class of a ----------------- Subsidiary (other than directors, qualifying shares as required by law) that are not owned by the Borrower and/or one or more of its Wholly-owned Subsidiaries. Minority Interests shall be valued by valuing Minority Interest constituting preferred stock at the voluntary or involuntary liquidating value of such preferred stock, whichever is greater, and by valuing Minority Interests constituting common stock at the book value of capital and surplus applicable thereto adjusted, if necessary, to reflect any changes from the book value of such common stock required by the foregoing method of valuing Minority Interest in preferred stock. "Multiemployer Plan" means a "multiemployer plan", within the meaning ------------------ of Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate makes, is making, or is obligated to make contributions or, during the preceding three calendar years, has made, or been obligated to make, contributions. "Note" means a promissory note executed by the Borrower in favor of a ---- Bank pursuant to Section 2.02(b), in substantially the form of Exhibit D. --------- "Notice of Borrowing" means a notice in substantially the form of ------------------- Exhibit A. --------- "Notice of Conversion/Continuation" means a notice in substantially --------------------------------- the form of Exhibit B. --------- -22- "Obligations" means all advances, debts, liabilities, obligations, ----------- covenants and duties arising under any Loan Document owing by the Borrower to any Bank, the Administrative Agent, the Collateral Agent or any Indemnified Person, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising. "Offshore Rate" means, for any Interest Period, with respect to ------------- Offshore Rate Loans comprising part of the same Borrowing, the rate of interest per annum (rounded upward to the next 1/16th of 1%) determined by the Administrative Agent as follows: Offshore Rate IBOR ------------------------------------ 1.00 - Eurodollar Reserve Percentage Where, "Eurodollar Reserve Percentage" means for any day for any Interest ----------------------------- Period the maximum reserve percentage (expressed as a decimal, rounded upward to the next 1/100th of 1%) in effect on such day (whether or not applicable to any Bank) under regulations issued from time to time by the FRB for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities"); and "IBOR" means the rate of interest per annum determined by the ---- Administrative Agent as the rate at which dollar deposits in the approximate amount of BofA's Offshore Rate Loan for such Interest Period would be offered by BofA's Grand Cayman Branch, Grand Cayman B.W.I. (or such other office as may be designated for such purpose by BofA), to major banks in the offshore dollar interbank market at their request at approximately 11:00 a.m. (New York City time) two Business Days prior to the commencement of such Interest Period. -23- The Offshore Rate shall be adjusted automatically as to all Offshore Rate Loans then outstanding as of the effective date of any change in the Eurodollar Reserve Percentage. "Offshore Rate Loan" means a Loan that bears interest based on the ------------------ Offshore Rate. "Organization Documents" means, for any corporation, the certificate ---------------------- or articles of incorporation, the bylaws, any certificate of determination or instrument relating to the rights of preferred shareholders of such corporation, any shareholder rights agreement, and all applicable resolutions of the board of directors (or any committee thereof) of such corporation. "Other Taxes" means any present or future stamp, court or documentary ----------- taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery, performance, enforcement or registration of, or otherwise with respect to, this Agreement or any other Loan Documents. "Participant" has the meaning specified in Section 11.08(d). ----------- "PBGC" means the Pension Benefit Guaranty Corporation, or any ---- Governmental Authority succeeding to any of its principal functions under ERISA. "Pension Plan" means a pension plan (as defined in Section 3(2) of ------------ ERISA) subject to Title IV of ERISA which the Borrower sponsors, maintains, or to which it makes, is making, or is obligated to make contributions, or in the case of a multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during the immediately preceding five (5) plan years. "Permitted Liens" has the meaning specified in Section 8.01. --------------- "Permitted Senior Indebtedness" means senior secured Indebtedness ----------------------------- which is pari passu with the Obligations -24- hereunder and is secured ratably with the Obligations by the Collateral pursuant to the Collateral Documents in form and substance satisfactory to the Collateral Agent and the Banks. "Permitted Senior Indebtedness Closing Date" means the date on which ------------------------------------------ any Permitted Senior Indebtedness becomes effective. "Person" means an individual, partnership, corporation, limited ------ liability company, business trust, joint stock company, trust, unincorporated association, joint venture or Governmental Authority. "Plan" means an employee benefit plan (as defined in Section 3(3) of ---- ERISA) which the Borrower sponsors or maintains or to which the Borrower makes, is making, or is obligated to make contributions and includes any Pension Plan. "Pro Rata Share" means, as to any Bank at any time, the percentage -------------- equivalent (expressed as a decimal, rounded to the ninth decimal place) at such time of such Bank's Commitment divided by the combined Commitments of all Banks. "Reportable Event" means, any of the events set forth in Section ---------------- 4043(c) of ERISA or the regulations thereunder, other than any such event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the PBGC. "Receivables" means and includes all rights to payment for goods sold ----------- or services rendered which have been earned by performance under valid, enforceable contracts, whether or not they have been billed to the respective customers. "Rentals" means and include as of the date of any determination ------- thereof all fixed payments (including as such all payments which the lessee is obligated to make to the lessor on termination of the lease or surrender of the property) paid by the Borrower or a Subsidiary, as lessee or sublessee under a lease of real or personal property, but shall be exclusive of any amounts required to be paid by the -25- Borrower or a Subsidiary (whether or not designated as rents or additional rents) on account of maintenance, repairs, insurance, taxes and similar charges. Fixed rents under any so-called "percentage leases" shall be computed solely on the basis of the minimum rents, if any, required to be paid by the lessee regardless of sales volume or gross revenues. "Requirement of Law" means, as to any Person, any law (statutory or ------------------ common), treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject. "Responsible Officer" means the chief executive officer or the ------------------- president of the Borrower, or any other officer having substantially the same authority and responsibility; or, with respect to compliance with financial covenants, the chief financial officer or the treasurer of the Borrower, or any other officer having substantially the same authority and responsibility. "SEC" means the Securities and Exchange Commission, or any --- Governmental Authority succeeding to any of its principal functions. "Secured Parties" means the Collateral Agent, the Administrative --------------- Agent, the Agent-Related Persons, the Issuing Bank, any Indemnified Person, the Banks, and each of them (individually, a "Secured Party"). "Security Agreement" means the Third Amended and Restated Security ------------------ Agreement Re: Receivables, Inventory, Equipment and Documents dated as of July 1, 1996 between the Borrower and the Collateral Agent, substantially in the form of Exhibit F hereto, either as originally executed or as the --------- same may, from time to time, be supplemented, modified, amended, renewed, extended or supplanted. "Subordination Agreements" means (i) the Subordination Agreement made ------------------------ by the R.D. Colburn School of Performing Arts substantially in the form of Exhibit H-1 hereto and (ii) the Subordination Agreement made by R.D. ----------- Colburn substantially -26- in the form of Exhibit H-2 hereto, in each case either as originally ----------- executed or as the same may, from time to time, be supplemented, modified, amended, renewed, extended or supplanted. "Subsidiary" of a Person means any corporation, association, ---------- partnership, limited liability company, joint venture or other business entity of which more than 50% of the voting stock, membership interests or other equity interests (in the case of Persons other than corporations), is owned or controlled directly or indirectly by the Person, or one or more of the Subsidiaries of the Person, or a combination thereof. Unless the context otherwise clearly requires, references herein to a "Subsidiary" refer to a Subsidiary of the Borrower. "Surety Instruments" means all letters of credit (including standby ------------------ and commercial), banker's acceptances, bank guaranties, shipside bonds, surety bonds and similar instruments. "Swap Contract" means any agreement (including any master agreement ------------- and any agreement, whether or not in writing, relating to any single transaction) that is an interest rate swap agreement, basis swap, forward rate agreement, commodity swap, commodity option, equity or equity index swap or option, bond option, interest rate option, forward foreign exchange agreement, rate cap, collar or floor agreement, currency swap agreement, cross-currency rate swap agreement, swaption, currency option or any other, similar agreement (including any option to enter into any of the foregoing). "Taxes" means any and all present or future taxes, levies, ----- assessments, imposts, duties, deductions, fees, withholdings or similar charges, and all liabilities with respect thereto, excluding, in the case of each Bank and the Administrative Agent, respectively, taxes imposed on or measured by its net income by the jurisdiction (or any political subdivision thereof) under the laws of which such Bank or the Administrative Agent, as the case may be, is organized or maintains a lending office. -27- "Type" has the meaning specified in the definition of "Loan." ---- "Unfunded Pension Liability" means the excess of a Plan's benefit -------------------------- liabilities under Section 4001(a)(16) of ERISA, over the current value of that Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year. "United States" and "U.S." each means the United States of America. ------------- ---- "Voting Stock" means Securities of any class or classes, the holders ------------ of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions). "Wholly-Owned Subsidiary" means any corporation in which (other than ----------------------- directors) qualifying shares required by law) 100% of the capital stock of each class having ordinary voting power, and 100% of the capital stock of every other class, in each case, at the time as of which any determination is being made, is owned, beneficially and of record, by the Borrower, or by one or more of the other Wholly-Owned Subsidiaries at the Borrower, or both. 1.02 Other Interpretive Provisions. (a) The meanings of defined terms ----------------------------- are equally applicable to the singular and plural forms of the defined terms. (b) The words "hereof," "herein," "hereunder" and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement; and Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. The term "documents" includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced. The term "including" is not limiting and means "including without limitation." In the computation of periods of time from a specified date to a later specified date, the word "from" means -28- "from and including"; the words "toll" and "until" each mean "to but excluding", and the word "through" means "to and including." (c) Unless otherwise expressly provided herein, (i) references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Loan Document, and (ii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting the statute or regulation. (d) The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement. (e) This Agreement and other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and shall each be performed in accordance with their terms. Unless otherwise expressly provided, any reference to any action of the Administrative Agent or the Banks by way of consent, approval or waiver shall be deemed modified by the phrase "in its/their sole discretion." 1.03 Accounting Principles. (a) Unless the context otherwise clearly --------------------- requires, all accounting terms not expressly defined herein shall be construed, and all financial computations required under this Agreement shall be made, in accordance with GAAP, consistently applied. (b) References herein to "fiscal year" and "fiscal quarter" refer to such fiscal periods of the Borrower. SECTION 2 THE CREDITS ----------- 2.01 Amounts and Terms of Commitments. Each Bank severally agrees, on -------------------------------- the terms and conditions set forth herein, to make -29- loans to the Borrower (each such loan, a "Loan") from time to time on any Business Day during the period from the Closing Date to the Maturity Date, in an aggregate amount not to exceed at any time outstanding the amount set forth on Schedule 2.01 (such amount, as the same may be reduced under Section 2.05 or as - ------------- a result of one or more assignments under Section 11.08, the Bank's "Commitment"); provided, however, that, after giving effect to any Borrowing of ---------- -------- ------- Loans, the Effective Amount of all outstanding Loans and the Effective Amount of all L/C Obligations, shall not at any time exceed the combined Commitments, and the Effective Amount of all L/C Obligations shall not exceed the Letter of Credit Commitment; provided, further, that the Effective Amount of the Loans of -------- ------- any Bank plus the participation of such Bank in the Effective Amount of all L/C Obligations shall not at any time exceed such Bank's Commitment and each Bank's participation in the Effective Amount of all L/C Obligations shall not exceed such Bank's Pro Rata Share of the Letter of Credit Commitment. Within the limits of each Bank's Commitment, and subject to the other terms and conditions hereof, the Borrower may borrow under this Section 2.01, prepay under Section 2.06 and reborrow under this Section 2.01. 2.02 Loan Accounts. (a) The Loans made by each Bank and the Letters of ------------- Credit Issued by the Issuing Bank shall be evidenced by one or more accounts or records maintained by such Bank or Issuing Bank, as the case may be, in the ordinary course of business. The accounts or records maintained by the Administrative Agent, the Issuing Bank and each Bank shall be conclusive absent manifest error of the amount of the Loans made by the Banks to the Borrower and the Letters of Credit Issued for the account of the Borrower, and the interest and payments thereon. Any failure so to record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Loans or any Letter of Credit. (b) Upon the request of any Bank made through the Administrative Agent, the Loans made by such Bank may be evidenced by one or more Notes, instead of or in addition to loan accounts. Each such Bank shall endorse on the schedules annexed to its Note(s) the date, amount and maturity of each Loan made by it and the amount of each payment of principal made by the Borrower with respect thereto. Each such Bank is irrevocably -30- authorized by the Borrower to endorse its Note(s) and each Bank's record shall be conclusive absent manifest error; provided, however, that the failure of a -------- ------- Bank to make, or an error in making, a notation thereon with respect to any Loan shall not limit or otherwise affect the obligations of the Borrower hereunder or under any such Note to such Bank. 2.03 Procedure for Borrowing. (a) Each Borrowing of Loans shall be made ----------------------- upon the Borrower's irrevocable telephonic notice (immediately confirmed in writing) delivered to the Administrative Agent in the form of a Notice of Borrowing, which notice must be received by the Administrative Agent prior to 9:00 a.m. (San Francisco time) (i) three Business Days prior to the requested Borrowing Date, in the case of Offshore Rate Loans and CD Rate Loans, and (ii) on the requested Borrowing Date, in the case of Base Rate Loans, specifying: (A) the amount of the Borrowing, which shall be in an aggregate minimum amount of $1,000,000 or any multiple of $1,000,000 in excess thereof; (B) the requested Borrowing Date, which shall be a Business Day; (C) the Type of Loans comprising the Borrowing; and (D) the duration of the Interest Period applicable to such Loans included in such notice. If the Notice of Borrowing fails to specify the duration of the Interest Period for any Borrowing comprised of CD Rate Loans or Offshore Rate Loans, such Interest Period shall be 90 days or three months, respectively. (b) The Administrative Agent will promptly notify each Bank of its receipt of any Notice of Borrowing and of the amount of such Bank's Pro Rata Share of that Borrowing. (c) Each Bank will make the amount of its Pro Rata Share of each Borrowing available to the Administrative Agent for the account of the Borrower at the Administrative Agent's Payment Office by 12:00 Noon (San Francisco time) on the Borrowing Date requested by the Borrower in funds immediately available to the Administrative Agent. The proceeds of all such Loans will then be made available to the Borrower by the Administrative Agent at such office by either crediting the account of the Borrower on the books of BofA with the aggregate of the amounts made available to the Administrative Agent by the Banks or by wire transfer in accordance with written instructions provided to the Administrative Agent by the Borrower of like funds as received by the Administrative Agent. -31- (d) After giving effect to any Borrowing, unless the Administrative Agent shall otherwise consent, there may not be more than 10 different Interest Periods in effect. 2.04 Conversion and Continuation Elections. (a) The Borrower may, upon ------------------------------------- irrevocable telephonic notice (immediately confirmed in writing) to the Administrative Agent in accordance with Section 2.04(b): (i) elect, as of any Business Day, in the case of Base Rate Loans, or as of the last day of the applicable Interest Period, in the case of any other Type of Loans, to convert any such Loans (or any part thereof in an amount not less than $1,000,000, or that is in an integral multiple of $1,000,000 in excess thereof) into Loans of any other Type; or (ii) elect as of the last day of the applicable Interest Period, to continue any Loans having Interest Periods expiring on such day (or any part thereof in an amount not less than $1,000,000, or that is in an integral multiple of $1,000,000 in excess thereof); provided, that if at any -------- time the aggregate amount of CD Rate Loans or Offshore Rate Loans in respect of any Borrowing is reduced, by payment, prepayment, or conversion of part thereof to be less than $1,000,000, such CD Rate Loans or Offshore Rate Loans shall automatically convert into Base Rate Loans, and on and after such date the right of the Borrower to continue such Loans as, and convert such Loans into, Offshore Rate Loans or CD Rate Loans, as the case may be, shall terminate. (b) The Borrower shall deliver a Notice of Conversion/Continuation to be received by the Administrative Agent not later than 9:00 a.m. (San Francisco time) (i) at least three Business Days in advance of the Conversion/Continuation Date, if the Loans are to be converted into or continued as Offshore Rate Loans or CD Rate Loans; and (ii) on the Conversion/Continuation Date, if the Loans are to be converted into Base Rate Loans, specifying: (A) the proposed Conversion/Continuation Date; (B) the aggregate amount of Loans to be converted or continued; (C) the Type of Loans resulting from the proposed conversion or continuation; and (D) other than in the case of conversions into Base Rate Loans, the duration of the requested Interest Period. (c) If upon the expiration of any Interest Period applicable to CD Rate Loans or Offshore Rate Loans, the Borrower has failed to select timely a new Interest Period to be -32- applicable to such CD Rate Loans or Offshore Rate Loans, as the case may be, or if any Default or Event of Default then exists, the Borrower shall be deemed to have elected to convert such CD Rate Loans or Offshore Rate Loans into Base Rate Loans effective as of the expiration date of such Interest Period. (d) The Administrative Agent will promptly notify each Bank of its receipt of a Notice of Conversion/Continuation, or, if no timely notice is provided by the Borrower, the Administrative Agent will promptly notify each Bank of the details of any automatic conversion. All conversions and continuations shall be made ratably according to the respective outstanding principal amounts of the Loans with respect to which the notice was given held by each Bank. (e) Unless the Majority Banks otherwise consent, during the existence of a Default or Event of Default, the Borrower may not elect to have a Loan be made or converted into or continued as an Offshore Rate Loan or a CD Rate Loan. (f) After giving effect to any conversion or continuation of Loans, unless the Administrative Agent and the Majority Banks shall otherwise consent, there may not be more than 10 different Interest Periods in effect. 2.05 Voluntary Termination or Reduction of Commitments. The Borrower ------------------------------------------------- may, upon not less than five Business Days' prior notice to the Administrative Agent, terminate the Commitments, or permanently reduce the Commitments by an aggregate minimum amount of $5,000,000 or any multiple of $1,000,000 in excess thereof, unless, after giving effect thereto and to any prepayments of Loans made on the effective date thereof, (a) the Effective Amount of all Loans and L/C Obligations together would exceed the amount of the combined Commitments then in effect, or (b) the Effective Amount of all L/C Obligations then outstanding would exceed the L/C Commitment. Once reduced in accordance with this Section, the Commitments may not be increased. Any reduction of the Commitments shall be applied to each Bank according to its Pro Rata Share. If and to the extent specified by the Borrower in the notice to the Administrative Agent, some or all of the reduction in the combined Commitments shall be applied to reduce the L/C Commitment. All accrued commitment and letter of credit fees to, but not including, the effective date of any reduction -33- or termination of Commitments, shall be paid on the effective date of such reduction or termination. 2.06 Optional Prepayments. Subject to Section 4.04, the Borrower may, at -------------------- any time or from time to time, upon not less than, in the case of Base Rate Loans on the date of prepayment and irrevocable notice, and in the case of Offshore Rate Loans and CD Rate Loans three Business Days' irrevocable notice to the Administrative Agent, ratably prepay Loans in whole or in part, in minimum amounts of $1,000,000 or any multiple of $1,000,000 in excess thereof. Such notice of prepayment shall specify the date and amount of such prepayment and the Type(s) of Loans to be prepaid. The Administrative Agent will promptly notify each Bank of its receipt of any such notice, and of such Bank's Pro Rata Share of such prepayment. If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein, together with, in the case of Offshore Rate Loans and CD Rate Loans, accrued interest to each such date on the amount prepaid and any amounts required pursuant to Section 4.04. 2.07 Mandatory Prepayments of Loans; Cash Collateralization of L/C ------------------------------------------------------------- Obligations. If on any date the Effective Amount of L/C Obligations exceeds - ----------- the L/C Commitment, the Borrower shall Cash Collateralize on such date the outstanding Letters of Credit in an amount equal to the excess of the maximum amount then available to be drawn under the Letters of Credit over the Aggregate L/C Commitment. Subject to Section 4.04, if on any date after giving effect to any Cash Collateralization made on such date pursuant to the preceding sentence, the Effective Amount of all Loans then outstanding plus the Effective Amount of all L/C Obligations exceeds the combined Commitments, the Borrower shall immediately, and without notice or demand, prepay the outstanding principal amount of the Loans and L/C Advances by an amount equal to the applicable excess. 2.08 Repayment. The Borrower shall repay on the Maturity Date the --------- aggregate principal amount of all Loans outstanding on such date. 2.09 Interest. (a) Each Loan shall bear interest on the outstanding -------- principal amount thereof from the applicable -34- Borrowing Date or Conversion/Continuation Date at a rate per annum equal to the Offshore Rate, the CD Rate or the Base Rate, as the case may be (and subject to the Borrower's right to convert to other Types of Loans under Section 2.04), plus the Applicable Amount. - ---- (b) Interest on each Loan shall be paid in arrears on each Interest Payment Date. Interest shall also be paid on the date of any prepayment of any Offshore Rate or CD Rate Loans under Section 2.06 or 2.07 for the portion of the Loans so prepaid and upon payment (including prepayment) in full thereof and, during the existence of any Event of Default, interest shall be paid on demand of the Administrative Agent at the request of the Majority Banks. (c) Notwithstanding Section (a) of this Section, while any Event of Default exists or after acceleration, the Borrower shall pay interest on all outstanding Loans (after as well as before entry of judgment thereon to the extent permitted by law) on the principal amount of all outstanding Loans, at a rate per annum which is determined by adding 2% per annum to the Applicable Amount then in effect for such Loans; provided, however, that, on and after the -------- ------- expiration of any Interest Period applicable to any Offshore Rate Loan or CD Rate Loan outstanding on the date of occurrence of such Event of Default or acceleration, the principal amount of such Loan shall, during the continuation of such Event of Default or after acceleration, bear interest at a rate per annum equal to the Base Rate plus 3%. 2.10 Fees. In addition to certain fees described in Section 3.08: ---- (a) Arrangement, Agency Fees. The Borrower shall pay an arrangement ------------------------ fee to the Arranger for the Arranger's own account, and the Borrower shall pay an agency fee to the Administrative Agent for the Administrative Agent's own account, as required by the letter agreement between the Borrower, the Agent and the Arranger dated July 5, 1996 and the Borrower shall pay a collateral agency fee to the Collateral Agent for the Collateral Agent's own account, as required by the letter agreement between the Borrower and the Collateral Agent dated August 18, 1995 (such letters, collectively referred to as the "Fee Letters"). ----------- -35- (b) Commitment Fees. The Borrower shall pay to the Administrative --------------- Agent for the account of each Bank a commitment fee on the average daily unused portion of such Bank's Commitment, computed on a quarterly basis in arrears on the last Business Day of each calendar quarter based upon the daily utilization for that quarter as calculated by the Administrative Agent, at a rate per annum equal to the Applicable Amount for the commitment fee. For purposes of calculating utilization under this Section, the Commitments shall be deemed used to the extent of the Effective Amount of Loans then outstanding, plus the Effective Amount of L/C Obligations (excluding L/C Obligations relating to commercial Letters of Credit) then outstanding. Such commitment fee shall accrue from the Closing Date to the Maturity Date and shall be due and payable quarterly in arrears on the last Business Day of each calendar quarter commencing on the first such date after the Closing Date through the Maturity Date, with the final payment to be made on the Maturity Date; provided that, in -------- connection with any reduction or termination of Commitments under Section 2.05, the accrued commitment fee calculated for the period ending on such date shall also be paid on the date of such reduction or termination, with the following quarterly payment being calculated on the basis of the period from such reduction or termination date to such quarterly payment date. The commitment fees provided in this Section shall accrue at all times after the above- mentioned commencement date, including at any time during which one or more conditions in Section 5 are not met. 2.11 Computation of Fees and Interest. (a) All computations of interest -------------------------------- for Base Rate Loans when the Base Rate is determined by BofA's "reference rate" shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more interest being paid than if computed on the basis of a 365-day year). Interest and fees shall accrue during each period during which interest or such fees are computed from the first day thereof to the last day thereof. (b) Each determination of an interest rate by the Administrative Agent shall be conclusive and binding on the Borrower and the Banks in the absence of manifest error. -36- 2.12 Payments by the Borrower. (a) All payments to be made by the ------------------------ Borrower shall be made without set-off, recoupment or counterclaim. Except as otherwise expressly provided herein, all payments by the Borrower shall be made to the Administrative Agent for the account of the Banks at the Administrative Agent's Payment Office, and shall be made in dollars and in immediately available funds, no later than 11:00 a.m. (San Francisco time) on the date specified herein. The Administrative Agent will promptly distribute to each Bank its Pro Rata Share (or other applicable share as expressly provided herein) of such payment in like funds as received. Any payment received by the Administrative Agent later than 11:00 a.m. (San Francisco time) shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue. (b) Subject to the provisions set forth in the definition of "Interest Period" herein, whenever any payment is due on a day other than a Business Day, such payment shall be made on the following Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. (c) Unless the Administrative Agent receives notice from the Borrower prior to the date on which any payment is due to the Banks that the Borrower will not make such payment in full as and when required, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date in immediately available funds and the Administrative Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent the Borrower has not made such payment in full to the Administrative Agent, each Bank shall repay to the Administrative Agent on demand such amount distributed to such Bank, together with interest thereon at the Federal Funds Rate for each day from the date such amount is distributed to such Bank until the date repaid. 2.13 Payments by the Banks to the Administrative Agent. (a) Unless the ------------------------------------------------- Administrative Agent receives notice from a Bank on or prior to the Closing Date or, with respect to any Borrowing after the Closing Date, at least one Business Day prior to the date of such Borrowing, that such Bank will not make available as -37- and when required hereunder to the Administrative Agent for the account of the Borrower the amount of that Bank's Pro Rata Share of the Borrowing, the Administrative Agent may assume that each Bank has made such amount available to the Administrative Agent in immediately available funds on the Borrowing Date and the Administrative Agent may (but shall not be so required), in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent any Bank shall not have made its full amount available to the Administrative Agent in immediately available funds and the Administrative Agent in such circumstances has made available to the Borrower such amount, that Bank shall on the Business Day following such Borrowing Date make such amount available to the Administrative Agent, together with interest at the Federal Funds Rate for each day during such period. A notice of the Administrative Agent submitted to any Bank with respect to amounts owing under this Section (a) shall be conclusive, absent manifest error. If such amount is so made available, such payment to the Administrative Agent shall constitute such Bank's Loan on the date of Borrowing for all purposes of this Agreement. If such amount is not made available to the Administrative Agent on the Business Day following the Borrowing Date, the Administrative Agent will notify the Borrower of such failure to fund and, upon demand by the Administrative Agent, the Borrower shall pay such amount to the Administrative Agent for the Administrative Agent's account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Loans comprising such Borrowing. (b) The failure of any Bank to make any Loan on any Borrowing Date shall not relieve any other Bank of any obligation hereunder to make a Loan on such Borrowing Date, but no Bank shall be responsible for the failure of any other Bank to make the Loan to be made by such other Bank on any Borrowing Date. 2.14 Sharing of Payments, Etc. If, other than as expressly provided ------------------------- elsewhere herein, any Bank shall obtain on account of the Loans made by it any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its ratable share (or other share contemplated hereunder), such Bank shall immediately (a) notify the Administrative Agent of such fact, and (b) purchase from the -38- other Banks such participations in the Loans made by them as shall be necessary to cause such purchasing Bank to share the excess payment pro rata with each of them; provided, however, that if all or any portion of such excess payment is -------- ------- thereafter recovered from the purchasing Bank, such purchase shall to that extent be rescinded and each other Bank shall repay to the purchasing Bank the purchase price paid therefor, together with an amount equal to such paying Bank's ratable share (according to the proportion of (i) the amount of such paying Bank's required repayment to (ii) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. The Borrower agrees that any Bank so purchasing a participation from another Bank may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off, but subject to Section 11.10) with respect to such participation as fully as if such Bank were the direct creditor of the Borrower in the amount of such participation. The Administrative Agent will keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased under this Section and will in each case notify the Banks following any such purchases or repayments. 2.15 Security. All obligations of the Borrower under the Loan Documents -------- shall be secured in accordance with the Collateral Documents. SECTION 3 THE LETTERS OF CREDIT --------------------- 3.01 The Letter of - Credit Subfacility. (a) On the terms and ---------------------------------- conditions set forth herein (i) the Issuing Bank agrees, (A) from time to time on any Business Day during the period from the Closing Date to the Maturity Date to issue Letters of Credit for the account of the Borrower, and to amend or renew Letters of Credit previously issued by it, in accordance with Sections 3.02(c) and 3.02(d), and (B) to honor drafts under the Letters of Credit; and (ii) the Banks severally agree to participate in Letters of Credit Issued for the account of the Borrower; provided, that the Issuing Bank shall not be -------- obligated to Issue, and no Bank shall be obligated to participate in, any Letter of Credit if as of the date of Issuance of such Letter of Credit -39- (the "Issuance Date") (1) the Effective Amount of all L/C Obligations plus the -------- ---- Effective Amount of all Loans exceeds the combined Commitments, (2) the participation of any Bank in the Effective Amount of all L/C Obligations plus the Effective Amount of the Loans of such Bank exceeds such Bank's Commitment, or (3) the Effective Amount of L/C Obligations exceeds the L/C Commitment; provided, further, that the Issuing Bank shall not be obligated to Issue, and no - -------- ------- Bank shall be obligated to participate in, any evergreen Letter of Credit if as of the Issuance Date thereof the Effective Amount of L/C Obligations relating to evergreen Letters of Credit exceeds $10,000,000 in the aggregate. Within the foregoing limits, and subject to the other terms and conditions hereof, the Borrower's ability to obtain Letters of Credit shall be fully revolving, and, accordingly, the Borrower may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit which have expired or which have been drawn upon and reimbursed. (b) The Issuing Bank is under no obligation to Issue any Letter of Credit if: (i) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the Issuing Bank from Issuing such Letter of Credit, or any Requirement of Law applicable to the Issuing Bank or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Issuing Bank shall prohibit, or request that the Issuing Bank refrain from, the Issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the Issuing Bank with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the Issuing Bank is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the Issuing Bank any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the Issuing Bank in good faith deems material to it; (ii) the Issuing Bank has received written notice from any Bank, the Administrative Agent or the Borrower, on or prior to the Business Day prior to the requested date of Issuance of such Letter of Credit, that -40- one or more of the applicable conditions contained in Section 5 is not then satisfied; (iii) the expiry date of any requested Letter of Credit is (A) more than 720 days after the date of Issuance, unless the Majority Banks have approved such expiry date in writing, or (B) after the Maturity Date; (iv) the expiry date of any requested Letter of Credit is prior to the maturity date of any financial obligation to be supported by the requested Letter of Credit; (v) any requested Letter of Credit does not provide for drafts, or is not otherwise in form and substance acceptable to the Issuing Bank, or the Issuance of a Letter of Credit shall violate any applicable policies of the Issuing Bank; (vi) any standby Letter of Credit is for the purpose of supporting the issuance of any letter of credit by any other Person; or (vi) except for Existing BofA Letters of Credit, such Letter of Credit is in a face amount less than $1,000,000 or to be denominated in a currency other than Dollars. 3.02 Issuance, Amendment and Renewal of Letters of Credit. (a) Each ---------------------------------------------------- Letter of Credit shall be issued upon the irrevocable written request of the Borrower received by the Issuing Bank (with a copy sent by the Borrower to the Administrative Agent) at least four days (or such shorter time as the Issuing Bank may agree in a particular instance in its sole discretion) prior to the proposed date of issuance. Each such request for issuance of a Letter of Credit shall be by facsimile, confirmed immediately in an original writing, in the form of an L/C Application, and shall specify in form and detail satisfactory to the Issuing Bank: (i) the proposed date of issuance of the Letter of Credit (which shall be a Business Day); (ii) the face amount of the Letter of Credit; (iii) the expiry date of the Letter of Credit; (iv) the name and address of the beneficiary thereof; (v) the documents to be presented by the beneficiary of the Letter of -41- Credit in case of any drawing thereunder; (vi) the full text of any certificate to be presented by the beneficiary in case of any drawing thereunder; and (vii) such other matters as the Issuing Bank may require. (b) At least two Business Days prior to the Issuance of any Letter of Credit, the Issuing Bank will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received a copy of the L/C Application or L/C Amendment Application from the Borrower and, if not, the Issuing Bank will provide the Administrative Agent with a copy thereof. Unless the Issuing Bank has received notice on or before the Business Day immediately preceding the date the Issuing Bank is to issue a requested Letter of Credit from the Administrative Agent (A) directing the Issuing Bank not to issue such Letter of Credit because such issuance is not then permitted under Section 3.01(a) as a result of the limitations set forth in clauses (1) through (3) thereof or Section 3.01(b)(ii); or (B) that one or more conditions specified in Section 5 are not then satisfied; then, subject to the terms and conditions hereof, the Issuing Bank shall, on the requested date, issue a Letter of Credit for the account of the Borrower in accordance with the Issuing Bank's usual and customary business practices. (c) From time to time while a Letter of Credit is outstanding and prior to the Maturity Date, the Issuing Bank will, upon the written request of the Borrower received by the Issuing Bank (with a copy sent by the Borrower to the Administrative Agent) at least five days (or such shorter time as the Issuing Bank may agree in a particular instance in its sole discretion) prior to the proposed date of amendment, amend any Letter of Credit issued by it. Each such request for amendment of a Letter of Credit shall be made by facsimile, confirmed immediately in an original writing, made in the form of an L/C Amendment Application and shall specify in form and detail satisfactory to the Issuing Bank: (i) the Letter of Credit to be amended; (ii) the proposed date of amendment of the Letter of Credit (which shall be a Business Day); (iii) the nature of the proposed amendment; and (iv) such other matters as the Issuing Bank may require. The Issuing Bank shall be under no obligation to amend any Letter of Credit if: (A) the Issuing Bank would have no obligation at such time to issue such Letter of Credit in its amended form under the terms of this Agreement; or (B) the -42- beneficiary of any such letter of Credit does not accept the proposed amendment to the Letter of Credit. (d) The Issuing Bank and the Banks agree that, while a Letter of Credit is outstanding and prior to the Maturity Date, at the option of the Borrower and upon the written request of the Borrower received by the Issuing Bank (with a copy sent by the Borrower to the Administrative Agent) at least five days (or such shorter time as the Issuing Bank may agree in a particular instance in its sole discretion) prior to the proposed date of notification of renewal, the Issuing Bank shall be entitled to authorize the automatic renewal of any Letter of Credit issued by it. Each such request for renewal of a Letter of Credit shall be made by facsimile, confirmed immediately in an original writing, in the form of an L/C Amendment Application, and shall specify in form and detail satisfactory to the Issuing Bank: (i) the Letter of Credit to be renewed; (ii) the proposed date of notification of renewal of the Letter of Credit (which shall be a Business Day); (iii) the revised expiry date of the Letter of Credit (which shall not be later than the Maturity Date); and (iv) such other matters as the Issuing Bank may require. The Issuing Bank shall be under no obligation so to renew any Letter of Credit if: (A) the Issuing Bank would have no obligation at such time to issue or amend such Letter of Credit in its renewed form under the terms of this Agreement; or (B) the beneficiary of any such Letter of Credit does not accept the proposed renewal of the Letter of Credit. If any outstanding Letter of Credit shall provide that it shall be automatically renewed unless the beneficiary thereof receives notice from the Issuing Bank that such Letter of Credit shall not be renewed, and if at the time of renewal the Issuing Bank would be entitled to authorize the automatic renewal of such Letter of Credit in accordance with this Section 3.02(e) upon the request of the Borrower but the Issuing Bank shall not have received any L/C Amendment Application from the Borrower with respect to such renewal or other written direction by the Borrower with respect thereto, the Issuing Bank shall nonetheless be permitted to allow such Letter of Credit to renew, and the Borrower and the Banks hereby authorize such renewal, and, accordingly, the Issuing Bank shall be deemed to have received an L/C Amendment Application from the Borrower requesting such renewal. -43- (e) The Issuing Bank may, at its election (or as required by the Administrative Agent at the direction of the Majority Banks), deliver any notices of termination or other communications to any Letter of Credit beneficiary or transferee, and take any other action as necessary or appropriate, at any time and from time to time, in order to cause the expiry date of such Letter of Credit to be a date not later than the Maturity Date. (f) This Agreement shall control in the event of any conflict with any L/C-Related Document (other than any Letter of Credit). (g) The Issuing Bank will also deliver to the Administrative Agent, concurrently or promptly following its delivery of a Letter of Credit, or amendment to or renewal of a Letter of Credit, to an advising bank or a beneficiary, a true and complete copy of each such Letter of Credit or amendment to or renewal of a Letter of Credit. The Administrative Agent will promptly notify the Banks of its receipt of any such copy. 3.03 Existing BofA Letters of Credit; Risk Participations, Drawings ---------------------------------------------------- -------- and Reimbursements. (a) On and after the Closing Date, the Existing BofA ------------------ Letters of Credit shall be deemed for all purposes, including for purposes of the fees to be collected pursuant to Sections 3.08(a) and 3.08(c), and reimbursement of costs and expenses to the extent provided herein, Letters of Credit outstanding under this Agreement and entitled to the benefits of this Agreement and the other Loan Documents, and shall be governed by the applications and agreements pertaining thereto and by this Agreement. Each Bank shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Issuing Bank on the Closing Date a participation in each such Letter of Credit and each drawing thereunder and a corresponding interest in all L/C Related Documents in an amount equal to the product of (i) such Bank's Pro Rata Share times (ii) the maximum amount available to be drawn under such Letter of Credit and the amount of such drawing, respectively. For purposes of Section 2.01, the Existing BofA Letters of Credit shall be deemed to utilize pro rata the Commitment of each Bank. (b) Immediately upon the Issuance of each Letter of Credit in addition to those described in Section 3.03(a), each -44- Bank shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Issuing Bank a participation in such Letter of Credit and each drawing thereunder and a corresponding interest in all L/C Related Documents in an amount equal to the product of (i) the Pro Rata Share of such Bank, times (ii) the maximum amount available to be drawn under such Letter of Credit and the amount of such drawing, respectively. For purposes of Section 2.01, each Issuance of a Letter of Credit shall be deemed to utilize the Commitment of each Bank by an amount equal to the amount of such participation. (c) In the event of any request for a drawing under a Letter of Credit by the beneficiary or transferee thereof, the Issuing Bank will promptly notify the Borrower. The Borrower shall reimburse the Issuing Bank prior to 10:00 a.m. (San Francisco time), on each date that any amount is paid by the Issuing Bank under any Letter of Credit (each such date, an "Honor Date"), in an amount equal to the amount so paid by the Issuing ---------- Bank. In the event the Borrower fails to reimburse the Issuing Bank for the full amount of any drawing under any Letter of Credit by 10:00 a.m. (San Francisco time) on the Honor Date, the Issuing Bank will promptly notify the Administrative Agent on the Honor Date and the Administrative Agent will promptly notify each Bank on the Honor Date thereof, and the Borrower shall be deemed to have requested that Base Rate Loans be made by the Banks to be disbursed on the Honor Date under such Letter of Credit, subject to the amount of the unutilized portion of the Revolving Commitment and subject to the conditions set forth in Section 5.02. Any notice given by the Issuing Bank or the Administrative Agent pursuant to this Section 3.03(c) may be oral if immediately confirmed in writing (including by facsimile); provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice. (d) Each Bank shall upon any notice pursuant to Section 3.03(c) make available to the Administrative Agent for the account of the relevant Issuing Bank an amount in Dollars and in immediately available funds equal to its Pro Rata Share of the amount of the drawing, whereupon the participating Banks shall (subject to Section 3.03(e)) each be deemed to have made a Loan consisting of a Base Rate Loan to the Borrower in that amount. If any Bank so notified fails to make available to the Administrative Agent for the account of the Issuing Bank the -45- amount of such Bank's Pro Rata Share of the amount of the drawing by no later than 12:00 noon (San Francisco time) on the Honor Date, then interest shall accrue on such Bank's obligation to make such payment, from the Honor Date to the date such Bank makes such payment, at a rate per annum equal to the Federal Funds Rate in effect from time to time during such period. The Administrative Agent will promptly give notice of the occurrence of the Honor Date, but failure of the Administrative Agent to give any such notice on the Honor Date or in sufficient time to enable any Bank to effect such payment on such date shall not relieve such Bank from its obligations under this Section 3.03. (e) With respect to any unreimbursed drawing that is not converted into Loans consisting of Base Rate Loans to the Borrower in whole or in part, because of the Borrower's failure to satisfy the conditions set forth in Section 5.02 or for any other reason, the Borrower shall be deemed to have incurred from the Issuing Bank an L/C Borrowing in the amount of such drawing, which L/C Borrowing shall be due and payable on demand (together with interest) and shall bear interest at a rate per annum equal to the Base Rate plus 2% per annum, and each Bank's payment to the Issuing Bank pursuant to Section 3.03(d) shall be deemed payment in respect of its participation in such L/C Borrowing and shall constitute an L/C Advance from such Bank in satisfaction of its participation obligation under this Section 3.03. (f) Each Bank's obligation in accordance with this Agreement to make the Loans or L/C Advances, as contemplated by this Section 3.03, as a result of a drawing under a Letter of Credit, shall be absolute and unconditional and without recourse to the Issuing Bank and shall not be affected by any circumstance, including (i) any set-off, counterclaim, recoupment, defense or other right which such Bank may have against the Issuing Bank, the Borrower or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default, an Event of Default or a Material Adverse Effect; or (iii) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing; provided, -------- however, that each Bank's obligation to make Loans under this Section 3.03 ------- is subject to the conditions set forth in Section 5.02. -46- 3.04 Repayment of Participations. (a) Upon (and only upon) receipt --------------------------- by the Administrative Agent for the account of the Issuing Bank of immediately available funds from the Borrower (i) in reimbursement of any payment made by the Issuing Bank under the Letter of Credit with respect to which any Bank has paid the Administrative Agent for the account of the Issuing Bank for such Bank's participation in the Letter of Credit pursuant to Section 3.03 or (ii) in payment of interest thereon, the Administrative Agent will pay to each Bank, in the same funds as those received by the Administrative Agent for the account of the Issuing Bank, the amount of such Bank's Pro Rata Share of such funds, and the Issuing Bank shall receive the amount of the Pro Rata Share of such funds of any Bank that did not so pay the Administrative Agent for the account of the Issuing Bank. (b) If the Administrative Agent or the Issuing Bank is required at any time to return to the Borrower, or to a trustee, receiver, liquidator, custodian, or any official in any Insolvency Proceeding, any portion of the payments made by the Borrower to the Administrative Agent for the account of the Issuing Bank pursuant to Section 3.04(a) in reimbursement of a payment made under the Letter of Credit or interest or fee thereon, each Bank shall, on demand of the Administrative Agent, forthwith return to the Administrative Agent or the Issuing Bank the amount of its Pro Rata Share of any amounts so returned by the Administrative Agent or the Issuing Bank plus interest thereon from the date such demand is made to the date such amounts are returned by such Bank to the Administrative Agent or the Issuing Bank, at a rate per annum equal to the Federal Funds Rate in effect from time to time. 3.05 Role of the Issuing Bank. (a) Each Bank and the Borrower ------------------------ agree that, in paying any drawing under a Letter of Credit, the Issuing Bank shall not have any responsibility to obtain any document (other than any sight draft and certificates expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. (b) No Agent-Related Person nor any of the respective correspondents, participants or assignees of the Issuing Bank shall be liable to any Bank for: (i), any action taken or omitted -47- in connection herewith at the request or with the approval of the Banks (including the Majority Banks, as applicable); (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any L/C- Related Document. (c) The Borrower hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided, however, that this assumption is not intended -------- ------- to, and shall not, preclude the Borrower's pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. No Agent-Related Person, nor any of the respective correspondents, participants or assignees of the Issuing Bank, shall be liable or responsible for any of the matters described in clauses (i) through (vii) of Section 3.06; provided, however, anything in such -------- ------- clauses to the contrary notwithstanding, that the Borrower may have a claim against the Issuing Bank, and the Issuing Bank may be liable to the Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Borrower which the Borrower proves were caused by the Issuing Bank's willful misconduct or gross negligence or the Issuing Bank's willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing: (i) the Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary; and (ii) the Issuing Bank shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason. 3.06 Obligations Absolute. The obligations of the Borrower under -------------------- this Agreement and any L/C-Related Document to reimburse the Issuing Bank for a drawing under a Letter of Credit, and to repay any L/C Borrowing and any drawing under a Letter of Credit converted into Loans, shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this -48- Agreement and each such other L/C-Related Document under all circumstances, including the following: (i) any lack of validity or enforceability of this Agreement or any L/C-Related Document; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of the Borrower in respect of any Letter of Credit or any other amendment or waiver of or any consent to departure from all or any of the L/C-Related Documents; (iii) the existence of any claim, set-off, defense or other right that the Borrower may have at any time against any beneficiary or any transferee of any Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the Issuing Bank or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by the L/C-Related Documents or any unrelated transaction; (iv) any draft, demand, certificate or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit; (v) any payment by the Issuing Bank under any Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of any Letter of Credit; or any payment made by the Issuing Bank under any Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of any Letter of Credit, including any arising in connection with any Insolvency Proceeding; (vi) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any other guarantee, for all or -49- any of the obligations of the Borrower in respect of any Letter of Credit; or (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower or a guarantor. 3.07 Cash Collateral Pledge. Upon (i) the request of the Administrative ---------------------- Agent, (A) if the Issuing Bank has honored any full or partial drawing request on any Letter of Credit and such drawing has resulted in an L/C Borrowing hereunder, or (B) if, as of the Maturity Date, any Letters of Credit may for any reason remain outstanding and partially or wholly undrawn, or (ii) the occurrence of the circumstances described in Section 2.07 requiring the Borrower to Cash Collateralize Letters of Credit, then, the Borrower shall immediately Cash Collateralize the L/C Obligations in an amount equal to the L/C Obligations. 3.08 Letter of Credit Fees. (a) The Borrower shall pay to the --------------------- Administrative Agent for the account of each of the Banks a letter of credit fee with respect to the Letters of Credit equal to the Applicable Amount for Letters of Credit on the average daily maximum amount available to be drawn of the outstanding standby Letters of Credit, computed on a quarterly basis in arrears on the last Business Day of each calendar quarter based upon Letters of Credit outstanding for that quarter as calculated by the Administrative Agent. Such letter of credit fees shall be due and payable quarterly in arrears on the last Business Day of each calendar quarter during which Letter's of Credit are outstanding, commencing on the first such quarterly date to occur after the Closing Date, through the Maturity Date (or such later date upon which the outstanding Letters of Credit shall expire), with the final payment to be made on the Maturity Date (or such later expiration date). (b) The Borrower shall pay to the Issuing Bank a letter of credit fronting fee for each Letter of Credit Issued by the Issuing Bank equal to 0.125% of the face amount (or increased face amount, as the case may be) of such Letter of Credit. Such -50- Letter of Credit fronting fee shall be due and payable on each date of Issuance of a Letter of Credit. (c) The Borrower shall pay to the Issuing Bank from time to time on demand the normal issuance, presentation, amendment and other processing fees, and other standard costs and charges, of the Issuing Bank relating to letters of credit as from time to time in effect. (d) Notwithstanding Section (a) of this Section, while any Event of Default exists or after acceleration, the Borrower shall pay Letter of Credit fees on the Effective Amount of all outstanding Letters of Credit (after as well as before entry of judgment thereon to the extent permitted by law) at a rate per annum which is determined by adding 2% per annum to the Applicable Amount then in effect therefor. 3.09 Uniform Customs and Practice. The Uniform Customs and Practice for ---------------------------- Documentary Credits as published by the International Chamber of Commerce most recently at the time of issuance of any Letter of Credit shall (unless otherwise expressly provided in the Letters of Credit) apply to the Letters of Credit. SECTION 4 TAXES, YIELD PROTECTION AND ILLEGALITY -------------------------------------- 4.01 Taxes. (a) Any and all payments by the Borrower to each Bank or ----- the Administrative Agent under this Agreement and any other Loan Document shall be made free and clear of, and without deduction or withholding for, any Taxes. In addition, the Borrower shall pay all Other Taxes. (b) If the Borrower shall be required by law to deduct or withhold any Taxes, Other Taxes or Further Taxes from or in respect of any sum payable hereunder to any Bank or the Administrative Agent, then: (i) the sum payable shall be increased as necessary so that, after making all required deductions and withholdings (including deductions and withholdings -51- applicable to additional sums payable under this Section), such Bank or the Administrative Agent, as the case may be, receives and retains an amount equal to the sum it would have received and retained had no such deductions or withholdings been made; (ii) the Borrower shall make such deductions and withholdings; (iii) the Borrower shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and (iv) the Borrower shall also pay to each Bank or the Administrative Agent for the account of such Bank, at the time interest is paid, Further Taxes in the amount that the respective Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes, Other Taxes or Further Taxes had not been imposed. (c) The Borrower agrees to indemnify and hold harmless each Bank and the Administrative Agent for the full amount of i) Taxes, ii) Other Taxes, and iii) Further Taxes in the amount that the respective Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes, Other Taxes or Further Taxes had not been imposed, and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes, Other Taxes or Further Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days after the date the Bank or the Administrative Agent makes written demand therefor. (d) Within 30 days after the date of any payment by the Borrower of Taxes, Other Taxes or Further Taxes, the Borrower shall furnish to each Bank or the Administrative Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to such Bank or the Administrative Agent. (e) If the Borrower is required to pay any amount to any Bank or the Administrative Agent pursuant to Section (b) or (c) of this Section, then such Bank shall use reasonable efforts -52- (consistent with legal and regulatory restrictions) to change the jurisdiction of its Lending Office so as to eliminate any such additional payment by the Borrower which may thereafter accrue, if such change in the sole judgment of such Bank is not otherwise disadvantageous to such Bank. 4.02 Illegality. (a) If any Bank determines that the introduction of ---------- any Requirement of Law, or any change in any Requirement of Law, or in the interpretation or administration of any Requirement of Law, has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for any Bank or its applicable Lending Office to make Offshore Rate Loans, then, on notice thereof by the Bank to the Borrower through the Administrative Agent, any obligation of that Bank to make Offshore Rate Loans shall be suspended until the Bank notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. (b) If a Bank determines that it is unlawful to maintain any Offshore Rate Loan, the Borrower shall, upon its receipt of notice of such fact and demand from such Bank (with a copy to the Administrative Agent), prepay in full such Offshore Rate Loans of that Bank then outstanding, together with interest accrued thereon and amounts required under Section 4.04, either on the last day of the Interest Period thereof, if the Bank may lawfully continue to maintain such Offshore Rate Loans to such day, or immediately, if the Bank may not lawfully continue to maintain such Offshore Rate Loan. If the Borrower is required to so prepay any Offshore Rate Loan, then concurrently with such prepayment, the Borrower shall borrow from the affected Bank, in the amount of such repayment, a Base Rate Loan. 4.03 Increased Costs and Reduction of Return. (a) If any Bank --------------------------------------- determines that, due to either (i) the introduction of or any change (other than any change by way of imposition of or increase in reserve requirements included in the calculation of the CD Rate or the Offshore Rate or in respect of the assessment rate payable by any Bank to the FDIC for insuring U.S. deposits) in or in the interpretation of any law or regulation or (ii) the compliance by that Bank with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to such Bank of agreeing to make or making, funding or -53- maintaining any Offshore Rate Loans or CD Rate Loans or participating in Letters of Credit, or, in the case of the Issuing Bank, any increase in the cost to the Issuing Bank of agreeing to issue, issuing or maintaining any Letter of Credit or of agreeing to make or making, funding or maintaining any unpaid drawing under any Letter of Credit, then the Borrower shall be liable for, and shall from time to time, upon demand (with a copy of such demand to be sent to the Administrative Agent), pay to the Administrative Agent for the account of such Bank, additional amounts as are sufficient to compensate such Bank for such increased costs. (b) If any Bank shall have determined that (i) the introduction of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by the Bank (or its Lending Office) or any corporation controlling the Bank with any Capital Adequacy Regulation, affects or would affect the amount of capital required or expected to be maintained by the Bank or any corporation controlling the Bank and (taking into consideration such Bank's or such corporation's policies with respect to capital adequacy and such Bank's desired return on capital) determines that the amount of such capital is increased as a consequence of its Commitments, loans, credits or obligations under this Agreement, then, upon demand of such Bank to the Borrower through the Administrative Agent, the Borrower shall pay to the Bank, from time to time as specified by the Bank, additional amounts sufficient to compensate the Bank for such increase. 4.04 Funding Losses. The Borrower shall reimburse each Bank and hold -------------- each Bank harmless from any loss or expense which the Bank may sustain or incur as a consequence of: (a) the failure of the Borrower to make on a timely basis any payment of principal of any Offshore Rate Loan or CD Rate Loan; (b) the failure of the Borrower to borrow, continue or convert a Loan after the Borrower has given (or is deemed to have given) a Notice of Borrowing or a Notice of Conversion/Continuation; (c) the failure of the Borrower to make any prepayment in accordance with any notice delivered under Section 2.06; (d) the -54- prepayment (including pursuant to Section 2.07) or other payment (including after acceleration thereof) of an Offshore Rate Loan or a CD Rate Loan on a day that is not the last day of the relevant Interest Period; or (e) the automatic conversion under Section 2.04 of any Offshore Rate Loan or CD Rate Loan to a Base Rate Loan on a day that is not the last day of the relevant Interest Period; including any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its Offshore Rate Loans or CD Rate Loans or from fees payable to terminate the deposits from which such funds were obtained. For purposes of calculating amounts payable by the Borrower to the Banks under this Section and under Section 4.03(a), (i) each Offshore Rate Loan made by a Bank (and each related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the IBOR used in determining the Offshore Rate for such Offshore Rate Loan by a matching deposit or other borrowing in the interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Offshore Rate Loan is in fact so funded, and (ii) each CD Rate Loan made by a Bank (and each related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the Certificate of Deposit Rate used in determining the CD Rate for such CD Rate Loan by the issuance of its certificate of deposit in a comparable amount and for a comparable period, whether or not such CD Rate Loan is in fact so funded. 4.05 Inability to Determine Rates. If the Majority Banks determine that ---------------------------- for any reason adequate and reasonable means do not exist for determining the Offshore Rate or the CD Rate for any requested Interest Period with respect to a proposed Offshore Rate Loan or CD Rate Loan, or that the Offshore Rate or the CD Rate applicable pursuant to Section 2.09(a) for any requested Interest Period with respect to a proposed Offshore Rate Loan or CD Rate Loan does not adequately and fairly reflect the cost to such Banks of funding such Loan, the Administrative Agent will promptly so notify the Borrower and each Bank. Thereafter, the obligation of the Banks to make or maintain CD Rate Loans or Offshore Rate Loans, as the case may be, hereunder shall be suspended until the Administrative Agent upon the instruction of the Majority Banks revokes such notice in writing. Upon receipt of such notice, the Borrower may revoke any Notice of Borrowing or Notice of Conversion/Continuation then submitted by it. If -55- the Borrower does not revoke such Notice, the Banks shall make, convert or continue the Loans, as proposed by the Borrower, in the amount specified in the applicable notice submitted by the Borrower, but such Loans shall be made, converted or continued as Base Rate Loans instead of CD Rate Loans or Offshore Rate Loans, as the case may be. 4.06 Survival. The agreements and obligations of the Borrower in this -------- Section 4 shall survive the payment of all other Obligations. SECTION 5 CONDITIONS PRECEDENT -------------------- 5.01 Conditions of Initial Credit Extension. The obligation of each Bank -------------------------------------- to make its initial extension of credit hereunder is subject to the condition that the Administrative Agent shall have received on or before the Closing Date all of the following, in form and substance satisfactory to the Administrative Agent and each Bank, and in sufficient copies for the Administrative Agent and each Bank: (a) Credit Agreement and Notes. This Agreement and any Notes -------------------------- executed by each party thereto; (b) Resolutions; Incumbency. (i) Copies of the resolutions of the ----------------------- board of directors of the Borrower authorizing the transactions contemplated hereby, certified as of the Closing Date by the Secretary of the Borrower; and (ii) a certificate of the Secretary of the Borrower certifying the names and true signatures of the officers of the Borrower authorized to execute, deliver and perform, as applicable, this Agreement, and all other Loan Documents to be delivered by it hereunder; (c) Organization Documents; Good Standing. Each of the following ------------------------------------- documents: (i) the articles or certificate of incorporation and the bylaws of the Borrower as in effect on the Closing Date, certified by the Secretary of the Borrower as of the Closing Date; and (ii) a good standing and tax good standing certificate for the Borrower from the Secretary of State (or similar, applicable Governmental Authority) of its state of -56- incorporation and each state where the Borrower is qualified to do business as a foreign corporation as of a recent date, together with a bring-down certificate by facsimile, dated the Closing Date; (d) Collateral Documents. Amendments to the Collateral Documents, -------------------- duly executed, acknowledged, delivered, recorded, re-recorded, filed, re-filed, registered and re-registered, and any and all such further acts, deeds, conveyances, security agreements, financing statements and continuations thereof, termination statements, notices of assignment, transfers, certificates, assurances and other instruments as the Collateral Agent may reasonably require in order to reflect this Agreement and, in connection therewith, to (i) perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and the Liens intended to be created thereby, and (ii) to better assure, convey, grant, assign, transfer, preserve, protect and confirm to the Collateral Agent the rights intended to be granted to the Collateral Agent for the benefit of the Secured Parties under the Collateral Documents or under any other document executed in connection therewith. (e) Legal Opinion. A favorable opinion of counsel to the Borrower, ------------- addressed to the Administrative Agent and the Banks, with respect to such legal matters relating hereto as any Bank may request; (f) Payment of Fees. Evidence of payment by the Borrower of all ---------------- accrued and unpaid fees, costs and expenses to the extent then due and payable on the Closing Date, together with Attorney Costs of the Administrative Agent to the extent invoiced prior to or on the Closing Date, plus such additional amounts of Attorney Costs as shall constitute the Administrative Agent's reasonable estimate of Attorney Costs incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude final settling of accounts between the Borrower and the Administrative Agent); including any such costs, fees and expenses arising under or referenced in Sections 2.10 and 11.04; (g) Certificate. A certificate signed by a Responsible Officer, ----------- dated as of the Closing Date: (i) stating -57- that the representations and warranties contained in Section 6 are true and correct on and as of such date, as though made on and as of such date; (ii) stating that no Default or Event of Default exists or would result from the execution and delivery of this Agreement; (iii) stating that there has occurred since December 31, 1995, no event or circumstance that has resulted or could reasonably be expected to result in a Material Adverse Effect, and (iv) setting forth the Fixed Charge Coverage Ratio as of the end of the most recent fiscal quarter of the Borrower, and the calculations in connection therewith in the form of Section III on Schedule 2 to the Compliance Certificate, for purposes of determining the Applicable Amount; and (h) Subordination Agreements. The Subordination Agreements duly ------------------------ executed by R.D. Colburn and the R.D. Colburn School of Performing Arts. (i) Other Documents. Such other approvals, opinions, documents or --------------- materials as the Administrative Agent or any Bank may request. 5.02 Conditions to All Credit Extensions. The obligation of each Bank to ----------------------------------- make any Loan to be made by it (including its initial Loan) or to continue or convert any Loan under Section 2.04 and the obligation of the Issuing Bank to Issue any Letter of Credit (including the initial Letter of Credit) is subject to the satisfaction of the following conditions precedent on the relevant Borrowing Date, Conversion/Continuation Date or Issuance Date: (a) Notice, Application. The Administrative Agent shall have ------------------- received (with, in the case of the initial Loan only, a copy for each Bank) a Notice of Borrowing or a Notice of Conversion/Continuation, as applicable or in the case of any Issuance of any Letter of Credit, the Issuing Bank and the Administrative Agent shall have received an L/C Application or L/C Amendment Application, as required under Section 3.02; (b) Continuation of Representations and Warranties. The ---------------------------------------------- representations and warranties in Section 6 shall be true and correct on and as of such Borrowing Date or Conversion/ Continuation Date or Issuance Date with the same effect as if made on and as of such Borrowing Date or Conversion/Continuation -58- Date or Issuance Date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct as of such earlier date); and (c) No Existing Default. No Default or Event of Default shall exist ------------------- or shall result from such Borrowing or continuation or conversion or Issuance. Each Notice of Borrowing, Notice of Conversion/Continuation and L/C Application or L/C Amendment Application submitted by the Borrower hereunder shall constitute a representation and warranty by the Borrower hereunder, as of the date of each such notice and as of each Borrowing Date, Conversion/Continuation Date, or Issuance Date, as applicable, that the conditions in this Section 5.02 are satisfied. SECTION 6 REPRESENTATIONS AND WARRANTIES ------------------------------ The Borrower represents and warrants to the Administrative Agent, the Collateral Agent and each Bank that: 6.01 Corporate Existence and Power. Each of the Borrower and its ----------------------------- Subsidiaries: (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (b) has the power and authority and all governmental licenses, authorizations, consents and approvals to own its assets, carry on its business and to execute, deliver, and perform its obligations under the Loan Documents; (c) is duly qualified as a foreign corporation and is licensed and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification or license; and (d) is in compliance with all Requirements of Law. 6.02 Corporate Authorization; No Contravention. The execution, delivery ----------------------------------------- and performance by the Borrower of this Agreement and each other Loan Document to which the Borrower is party, have been duly authorized by all necessary corporate action, and do not and will not: (a) contravene the terms of any of the Borrower's Organization Documents; (b) conflict with or -59- result in any breach or contravention of, or the creation of any Lien under, any document evidencing any Contractual Obligation to which the Borrower is a party or any order, injunction, writ or decree of any Governmental Authority to which the Borrower or its property is subject; or (c) violate any Requirement of Law. 6.03 Governmental Authorization. No approval, consent, exemption, -------------------------- authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Borrower or any of its Subsidiaries of the Agreement or any other Loan Document. 6.04 Binding Effect. This Agreement and each other Loan Document to -------------- which the Borrower is a party constitute the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability. 6.05 Litigation. There are no actions, suits, proceedings, claims or ---------- disputes pending, or to the best knowledge of the Borrower, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, against the Borrower, or its Subsidiaries or any of their respective properties which: (a) purport to affect or pertain to this Agreement or any other Loan Document, or any of the transactions contemplated hereby or thereby; or (b) if determined adversely to the Borrower or its Subsidiaries, would reasonably be expected to have a Material Adverse Effect. No injunction, writ, temporary restraining order or any order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the execution, delivery or performance of this Agreement or any other Loan Document, or directing that the transactions provided for herein or therein not be consummated as herein or therein provided. 6.06 No Default. No Default or Event of Default exists or would result ---------- from the incurring of any Obligations by the Borrower. As of the Closing Date, neither the Borrower nor any Subsidiary is in default under or with respect to any Contractual -60- Obligation in any respect which, individually or together with all such defaults, could reasonably be expected to have a Material Adverse Effect, or that would, if such default had occurred after the Closing Date, create an Event of Default under Section 9.01(e). 6.07 ERISA Compliance . (a) Each Plan is in compliance in all material ---------------- respects with the applicable provisions of ERISA, the Code and other federal or state law. Each Plan which is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service, and any Governmental Authority succeeding to any of its principal functions under the Code, and to the best knowledge of the Borrower, nothing has occurred which would cause the loss of such qualification. The Borrower and each ERISA Affiliate has made all required contributions to any Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan. (b) There are no pending or, to the best knowledge of Borrower, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. (c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither the Borrower nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA. -61- 6.08 Use of Proceeds; Margin Regulations. The proceeds of the Loans are ----------------------------------- to be used solely for the purposes set forth in and permitted by Section 7.12 and Section 8.07. Neither the Borrower nor any Subsidiary is generally engaged in the business of purchasing or selling Margin Stock or extending credit for the purpose of purchasing or carrying Margin Stock. 6.09 Title to Properties. The Borrower and each Subsidiary have good ------------------- record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of their respective businesses, except for such defects in title as could not, individually or in the aggregate, have a Material Adverse Effect. As of the Closing Date, the property of the Borrower and its Subsidiaries is subject to no Liens, other than Permitted Liens. 6.10 Taxes. The Borrower and its Subsidiaries have filed all Federal and ----- other material tax returns and reports required to be filed, and have paid all Federal and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided in accordance with GAAP. There is no proposed tax assessment against the Borrower or any Subsidiary that would, if made, have a Material Adverse Effect. 6.11 Financial Condition. The audited consolidated financial statements ------------------- of the Borrower and its Subsidiaries dated December 31, 1995, and the related consolidated statements of income or operations, shareholders' equity and cash flows for the fiscal year ended on that date: (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (ii) fairly present the financial condition of the Borrower and its Subsidiaries as of the date thereof and results of operations for the period covered thereby; and (iii) show all material indebtedness and other liabilities, direct or contingent, of the Borrower and its consolidated Subsidiaries as of the date thereof, including liabilities for taxes, material commitments and Contingent Obligations. Since December 31, 1995, there has been no Material Adverse Effect. -62- 6.12 Environmental Matters. The Borrower conducts in the ordinary course --------------------- of business a review of the effect of existing Environmental Laws and existing Environmental Claims on its business, operations and properties, and as a result thereof the Borrower has reasonably concluded that, such Environmental Laws and Environmental Claims could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 6.13 Regulated Entities. None of the Borrower, any Person controlling ------------------ the Borrower, or any Subsidiary, is an "Investment Company" within the meaning of the Investment Borrower Act of 1940. The Borrower is not subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state public utilities code, or any other Federal or state statute or regulation limiting its ability to incur Indebtedness. 6.14 No Burdensome Restrictions. Neither the Borrower nor any Subsidiary -------------------------- is a party to or bound by any Contractual Obligation, or subject to any restriction in any organization Document, or any Requirement of Law, which could reasonably be expected to have a Material Adverse Effect. 6.15 Copyrights, Patents, Trademarks and Licenses, etc. The Borrower or -------------------------------------------------- its Subsidiaries own or are licensed or otherwise have the right to use all of the patents, trademarks, service marks, trade names, copyrights, contractual franchises, authorizations and other rights that are reasonably necessary for the operation of their respective businesses, without conflict with the rights of any other Person. To the best knowledge of the Borrower, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by the Borrower or any Subsidiary infringes upon any rights held by any other Person. No claim or litigation regarding any of the foregoing is pending or threatened, and no patent, invention, device, application, principle or any statute, law, rule, regulation, standard or code is pending or, to the knowledge of the Borrower, proposed, which, in either case, could reasonably be expected to have a Material Adverse Effect. -63- 6.16 Subsidiaries. As of the Closing Date, the Borrower has no ------------ Subsidiaries other than those specifically disclosed in part (a) of Schedule -------- 6.16 hereto and has no equity investments in any other corporation or entity - ---- other than those specifically disclosed in part (b) of Schedule 6.16. ------------- 6.17 Insurance. The properties of the Borrower and its Subsidiaries are --------- insured with financially sound and reputable insurance companies not Affiliates of the Borrower, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Borrower or such Subsidiary operates. 6.18 Collateral Documents. The provisions of each of the Collateral -------------------- Documents are effective to create in favor of the Collateral Agent a legal, valid and enforceable first priority security interest in all right, title and interest of the Borrower in the Collateral described therein. All representations and warranties of the Borrower contained in the Collateral Documents are true and correct. 6.19 Full Disclosure. None of the representations or warranties made by --------------- the Borrower or any Subsidiary in the Loan Documents as of the date such representations and warranties are made or deemed made, and none of the statements contained in any exhibit, report, statement or certificate furnished by or on behalf of the Borrower or any Subsidiary in connection with the Loan Documents (including the offering and disclosure materials delivered by or on behalf of the Borrower to the Banks prior to the Closing Date), contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading as of the time when made or delivered. SECTION 7 AFFIRMATIVE COVENANTS --------------------- So long as any Bank shall have any Commitment hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, -64- or any Letter of Credit shall remain outstanding, unless the Majority Banks waive compliance in writing: 7.01 Financial Statements. The Borrower shall deliver to the -------------------- Administrative Agent, in form and detail satisfactory to the Administrative Agent and the Majority Banks, with sufficient copies for each Bank: (a) as soon as available, but not later than 90 days after the end of each fiscal year, a copy of the audited consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such year and the related consolidated statements of income or operations, shareholders, equity and cash flows for such year, setting forth in each case in comparative form the figures for the previous fiscal year, and accompanied by the opinion of Price Waterhouse or another nationally-recognized independent public accounting firm ("Independent Auditor") which report shall state that such consolidated ------------------- financial statements present fairly the financial position for the periods indicated in conformity with GAAP applied on a basis consistent with prior years. Such opinion shall not be qualified or limited because of a restricted or limited examination by the Independent Auditor of any material portion of the Borrower's or any Subsidiary's records; (b) as soon as available, but not later than 45 days after the end of each of the first three fiscal quarters of each fiscal year, a copy of the unaudited consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such quarter and the related consolidated statements of income, shareholders' equity and cash flows, for the period commencing on the first day and ending on the last day of such quarter, and certified by a Responsible Officer as fairly presenting, in accordance with GAAP (subject to ordinary, good faith year-end audit adjustments), the financial position and the results of operations of the Borrower and the Subsidiaries; and 7.02 Certificates; Other Information. The Borrower shall furnish to the ------------------------------- Administrative Agent, with sufficient copies for each Bank: (a) concurrently with the delivery of the financial statements referred to in Section 7.01(a), a certificate of the -65- Independent Auditor stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) concurrently with the delivery of the financial statements referred to in Sections 7.01(a) and (b), a Compliance Certificate executed by a Responsible Officer; and (c) promptly, such additional information regarding the business, financial or corporate affairs of the Borrower or any Subsidiary as any Bank may from time to time request. 7.03 Notices. The Borrower shall promptly notify the Administrative ------- Agent and each Bank: (a) of the occurrence of any Default or Event of Default, and of the occurrence or existence of any event or circumstance that foreseeably will become a Default or Event of Default; (b) of any matter that has resulted or may result in a Material Adverse Effect, including (i) breach or non-performance of, or any default under, a Contractual Obligation of the Borrower or any Subsidiary; (ii) any dispute, litigation, investigation, proceeding or suspension between the Borrower or any Subsidiary and any Governmental Authority; or (iii) the commencement of, or any material development in, any litigation or proceeding affecting the Borrower or any Subsidiary; including pursuant to any applicable Environmental Laws; (c) of the occurrence of any of the following events affecting the Borrower or any ERISA Affiliate (but in no event more than 10 days after such event), and deliver to the Administrative Agent a copy of any notice with respect to such event that is filed with a Governmental Authority and any notice delivered by a Governmental Authority to the Borrower or any ERISA Affiliate with respect to such event: (i) an ERISA Event; (ii) a material increase in the Unfunded Pension Liability of any Pension Plan; (iii) the adoption, of, or the commencement of contributions to, any Plan subject to Section 412 of the Code by the Borrower or any ERISA Affiliate; or (iv) the adoption of any amendment to a Plan subject to Section 412 of the Code, if such -66- amendment results in a material increase in contributions or Unfunded Pension Liability; and (d) of any material change in accounting policies or financial reporting practices by the Borrower or any of its consolidated Subsidiaries. Each notice under this Section shall be accompanied by a written statement by a Responsible Officer setting forth details of the occurrence referred to therein, and stating what action the Borrower or any affected Subsidiary proposes to take with respect thereto and at what time. Each notice under Section 7.03(a) shall describe with particularity any and all clauses or provisions of this Agreement or other Loan Document that have been (or foreseeably will be) breached or violated. 7.04 Preservation of Corporate Existence, Etc. The Borrower shall, and ----------------------------------------- shall cause each Subsidiary to: (a) preserve and maintain in full force and effect its corporate existence and good standing under the laws of its state or jurisdiction of incorporation; (b) preserve and maintain in full force and effect all governmental rights, privileges, qualifications, permits, licenses and franchises necessary or desirable in the normal conduct of its business; (c) use reasonable efforts, in the ordinary course of business, to preserve its business organization and goodwill; and (d) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non- preservation of which could reasonably be expected to have a Material Adverse Effect. 7.05 Maintenance of Property. The Borrower shall maintain, and shall ----------------------- cause each Subsidiary to maintain, and preserve all its property which is used or useful in its business in good working order and condition, ordinary wear and tear excepted and make all necessary repairs thereto and renewals and replacements thereof except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. The Borrower and each Subsidiary shall use the standard of care typical in the industry in the operation and maintenance of its facilities. 7.06 Insurance. The Borrower shall maintain, and shall cause each --------- Subsidiary to maintain, with financially sound and reputable independent insurers, insurance with respect to its -67- properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons. 7.07 Payment of Obligations. The Borrower shall, and shall cause each ---------------------- Subsidiary to, pay and discharge as the same shall become due and payable, all their respective obligations and liabilities, including: (a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP are being maintained by the Borrower or such Subsidiary; (b) all lawful claims which, if unpaid, would by law become a Lien upon its property; and (c) all indebtedness, as and when due and payable, but subject to any subordination provisions contained in any instrument or agreement evidencing such Indebtedness. 7.08 Compliance with Laws. The Borrower shall comply, and shall cause -------------------- each Subsidiary to comply, in all material respects with all Requirements of Law of any Governmental Authority having jurisdiction over it or its business (including the Federal Fair Labor Standards Act), except such as may be contested in good faith or as to which a bona fide dispute may exist. 7.09 Compliance with ERISA. The Borrower shall, and shall cause each of --------------------- its ERISA Affiliates to: (a) maintain each Plan in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law; (b) cause each Plan which is qualified under Section 401(a) of the Code to maintain such qualification; and (c) make all required contributions to any Plan subject to Section 412 of the Code. 7.10 Inspection of Property and Books and Records. The Borrower shall -------------------------------------------- maintain and shall cause each Subsidiary to maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Borrower and such Subsidiary. The Borrower shall permit, and shall cause each Subsidiary to permit, representatives and independent contractors of the Administrative -68- Agent to visit and inspect any of their respective properties, to examine their respective corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss their respective affairs, finances and accounts with their respective directors, officers, and independent public accountants, all at the expense of the Borrower and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Borrower; provided, however, when an Event of -------- ------- Default exists the Administrative Agent may do any of the foregoing at the expense of the Borrower at any time during normal business hours and without advance notice. 7.11 Environmental Laws. The Borrower shall, and shall cause each ------------------ Subsidiary to, conduct its operations and keep and maintain its property in compliance with all Environmental Laws. 7.12 Use of Proceeds. The Borrower shall use the proceeds of the Loans --------------- for working capital and other general corporate purposes, including acquisitions permitted hereunder, not in contravention of any Requirement of Law or of any Loan Document. 7.13 Collateral. Promptly upon request by the Collateral Agent, the ---------- Borrower shall do, execute, acknowledge, deliver, record, re-record, file, re- file, register and re-register, any and all such further acts, deeds, conveyances, security agreements, financing statements and continuations thereof, termination statements, notices of assignment, transfers, certificates, assurances and other instruments as the Collateral Agent may reasonably require from time to time in order (i) to carry out more effectively the purposes of this Agreement or any other Loan Document, (ii) to subject to the Liens created by any of the Collateral Documents any of the properties, rights or interests covered by any of the Collateral Documents, (iii) to perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and the Liens intended to be created thereby, and (iv) to better assure, convey, grant, assign, transfer, preserve, protect and confirm to the Secured Parties the rights granted or now or hereafter intended to be granted to the Secured Parties under the Collateral Documents or under any other document executed in connection therewith. -69- SECTION 8 NEGATIVE COVENANTS ------------------ So long as any Bank shall have any Commitment hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, unless the Majority Banks waive compliance in writing: 8.01 Limitation on Liens. The Borrower shall not directly or indirectly, ------------------- make, create, incur, assume or suffer to exist any Lien upon or with respect to any part of its property, whether now owned or hereafter acquired, other than the following on other than the Collateral ("Permitted Liens"): --------------- (a) any Lien created under any Loan Document; (b) Liens for taxes, fees, assessments or other governmental charges which are not delinquent or remain payable without penalty, or to the extent that non-payment thereof is permitted by Section 7.07, provided that no notice of lien has been filed or recorded under the Code; (c) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other similar Liens arising in the ordinary course of business which are not delinquent or remain payable without penalty; (d) Liens (other than any Lien imposed by ERISA) consisting of pledges or deposits required in the ordinary course of business in connection with workers, compensation, unemployment insurance and other social security legislation; (e) Liens on the property of the Borrower securing (i) the non- delinquent performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, (ii) contingent obligations on surety and appeal bonds, and (iii) other, non-delinquent obligations of a like nature; in each case, incurred in the ordinary course of business, provided all such Liens in the aggregate would not (even if enforced) cause a Material Adverse Effect; -70- (f) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the businesses of the Borrower; (g) Liens arising solely by virtue of any statutory or common law provision relating to banker's liens, rights of setoff or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; provided that (i) such deposit account is not a -------- dedicated cash collateral account and is not subject to restrictions against access by the Borrower in excess of those set forth by regulations promulgated by the FRB, and (ii) such deposit account is not intended by the Borrower to provide collateral to the depository institution; (h) Liens to secure Indebtedness permitted by Section 8.05(g); and (i) Purchase money security interests hereafter acquired when the security interest does not extend beyond the property purchased and the aggregate amount of liabilities secured thereby do not exceed, at any time, $20,000,000. 8.02 Disposition of Assets. The, Borrower shall not, and shall not --------------------- suffer or permit any Subsidiary to, directly or indirectly, sell, assign, lease, convey, transfer or otherwise dispose of (whether in one or a series of transactions) any property (including accounts and notes receivable, with or without recourse) or enter into any agreement to do any of the foregoing, except: (a) dispositions of inventory, or used, worn-out or surplus equipment, all in the ordinary course of business; (b) the sale of equipment to the extent that such equipment is exchanged for credit against the purchase price of similar replacement equipment, or the proceeds of such sale are reasonably promptly applied to the purchase price of such replacement equipment; and -71- (c) dispositions not otherwise permitted hereunder which are made for fair market value, provided such dispositions, taken as a whole, do not -------- represent a substantial amount of the Consolidated Total Assets. 8.03 Consolidations and Mergers. The Borrower shall not, and shall not -------------------------- suffer or permit any Subsidiary to, merge, consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person, except: (a) any Subsidiary may merge with the Borrower, provided that the Borrower shall be the continuing or surviving corporation, or with any one or more Subsidiaries, provided that if any transaction shall be between a Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall be the continuing or surviving corporation; and (b) any Subsidiary may sell all or substantially all of its assets (upon voluntary liquidation or otherwise), to the Borrower or another Wholly- Owned Subsidiary. 8.04 Loans and Investments. The Borrower shall not purchase or acquire, --------------------- or suffer or permit any Subsidiary to purchase or acquire, or make any commitment therefor, any capital stock, equity interest, or any obligations or other securities of, or any interest in, any Person, or make or commit to make any Acquisitions, or make or commit to make any advance, loan, extension of credit or capital contribution to or any other investment in, any Person including any Affiliate of the Borrower, except for: (a) investments in cash equivalents and short term marketable securities; (b) extensions of credit in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business; (d) CED Borrowings existing on the Closing Date; -72- (e) Acquisitions having a book value (to the purchaser) not exceeding in the aggregate in any fiscal year an amount equal to 35% of the sum of (i) the Borrower's Consolidated Tangible Net Worth and (ii) Borrower's subordinated Indebtedness, in each case as of the last day of prior fiscal year, provided no -------- Default or Event of Default exists before and after giving effect to such acquisitions; and (f) other Loans and investments not exceeding $4,000,000 in the aggregate at any time. 8.05 Limitation on Indebtedness. The Borrower shall not, and shall not -------------------------- suffer or permit any Subsidiary to, create, incur, assume, suffer to exist, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness, except: (a) Indebtedness incurred pursuant to this Agreement; (b) Permitted Senior Indebtedness not exceeding $90,000,000 in aggregate principal amount at any time provided the Borrower has complied with -------- Section 7.13; (c) the acquisition of goods, supplies or merchandise on normal trade credit; (d) the execution of bonds or undertakings in the ordinary course of its business as presently conducted; (e) the endorsement of negotiable instruments received in the ordinary course of its business as presently conducted; (f) the financing of insurance premiums, in an aggregate amount not to exceed $4,000,000 at any time, in the ordinary course of its business as presently conducted; (g) other Indebtedness not exceeding $5,000,000 in the aggregate outstanding at any one time; (h) Indebtedness owed to various Colburn family members and related persons not to exceed $5,000,000; -73- (i) subordinated Indebtedness not to exceed $20,000,000 at any time; (j) Indebtedness secured by Liens permitted by Section 8.01(i); (k) EII Indebtedness; and (l) Contingent Obligations and Indebtedness incurred in connection with customer purchases of Borrower's equipment not exceeding $10,000,000 in the aggregate at any time. 8.06 Transactions with Affiliates. The Borrower shall not, and shall not ---------------------------- suffer or permit any Subsidiary to, enter into any transaction with any Affiliate of the Borrower, except upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary than would obtain in a comparable arm's-length transaction with a Person not an Affiliate of the Borrower or such Subsidiary. 8.07 Use of Proceeds. The Borrower shall not, and shall not suffer or --------------- permit any Subsidiary to, use any portion of the Loan proceeds, directly or indirectly, (i) to purchase or carry Margin Stock, (ii) to repay or otherwise refinance indebtedness of the Borrower or others incurred to purchase or carry Margin Stock, (iii) to extend credit for the purpose of purchasing or carrying any Margin Stock, or (iv) to acquire any security in any transaction that is subject to Section 13 or 14 of the Securities and Exchange Act of 1934, and regulations promulgated thereunder. 8.08 Joint Ventures. The Borrower shall not, and shall not suffer or -------------- permit any Subsidiary to enter into any Joint Venture, other than in the ordinary course of business. 8.09 Lease Obligations. The Borrower shall not, and shall not suffer or ----------------- permit any Subsidiary to, create or suffer to exist any obligations for the payment of rent for any property under lease or agreement to lease, except for: (a) leases having an aggregate annual rental payments for all such leases not exceeding in any fiscal year $5,000,000; and -74- (b) Leases or agreements for personal property having a lease or rental period of 31 days or less. 8.10 Restricted Payments. The Borrower shall not, and shall not suffer ------------------- or permit any Subsidiary to, declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any shares of any class of its capital stock, or purchase, redeem or otherwise acquire for value any shares of its capital stock or any warrants, rights or options to acquire such shares, now or hereafter outstanding; except that the Borrower may: (a) declare and make dividend payments or other distributions payable solely in its common stock; (b) purchase, redeem or otherwise acquire.shares of its common stock or warrants or options to acquire any such shares with the proceeds received from the substantially concurrent issue of new shares of its common stock; and (c) declare and make dividends not exceeding 100% of the Borrower's pretax income. 8.11 ERISA. The Borrower shall not, and shall not suffer or permit any ----- of its ERISA Affiliates to: (a) engage in a prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably expected to result in liability of the Borrower in an aggregate amount in excess of 10% of Consolidated Tangible Net Worth; or (b) engage in a transaction that could be subject to Section 4069 or 4212(c) of ERISA. 8.12 Change in Business. The Borrower shall not, and shall not suffer or ------------------ permit any Subsidiary to, engage in any material line of business substantially different from those lines of business carried on by the Borrower and its Subsidiaries on the date hereof. 8.13 Asset Coverage Ratio. The Borrower will at all times keep and -------------------- maintain the ratio of Book Value of Consolidated Total Assets to Consolidated Secured Indebtedness at not less than 1.25 to 1.00. -75- 8.14 Consolidated Tangible Net Worth. The Borrower will at all times ------------------------------- keep and maintain Consolidated Tangible Net Worth at an amount not less than the sum of (a) $48,000,000 plus (b) 25% of Consolidated Net Income computed on a ---- cumulative basis for each of the elapsed fiscal quarters ending after December 31, 1995, plus net equity contributions made after the Closing Date; provided ---- -------- that notwithstanding that Consolidated Net Income for any such elapsed fiscal quarter may be a deficit figure, no reduction as a result thereof shall be made in the sum to be maintained pursuant hereto. 8.15 Fixed Charge Coverage Ratio. The Borrower will as at the end of --------------------------- each fiscal quarter keep and maintain the Fixed Charge Coverage Ratio at not less than 1.75 to 1.00. 8.16 Leverage Ratio. The Borrower will as at the end of each fiscal -------------- quarter keep and maintain the ratio of Consolidated Funded Debt to Consolidated Tangible Net Worth at not greater than 3.25 to 1.00. 8.17 Accounting Changes. The Borrower shall not, and shall not suffer or ------------------ permit any Subsidiary to, make any significant change in accounting treatment or reporting practices, except as required by GAAP, or change the fiscal year of the Borrower or of any Subsidiary. SECTION 9 EVENTS OF DEFAULT ----------------- 9.01 Event of Default. Any of the following shall constitute an "Event ---------------- ----- of Default": - ---------- (a) Non-Payment. The Borrower fails to pay, (i) when and as required ----------- to be paid herein, any amount of principal of any Loan, or (ii) within 3 days after the same becomes due, any interest, fee or any other amount payable hereunder or under any other Loan Document; or (b) Representation or Warranty. Any representation or warranty by -------------------------- the Borrower made or deemed made herein, in any other Loan Document, or which is contained in any certificate, -76- document or financial or other statement by the Borrower, or any Responsible Officer, furnished at any time under this Agreement, or in or under any other Loan Document, is incorrect in any material respect on or as of the date made or deemed made; or (c) Specific Defaults. The Borrower fails to perform or observe any ----------------- term, covenant or agreement contained in any of Sections 7.01, 7.02, 7.03 or 7.09 or in Section 8; or (d) Other Defaults. The Borrower fails to perform or observe any -------------- other term or covenant contained in this Agreement, or any default shall occur under any other Loan Document, and such default shall continue unremedied for a period of 20 days after the earlier of (i) the date upon which a Responsible Officer knew or reasonably should have known of such failure and (ii) the date upon which written notice thereof is given to the Borrower by the Administrative Agent; or (e) Cross-Default. The Borrower or any Subsidiary (i) fails to make ------------- any payment in respect of any Indebtedness or Contingent Obligation when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise); or (ii) fails to perform or observe any other condition or covenant, or any other event shall occur or condition exist, under any agreement or instrument relating to any such Indebtedness or Contingent Obligation, if the effect of such failure, event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause such Indebtedness to be declared to be due and payable prior to its stated maturity, or such Contingent Obligation to become payable or cash collateral in respect thereof to be demanded; or (f) Insolvency; Voluntary Proceedings. The Borrower or any --------------------------------- Subsidiary (i) ceases or fails to be solvent, or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; (ii) voluntarily ceases to conduct its business in the ordinary course; (iii) commences any Insolvency Proceeding with respect to itself; or (iv) takes any action to effectuate or authorize any of the foregoing; or -77- (g) Involuntary Proceedings. (i) Any involuntary Insolvency ----------------------- Proceeding is commenced or filed against the Borrower or any Subsidiary, or any writ, judgment, warrant of attachment, execution or similar process, is issued or levied against a substantial part of the Borrower's or any Subsidiary's properties, and any such proceeding or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded within 60 days after commencement, filing or levy; (ii) the Borrower or any Subsidiary admits the material allegations of a petition against it in any Insolvency Proceeding, or an order for relief (or similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or (iii) the Borrower or any Subsidiary acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent therefor), or other similar Person for itself or a substantial portion of its property or business; or (h) ERISA. (i) An ERISA Event shall occur with respect to a Pension ----- Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of the Borrower under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $5,000,000; (ii) the aggregate amount of Unfunded Pension Liability among all Pension Plans at any time exceeds $5,000,000; or (iii) the Borrower or any ERISA Affiliate shall fail to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $5,000,000; or (i) Monetary Judgments. One or more non-interlocutory judgments, ------------------ non-interlocutory orders, decrees or arbitration awards is entered against the Borrower or any Subsidiary involving in the aggregate a liability (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage) as to any single or related series of transactions, incidents or conditions, of $5,000,000 or more, and the same shall remain unvacated and unstayed pending appeal for a period of 10 days after the entry thereof; or (j) Non-Monetary Judgments. Any non-monetary judgment, order or ---------------------- decree is entered against the Borrower or any -78- Subsidiary which does or would reasonably be expected to have a Material Adverse Effect, and there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (k) Collateral. ---------- (i) any provision of any Collateral Document shall for any reason cease to be valid and binding on or enforceable against the Borrower or the Borrower shall so state in writing or bring an action to limit its obligations or liabilities thereunder; or (ii) any Collateral Document shall for any reason (other than pursuant to the terms thereof) cease to create a valid security interest in the Collateral purported to be covered thereby or such security interest shall for any reason cease to be a perfected and first priority security interest; or (l) Adverse Change. There occurs a Material Adverse Effect; or -------------- (m) Ownership by R.D. Colburn. Borrower is not beneficially owned ------------------------- 100% by Richard D. Colburn, his lineal descendants, or other Persons acceptable to Majority Banks in its sole discretion. 9.02 Remedies. If any Event of Default occurs, the Administrative Agent -------- shall, at the request of, or may, with the consent of, the Majority Banks, (a) declare the commitment of each Bank to make Loans and any obligation of the Issuing Bank to Issue Letters of Credit to be terminated, whereupon such commitments and obligation shall be terminated; (b) declare an amount equal to the maximum aggregate amount that is or at any time thereafter may become available for drawing under any outstanding Letters of Credit (whether or not any beneficiary shall have presented, or shall be entitled at such time to present, the drafts or other documents required to -79- draw under such Letters of Credit) to be immediately due and payable, and declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower; and (c) exercise on behalf of itself and the Banks all rights and remedies available to it and the Banks under the Loan Documents or applicable law; provided, however, that upon the occurrence of any event specified in -------- ------- Section (f) or (g) of Section 9.01 (in the case of clause (i) of Section (g) upon the expiration of the 60-day period mentioned therein), the obligation of each Bank to make Loans and any obligation of the Issuing Bank to Issue Letters of Credit shall automatically terminate and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act of the Administrative Agent, the Issuing Bank or any Bank. 9.03 Rights Not Exclusive. The rights provided for in this Agreement and -------------------- the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising. SECTION 10 THE ADMINISTRATIVE AGENT AND ---------------------------- THE COLLATERAL AGENT -------------------- 10.01 Appointment and Authorization. (a) Each Bank hereby irrevocably ----------------------------- (subject to Section 10.09) appoints, designates and authorizes the Administrative Agent and the Collateral Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to them by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. -80- Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, neither the Administrative Agent nor the Collateral Agent shall have any duties or responsibilities, except those expressly set forth herein, nor shall the Administrative Agent or the Collateral Agent have or be deemed to have any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent or the Collateral Agent. (b) The Issuing Bank shall act on behalf of the Banks with respect to any Letters of Credit Issued by it and the documents associated therewith until such time and except for so long as the Administrative Agent may agree at the request of the Majority Banks to act for such Issuing Bank with respect thereto; provided, however, that the Issuing Bank shall have all of the benefits and - -------- ------- immunities (i) provided to the Administrative Agent in this Section 10 with respect to any acts taken or omissions suffered by the Issuing Bank in connection with Letters of Credit Issued by it or proposed to be Issued by it and the application and agreements for letters of credit pertaining to the Letters of Credit as fully as if the term "Administrative Agent", as used in this Section 10, included the Issuing Bank with respect to such acts or omissions, and (ii) as additionally provided in this Agreement with respect to the Issuing Bank. 10.02 Delegation of Duties. The Administrative Agent and the Collateral -------------------- Agent may execute any of their respective duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Neither the Administrative Agent nor the Collateral Agent shall be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care. 10.03 Liability of Administrative Agent and the Collateral Agent. None ---------------------------------------------------------- of the Administrative Agent-Related Persons shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be -81- responsible in any manner to any of the Banks for any recital, statement, representation or warranty made by the Borrower or any Subsidiary or Affiliate of the Borrower, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document, or for the value of or title to any Collateral, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of the Borrower or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Administrative Agent-Related Person shall be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Borrower or any of the Borrower's Subsidiaries or Affiliates. 10.04 Reliance by Administrative Agent and the Collateral Agent. --------------------------------------------------------- (a) The Administrative Agent and the Collateral Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by them to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Borrower), independent accountants and other experts selected by the Administrative Agent and the Collateral Agent. Each of the Administrative Agent and the Collateral Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Majority Banks as it deems appropriate and, if either so requests, it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent and the Collateral Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Majority Banks and such request and any action -82- taken or failure to act pursuant thereto shall be binding upon all of the Banks. (b) For purposes of determining compliance with the conditions specified in Section 5.01, each Bank that has executed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent by the Administrative Agent to such Bank for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to the Bank. 10.05 Notice of Default. Neither the Administrative Agent nor the ----------------- Collateral Agent shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to the Administrative Agent or the Collateral Agent for the account of the Banks, unless the Administrative Agent and,the Collateral Agent shall have received written notice from a Bank or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". The Administrative Agent and the Collateral Agent will notify the Banks of their receipt of any such notice. The Administrative Agent and the Collateral Agent shall take such action with respect to such Default or Event of Default as may be requested by the Majority Banks in accordance with Section 9; provided, however, that unless and until the Administrative Agent and -------- ------- the Collateral Agent has received any such request, the Administrative Agent and the Collateral Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as they shall deem advisable or in the best interest of the Banks. 10.06 Credit Decision. Each Bank acknowledges that none of the --------------- Administrative Agent-Related Persons has made any representation or warranty to it, and that no act by the Administrative Agent or the Collateral Agent hereinafter taken, including any review of the affairs of the Borrower and its Subsidiaries shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Bank. Each Bank represents to the Administrative Agent and the Collateral Agent that it has, independently and without reliance upon any Agent- -83- Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Borrower and its Subsidiaries, the value of and title to any Collateral, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Borrower hereunder. Each Bank also represents that it will, independently and without reliance upon any Agent- Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Borrower. Except for notices, reports and other documents expressly herein required to be furnished to the Banks by the Administrative Agent and the Collateral Agent, neither the Administrative Agent nor the Collateral Agent shall have any duty or responsibility to provide any Bank with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of the Borrower which may come into the possession of any of the Administrative Agent- Related Persons. 10.07 Indemnification of Administrative Agent and the Collateral Agent. ---------------------------------------------------------------- Whether or not the transactions contemplated hereby are consummated, the Banks shall indemnify upon demand the Administrative Agent-Related Persons (to the extent not reimbursed by or on behalf of the Borrower and without limiting the obligation of the Borrower to do so), pro rata, from and against any and all Indemnified Liabilities; provided, however, that no Bank shall be liable for the -------- ------- payment to the Administrative Agent-Related Persons of any portion of such Indemnified Liabilities resulting solely from such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Bank shall reimburse the Administrative Agent and the Collateral Agent upon demand for their ratable share of any costs or out-of-pocket expenses (including Attorney Costs) incurred by either the Administrative Agent or the Collateral Agent in connection with the preparation, execution, delivery, -84- administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that either the Administrative Agent or the Collateral Agent is not reimbursed for such expenses by or on behalf of the Borrower. The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of the Administrative Agent and the Collateral Agent. 10.08 Administrative Agent and the Collateral Agent in Individual Capacity. -------------------------------------------------------------------- BofA and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with the Borrower and its Subsidiaries and Affiliates as though BofA were not the Administrative Agent, the Issuing Bank or the Collateral Agent hereunder and without notice to or consent of the Banks. The Banks acknowledge that, pursuant to such activities, BofA or its Affiliates may receive information regarding the Borrower or its Affiliates (including information that may be subject to confidentiality obligations in favor of the Borrower or such Subsidiary or such Affiliate) and acknowledge that neither the Administrative Agent nor the Collateral Agent shall be under any obligation to provide such information to them. With respect to its Loans, BofA shall have the same rights and powers under this Agreement as any other Bank and may exercise the same as though it were not the Administrative Agent, the Issuing Bank or the Collateral Agent, and the terms "Bank" and "Banks" include BofA in its individual capacity. 10.09 Successor Administrative Agent and the Collateral Agent. The ------------------------------------------------------- Administrative Agent or the Collateral Agent may, and at the request of the Majority Banks shall, resign as Administrative Agent or the Collateral Agent upon 30 days' notice to the Banks. If the Administrative Agent or the Collateral Agent resigns under this Agreement, the Majority Banks shall appoint from among the Banks a successor agent or collateral agent for the Banks which successor agent or collateral agent shall be approved by the Borrower. If no successor agent or collateral agent is appointed prior to the effective date of the -85- resignation of the Administrative Agent or the Collateral Agent, the Administrative Agent or the Collateral Agent, as the case may be, may appoint, after consulting with the Banks and the Borrower, a successor agent or collateral agent from among the Banks. Upon the acceptance of its appointment as successor agent or collateral agent hereunder, such successor agent or collateral agent shall succeed to all the rights, powers and duties of the retiring Administrative Agent or the Collateral Agent and the term "Administrative Agent" or "Collateral Agent" shall mean such successor agent or collateral agent, respectively, the retiring Administrative Agent's or the Collateral Agent's appointment, powers and duties as Administrative Agent or the Collateral Agent shall be terminated. After any retiring Administrative Agent's or Collateral Agent's resignation hereunder as Administrative Agent or the Collateral Agent, the provisions of this Section 10 and Sections 11.04 and 11.05 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent or the Collateral Agent under this Agreement. If no successor agent or collateral agent has accepted appointment as Administrative Agent or the Collateral Agent by the date which is 30 days following a retiring Administrative Agent or the Collateral Agent's notice of resignation, the retiring Administrative Agent or the Collateral Agent's resignation shall nevertheless thereupon become effective and the Banks shall perform all of the duties of the Administrative Agent or the Collateral Agent, as the case may be, hereunder until such time, if any, as the Majority Banks appoint a successor agent or collateral agent as provided for above. Notwithstanding the foregoing, however, BofA may not be removed as the Administrative Agent at the request of the Majority Banks unless BofA shall also simultaneously be replaced as "Issuing Bank" hereunder pursuant to documentation in form and substance reasonably satisfactory to BofA. Any appointment of a successor collateral agent shall be subject to Section 8(h) of the Intercreditor Agreement. 10.10 Withholding Tax. (a) If any Bank is a "foreign corporation, --------------- partnership or trust" within the meaning of the Code and such Bank claims exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or 1442 of the Code, such Bank agrees with and in favor of the Administrative Agent, to deliver to the Administrative Agent: -86- (i) if such Bank claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, two properly completed and executed copies of IRS Form 1001 before the payment of any interest in the first calendar year and before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; (ii) if such Bank claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Bank, two properly completed and executed copies of IRS Form 4224 before the payment of any interest is due in the first taxable year of such Bank and in each succeeding taxable year of such Bank during which interest may be paid under this Agreement; and (iii) such other form or forms as may be required under the Code or other laws of the United States as a condition to exemption from, or reduction of, United States withholding tax. Such Bank agrees to promptly notify the Administrative Agent of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Bank claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form 1001 and such Bank sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Borrower to such Bank, such Bank agrees to notify the Administrative Agent of the percentage amount in which it is no longer the beneficial owner of Obligations of the Borrower to such Bank. To the extent of such percentage amount, the Administrative Agent will treat such Bank's IRS Form 1001 as no longer valid. (c) If any Bank claiming exemption from United States withholding tax by filing IRS Form 4224 with the Administrative Agent sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Borrower to such Bank, such Bank agrees to undertake sole responsibility for -87- complying with the withholding tax requirements imposed by Sections 1441 and 1442 of the Code. (d) If any Bank is entitled to a reduction in the applicable withholding tax, the Administrative Agent may withhold from any interest payment to such Bank an amount equivalent to the applicable withholding tax after taking into account such reduction. However, if,the forms or other documentation required by Section (a) of this Section are not delivered to the Administrative Agent, then the Administrative Agent may withhold from any interest payment to such Bank not providing such forms or other documentation an amount equivalent to the applicable withholding tax imposed by Sections 1441 and 1442 of the Code, without reduction. (e) If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Bank (because the appropriate form was not delivered or was not properly executed, or because such Bank failed to notify the Administrative Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Bank shall indemnify the Administrative Agent fully for all amounts paid, directly or indirectly, by the Administrative Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to the Administrative Agent under this Section, together with all costs and expenses (including Attorney Costs). The obligation of the Banks under this Section shall survive the payment of all Obligations and the resignation or replacement of the Administrative Agent. 10.11 Collateral Matters. ------------------ (a) The Collateral Agent is authorized on behalf of all Secured Parties, without the necessity of any notice to or further consent from the Secured Parties, from time to time to take any action with respect to any Collateral or the Collateral Documents which may be necessary to perfect and maintain perfected the security interest in and Liens upon the Collateral granted pursuant to the Collateral Documents. -88- (b) The Secured Parties irrevocably authorize the Collateral Agent, at its option and in its discretion, to release any Lien granted to or held by the Collateral Agent upon any Collateral (i) upon termination of the Commitments and payment in full of all Loans and all other Obligations known to the Collateral Agent and payable under this Agreement or any other Loan Document; (ii) constituting property sold or to be sold or disposed of as part of or in connection with any disposition permitted hereunder; (iii) constituting property in which the Borrower or any Subsidiary owned no interest at the time the Lien was granted or at any time thereafter; (iv) constituting property leased to the Borrower or any Subsidiary under a lease which has expired or been terminated in a transaction permitted under this Agreement or is about to expire and which has not been, and is not intended by the Borrower or such Subsidiary to be, renewed or extended; (v) consisting of an instrument evidencing Indebtedness or other debt instrument, if the indebtedness evidenced thereby has been paid in full; or (vi) if approved, authorized or ratified in writing by the Majority Banks or all the Banks, as the case may be, as provided in Section 11.01. Upon request by the Collateral Agent at any time, the Banks will confirm in writing the Collateral Agent's authority to release particular types or items of Collateral pursuant to this Section 10.11(b). (c) Each Bank agrees with and in favor of each other (which agreement shall not be for the benefit of the Borrower or any Subsidiary) that the Borrower's Obligations to such Bank under this Agreement and the other Loan Documents is not and shall not be secured by any real property collateral now or hereafter acquired by such Bank. SECTION 11 MISCELLANEOUS ------------- 11.01 Amendments and Waivers. No amendment or waiver of any provision of ---------------------- this Agreement or any other Loan Document, and no consent with respect to any departure by the Borrower therefrom, shall be effective unless the same shall be in writing and signed by the Majority Banks (or by the Administrative Agent at the written request of the Majority Banks) and the Borrower and acknowledged by the Administrative Agent, and then any such -89- waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, -------- ------- amendment, or consent shall, unless in writing and signed by all the Banks and the Borrower and acknowledged by the Administrative Agent, do any of the following: (a) increase or extend the Commitment of any Bank (or reinstate any Commitment terminated pursuant to Section 9.02); (b) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to the Banks (or any of them) hereunder or under any other Loan Document, including mandatory prepayments; (c) reduce the principal of, or the rate of interest specified herein on any Loan, or (subject to clause (iii) below) any fees or other amounts payable hereunder or under any other Loan Document; (d) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans which is required for the Banks or any of them to take any action hereunder; (e) amend this Section, or Section 2.14, or any provision herein providing for consent or other action by all Banks; or (f) release any material portion of the Collateral except as otherwise may be provided in the Collateral Documents or except where the consent of the Majority Banks only is specifically provided for; and, provided further, that (i) no amendment, waiver or consent shall, unless in -------- ------- writing and signed by the Issuing Bank in addition to the Majority Banks or all the Banks, as the case may be, affect the rights or duties of the Issuing Bank under this Agreement or any L/C-Related Document relating to any Letter of Credit Issued or to be Issued by it, (ii) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent or the Collateral Agent, as applicable, in addition to the -90- Majority Banks or all the Banks, as the case may be, affect the rights or duties of the Administrative Agent or the Collateral Agent under this Agreement or any other Loan Document, and (iii) the Fee Letters may be amended, or rights or privileges thereunder waived, in a writing executed by the parties thereto. 11.02 Notices. (a) All notices, requests, consents, approvals, waivers ------- and other communications shall be in writing (including, unless the context expressly otherwise provides, by facsimile transmission, provided that any matter transmitted by the Borrower by facsimile (i) shall be immediately confirmed by a telephone call to the recipient at the number specified on Schedule 11.02, and (ii) shall be followed promptly by delivery of a hard copy - -------------- original thereof) and mailed, faxed or delivered, to the address or facsimile number specified for notices on Schedule 11.02; or, as directed to the Borrower -------------- or the Administrative Agent, to such other address as shall be designated by such party in a written notice to the other parties, and as directed to any other party, at such other address as shall be designated by such party in a written notice to the Borrower and the Administrative Agent. (b) All such notices, requests and communications shall, when transmitted by overnight delivery, or faxed, be effective when delivered for overnight (next-day) delivery, or transmitted in legible form by facsimile machine, respectively, or if mailed, upon the third Business Day after the date deposited into the U.S. mail, or if, delivered, upon delivery; except that notices pursuant to Section 2, 3, or 10 to the Administrative Agent shall not be effective until actually received by the Administrative Agent, and notices pursuant to Section 3 to the Issuing Bank shall not be effective until actually received by the Issuing Bank at the address specified for the "Issuing Bank" on the applicable signature page hereof. (c) Any agreement of the Administrative Agent and the Banks herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Borrower. The Administrative Agent and the Banks shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Borrower to give such notice and the Administrative Agent and the Banks shall not have any liability to the Borrower or other Person on account of any action taken or -91- not taken by the Administrative Agent or the Banks in reliance upon such telephonic or facsimile notice. The obligation of the Borrower to repay the Loans and L/C Obligations shall not be affected in any way or to any extent by any failure by the Administrative Agent and the Banks to receive written confirmation of any telephonic or facsimile notice or the receipt by the Administrative Agent and the Banks of a confirmation which is at variance with the terms understood by the Administrative Agent and the Banks to be contained in the telephonic or facsimile notice. 11.03 No Waiver; Cumulative Remedies. No failure to exercise and no ------------------------------ delay in exercising, on the part of the Administrative Agent or any Bank, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. 11.04 Costs and Expenses. The Borrower shall: ------------------ (a) whether or not the transactions contemplated hereby are consummated, pay or reimburse BofA (including in its capacity as Administrative Agent and Issuing Bank) within five Business Days after demand (subject to Section 5.01(f)) for all costs and expenses incurred by BofA (including in its capacity as Administrative Agent and Issuing Bank) in connection with the development, preparation, delivery, administration and execution of, and any amendment, supplement, waiver or modification to (in each case, whether or not consummated), this Agreement, any Loan Document and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including reasonable Attorney Costs incurred by BofA (including in its capacity as Administrative Agent and Issuing Bank) with respect thereto; and (b) pay or reimburse the Administrative Agent, the Arranger and each Bank within five Business Days after demand (subject to Section 5.01(f)) for all costs and expenses (including Attorney Costs) incurred by them in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Agreement or any other Loan -92- Document during the existence of an Event of Default or after acceleration of the Loans (including in connection with any "workout" or restructuring regarding the Loans, and including in any Insolvency Proceeding or appellate proceeding). 11.05 Borrower Indemnification. Whether or not the transactions ------------------------ contemplated hereby are consummated, the Borrower shall indemnify, defend and hold the Agent-Related Persons, and each Bank and each of its respective officers, directors, employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person") harmless from and against any and all liabilities, ------------------ obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including Attorney Costs) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Loans, the termination of the Letters of Credit and the termination, resignation or replacement of the Administrative Agent or replacement of any Bank) be imposed on, incurred by or asserted against any such Person in any way relating to or arising out of this Agreement or any document contemplated by or referred to herein, or the transactions contemplated hereby, or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to any investigation, litigation or proceeding (including any Insolvency Proceeding or appellate proceeding) related to or arising out of this Agreement or the Loans or Letters of Credit or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the "Indemnified Liabilities"); ----------------------- provided, that the Borrower shall have no obligation hereunder to any - -------- Indemnified Person with respect to Indemnified Liabilities resulting solely from the gross negligence or willful misconduct of such Indemnified Person. The agreements in this Section shall survive payment of all other Obligations. 11.06 Payments Set Aside. To the extent that the Borrower makes a ------------------ payment to the Administrative Agent or the Banks, or the Administrative Agent or the Banks exercise their right of setoff, and such payment or the proceeds of such set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent or such Bank in its discretion) to be repaid to a trustee, receiver or any -93- other party, in connection with any Insolvency Proceeding or otherwise, then (a) to the extent of such recovery the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred, and (b) each Bank severally agrees to pay to the Administrative Agent upon demand its pro rata share of any amount so recovered from or repaid by the Administrative Agent. 11.07 Successors and Assigns. The provisions of this Agreement shall be ---------------------- binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Administrative Agent and each Bank. 11.08 Assignments, Participations, etc. (a) Any Bank may, with the --------------------------------- written consent of the Borrower at all times other than during the existence of an Event of Default and the Administrative Agent and the Issuing Bank, which consent of the Borrower, the Administrative Agent and the Issuing Bank shall not be unreasonably withheld, at any time assign and delegate to one or more Eligible Assignees (provided that no written consent of the Borrower, the Administrative Agent or the Issuing Bank shall be required in connection with any assignment and delegation by a Bank to an Eligible Assignee that is an Affiliate of such Bank) (each an "Assignee") all, or any ratable part of all, of -------- the Loans, the Commitments, the L/C Obligations and the other rights and obligations of such Bank hereunder, in a minimum amount of $10,000,000 or, if less, the entirety of such Bank's Loans, the Commitments, the L/C Obligations; provided, however, that the Borrower and the Administrative Agent may continue - -------- ------- to deal solely and directly with such Bank in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Borrower and the Administrative Agent by such Bank and the Assignee; (ii) such Bank and its Assignee shall have delivered to the Borrower and the Administrative Agent a Notice of Assignment and Acceptance in the form of Exhibit G ("Assignment and Acceptance") together with --------- ------------------------- any Note or Notes subject to such assignment and (iii) the assignor Bank or -94- Assignee has paid to the Administrative Agent a processing fee in the amount of $3,000. (b) From and after the date that the Administrative Agent notifies the assignor Bank that it has received (and provided its consent with respect to) an executed Assignment and Acceptance and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Bank under the Loan Documents, and (ii) the assignor Bank shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Documents. (c) Within five Business Days after its receipt of notice by the Administrative Agent that it has received an executed Assignment and Acceptance and payment of the processing fee, (and provided that it consents to such assignment in accordance with Section 11.08(a)), the Borrower shall execute and deliver to the Administrative Agent, any new Note evidencing such Assignee's assigned Loans and Commitment and, if the assignor Bank has retained a portion of its Loans and its Commitment, a replacement Note in the principal amount of the Loans retained by the assignor Bank (such Notes to be in exchange for, but not in payment of, the Note held by such Bank). Immediately upon each Assignee's making its processing fee payment under the Assignment and Acceptance, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments arising therefrom. The Commitment allocated to each Assignee shall reduce such Commitments of the assigning Bank pro tanto. --- ----- (d) Any Bank may at any time sell to one or more commercial banks or other Persons not Affiliates of the Borrower (a "Participant") participating ----------- interests in any Loans, the Commitment of that Bank and the other interests of that Bank (the "originating Bank") hereunder and under the other Loan Documents; provided, however, that (i) the originating Bank's obligations under this - -------- ------- Agreement shall remain unchanged, (ii) the originating -95- Bank shall remain solely responsible for the performance of such obligations, (iii) the Borrower, the Issuing Bank and the Administrative Agent shall continue to deal solely and directly with the originating Bank in connection with the originating Bank's rights and obligations under this Agreement and the other Loan Documents, and (iv) no Bank shall transfer or grant any participating interest under which the Participant has rights to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment, consent or waiver would require unanimous consent of the Banks as described in the first proviso to Section ----- ------- 11.01. In the case of any such participation, the Participant shall be entitled to the benefit of Sections 4.01, 4.03 and 11.05 as though it were also a Bank hereunder, and if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have, the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Bank under this Agreement. (e) Notwithstanding any other provision in this Agreement, any Bank may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement and the Note held by it in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR (S)203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. 11.09 Confidentiality. Each Bank agrees to take and to cause its --------------- Affiliates to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information identified as "confidential" or "secret" by the Borrower and provided to it by the Borrower or any Subsidiary, or by the Administrative Agent on the Borrower's or such Subsidiary's behalf, under this Agreement or any other Loan Document, and neither it nor any of its Affiliates shall use any such information other than in connection with or in enforcement of this Agreement and the other Loan Documents or in connection with other business now or hereafter existing or contemplated with the Borrower or any Subsidiary; except to the extent such -96- information (i) was or becomes generally available to the public other than as a result of disclosure by the Bank, or (ii) was or becomes available on a non- confidential basis from a source other than the Borrower, provided that such source is not bound by a confidentiality agreement with the Borrower known to the Bank; provided, however, that any Bank may disclose such information (A) at -------- ------- the request or pursuant to any requirement of any Governmental Authority to which the Bank is subject or in connection with an examination of such Bank by any such authority; (B) pursuant to subpoena or other court process; (C) when required to do so in accordance with the provisions of any applicable Requirement of Law; (D) to the extent reasonably required in connection with any litigation or proceeding to which the Administrative Agent, any Bank or their respective Affiliates may be party; (E) to the extent reasonably required in connection with the exercise of any remedy hereunder or under any other Loan Document; (F) to such Bank's independent auditors and other professional advisors; (G) to any Participant or Assignee, actual or potential, provided that such Person agrees in writing to keep such information confidential to the same extent required of the Banks hereunder; (H) as to any Bank or its Affiliate, as expressly permitted under the terms of any other document or agreement regarding confidentiality to which the Borrower or any Subsidiary is party or is deemed party with such Bank or such Affiliate; and (I), to its Affiliates. 11.10 Set-off. In addition to any rights and remedies of the Banks ------- provided by law, if an Event of Default exists or the Loans have been accelerated, each Bank is authorized at any time and from time to time, without prior notice to the Borrower, any such notice being waived by the Borrower to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, such Bank to or for the credit or the account of the Borrower against any and all Obligations owing to such Bank, now or hereafter existing, irrespective of whether or not the Administrative Agent or such Bank shall have made demand under this Agreement or any Loan Document and although such Obligations may be contingent or unmatured. Each Bank agrees promptly to notify the Borrower and the Administrative Agent after any such set-off and application made by such Bank; provided, however, that the -------- ------- failure to give -97- such notice shall not affect the validity of such set-off and application. 11.11 Automatic Debits of Fees. With respect to any commitment fee, ------------------------ arrangement fee, letter of credit fee or other fee, or any other cost or expense (including Attorney Costs) due and payable to the Administrative Agent, the Issuing Bank, BofA or the Arranger under the Loan Documents, the Borrower hereby irrevocably authorizes BofA to debit any deposit account of the Borrower with BofA in an amount such that the aggregate amount debited from all such deposit accounts does not exceed such fee or other cost or expense. If there are insufficient funds in such deposit accounts to cover the amount of the fee or other cost or expense then due, such debits will be reversed (in whole or in part, in BofA,s sole discretion) and such amount not debited shall be deemed to be unpaid. No such debit under this Section shall be deemed a set-off. 11.12 Notification of Addresses, Lending Offices, Etc. Each Bank shall ------------------------------------------------ notify the Administrative Agent in writing of any changes in the address to which notices to the Bank should be directed, of addresses of any Lending Office, of payment instructions in respect of all payments to be made to it hereunder and of such other administrative information as the Administrative Agent shall reasonably request. 11.13 Counterparts. This Agreement may be executed in any number of ------------ separate counterparts, each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same instrument. 11.14 Severability. The illegality or unenforceability of any provision ------------ of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder. 11.15 No Third Parties Benefited. This Agreement is made and entered -------------------------- into for the sole protection and legal benefit of the Borrower, the Banks, the Administrative Agent and the Agent-Related Persons, and their permitted successors and assigns, and no other Person shall be a direct or indirect legal beneficiary -98- of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. 11.16 Governing Law and Jurisdiction. (a) THIS AGREEMENT AND THE NOTES ------------------------------ SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA; PROVIDED THAT THE ADMINISTRATIVE AGENT AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE CENTRAL DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWER, THE Administrative Agent AND THE BANKS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON- EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE BORROWER, THE ADMINISTRATIVE AGENT AND THE BANKS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT -------------------- MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE BORROWER, THE Administrative Agent AND THE BANKS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW. 11.17 Waiver of Jury Trial. THE BORROWER, THE BANKS AND THE -------------------- ADMINISTRATIVE AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE BORROWER, THE BANKS AND THE ADMINISTRATIVE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN -99- DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 11.18 Entire Agreement. This Agreement, together with the other Loan ---------------- Documents, embodies the entire agreement and understanding among the Borrower, the Banks and the Administrative Agent, and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof. 11.19 Amendment and Restatement of Existing Agreement. This Agreement ----------------------------------------------- amends and restates the Existing Agreement, and advances and letters of credit outstanding under the Existing Agreement shall be deemed Loans and Letters of Credit continuing and outstanding hereunder. In order to permit all advances outstanding under the Existing Agreement (the "Continuing Loans") to be continued ratably by all Banks in accordance with their respective Pro Rata Share under this Agreement, the Borrower shall be deemed to have requested, pursuant to Section 2.04, that all loans outstanding under the Existing Agreement be converted into Base Rate Loans hereunder made by all Banks in accordance with their respective Pro Rata Share on the Closing Date, and any portion of any such loans previously solely funded by Bank of America National Trust and Savings Association not remaining outstanding hereunder after such conversion (by reason of the change in the pro rata shares of such Banks) shall be refunded to Bank of America National Trust and Savings Association. The Borrower shall pay accrued interest on the portion of each Continuing Loan so converted, together with amounts required to be paid under Section 4.04. Letter of Credit fees previously paid by the Borrower for Existing BofA Letters of Credit shall be adjusted to reflect the new Commitment allocations. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. -100- U.S. RENTALS, INC. By:____________________________ Title:_________________________ -101- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent and Collateral Agent By:____________________________ Charles Graber Vice President -102- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Issuing Bank and a Bank By:____________________________ George Hausler Vice President -103- COMERICA BANK - CALIFORNIA By:____________________________ Title:_________________________ -104- THE SUMITOMO BANK OF CALIFORNIA By:____________________________ Title:_________________________ By:____________________________ Title:_________________________ -105- THE SUMITOMO BANK LIMITED By:____________________________ Title:_________________________ By:____________________________ Title:_________________________ -106- UNION BANK OF CALIFORNIA, N.A. By:____________________________ Title:_________________________ -107- WELLS FARGO BANK By:____________________________ Title:_________________________ -108- EXHIBIT A --------- NOTICE OF BORROWING ------------------- Date: ____________________, 199_ To: Bank of America National Trust and Savings Association, as Administrative Agent Ladies and Gentlemen: The undersigned Borrower refers to that certain Second Amended and Restated Credit Agreement dated as of August 21, 1996 among U.S. Rentals, Inc., a California corporation (the "Borrower"), the banks from time to time party -------- thereto, and Bank of America National Trust and Savings Association, as Administrative Agent, Collateral Agent and Issuing Bank (as extended, renewed, amended or restated from time to time, the "Agreement;" the terms defined --------- therein being used herein as therein defined), and hereby gives you notice irrevocably, pursuant to Section 2.03 of the Agreement, of the Borrowing specified below: 1. The Business Day of the proposed Borrowing is ____________________, 19__. 2. The aggregate amount,of the proposed Borrowing is $________________________. 3. The Borrowing is to be comprised of $______________ of [Base Rate] [CD Rate] (Offshore Rate] Loans. 4. The duration of the Interest Period for the Offshore Rate Loans or CD Rate Loans included in the Borrowing shall be ____________ months/days. The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the A - 1 NOTICE OF BORROWING date of the proposed Borrowing, before and after giving effect and to the application of the proceeds therefrom: (a) the representations and warranties of the Borrower contained in Section 6 of the Agreement are true and correct as though made on and as of such date (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date); and (b) no Default or Event of Default has occurred and is continuing, or would result from such proposed Borrowing. U.S. RENTALS, INC. By:__________________________ Title:_______________________ A - 2 NOTICE OF BORROWING EXHIBIT B --------- NOTICE OF CONVERSION/CONTINUATION --------------------------------- Date:_____________________, 199_ To: Bank of America National Trust and Savings Association, as Administrative Agent Ladies and Gentlemen: The undersigned Borrower refers to that certain Second Amended and Restated Credit Agreement dated as of August 21, 1996 among U.S. Rentals, Inc., a California corporation (the "Borrower"), the banks from time to time party -------- thereto, and Bank of America National Trust and Savings Association, as Administrative Agent, Collateral Agent and Issuing Bank (as extended, renewed, amended or restated from time to time, the "Agreement;" the terms defined --------- therein being used herein as therein defined), and hereby gives you notice irrevocably, pursuant to Section 2.04 of the Agreement, of the [conversion] [continuation] of the Loans specified herein, that: 1. The Conversion/Continuation Date is _____________, 19__. 2. The aggregate amount of the Loans to be [converted] [continued] is $___________________. 3. The Loans are to be [converted into] [continued as] [Offshore Rate] [CD Rate] [Base Rate] Loans. 4. [If applicable:] The duration of the Interest Period for the Loans included in the [conversion] (continuation] shall be ___________ months/days. The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the proposed Conversion/Continuation Date Credit, before and after B - 1 NOTICE OF CONVERSION/CONTINUATION giving effect thereto and to the application of the proceeds therefrom: (a) the representations and warranties of the Borrower contained in Section 6 of the Agreement are true and correct as though made on and as of such date (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date); and (b) no Default or Event of Default has occurred and is continuing, or would result from such proposed [conversion] [continuation]. U.S. RENTALS, INC. By:__________________________ Title:_______________________ B - 2 NOTICE OF CONVERSION/CONTINUATION EXHIBIT C --------- COMPLIANCE CERTIFICATE ---------------------- Financial Statement Date: _________________, 199_ Reference is made to that certain Second Amended and Restated Credit Agreement dated as of August 21, 1996 among U.S. Rentals, Inc., a California corporation (the "Borrower"), the banks from time to time party thereto, and -------- Bank of America National Trust and Savings Association, as Administrative Agent, Collateral Agent and Issuing Bank (as extended, renewed, amended or restated from time to time, the "Agreement;" the terms defined therein being used herein --------- as therein defined). The undersigned Responsible Officer of Borrower hereby certifies as of the date hereof that he/she is the _____________ of the Borrower, and that, as such, he/she is authorized to execute and deliver this Certificate to the Agent on the behalf of the Borrower, and that: [Use the following paragraph if this Certificate is delivered in connection with the financial statements required by Section 7.01(a) of the Agreement]. 1. Attached as Schedule 1 hereto are (a) a true and correct copy of the ---------- audited balance sheet of the Borrower as at the end of the fiscal year ended __________________, 199__ and (b) the related statement of income or operations, shareholders' equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit and accompanied by the opinion of _____________________________________ or another nationally-recognized certified independent public accounting firm (the "Independent Auditor") which report ------------------- C - 1 COMPLIANCE CERTIFICATE shall state that such consolidated financial statements are complete and correct and have been prepared in accordance with GAAP applied on a basis consistent with prior years, and fairly present, in all material respects, the financial position of the Borrower for the periods indicated and on a basis consistent with prior periods. OR [Use the following paragraph if this Certificate is delivered in connection with the financial statements required by Section 7.01(b) of the Agreement]. 1. Attached as Schedule 1 hereto are (a) a true and correct copy of the ---------- unaudited balance sheet of the Borrower as of the end of the fiscal quarter ended ___________________, 199__and (b) the related unaudited statement of income, shareholders, equity, and cash flows for the period commencing on the first day and ending on the last day of such quarter, setting forth in each case in comparative form the figures for the previous year, and certified by a Responsible Officer that such financial statements were prepared in accordance with GAAP applied on a basis consistent with prior years (subject only to ordinary, good faith year-end audit adjustments and the absence of footnotes) and fairly present, in all material respects, the financial position and the results of operations of the Borrower. 2. The undersigned has reviewed and is familiar with the terms of the Agreement and has made, or has caused to be made under his/her supervision, a detailed review of the transactions and conditions (financial or otherwise) of the Borrower during the accounting period covered by the attached financial statements. 3. To the best of the undersigned's knowledge, the Borrower, during such period, has observed, performed or satisfied all of its covenants and other agreements, and satisfied every condition in the Credit Agreement to be observed,performed or satisfied by the Borrower, and the undersigned has no knowledge of any Default or Event of Default. C - 2 COMPLIANCE CERTIFICATE 4. The following financial covenant analyses and information set forth on Schedule 2 attached hereto are true and accurate on and as of the date of this Certificate. IN WITNESS WHEREOF, the undersigned has executed this Certificate as of ______________________, 199__. U.S. RENTALS, INC. By:__________________________ Title:_______________________ C - 3 COMPLIANCE CERTIFICATE Date: ___________________,199_ For the fiscal quarter/year ended __________________, 199_ SCHEDULE 2 to the Compliance Certificate ($ in 000's) I. Section 8.13 - Asset Coverage Ratio. A. Book Value of Consolidated Total Assets: $___________ 1. Consolidated Total Assets: $___________ 2. Interest bearing and non-interest bearing notes receivable from Affiliates: $___________ 3. Line Al less Line A2: $___________ B. Consolidated Secured Indebtedness: $___________ C. Collateral Ratio (Line A3 divided by ---------- Line IB): ________ to 1 Minimum required ratio: 1.25 to 1 II. Section 8.14 - Consolidated Tangible Net Worth. ---------------------------------------------- A. Consolidated Tangible Net Worth: 1. Capital stock accounts (net of treasury stock, at cost) plus ---- (or minus in the case of deficit) the surplus and retained earnings $___________ 2. Net book value of the following (less reserves applicable thereto): C - 4 COMPLIANCE CERTIFICATE a. Incremental increase in an asset resulting from any reappraisal, revaluation or write-up of assets in which independent public accountants shall have not concurred: $___________ b. Intangible assets acquired after December 31, 1995: $___________ c. Total (Lines 2a+2b): $___________ B. Consolidated Tangible Net Worth (Line IIA1 - Line IIA2c): $___________ C. 250% of Consolidated Net Income computed on a cumulative basis for each of the elapsed fiscal quarters ending after December 31, 1995 (no deduction for quarterly losses): $___________ D. Net equity contributions made after the Closing Date: $___________ E. Total (Lines IIC+IID+$48,000,000): $___________ F. minimum requirement: Line IIB to be greater than Line IIE III. Section 8.15 - Fixed Charge Coverage Ratio. ------------------------------------------ A. Consolidated Net Income Available for Fixed Charges for four consecutive fiscal quarters ending on above date ("Subject Period"): 1. Consolidated Net Income determined in accordance with definition thereof for Subject Period: $___________ 2. Provisions for taxes for Subject Period $___________ 3. Consolidated Fixed Charges for Subject Period: C - 5 COMPLIANCE CERTIFICATE a. Rentals (other than Rentals on Capitalized Leases) paid pursuant to Long-Term Leases: $____________ b. Interest Expense on all Indebtedness (including the interest component of Rentals on Capitalized Leases): $____________ c. Consolidated Fixed Charges for Subject Period: $____________ 4. Consolidated Net Income Available for Fixed Charges (Line IIIA1+IIIA2+IIIA3c): $____________ C. Fixed Charge Coverage Ratio (Line IIIA4 divided by Line IIIA3c): ____ to 1 ---------- Minimum required ratio: 1.75 to 1 IV. Section 8.16 - Leverage Ratio. ----------------------------- A. Consolidated Funded Debt: 1. Indebtedness for borrowed money: $___________ 2. Drawn but unreimbursed drawings under letters of credit and surety bonds: $___________ 3. Current portion of mandatory redeemable preferred stock and Capitalized Leases: $___________ 4. Consolidated Funded Debt (Lines 1+2+3): $___________ B. Leverage Ratio (Line IVA4 divided by Line ---------- C - 6 COMPLIANCE CERTIFICATE IIB): ____ to 1 Maximum required ratio: 3.25 to 1 C - 7 COMPLIANCE CERTIFICATE EXHIBIT D --------- FORM OF NOTE ------------ $___________________ August 21, 1996 FOR VALUE RECEIVED, the undersigned, U.S RENTALS, INC. (the "Borrower"), hereby promises to pay to the order of _________________________________ (the "Bank"), on the Maturity Date (as defined in the Credit Agreement referred to below) the principal amount of $________________, or such lesser principal amount of Loans (as defined in the Credit Agreement referred to below) payable by the Borrower to the Bank on such Maturity Date under that certain Second Amended and Restated Credit Agreement dated as of August 21, 1996 among U.S. Rentals, Inc., a California corporation (the "Borrower"), the banks from time to -------- time party thereto, and Bank of America National Trust and Savings Association, as Administrative Agent, Collateral Agent and Issuing Bank (as extended, renewed, amended or restated from time to time, the "Agreement;" the terms --------- defined therein being used herein as therein defined) The Borrower promises to pay interest on the unpaid principal amount of each Loan from the date of such Loan until such principal amount is paid in full, at such interest rates, and payable at such times as are specified in the Credit Agreement. All payments of principal and interest shall be made to the Administrative Agent for the account of the Bank in United States dollars in immediately available funds at Administrative Agent's Payment office. If any amount is not paid in full when due hereunder, such unpaid amount shall bear interest, to be paid upon demand, from the due date thereof until the date of actual payment (and before as well as after judgment) computed at the per annum rate set forth in the Credit Agreement. D - 1 FORM OF NOTE This Note is one of the "Notes" referred to in the Credit Agreement. Reference is hereby made to the Credit Agreement for rights and obligations of payment and prepayment, events of default and the right of the Bank to accelerate the maturity hereof upon the occurrence of such events. The Borrower, for itself, its successors and assigns, hereby waives diligence, presentment, protest and demand and notice of protest, demand, dishonor and non-payment of this Note. The Borrower agrees to pay all collection expenses, court costs and reasonable attorneys' fees (including the allocated cost of inhouse counsel) and disbursements (whether or not litigation is commenced) which may be incurred in connection with the collection or enforcement of this Note. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. U.S. RENTALS, INC. By:__________________________ Title:_______________________ D - 2 FORM OF NOTE EXHIBIT E --------- INTERCREDITOR AGREEMENT ----------------------- E - 1 INTERCREDITOR AGREEMENT EXHIBIT F --------- THIRD AMENDED AND RESTATED SECURITY AGREEMENT --------------------------------------------- RE: RECEIVABLES, INVENTORY, EQUIPMENT AND DOCUMENTS --------------------------------------------------- Dated as of July 1, 1996 F - 1 SECURITY AGREEMENT EXHIBIT G --------- ASSIGNMENT AND ACCEPTANCE ------------------------- FORM OF NOTICE OF ASSIGNMENT AND ACCEPTANCE ------------------------------------------- ________________, 19__ TO: Bank of America National Trust and Savings Association, as Administrative Agent Reference is made to that certain Second Amended and Restated Credit Agreement dated as of August 21, 1996 among U.S. Rentals, Inc., a California corporation (the "Borrower"), the banks from time to time party thereto, and -------- Bank of America National Trust and Savings Association, as Administrative Agent, Collateral Agent and Issuing Bank (as extended, renewed, amended or restated from time to time, the "Agreement;" the terms defined therein being used herein --------- as therein defined). 1. We hereby give you notice of, and request your consent to, the assignment by (the "Assignor") to (the "Assignee") of ______% of the right, title and interest of the Assignor in and to the Loan Documents, including without limitation the right, title and interest of the Assignor in and to the Commitment of the Assignor, and all outstanding Loans and Letter of Credit Obligations made by the Assignor. Before giving effect to such assignment: (a) the aggregate amount of the Assignor's Commitment is $_________________; (b) the aggregate principal amount of its outstanding Loans is $________________; (c) the aggregate face amount of its participation in Letters of Credit is $______________; and G - 1 ASSIGNMENT AND ACCEPTANCE (d) the aggregate principal amount of its Letter of Credit Advances is $_________________; 2. The Assignee hereby represents and warrants that it has complied with the requirements of Section 11.08 of the Credit Agreement in connection with this assignment. 3. The Assignee agrees that, upon receiving your consent to such assignment and from and after _________________, the Assignee will be bound by the terms of the Loan Documents, with respect to the interest in the Loan Documents assigned to it as specified above, as fully and to the same extent as if the Assignee were the Bank originally holding such interest in the Loan Documents. 4. The following administrative details apply to the Assignee: (a) Designated Offshore Market Office: Assignee name: ___________________________ Address: _________________________________ _________________________________ _________________________________ Attention: ________________________________ Telephone: (___) _________________________ Telecopier: (___) _________________________ Telex (Answerback): ______________________ (b) Domestic Lending Office: Assignee name: ___________________________ Address: _________________________________ _________________________________ _________________________________ Attention: ________________________________ Telephone: (___) _________________________ Telecopier: (___) _________________________ Telex (Answerback): ______________________ (c) Notice Address: G - 2 ASSIGNMENT AND ACCEPTANCE Assignee name: ___________________________ Address: _________________________________ _________________________________ _________________________________ Attention: ________________________________ Telephone: (___) _________________________ Telecopier: (___) _________________________ Telex (Answerback): ______________________ (d) Payment Instructions: Account No.: _____________________________ At: _____________________________ _____________________________ _____________________________ Ref.: _____________________________ Attention: _____________________________ IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Notice of Assignment and Acceptance to be executed by their respective duly authorized officials, officers or agents as of the date first above mentioned. Very truly yours, [Name of Assignor] By:___________________________ Title: [Name of Assignee] By:___________________________ Title: We hereby consent to the foregoing assignment. U.S. RENTALS, INC. G - 3 ASSIGNMENT AND ACCEPTANCE By: ___________________________ Name: _________________________ Title: ________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent By: ___________________________ Name: _________________________ Title: ________________________ G - 4 ASSIGNMENT AND ACCEPTANCE EXHIBIT H-1 ----------- SUBORDINATION AGREEMENT ----------------------- (R.D. Colburn School of Performing Arts) To: Bank of America National Trust and Savings Association (hereinafter called "Administrative Agent") August 21, 1996 Gentlemen: Reference is made to that certain Second Amended and Restated Credit Agreement dated as of August 21, 1996 among U.S. Rentals, Inc., a California corporation (the "Borrower"), the banks from time to time party thereto (the -------- "Banks"), and Bank of America National Trust and Savings Association, as ----- Administrative Agent, Collateral Agent and Issuing Bank (as extended, renewed, amended or restated from time to time, the "Credit Agreement;" the terms defined ---------------- therein being used herein as therein defined). The undersigned, the R.D. Colburn School of Performing Arts (hereinafter referred to as "Creditor") may from time to time receive assignments of -------- promissory notes ("Notes") executed by Borrower in favor of Creditor, and, ----- therefore, is and may be a creditor of Borrower. The Issuing Bank and the Banks are extending financial accommodations to Borrower as Borrower may request and as the Issuing Bank and,the Banks may deem proper. For the purpose of inducing the Issuing Bank and the Banks to grant, continue or renew such financial accommodations, and in consideration thereof, Creditor agrees as follows: 1. Any and all claims of Creditor against Borrower, now or hereafter existing, are, and shall be at all times, subject and subordinate to any and all claims, now or hereafter existing which the Administrative Agent, the Issuing Bank, the Collateral Agent and the Banks may have against Borrower (including any H-1 - 1 COLBURN SCHOOL SUBORDINATION AGREEMENT claim by the Administrative Agent, the Issuing Bank, the Collateral Agent and the Banks for interest accruing after any assignment for the benefit of creditors by Borrower or the institution by or against Borrower of any proceedings under the Administrative Agent and the Bankruptcy Code, or any claim by the Administrative Agent, the Issuing Bank, the Collateral Agent and Banks for any such interest which would have accrued in the absence of such assignment or the institution of such proceedings). 2. Creditor agrees not to sue upon, or to collect, or to receive payment of the principal or interest of any claim or claims now or hereafter existing which Creditor may hold against Borrower, and not to sell, assign, transfer, pledge, hypothecate, or encumber such claim or claims except subject expressly to this Agreement, and not to enforce or apply any security now or hereafter existing therefor, nor to file or join in any petition to commence any proceeding under the Bankruptcy Code, nor to take any lien or security on any of Borrower's property, real or personal, so long as any claim of the Administrative Agent, the Issuing Bank, the Collateral Agent and the Banks against Borrower shall exist. 3. In case of any assignment for the benefit of creditors by Borrower or in case any proceedings under the Bankruptcy Code are instituted by or against Borrower, or in case of the appointment of any receiver for Borrower's business or assets, or in case of any dissolution or winding up of the affairs of Borrower: (a) Borrower and any assignee, trustee in bankruptcy, receiver, debtor in possession or other person or persons in charge are hereby directed to pay to the Administrative Agent the full amount of the Administrative Agent's, the Issuing Bank's, the Collateral Agent's and the Banks' claims against Borrower (including interest to the date of payment) before making any payment of principal or interest to Creditor, and insofar as may be necessary for that purpose, Creditor hereby assigns and transfers to the Administrative Agent for the benefit of the Administrative Agent, the Issuing Bank, the Collateral Agent and the Banks all security or the proceeds thereof, and all rights to any payments, dividends or other distributions, and (b) Creditor hereby irrevocably constitutes and appoints the Administrative Agent its true and lawful attorney to act in its name and stead: H-1 - 2 COLBURN SCHOOL SUBORDINATION AGREEMENT (i) to file the appropriate claim or claims on behalf of Creditor if Creditor does not do so prior to 30 days before the expiration of the time to file claims in such proceeding and if the Administrative Agent elects at its sole discretion to file such claim or claims and (ii) to accept or reject any plan of reorganization or arrangement on behalf of Creditor, and to otherwise vote Creditor's claim in respect of any indebtedness now or hereafter owing from Borrower to Creditor in any manner the Administrative Agent deems appropriate for its own benefit and protection. 4. The Administrative Agent is hereby authorized by Creditor to: (a) renew, compromise, extend, accelerate or otherwise change the time of payment, or any other terms, of any existing or future claim of the Administrative Agent, the Issuing Bank, the Collateral Agent and the Banks against Borrower, (b) increase or decrease the rate of interest payable thereon or any part thereof, (c) exchange, enforce, waive or release any security therefor, (d) apply such security and direct the order or manner of sale thereof in such manner as the Administrative Agent or the Collateral Agent may at its discretion determine, (e) release Borrower or any guarantor of any indebtedness of Borrower from liability, and (f) make optional future advances to Borrower, all without notice to Creditor and without affecting the subordination provided by this Agreement. 5. On request of the Administrative Agent, Creditor shall deliver to the Administrative Agent the original of any promissory note or other evidence of any existing or future indebtedness of Borrower to Creditor, and mark same with a conspicuous legend which reads substantially as follows: "THIS PROMISSORY NOTE IS SUBORDINATED TO ANY PRESENT OR FUTURE INDEBTEDNESS OWING FROM THE MAKER TO CERTAIN BANKS AND THEIR RESPECTIVE ASSIGNS, AND MAY BE ENFORCED ONLY IN ACCORDANCE WITH THAT CERTAIN SUBORDINATION AGREEMENT DATED AUGUST 21, 1996 BETWEEN RICHARD D. COLBURN SCHOOL OF PERFORMING ARTS AND BANK OF AMERICA NT&SA, AS ADMINISTRATIVE AGENT." 6. In the event that any payment or any cash or noncash distribution is made to Creditor in violation of the terms of H-1 - 3 COLBURN SCHOOL SUBORDINATION AGREEMENT this Agreement, Creditor shall receive same in trust for the benefit of the Administrative Agent, the Issuing Bank, the Collateral Agent and the Banks, and shall forthwith remit it to the Administrative Agent in the form in which it was received, together with such endorsements or documents as may be necessary to effectively negotiate or transfer same to the Administrative Agent. 7. Until all such claims of the Administrative Agent, the Issuing Bank, the Collateral Agent and the Banks against Borrower, now or hereafter existing, shall be paid in full, no gift or loan shall be made by Borrower to Creditor; provided, however, that nothing in this Agreement shall be deemed to prohibit - -------- ------- Borrower from declaring and making dividends or distributions to Creditor, in his capacity as a stockholder of Borrower, in respect of the capital stock of Borrower to the extent not prohibited in the Credit Agreement. 8. For violation of this Agreement, Creditor shall be liable for all loss and damage sustained by reason of such breach, and upon any such violation the Administrative Agent may, at its option, accelerate the maturity of any of the existing or future claims of the Administrative Agent, the Issuing Bank, the Collateral Agent and the Banks against Borrower. 9. Notwithstanding the provisions of Section 2, so long as no Default or Event of Default has occurred and is continuing under the Credit Agreement, the Borrower may pay, and the Creditor may receive, interest payments on the Notes; provided, however, that such payment does not cause a Default or Event of - -------- ------- Default under the Credit Agreement. 10. This Agreement shall be binding upon the successors and assigns of Creditor and the Borrower and shall inure to the benefit of the Administrative Agent, the Collateral Agent, the Issuing Bank and the Banks, and their respective successors and assigns. This Agreement and any existing or future claim of the Administrative Agent, the Issuing Bank, the Collateral Agent and the Banks against Borrower may be assigned by the Administrative Agent, the Collateral Agent and the Banks, in whole or in part, without notice to Creditor or Borrower. H-1 - 4 COLBURN SCHOOL SUBORDINATION AGREEMENT R. D. COLBURN SCHOOL OF PERFORMING ARTS By:___________________________ Name:_________________________ Title:________________________ Acceptance of Subordination Agreement by Borrower The undersigned being the Borrower named in the foregoing Subordination Agreement, hereby accepts and consents thereto and agrees to be bound by all the provisions thereof and to recognize all priorities and other rights granted thereby to the Administrative Agent, the Issuing Bank, the Collateral Agent and the Banks, their respective successors and assigns, and to perform in accordance therewith. Dated:_____________________ U.S. RENTALS, INC. By:___________________________ Name:_________________________ Title:________________________ H-1 - 5 COLBURN SCHOOL SUBORDINATION AGREEMENT EXHIBIT H-2 ----------- SUBORDINATION AGREEMENT ----------------------- (Richard D. Colburn) To: Bank of America National Trust and Savings Association (hereinafter called "Administrative Agent") August 21, 1996 Gentlemen: Reference is made to that certain Second Amended and Restated Credit Agreement dated as of August 21, 1996 among U.S. Rentals, Inc., a California corporation (the "Borrower"), the banks from time to time party thereto (the -------- "Banks"), and Bank of America National Trust and Savings Association, as - ------ Administrative Agent, Collateral Agent and Issuing Bank (as extended, renewed, amended or restated from time to time, the "Credit Agreement;" the terms defined ---------------- therein being used herein as therein defined). The undersigned, Richard D. Colburn, an individual, (hereinafter referred to as "Creditor") may from time to time receive assignments of promissory notes ("Notes") executed by U.S. Rentals, Inc. (hereinafter referred to as "Borrower") in favor of Creditor, and, therefore, is and may be a creditor of Borrower. The Issuing Bank and the Banks are extending financial accommodations to Borrower as Borrower may request and as the Issuing Bank and the Banks may deem proper. For the purpose of inducing the Issuing Bank and the Banks to grant, continue or renew such financial accommodations, and in consideration thereof, Creditor agrees as follows: 1. Any and all claims of Creditor against Borrower, now or hereafter existing, are, and shall be at all times, subject and subordinate to any and all claims, now or hereafter existing which the Administrative Agent, the Issuing Bank, the Collateral H-2 - 1 COLBURN SUBORDINATION AGREEMENT Agent and the Banks may have against Borrower (including any claim by the Administrative Agent, the Issuing Bank, the Collateral Agent and the Banks for interest accruing after any assignment for the benefit of creditors by Borrower or the institution by or against Borrower of any proceedings under the Administrative Agent and the Bankruptcy Code, or any claim by the Administrative Agent, the Issuing Bank, the Collateral Agent and Banks for any such interest which would have accrued in the absence of such assignment or the institution of such proceedings). 2. Creditor agrees not to sue upon, or to collect, or to receive payment of the principal or interest of any claim or claims now or hereafter existing which Creditor may hold against Borrower, and not to sell, assign, transfer, pledge, hypothecate, or encumber such claim or claims except subject expressly to this Agreement, and not to enforce or apply any security now or hereafter existing therefor, nor to file or join in any petition to commence any proceeding under the Bankruptcy Code, nor to take any lien or security on any of Borrower's property, real or personal, so long as any claim of the Administrative Agent, the Issuing Bank, the Collateral Agent and the Banks against Borrower shall exist. 3. In case of any assignment for the benefit of creditors by Borrower or in case any proceedings under the Bankruptcy Code are instituted by or against Borrower, or in case of the appointment of any receiver for Borrower's business or assets, or in case of any dissolution or winding up of the affairs of Borrower: (a) Borrower and any assignee, trustee in bankruptcy, receiver, debtor in possession or other person or persons in charge are hereby directed to pay to the Administrative Agent the full amount of the Administrative Agent's, the Issuing Bank's, the Collateral Agent's and the Banks, claims against Borrower (including interest to the date of payment) before making any payment of principal or interest to Creditor, and insofar as may be necessary for that purpose, Creditor hereby assigns and transfers to the Administrative Agent for the benefit of the Administrative Agent, the Issuing Bank, the Collateral Agent and the Banks all security or the proceeds thereof, and all rights to any payments, dividends or other distributions, and (b) Creditor hereby irrevocably constitutes and appoints the Administrative H-2 - 2 COLBURN SUBORDINATION AGREEMENT Agent its true and lawful attorney to act in its name and stead: (i) to file the appropriate claim or claims on behalf of Creditor if Creditor does not do so prior to 30 days before the expiration of the time to file claims in such proceeding and if the Administrative Agent elects at its sole discretion to file such claim or claims and (ii) to accept or reject any plan of reorganization or arrangement on behalf of Creditor, and to otherwise vote Creditor's claim in respect of any indebtedness now or hereafter owing from Borrower to Creditor in any manner the Administrative Agent deems appropriate for its own benefit and protection. 4. The Administrative Agent is hereby authorized by Creditor to: (a) renew, compromise, extend, accelerate or otherwise change the time of payment, or any other terms, of any existing or future claim of the Administrative Agent, the Issuing Bank, the Collateral Agent and the Banks against Borrower, (b) increase or decrease the rate of interest payable thereon or any part thereof, (c) exchange, enforce, waive or release any security therefor, (d) apply such security and direct the order or manner of sale thereof in such manner as the Administrative Agent or the Collateral Agent may at its discretion determine, (e) release Borrower or any guarantor of any indebtedness of Borrower from liability, and (f) make optional future advances to Borrower, all without notice to Creditor and without affecting the subordination provided by this Agreement. 5. On request of the Administrative Agent, Creditor shall deliver to the Administrative Agent the original of any promissory note or other evidence of any existing or future indebtedness of Borrower to Creditor, and mark same with a conspicuous legend which reads substantially as follows: "THIS PROMISSORY NOTE IS SUBORDINATED TO ANY PRESENT OR FUTURE INDEBTEDNESS OWING FROM THE MAKER TO CERTAIN BANKS AND THEIR RESPECTIVE ASSIGNS, AND MAY BE ENFORCED ONLY IN ACCORDANCE WITH THAT CERTAIN SUBORDINATION AGREEMENT DATED AUGUST 21, 1996 BETWEEN R.D. COLBURN AND BANK OF AMERICA NT&SA, AS ADMINISTRATIVE AGENT." H-2 - 3 COLBURN SUBORDINATION AGREEMENT 6. In the event that any payment or any cash or noncash distribution is made to Creditor in violation of the terms of this Agreement, Creditor shall receive same in trust for the benefit of the Administrative Agent, the Issuing Bank, the Collateral Agent and the Banks, and shall forthwith remit it to the Administrative Agent in the form in which it was received, together with such endorsements or documents as may be necessary to effectively negotiate or transfer same to the Administrative Agent. 7. Until all such claims of the Administrative Agent, the Issuing Bank, the Collateral Agent and the Banks against Borrower, now or hereafter existing, shall be paid in full, no gift or loan shall be made by Borrower to Creditor; provided, however, that nothing in this Agreement shall be deemed to prohibit - -------- ------- Borrower from declaring and making dividends or distributions to Creditor, in his capacity as a stockholder of Borrower, in respect of the capital stock of Borrower to the extent not prohibited in the Credit Agreement. 8. For violation of this Agreement, Creditor shall be liable for all loss and damage sustained by reason of such breach, and upon any such violation the Administrative Agent may, at its option, accelerate the maturity of any of the existing or future claims of the Administrative Agent, the Issuing Bank, the Collateral Agent and the Banks against Borrower. 9. Notwithstanding the provisions of Section 2, so long as no Default or Event of Default has occurred and is continuing under the Credit Agreement, the Borrower may pay, and the Creditor may receive, interest payments on the Notes; provided, however, that such payment does not cause a Default or Event of - -------- ------- Default under the Credit Agreement. 10. This Agreement shall be binding upon the heirs, successors and assigns of Creditor and the Borrower and shall inure to the benefit of the Administrative Agent, the Collateral Agent, the Issuing Bank and the Banks, and their respective successors and assigns. This Agreement and any existing or future claim of the Administrative Agent, the Issuing Bank, the Collateral Agent and the Banks against Borrower may be assigned H-2 - 4 COLBURN SUBORDINATION AGREEMENT by the Administrative Agent, the Collateral Agent and the Banks, in whole or in part, without notice to Creditor or Borrower. _______________________________ Richard D. Colburn Creditor Acceptance of Subordination Agreement by Borrower The undersigned being the Borrower named in the foregoing Subordination Agreement, hereby accepts and consents thereto and agrees to be bound by all the provisions thereof and to recognize all priorities and other rights granted thereby to the Administrative Agent, the Issuing Bank, the Collateral Agent and the Banks, their respective successors and assigns, and to perform in accordance therewith. Dated:_____________________ U.S. RENTALS, INC. By:___________________________ Name:_________________________ Title:________________________ H-2 - 5 COLBURN SUBORDINATION AGREEMENT SCHEDULE 2.01 ------------- COMMITMENTS ----------- AND PRO RATA SHARES -------------------
Pro Rata Bank Commitment Share ---- ------------ -------------- Bank of America National Trust and Savings Association $ 50,000,000 45.454545456% Comerica Bank - California 15,000,000 13.636363636% The Sumitomo Bank of California 7,500,000 6.818181818% The Sumitomo Bank Ltd. 7,500,000 6.818181818% Union Bank of California, N.A. 15,000,000 13.636363636% Wells Fargo Bank 15,000,000 13.636363636% ------------ -------------- TOTAL $110,000,000 100.000000000% ============ ==============
-1- SCHEDULE 3.03 ------------- EXISTING BOFA LETTERS OF CREDIT ------------------------------- L/C Number Beneficiary Amount Expiration - ---------- ----------- ------ ---------- -1- SCHEDULE 6.16 ------------- SUBSIDIARIES AND MINORITY INTERESTS ----------------------------------- SUBSIDIARIES ------------ MINORITY INTERESTS ------------------
Yorkshire Enterprises L.P. $ 41,251.21 Kwickform America 992,459.15 Kippington Road 306,000.00 UKP 31.48 Claessen 3,267.25 Tolyco BY 351,905.63 Consortium 2000 Inc. 150,000.00 ------------- Total $1,844,914.72 =============
-1- SCHEDULE 11.02 -------------- OFFSHORE AND DOMESTIC LENDING OFFICES, -------------------------------------- ADDRESSES FOR NOTICES --------------------- BORROWER - -------- U.S. RENTALS, INC. 1581 Cummins Drive, Suite 155 Modesto, California 95351 Attention: John S. McKinney Telephone: (209) 544-9000 Facsimile: (209) 544-6756 BANK OF AMERICA NATIONAL TRUST - ------------------------------ AND SAVINGS ASSOCIATION, - ----------------------- as Administrative Agent and Collateral Agent Bank of America National Trust and Savings Association Agency Management Services #10831 1455 Market Street, 12th Floor San Francisco, California 94103 Attention: Charles Graber Vice President Telephone: (415) 436-3495 Facsimile: (415) 436-2700 ADMINISTRATIVE AGENT'S PAYMENT OFFICE: - ------------------------------------- 1850 Gateway Boulevard, Fifth Floor Concord, California 94520 BANK OF AMERICA NATIONAL TRUST - ------------------------------ AND SAVINGS ASSOCIATION, as a Bank - ----------------------- Domestic and Offshore Lending Office: 1850 Gateway Boulevard, Fourth Floor Concord, California 94520 Attention: Barbara Garibaldi -1- Telephone: (510) 675-7729 Facsimile: (510) 675-7531 -2- Notices (other than Borrowing notices and Notices of Conversion/Continuation) : Bank of America National Trust and Savings Association 555 South Flower Street, 11th Floor Los Angeles, California 90071 Attention: Chas McDonell Vice President Credit Products #3283 Telephone: (213) 228-2027 Facsimile: (213) 228-2756 BANK OF AMERICA NATIONAL TRUST - ------------------------------ AND SAVINGS ASSOCIATION, as Issuing Bank - ----------------------- Address for Notices: International Trade Banking Division #5655 333 S. Beaudry Ave., 19th Floor Los Angeles, CA 90017 WELLS FARGO BANK - ---------------- Domestic and Offshore Lending Office: Wells Fargo Bank 201 Third Street, 8th Floor Commercial Banking Service Center San Francisco, CA 94103 Attention: Virginia DeCicco Disbursement Administration Telephone: (415) 477-5424 Facsimile: (415) 512-9068 -3- Notices (other than Borrowing notices and Notices of Conversion/Continuation): Wells Fargo Bank P.O. Box 949 Modesto, CA 95353 Attention: Larry Scheidt Vice President Telephone: (209) 578-6826 Facsimile: (209) 523-3686 UNION BANK OF CALIFORNIA, N.A. - ----------------------------- Domestic and Offshore Lending Office: Union Bank of California, N.A. 550 S. Hope Street Los Angeles, CA 90071 Attention: Hisako Sakamoto Assistant Vice President Telephone: (213) 243-3522 Facsimile: (213) 243-3521 Notices (other than Borrowing notices and Notices of Conversion/Continuation): Union Bank of California, N.A. 445 S. Figueroa Street Los Angeles, CA 90071 Attention: Pasha Moghaddam Vice President Telephone: (213) 236-6564 Facsimile: (213) 236-7814 THE SUMITOMO BANK OF CALIFORNIA - ------------------------------- Domestic and Offshore Lending Office: The Sumitomo Bank of California Commercial Banking Division -4- 320 California Street, #600 San Francisco, CA 94104 Attention: Andrew Hudson Vice President Telephone: (415) 445-8724 Facsimile: (415) 296-9617 Notices (other than Borrowing notices and Notices of Conversion/Continuation): The Sumitomo Bank of California Commercial Banking Division 320 California Street, #600 San Francisco, CA 94104 Attention: Thomas C. Paton, Jr. Vice President Telephone: (415) 445-8750 Facsimile: (415) 296-9617 THE SUMITOMO BANK, LIMITED - --------------------------- Domestic and Offshore Lending Office: The Sumitomo Bank, Limited U.S. Commercial Banking Department 233 South Wacker Drive, Suite 400 Chicago, IL 60606 Notices for Borrowing and Notices for Conversion/Continuation): The Sumitomo Bank, Limited U.S. Commercial Banking Department 100 Pine Street, Suite 3300 San Francisco, CA 94111-5219 Attention: Wendy L. Goman Banking Officer Telephone: (415) 394-0869 Facsimile: (415) 304-9797 -5- Notices (other than Borrowing notices and Notices of Conversion/Continuation): The Sumitomo Bank, Limited U.S. Commercial Banking Department 100 Pine Street, Suite 3300 San Francisco, CA 94111-5219 Attention: Carole A. Daley Vice President Telephone: (415) 394-0868 Facsimile: (415) 394-9797 COMERICA BANK - CALIFORNIA - ---------------------------- Domestic and Offshore Lending Office: Comerica Bank - California 333 W. Santa Clara Street San Jose, CA 95113 Attention: Jan Green Administrative Assistant Telephone: (408) 556-5237 Facsimile: (408) 556-5292 with a copy to: Comerica Bank - California 333 W. Santa Clara Street San Jose, CA 95113 Attention: Scott T. Smith Assistant Vice President Telephone: (408) 556-5236 Facsimile: (408) 556-5292 Notices (other than Borrowing notices and Notices of Conversion/Continuation): Comerica Bank - California 333 W. Santa Clara Street San Jose, CA 95113 Attention: Scott T. Smith Assistant Vice President -6- Telephone: (408) 556-5236 Facsimile: (408) 556-5292 -7- EX-10.7 3 PRIVATELY PLACED NOTE AGREEMENT EXHIBIT 10.7 U.S. RENTALS, INC. 1581 Cummins Drive, Suite 155 Modesto, California 95358 NOTE AGREEMENT Re: $10,000,000 6.82% Senior Secured Notes, Series A, Due August 21, 1999, 10,000,000 6.89% Senior Secured Notes, Series B, Due August 21, 2000, $10,000,000 7.04% Senior Secured Notes, Series C, Due August 21, 2001, and $20,000,000 7.13% Senior Secured Notes, Series D, Due August 21, 2002 Dated as of August 15, 1995 To the Purchaser named in Schedule I hereto which is a signatory of this Agreement Ladies and Gentlemen: The undersigned, U.S. Rentals, Inc., a California corporation (the "Company"), agrees with you as follows: ------- SECTION 1. DESCRIPTION OF NOTES AND COMMITMENT. Section 1.1. Description of Notes. (a) The Company will authorize the ----------------------------------- issue and sale of its 6.82% Senior Secured Notes, Series A, Due August 21, 1999 (the "Series A Notes") in an aggregate principal amount of $10,000,000, its -------------- 6.89% Senior Secured Notes, Series B, Due August 21, 2000 (the "Series B Notes") in an aggregate principal amount of $10,000,000, its -------------- 7.04% Senior Secured Notes, Series C, Due August 21, 2001 (the "Series C Notes") -------------- in an aggregate principal amount of $10,000,000, and its 7.13% Senior Secured Notes, Series D, Due August 21, 2002 (the "Series D Notes") in an aggregate -------------- principal amount of $20,000,000. The Series A Notes, the Series B Notes, the Series C Notes and the Series D Notes issued pursuant to this Agreement and the other separate agreements referred to in (S)1.3 are hereinafter collectively referred to as the "Notes". ----- (b) The Series A Notes will be dated the date of issue, will bear interest from such date at the rate of 6.82% per annum, payable semiannually on the twenty-first day of February and August in each year (commencing February 21, 1996) and at maturity and will bear interest on overdue principal (including any overdue required or optional prepayment of principal) and premium, if any, and (to the extent legally enforceable) on any overdue installment of interest at the Overdue Rate after the date due, whether by acceleration or otherwise, until paid, will be expressed to mature on August 21, 1999, and will be substantially in the form attached hereto as Exhibit A-1. The Series B Notes will be dated the date of issue, will bear interest from such date at the rate of 6.89% per annum, payable semiannually in arrears on the twenty-first day of February and August in each year (commencing February 21, 1996) and at maturity and will bear interest on overdue principal (including any overdue optional prepayment of principal) and premium, if any, and (to the extent legally enforceable) on any overdue installment of interest at the Overdue Rate after the date due, whether by acceleration or otherwise, until paid, will be expressed to mature on August 21, 2000 and will be substantially in the form attached hereto as Exhibit A-2. The Series C Notes will be dated the date of issue, will bear interest from such date at the rate of 7.04% per annum, payable semiannually in arrears on the twenty-first day of February and August in each year (commencing February 21, 1996) and at maturity and will bear interest on overdue principal (including any overdue optional prepayment of principal) and premium, if any, and (to the extent legally enforceable) on any overdue - -2- installment of interest at the Overdue Rate after the date due, whether by acceleration or otherwise, until paid, will be expressed to mature on August 21, 2001 and will be substantially in the form attached hereto as Exhibit A-3. The Series D Notes will be dated the date of issue, will bear interest from such date at the rate of 7.13% per annum, payable semiannually in arrears on the twenty-first day of February and August in each year (commencing February 21, 1996) and at maturity and will bear interest on overdue principal (including any overdue optional prepayment of principal) and premium, if any, and (to the extent legally enforceable) on any overdue installment of interest at the Overdue Rate after the date due, whether by acceleration or otherwise, until paid, will be expressed to mature on August 21, 2002 and will be substantially in the form attached hereto as Exhibit A-4. Interest on the Notes shall be computed on the basis of a 360-day year of twelve 30-day months. The Notes are not subject to prepayment or redemption at the option of the Company prior to their expressed maturity dates except on the terms and conditions and in the amounts and with the premium, if any, set forth in (S)2 of this Agreement. The term "Notes" as used herein shall include ----- each Note delivered pursuant to this Agreement and the separate agreements with the other purchasers named in Schedule I. You and the other purchasers named in Schedule I are hereinafter sometimes referred to as the "Purchasers". The terms ---------- which are capitalized herein shall have the meanings set forth in (S)8.1 unless the context shall otherwise require. Section 1.2. Commitment, Closing Date. Subject to the terms and ------------------------------------- conditions hereof and on the basis of the representations and warranties hereinafter set forth, the Company agrees to issue and sell to you, and you agree to purchase from the Company, Notes in the principal amount set forth opposite your name on Schedule I hereto at a price of 100% of the principal amount thereof on the Closing Date hereafter mentioned. Delivery of the Notes will be made at the offices of Chapman and Cutler, 111 West Monroe Street, Chicago, Illinois 60603, against payment therefor in Federal Reserve or other funds current and immediately available at the principal office of Bank of America, Department 5693, 1850 Gateway - -3- Boulevard, Concord, California 94520, ABA #121000358 for credit to the Company's Account Number 12331-13468 in the amount of the purchase price at 12:00 Noon, San Francisco, California time, on August 21, 1995 or such later date (not later than August 31, 1995) as shall mutually be agreed upon by the Company and the Purchasers (the "Closing Date"). The Notes delivered to you on the Closing Date ------------ will be delivered to you in the form of a single registered Note in the form attached hereto as Exhibit A for the full amount of your purchase (unless different denominations are specified by you), registered in your name or in the name of such nominee, as may be specified in Schedule I attached hereto. Section 1.3. Other Agreements. Simultaneously with the execution and ----------------------------- delivery of this Agreement, the Company is entering into similar agreements with the other Purchasers under which such other Purchasers agree to purchase from the Company the principal amount of Notes set opposite such Purchasers' names in Schedule I, and your obligation is subject to the execution and delivery of the similar agreements by the other Purchasers. This Agreement and said similar agreements with the other Purchasers are herein collectively referred to as the "Agreements". The obligations of each Purchaser shall be several and not joint ---------- and no Purchaser shall be liable or responsible for the acts of any other Purchaser. Section 1.4. Security for the Notes. The Notes will be entitled to the ----------------------------------- benefit of the Second Amended and Restated Security Agreement Re: Receivables, Inventory, Equipment and Documents dated as of the date of this Agreement which will be in form and substance satisfactory to you and your special counsel, together with any amendments, replacements or restatements of the foregoing (the "Security Document") and enforcement of the rights and benefits in respect of ----------------- the Security Document will be subject to an Intercreditor Agreement dated as of the date of this Agreement in form and substance satisfactory to you and your special counsel (the "Intercreditor Agreement") to be entered into by the ----------------------- Collateral Agent, Bank of America National Trust and Savings Association and the Company with each of you. SECTION 2. PREPAYMENT OF NOTES. Section 2.1. Optional Prepayment with Premium. Upon compliance with --------------------------------------------- (S)2.3, the Company shall have the privilege, on any interest payment date - -4- of prepaying the outstanding Notes, either in whole or in part (but if in part then in a minimum principal amount of $2,000,000), by payment of the principal amount of the Notes, or portion thereof to be prepaid, and accrued interest thereon to the date of such prepayment, together with a premium equal to the Make-Whole Amount, determined as of three Business Days prior to the date of such prepayment pursuant to this (S)2.1. Section 2.2. Prepayment of Notes upon Change of Control. (a) In the ------------------------------------------------------- event that the Company has knowledge of a Change of Control (as hereinafter defined) or an impending Change of Control, the Company will give written notice (the "Company Notice") of such fact in the manner provided in (S)9.6 hereof to -------------- the holders of the Notes at least 60 days prior to the occurrence of such Change of Control, provided that if the Company does not have knowledge of a Change of -------- Control sufficient to provide 60 days prior notice to the holders of the Notes, then the Company Notice shall be delivered promptly upon receipt of such knowledge by the Company and in any event no later than three Business Days following the occurrence of any Change of Control. The Company Notice shall (1) describe the facts and circumstances of such Change of Control in reasonable detail, (2) make reference to this (S)2.2 and the right of the holders of the Notes to require prepayment of the Notes on the terms and conditions provided for in this (S)2.2, (3) offer in writing to prepay the outstanding Notes, together with accrued interest to the date of prepayment, and a premium equal to the then applicable Make-Whole Amount, and (4) specify a date for such prepayment (the "Change of Control Prepayment Date"), which Change of Control --------------------------------- Prepayment Date shall be (A) in the event the Company has knowledge of such Change of Control at least 60 days prior to the occurrence thereof, the date such Change of Control actually occurs, or (B) in all other events, not more than 90 days nor less than 30 days following the date of such Company Notice. Each holder of the then outstanding Notes shall have the right to accept such offer and require prepayment of the Notes held by such holder in full by written notice to the Company (a "Noteholder Notice") given not later than 20 days after ----------------- receipt of the Company Notice. The Company shall on the Change of Control Prepayment Date prepay in full all of the Notes held by holders which have so accepted such offer of prepayment. The prepayment price of the Notes payable upon the occurrence of any Change of Control shall be an amount equal to 100% of the outstanding principal amount of the Notes so to be prepaid and accrued interest thereon to the date of such prepayment, together - -5- with a premium equal to the then applicable Make-Whole Amount, determined as of three Business Days prior to the date of such prepayment pursuant to this (S)2.2(a). (b)(1) Without limiting the foregoing, notwithstanding any failure on the part of the Company to give the Company Notice herein required as a result of the occurrence of a Change of Control, each holder of the Notes shall have the right by delivery of written notice to the Company to require the Company to prepay, and the Company will prepay, such holder's Notes in full, together with accrued interest thereon to the date of prepayment, and a premium equal to the then applicable Make-Whole Amount. Notice of any required prepayment pursuant to this (S)2.2(b)(1) shall be delivered by any holder of the Notes which was entitled to, but did not receive, such Company Notice to the Company after such holder has actual knowledge of such Change of Control. On the date (the "Change ------ of Control Delayed Prepayment Date") designated in such holder's notice (which - ---------------------------------- shall be not more than 90 days nor less than 30 days following the date of such holder's notice), the Company shall prepay in full all of the Notes held by such holder, together with accrued interest thereon to the date of prepayment, and a premium equal to the then applicable Make-Whole Amount. If the holder of any Note gives any notice pursuant to this (S)2.2(b)(1), the Company shall give a Company Notice within three Business Days of receipt of such notice and identify the Change of Control Delayed Prepayment Date to all other holders of the Notes and each of such other holders shall then and thereupon have the right to accept the Company's offer to prepay the Notes held by such holder in full and require prepayment of such Notes by delivery of a Noteholder Notice within 20 days following receipt of such Company Notice; provided only that any date for -------- prepayment of such holder's Notes shall be the Change of Control Delayed Prepayment Date. On the Change of Control Delayed Prepayment Date, the Company shall prepay in full the Notes of each holder thereof which has accepted such offer of prepayment at a prepayment price equal to 100% of the outstanding principal amount of the Notes so to be prepaid and accrued interest thereon to the date of such prepayment, together with a premium equal to the then applicable Make-Whole Amount, determined as of three Business Days prior to the date of such prepayment pursuant to this (S)2.2(b)(1). - -6- (2) Compliance with the provisions of this (S)2.2(b) shall not be deemed to constitute a waiver of, or consent to, any Default or Event of Default caused by any violation of the provisions of (S)2.2(a). Section 2.3. Notice of Optional Prepayments. The Company will give ------------------------------------------- notice of any prepayment of the Notes pursuant to (S)2.1 to each holder thereof not less than 30 days nor more than 60 days before the date fixed for such optional prepayment specifying (a) such date, (b) the principal amount of the holder's Notes to be prepaid on such date, (c) that a premium may be payable, (d) the date when such premium will be calculated, (e) the estimated premium, together with a reasonably detailed computation of such estimated premium, and (f) the accrued interest applicable to the prepayment. Such notice of prepayment shall also certify all facts, if any, which are conditions precedent to any such prepayment. Notice of prepayment having been so given, the aggregate principal amount of the Notes specified in such notice, together with accrued interest thereon and the premium, if any, payable with respect thereto shall become due and payable on the prepayment date specified in said notice. Two Business Days prior to the prepayment date specified in such notice, the Company shall provide each holder of a Note written notice of the premium, if any, payable in connection with such prepayment and, whether or not any premium is payable, a reasonably detailed computation of the Make-Whole Amount. Section 2.4. Application of Prepayments. All partial prepayments made --------------------------------------- pursuant to (S)2.1 shall be applied on all outstanding Notes ratably in accordance with the unpaid principal amounts thereof. All partial prepayments made pursuant to (S)2.2 shall be applied only to the Notes of the holders who have elected to participate in such prepayment. Section 2.5. Direct Payment. Notwithstanding anything to the contrary --------------------------- contained in this Agreement or the Notes, in the case of any Note owned by you or your nominee or owned by any subsequent Institutional Holder which has given written notice to the Company requesting that the provisions of this (S)2.5 shall apply, the Company will punctually pay when due the principal thereof, interest thereon and premium, if any, due with respect to said principal, without any presentment thereof, directly to you, to your nominee or to such subsequent Institutional Holder at your address or your nominee's address set forth in Schedule I hereto or such other address - -7- as you, your nominee or such subsequent Institutional Holder may from time to time designate in writing to the Company or, if a bank account with a United States bank is designated for you or your nominee on Schedule I hereto or in any written notice to the Company from you, from your nominee or from any such subsequent Institutional Holder, the Company will make such payments in immediately available funds to such bank account, no later than 12:00 Noon Chicago, Illinois time on the date due, marked for attention as indicated, or in such other manner or to such other account in any United States bank as you, your nominee or any such subsequent Institutional Holder may from time to time direct in writing. If for any reason whatsoever the Company does not make any such payment by such 12:00 Noon Chicago, Illinois time, such payment shall be deemed to have been made on the next following Business Day and such payment shall bear interest at the Overdue Rate. SECTION 3. REPRESENTATIONS AND AGREEMENT. Section 3.1. Representations of the Company. The Company represents ------------------------------------------- and warrants that all representations and warranties set forth in Exhibit B are true and correct as of the date hereof and are incorporated herein by reference with the same force and effect as though herein set forth in full. Section 3.2. Representations and Agreement of the Purchaser. (a) You ----------------------------------------------------------- represent, and in entering into this Agreement the Company understands, that you are acquiring the Notes for the purpose of investment and not with a view to the distribution thereof, and that you have no present intention of selling, negotiating or otherwise disposing of the Notes; it being understood, however, that the disposition of your property shall at all times be and remain within your control. (b) You further represent that either: (1) you are acquiring the Notes with assets from your general account and not with the assets of any separate account in which any employee benefit plan has any interest; (2) no part of the funds to be used by you to purchase the Notes constitutes assets allocated to any separate account maintained by you such that the application of such funds constitutes a prohibited transaction under Section 406 of ERISA; or (3) all or a part of such funds constitute assets of one or more separate accounts, trusts or a commingled pension trust maintained by you, and you - -8- have disclosed to the Company the names of such employee benefit plans whose assets in such separate account or accounts or pension trusts exceed 10% of the total assets or are expected to exceed 10% of the total assets of such account or accounts or trusts as of the date of such purchase and the Company has advised you in writing (and in making the representations set forth in this clause (3) you are relying on such advice) that the Company is not a party-in- interest nor are the Notes employer securities with respect to the particular employee benefit plan disclosed to the Company by you as aforesaid (for the purpose of this clause (3), all employee benefit plans maintained by the same employer or employee organization are deemed to be a single plan). As used in this (S)3.2(b), the terms "separate account", "party-in-interest", "employer ---------------- ----------------- -------- securities" and "employee benefit plan" shall have the respective meanings - ---------- --------------------- assigned to them in ERISA. (c) You agree that you will not resell the Notes purchased by you under this Agreement to a Person which, to the best of your knowledge, is a Competitor or Competitor Affiliate. It is understood and agreed that in establishing compliance by you with the foregoing, you may rely upon the written representation of the transferee of a Note to the effect that such transferee is not a Competitor or Competitor Affiliate. SECTION 4. CLOSING CONDITIONS. Section 4.1. Conditions. Your obligation to purchase the Notes on the ----------------------- Closing Date shall be subject to the performance by the Company of its agreements hereunder which by the terms hereof are to be performed at or prior to the time of delivery of the Notes and to the following further conditions precedent: (a) Closing Certificate. You shall have received a certificate ------------------- dated the Closing Date, signed by a Responsible Officer of the Company, the truth and accuracy of which shall be a condition to your obligation to purchase the Notes proposed to be sold to you and to the effect that (1) the representations and warranties of the Company set forth in Exhibit B hereto are true and correct on and with respect to the Closing Date, (2) the Company has performed all of its obligations hereunder which are to be performed on or prior to the Closing Date, and (3) no Default or Event of Default has occurred and is continuing. - -9- (b) Legal Opinions. You shall have received from Chapman and Cutler, who -------------- are acting as your special counsel in this transaction, and from Bernard E. Lyons, Esq., counsel for the Company, their respective opinions dated the Closing Date, in form and substance satisfactory to you, and covering the matters set forth in Exhibits C and D, respectively, hereto. (c) Company's Existence and Authority. On or prior to the Closing Date, --------------------------------- you shall have received, in form and substance reasonably satisfactory to you and your special counsel, such documents and evidence with respect to the Company as you may reasonably request in order to establish the existence and good standing of the Company and the authorization of the transactions contemplated by this Agreement. (d) Security Document, Etc. The Security Document and the Intercreditor ---------------------- Agreement shall be in form and substance satisfactory to you and your special counsel, shall have been duly executed and delivered by the parties thereto and shall be in full force and effect and you shall have received true, correct and complete copies of each thereof. You shall also have received a true, correct and complete copy of the Bank Agreement. (e) Filing and Recording. The Security Document (and/or financing -------------------- statements or similar notices thereof if and to the extent permitted or required by applicable law) shall have been recorded or filed for record in such public offices as may be deemed necessary or appropriate by you or your special counsel in order to perfect the Liens and security interests granted or conveyed thereby. (f) Related Transactions. The Company shall have consummated the sale of -------------------- the entire principal amount of the Notes scheduled to be sold on the Closing Date pursuant to this Agreement and the other agreements referred to in (S)1.3. (g) Private Placement Numbers. On or prior to the Closing Date, special ------------------------- counsel to the Purchasers shall have duly made the appropriate filings with Standard & Poor's CUSIP Service Bureau, as - -10- agent for the National Association of Insurance Commissioners, in order to obtain a private placement number for each Series of the Notes. (h) Funding Instructions. At least three Business Days prior to the -------------------- Closing Date, you shall have received written instructions executed by a Responsible Officer of the Company directing the manner of the payment of funds and setting forth (1) the name and address of the transferee bank, (2) such transferee bank's ABA number, (3) the account name and number into which the purchase price for the Notes is to be deposited, and (4) the name and telephone number of the account representative responsible for verifying receipt of such funds. (i) Special Counsel Fees. Concurrently with the delivery of the Notes to -------------------- you on the Closing Date, the charges and disbursements of Chapman and Cutler, your special counsel, shall have been paid by the Company. (j) Legality of Investment. The Notes to be purchased by you shall be a ---------------------- legal investment for you under the laws of each jurisdiction to which you may be subject (without resort to any so-called "basket provisions" to such laws). ----------------- (k) Satisfactory Proceedings. All proceedings taken in connection with ------------------------ the transactions contemplated by this Agreement, and all documents necessary to the consummation thereof, shall be satisfactory in form and substance to you and your special counsel, and you shall have received a copy (executed or certified as may be appropriate) of all legal documents or proceedings taken in connection with the consummation of said transactions. Section 4.2. Waiver of Conditions. If on the Closing Date the Company --------------------------------- fails to tender to you the Notes to be issued to you on such date or if the conditions specified in (S)4.1 have not been fulfilled, you may thereupon elect to be relieved of all further obligations under this Agreement. Without limiting the foregoing, if the conditions specified in (S)4.1 have not been fulfilled, you may waive compliance by the Company with any such - -11- condition to such extent as you may in your sole discretion determine. Nothing in this (S)4.2 shall operate to relieve the Company of any of its obligations hereunder or to waive any of your rights against the Company. SECTION 5. COMPANY COVENANTS. From and after the Closing Date and continuing so long as any amount remains unpaid on any Note: Section 5.1. Corporate Existence, Etc. The Company will preserve and ------------------------------------- keep in full force and effect, and will cause each Subsidiary to preserve and keep in full force and effect, its corporate existence and all Material licenses and permits relating to the proper conduct of its business, provided that the -------- foregoing shall not prevent any transaction permitted by (S)5.12. Section 5.2. Insurance. The Company will maintain, and will cause each ---------------------- Subsidiary to maintain, insurance coverage by financially sound and reputable insurers and in such forms and amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) and against such risks as are customary for corporations of established reputation engaged in the same or a similar business and owning and operating similar properties. Section 5.3. Taxes, Claims for Labor and Materials; Compliance with ------------------------------------------------------------------- Laws. (a) The Company will promptly pay and discharge, and will cause each - ---- Subsidiary promptly to pay and discharge, prior to becoming delinquent, all taxes, assessments and governmental charges or levies imposed upon the Company or such Subsidiary, respectively, or upon or in respect of all or any part of the property or business of the Company or such Subsidiary, all trade accounts payable in accordance with usual and customary business terms, and all claims for work, labor or materials, which if unpaid might become a Lien upon any property of the Company or such Subsidiary; provided the Company or such -------- Subsidiary shall not be required to pay any such tax, assessment, charge, levy, account payable or claim if (1) the validity, applicability or amount thereof is being contested in good faith by appropriate actions or proceedings which will prevent the forfeiture or sale of any property of the Company or such Subsidiary or any material interference with the use thereof by the Company or such Subsidiary, and (2) the - -12- Company or such Subsidiary shall set aside on its books, reserves deemed by it to be adequate with respect thereto. (b) The Company will promptly comply and will cause each Subsidiary to promptly comply with all laws, ordinances or governmental rules and regulations to which it is subject, including, without limitation, the Occupational Safety and Health Act of 1970, as amended, ERISA and all Environmental Laws, the violation of which could materially and adversely affect the business, operations, affairs, financial condition, assets, properties or prospects of the Company and its Subsidiaries or would result in any Lien not permitted under (S)5.10. Section 5.4. Maintenance, Etc. The Company will in all Material respects ----------------------------- maintain, preserve and keep, and will cause each Subsidiary to in all Material respects maintain, preserve and keep, its properties which are used or useful in the conduct of its business (whether owned in fee or a leasehold interest) in good repair and working order and from time to time will in all Material respects make all necessary repairs, replacements, renewals and additions so that at all times the efficiency thereof shall be maintained. Section 5.5. Nature of Business. Neither the Company nor any Subsidiary ------------------------------- will engage in any business if, as a result, the general nature of the business, taken on a consolidated basis, which would then be engaged in by the Company and its Subsidiaries would be substantially changed from the general nature of the business engaged in by the Company and its Subsidiaries on the date of this Agreement. Section 5.6. Collateral Ratio. The Company will at all times keep and ----------------------------- maintain the ratio of Book Value of Consolidated Total Assets to Consolidated Secured Indebtedness at not less than 1.25 to 1.00. Section 5.7. Consolidated Tangible Net Worth. The Company will at all -------------------------------------------- times keep and maintain Consolidated Tangible Net Worth at an amount not less than the sum of (a) $35,000,000 plus (b) 25% of Consolidated Net Income computed ---- on a cumulative basis for each of the elapsed fiscal quarters ending after June 30, 1995, provided that notwithstanding that Consolidated Net Income for any -------- such elapsed fiscal quarter may be a deficit figure, no - -13- reduction as a result thereof shall be made in the sum to be maintained pursuant hereto. Section 5.8. Fixed Charges Coverage Ratio. The Company will as at the ----------------------------------------- end of each fiscal quarter keep and maintain the ratio of Consolidated Net Income Available for Fixed Charges for any four of the immediately preceding five fiscal quarters to Consolidated Fixed Charges for such four fiscal quarter period at not less than 1.50 to 1.00. Section 5.9. Limitations on Indebtedness. (a) The Company will not, and ---------------------------------------- will not permit any Restricted Subsidiary to, create, assume, guarantee or otherwise incur or in any manner be or become liable in respect of any Indebtedness, except: (1) Indebtedness evidenced by the Notes; (2) Indebtedness of the Company and its Restricted Subsidiaries outstanding as of the date of this Agreement and described on Schedule II hereto; (3) Senior Indebtedness of the Company and Indebtedness of any of the Company's Restricted Subsidiaries, provided that at the time of -------- creation, issuance, assumption, guarantee or incurrence thereof and after giving effect thereto and to the application of the proceeds thereof: (i) the sum of (A) Senior Indebtedness of the Company (including, without limitation, all Senior Indebtedness of the Company secured by Liens permitted to be incurred within the limitations of subclause (iii) below) plus (B) Indebtedness of ---- Restricted Subsidiaries permitted to be incurred within the limitations of subclause (iii) below shall not exceed 300% of Adjusted Consolidated Tangible Net Worth, (ii) Subordinated Indebtedness of the Company shall not exceed 100% of the Consolidated Tangible Net Worth, and (iii) the sum of (A) the aggregate amount of all Indebtedness of the Company secured by Liens permitted by (S)5.10(h) plus (B) ---- the aggregate amount of all Indebtedness of - -14- Restricted Subsidiaries shall not exceed 10% of Adjusted Consolidated Tangible Net Worth; (4) Subordinated Indebtedness of the Company, provided that at the -------- time of issuance thereof and after giving effect thereto and to the application of the proceeds thereof, the aggregate amount of all Subordinated Indebtedness of the Company shall not exceed 100% of Consolidated Tangible Net Worth; and (5) Indebtedness of a Restricted Subsidiary to the Company or to a Wholly-owned Restricted Subsidiary. (b) Indebtedness issued or incurred in accordance with the limitations of (S)5.9(a) may be renewed, extended or refunded (without increase in the original principal amount, which shall be deemed to be $50,000,000 in the case of the Indebtedness issued pursuant to the Bank Agreement and without increase in principal amount remaining unpaid at the time of such renewal, extension or refunding in the case of any other Indebtedness), provided that at the time of -------- such renewal, extension or refunding and after giving effect thereto, no Default or Event of Default would exist. (c) Any Person which becomes a Restricted Subsidiary after the date hereof shall for all purposes of this (S)5.9 be deemed to have created, assumed or incurred at the time it becomes a Restricted Subsidiary all Indebtedness of such Person existing immediately after it becomes a Restricted Subsidiary. Section 5.10. Limitation on Liens. The Company will not, and will not --------------------------------- permit any Restricted Subsidiary to, create or incur, or suffer to be incurred or to exist, any Lien on its or their property or assets, whether now owned or hereafter acquired, or upon any income or profits therefrom, or transfer any property for the purpose of subjecting the same to the payment of obligations in priority to the payment of its or their general creditors, or acquire or agree to acquire, or permit any Restricted Subsidiary to acquire, any property or assets upon conditional sales agreements or other title retention devices, except: - -15- (a) Liens for property taxes and assessments or governmental charges or levies and Liens securing claims or demands of mechanics and materialmen, provided that payment thereof is not at the time required by (S)5.3; - -------- (b) Liens of or resulting from any judgment or award, the time for the appeal or petition for rehearing of which shall not have expired, or in respect of which the Company or a Restricted Subsidiary shall at any time in good faith be prosecuting an appeal or proceeding for a review and in respect of which a stay of execution pending such appeal or proceeding for review shall have been secured and reserves reasonably deemed by the Company to be adequate shall have been established; (c) Liens incidental to the conduct of business or the ownership of properties and assets (including Liens in connection with worker's compensation, unemployment insurance and other like laws, warehousemen's and attorneys' liens and statutory landlords' liens) and Liens to secure the performance of bids, tenders or trade contracts, or to secure statutory obligations, surety or appeal bonds or other Liens of like general nature, in any such case incurred in the ordinary course of business and not in connection with the borrowing of money, provided in each case, the obligation secured is not overdue or, if overdue, is - -------- being contested in good faith by appropriate actions or proceedings and in respect of which reserves reasonably deemed by the Company to be adequate shall have been established; (d) minor survey exceptions or minor encumbrances, easements or reservations, or rights of others for rights-of-way, utilities and other similar purposes, or zoning or other restrictions as to the use of real properties, which are necessary for the conduct of the activities of the Company and its Restricted Subsidiaries or which customarily exist on properties of corporations engaged in similar activities and similarly situated and which do not in any event materially impair their use in the operation of the business of the Company and its Restricted Subsidiaries; - -16- (e) Liens securing Indebtedness of a Restricted Subsidiary to the Company or to another Wholly-owned Restricted Subsidiary; (f) Liens existing as of the Closing Date and described on Schedule II hereto; (g) Liens created or incurred after the Closing Date given to secure the payment of the purchase price incurred in connection with the acquisition or purchase of fixed assets useful and intended to be used in carrying on the business of the Company or a Restricted Subsidiary, including Liens existing on such fixed assets at the time of acquisition thereof or at the time of acquisition or purchase by the Company or a Restricted Subsidiary of any business entity then owning such fixed assets, whether or not such existing Liens were given to secure the payment of the purchase price of the fixed assets to which they attach so long as they were not incurred, extended or renewed in contemplation of such acquisition or purchase, provided that (1) the Lien shall attach solely to the fixed assets acquired or purchased, (2) such Lien shall have been created or incurred within ninety days of the date of acquisition or purchase, (3) at the time of acquisition or purchase of such fixed assets, the aggregate amount remaining unpaid on all Indebtedness secured by Liens on such fixed assets, whether or not assumed by the Company or a Restricted Subsidiary, shall not exceed an amount equal to 100% of the total purchase price of such fixed assets, (4) in the case of the creation or incurrence of any Capitalized Lease, the fixed asset which is the subject thereof if previously owned by the Company shall have been sold or otherwise disposed of within the limitations provided in (S)5.12(b)(2), and (5) all such Indebtedness shall have been incurred within the applicable limitations provided in (S)5.9(a); (h) Liens created or incurred after the Closing Date given to secure Indebtedness of the Company or any Restricted Subsidiary, in addition to the Liens permitted by the preceding clauses (a) through (g) hereof, provided that -------- all Indebtedness secured by such Liens shall have been incurred within the limitations provided in (S)5.9(a)(3); and (i) the Lien of the Security Document. - -17- Section 5.11. Restricted Payments. (a) The Company will not except as --------------------------------- otherwise provided in clause (b) of this (S)5.11: (1) Declare or pay any dividends, either in cash or property, on any shares of its capital stock of any class (except dividends or other distributions payable solely in shares of common stock of the Company); (2) Directly or indirectly, or through any Subsidiary or through any Affiliate of the Company, purchase, redeem or retire any shares of its capital stock of any class or any warrants, rights or options to purchase or acquire any shares of its capital stock; (3) Make any other payment or distribution, either directly or indirectly or through any Subsidiary, in respect of its capital stock; or (4) Make any payment of or on account of any Subordinated Indebtedness or any payment on account of the purchase, redemption or other retirement thereof, except (i) a payment of interest on such Subordinated Indebtedness, (ii) payment at final maturity or (iii) a payment in compliance with the applicable provisions of such Subordinated Indebtedness thereof or of any indenture, agreement or similar instrument under or pursuant to which such Subordinated Indebtedness has been issued unconditionally requiring at such time and in the amounts being made, payments of a sinking fund, periodic prepayments or other analogous payments for the amortization of such Subordinated Indebtedness, all as established by the original terms thereof; (such declarations or payments of dividends, purchases, redemptions or retirements of capital stock and warrants, rights or options and all such other payments, prepayments, redemptions, purchases or distributions being herein collectively called "Restricted Payments"), if after giving effect thereto the ------------------- aggregate amount of Restricted Payments made during the period from and after the Closing Date to and including the date of the making of the Restricted Payment in question, would exceed the sum of (A) $7,500,000 plus (B) 50% of ---- Consolidated Net Income for such period, computed on a cumulative basis for said entire period (or if such Consolidated Net Income is - -18- a deficit figure, then minus 100% of such deficit) plus (C) the aggregate net ----- ---- cash proceeds received by the Company from the issuance and sale of common stock during such period plus (D) the aggregate net cash proceeds received by the ---- Company from the sale or other disposition of any Restricted Investment during such period. (b) Notwithstanding the foregoing provisions of clause (a) of this (S)5.11, the Company may pay, for any fiscal year or portion thereof (a "Tax --- Year") in which the Company shall have been an "S corporation" under Section - ---- ------------- 1361 of the Code, dividends to the holders of common stock of the Company to enable such holders to make payments of Federal and state income taxes (including estimates therefor) which may become due and payable with respect to any Tax Year ("Tax Dividends"); provided, however, that the Tax Dividends for ------------- ----------------- such Tax Year shall not exceed the product of (1) the excess of (A) the sum of (i) the maximum Federal income tax rate applicable to individuals (determined without regard to phaseouts of rate brackets, personal exemptions or other items) plus (ii) the Adjusted State Income Tax Rate from time to time applicable to any holder of common stock of the Company with respect to its share of the Taxable Income (as defined below) of the Company over (B) the product of such Federal income tax rate and the Adjusted State Income Tax Rate and (2) the Company's Taxable Income for such Tax Year, provided, further, that Tax ----------------- Dividends shall be increased by an amount equal to the alternative minimum tax that would be imposed under Section 55 of the Code on shareholders of the Company with respect to those items of Taxable Income included in calculating and adjusting their alternative minimum taxable incomes, as defined and adjusted in Sections 55 and 56 of the Code. Tax Dividends for any succeeding Tax Year shall be reduced by the amount by which prior Tax Dividends made by the Company during any preceding Tax Year exceeded the amounts which would have been distributed based on the actual Taxable Income of the Company for such Tax Year or Years. Tax Dividends also shall be reduced by credits allowed or allowable to shareholders of the Company under Section 53 of the Code with respect to their shares of income of the Company. Further, Tax Dividends made to enable holders to pay estimated income taxes shall not exceed those amounts which the Company reasonably determines in good faith to be necessary to enable the holders to avoid the imposition of penalties in interest for the underpayment of estimated income taxes with respect to Taxable Income of the Company. - -19- As used herein, the term "Adjusted State Income Tax Rate" which shall be ------------------------------ applicable to the Tax Dividends of all holders of common stock, shall mean the highest effective rate of state income tax imposed on any holder of common stock of the Company with respect to its share of Taxable Income of the Company adjusted for state modifications to Taxable Income and for credits allowed against such taxes. For purposes of determining the Adjusted State Income Tax Rate, each holder of common stock of the Company shall be deemed to have no items of income, gain, loss, deduction or credit other than those taken into account in determining Taxable Income. As used herein, the term "Taxable Income" (or "Taxable Loss" if Taxable -------------- ------------ Income is a negative amount) shall mean the sum of all items of taxable income, gain, loss and deduction taken into account under Section 1366(a) of the Code, or any successor provision thereto, in determining Federal income tax liability of the holders of common stock of the Company, appropriately adjusted to take into account items taxed at rates lower than the maximum rate (e.g., capital ---- gains and losses) and tax credits permitted thereunder. Taxable Income shall also be reduced to the extent the Company has realized any Taxable Losses in Tax Years governed by this provision which have not previously been used to reduce Taxable Income. (c) The Company will not declare any dividend which constitutes a Restricted Payment payable more than 60 days after the date of declaration thereof. (d) For the purposes of this (S)5.11, the amount of any Restricted Payment declared, paid or distributed in property shall be deemed to be the greater of the book value or fair market value (as determined in good faith by the Board of Directors of the Company) of such property at the time of the making of the Restricted Payment in question. (e) The Company will not authorize or make a Restricted Payment permitted within the terms of (S)5.11(a) if after giving effect to the proposed Restricted Payment: (1) a Default or Event of Default would exist or (2) the Company could not incur at least $1.00 of additional Indebtedness pursuant to (S)(S)5.9(a)(3) and (4). - -20- Section 5.12. Mergers, Consolidations and Sales of Assets. (a) The --------------------------------------------------------- Company will not, and will not permit any Restricted Subsidiary to, consolidate with or be a party to a merger with any other Person, or sell, lease or otherwise dispose of all or substantially all of its assets; provided that: -------- (1) any Restricted Subsidiary may merge or consolidate with or into the Company or any Wholly-owned Restricted Subsidiary so long as in any merger or consolidation involving the Company, the Company shall be the surviving or continuing corporation; and (2) the Company may consolidate or merge with or into any other corporation if (i) the corporation which results from such consolidation or merger (the "surviving corporation") is organized under the laws of any state of the United States or the District of Columbia, (ii) the due and punctual payment of the principal of and premium, if any, and interest on all of the Notes, according to their tenor, and the due and punctual performance and observation of all of the covenants in the Notes and this Agreement to be performed or observed by the Company are expressly assumed in writing by the surviving corporation and the surviving corporation shall furnish to the holders of the Notes an opinion of counsel satisfactory to such holders to the effect that the instrument of assumption has been duly authorized, executed and delivered and constitutes the legal, valid and binding contract and agreement of the surviving corporation enforceable in accordance with its terms, except as enforcement of such terms may be limited by bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles, and (iii) at the time of such consolidation or merger and immediately after giving effect thereto, (A) no Default or Event of Default would exist and (B) the surviving corporation would be permitted by the provisions of (S)(S)5.9(a)(3) and (4) to incur at least $1.00 of additional Indebtedness. (b) The Company will not, and will not permit any Restricted Subsidiary to, sell, lease, transfer, abandon or otherwise dispose of assets (except assets sold in the ordinary course of business for fair market value) to any Person; provided that the foregoing restrictions do not apply to: - -------- - -21- (1) the sale, lease, transfer or other disposition of assets of a Restricted Subsidiary to the Company or a Wholly-owned Restricted Subsidiary; or (2) the sale of assets by the Company or a Restricted Subsidiary if all of the following conditions are met: (i) the sale of such property is for cash consideration which equals or exceeds the fair market value of the property so sold (as determined in good faith by the Board of Directors of the Company); (ii) such property is leased by the Company or Restricted Subsidiary, as lessee, within 180 days of the sale of such property; (iii) immediately after the consummation of the sale of such property and immediately after the consummation of the leaseback thereof by the Company or Restricted Subsidiary, as the case may be, and after giving effect thereto, (A) no Default or Event of Default would exist, and (B) the Company would be permitted by the provisions of (S)(S)5.9(a)(3) and (4) to incur at least $1.00 of additional Indebtedness; and (iv) the sale of such property and the leaseback thereof by the Company or a Restricted Subsidiary is otherwise consummated within the limitations of this Agreement; (3) the sale of assets for cash or other property to a Person or Persons (other than an Affiliate) if all of the following conditions are met: (i) such assets (valued at net book value) do not, together with all other assets of the Company and its Restricted Subsidiaries previously disposed of during the immediately preceding 12 calendar month period (other than in the ordinary course of business), exceed 10% of Consolidated Total Assets, - -22- determined as of the end of the immediately preceding fiscal year; (ii) in the opinion of a Responsible Officer of the Company, the sale is for fair value and is in the best interests of the Company; and (iii) immediately after the consummation of the transaction and after giving effect thereto, (A) no Default or Event of Default would exist, and (B) the Company would be permitted by the provisions of (S)(S)5.9(a)(3) and (4) to incur at least $1.00 of additional Indebtedness; provided, however, that for purposes of the foregoing calculation, there - ----------------- shall not be included any assets the proceeds of which were or are (y) immediately after the consummation of such sale invested in Investments of the character described in clauses (d), (e) and (f) of the definition of "Restricted Investments" contained in (S)8.1, and (z) applied within 180 days of the date of sale of such assets to either (A) the acquisition of fixed assets useful and intended to be used in the operation of the business of the Company and its Restricted Subsidiaries as described in (S)5.5 and having a fair market value (as determined in good faith by the Board of Directors of the Company) at least equal to that of the assets so disposed of or (B) the prepayment at any applicable prepayment premium, on a pro rata basis, of Senior Indebtedness of -------- the Company. It is understood and agreed by the Company that: (A) any holder of the Notes may decline any such offer of prepayment, (B) the failure of any such holder to accept or decline any such offer of prepayment shall be deemed to be an election by such holder to accept such prepayment, and (C) if such offer is so accepted, the proceeds so offered towards the prepayment of the Notes and accepted shall be prepaid as and to the extent provided in (S)2.1. In the event any holder of Senior Indebtedness of the Company declines any such offer of prepayment, the Company shall offer, on a pro rata basis, the proceeds -------- so declined to the holders of Senior Indebtedness of the Company accepting the offer of prepayment. - -23- Computations pursuant to this (S)5.12(b) shall include dispositions made pursuant to (S)5.12(c) and computations pursuant to (S)5.12(c) shall include dispositions made pursuant to this (S)5.12(b). (c) The Company will not, and will not permit any Restricted Subsidiary to, sell, pledge or otherwise dispose of any shares of the stock (including as "stock" for the purposes of this (S)5.12(c) any options or warrants to purchase stock or other Securities exchangeable for or convertible into stock) of a Restricted Subsidiary (said stock, options, warrants and other Securities herein called "Subsidiary Stock") or any Indebtedness of any Restricted Subsidiary, nor ---------------- will any Restricted Subsidiary issue, sell, pledge or otherwise dispose of any shares of its own Subsidiary Stock to any Person, provided that the foregoing -------- restrictions do not apply to: (1) the issue of directors' qualifying shares; or (2) the issue of Subsidiary Stock to the Company; or (3) the sale or other disposition at any one time to a Person (other than directly or indirectly to an Affiliate) of the entire Investment of the Company and its other Restricted Subsidiaries in any Restricted Subsidiary if all of the following conditions are met: (i) the assets (valued at net book value) of such Restricted Subsidiary do not, together with all other assets of the Company and its Restricted Subsidiaries previously disposed of during the immediately preceding 12 calendar month period (other than in the ordinary course of business), exceed 10% of Consolidated Total Assets, determined as of the end of the immediately preceding fiscal year; (ii) in the opinion of a Responsible Officer of the Company, the sale is for fair value and is in the best interests of the Company; (iii) immediately after the consummation of the transaction and after giving effect thereto, such Restricted Subsidiary shall have no Indebtedness of or continuing - -24- Investment in the capital stock of the Company or of any Restricted Subsidiary and any such Indebtedness or Investment shall have been discharged or acquired, as the case may be, by the Company or a Restricted Subsidiary; and (iv) immediately after the consummation of the transaction and after giving effect thereto, (A) no Default or Event of Default would exist, and (B) the Company would be permitted by the provisions of (S)(S)5.9(a)(3) and (4) to incur at least $1.00 of additional Indebtedness; provided, however, that for purposes of the foregoing calculation, there ----------------- shall not be included any assets the proceeds of which were or are (y) immediately after the consummation of such sale invested in Investments of the character described in clauses (d), (e) and (f) of the definition of "Restricted Investments" contained in (S)8.1, and (z) applied within 180 days of the date of sale of such assets to either (A) the acquisition of fixed assets useful and intended to be used in the operation of the business of the Company and its Restricted Subsidiaries as described in (S)5.5 and having a fair market value (as determined in good faith by the Board of Directors of the Company) at least equal to that of the assets so disposed of or (B) the prepayment at any applicable prepayment premium, on a pro rata basis, of Senior -------- Indebtedness of the Company. It is understood and agreed by the Company that: (A) any holder of the Notes may decline any such offer of prepayment, (B) the failure of any such holder to accept or decline any such offer of prepayment shall be deemed to be an election by such holder to accept such prepayment, and (C) if such offer is so accepted, the proceeds so offered towards the prepayment of the Notes and accepted shall be prepaid as and to the extent provided in (S)2.1. In the event any holder of Senior Indebtedness of the Company declines any such offer of prepayment, the Company shall offer, on a pro rata basis, the -------- proceeds so declined to the holders of Senior Indebtedness of the Company accepting the offer of prepayment. Computations pursuant to this (S)5.12(c) shall include dispositions made pursuant to (S)5.12(b) and computations pursuant to (S)5.12(b) shall include dispositions made pursuant to this (S)5.12(c). - -25- Section 5.13. Guaranties. The Company will not, and will not permit any ------------------------ Restricted Subsidiary to, become or be liable in respect of any Guaranty except Guaranties by the Company which are limited in amount to a stated maximum dollar exposure or which constitute Guaranties of obligations incurred by any Restricted Subsidiary in compliance with the provisions of this Agreement. Section 5.14. Repurchase of Notes. Except as provided in (S)2.1 and --------------------------------- (S)2.2, neither the Company nor any Subsidiary or Affiliate, directly or indirectly, may repurchase or make any offer to repurchase any Notes. Section 5.15. Transactions with Affiliates. The Company will not, and ------------------------------------------ will not permit any Restricted Subsidiary to, enter into or be a party to any transaction or arrangement with any Affiliate (including, without limitation, the purchase from, sale to or exchange of property with, or the rendering of any service by or for, any Affiliate), except in the ordinary course of and pursuant to the reasonable requirements of the Company's or such Restricted Subsidiary's business and upon fair and reasonable terms no less favorable to the Company or such Restricted Subsidiary than would obtain in a comparable arm's-length transaction with a Person other than an Affiliate. Section 5.16. Termination of Pension Plans. The Company will not and ------------------------------------------ will not permit any Subsidiary to withdraw from any Multiemployer Plan or permit any employee benefit plan maintained by it to be terminated if such withdrawal or termination could result in withdrawal liability (as described in Part 1 of Subtitle E of Title IV of ERISA) or the imposition of a Lien on any property of the Company or any Subsidiary pursuant to Section 4068 of ERISA. Section 5.17. Reports and Rights of Inspection. The Company will keep, ---------------------------------------------- and will cause each Restricted Subsidiary to keep, proper books of record and account in which full and correct entries will be made of all dealings or transactions of, or in relation to, the business and affairs of the Company or such Restricted Subsidiary, in accordance with GAAP consistently applied (except for changes disclosed in the financial statements furnished to you pursuant to this (S)5.17 and concurred in by the independent public accountants referred to in (S)5.17(b)), and will furnish to you so long as you are the holder of any Note and to each other Institutional Holder of the - -26- then outstanding Notes (in duplicate if so specified below or otherwise requested): (a) Quarterly Statements. As soon as available and in any event -------------------- within 45 days after the end of each quarterly fiscal period (including the last) of each fiscal year, copies of: (1) a consolidated balance sheet of the Company and its Restricted Subsidiaries as of the close of such quarterly fiscal period, setting forth in comparative form the consolidated figures for the fiscal year then most recently ended, (2) consolidated statements of income of the Company and its Restricted Subsidiaries for such quarterly fiscal period and for the portion of the fiscal year ending with such quarterly fiscal period, in each case setting forth in comparative form the consolidated figures for the corresponding periods of the preceding fiscal year, and (3) consolidated statements of income, shareholder's equity and cash flows of the Company and its Restricted Subsidiaries for the portion of the fiscal year ending with such quarterly fiscal period, setting forth in comparative form the consolidated figures for the corresponding period of the preceding fiscal year, all in reasonable detail and certified as complete and correct by an authorized financial officer of the Company; (b) Annual Statements. As soon as available and in any event within ----------------- 150 days after the close of each fiscal year of the Company, copies of: (1) a consolidated balance sheet of the Company and its Restricted Subsidiaries as of the close of such fiscal year, and - -27- (2) consolidated statements of income, shareholder's equity and cash flows of the Company and its Restricted Subsidiaries for such fiscal year, in each case setting forth in comparative form the consolidated figures for the preceding fiscal year, all in reasonable detail and accompanied by a report thereon of a firm of independent public accountants of recognized national standing selected by the Company to the effect that the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company and its Restricted Subsidiaries as of the end of the fiscal year being reported on and the consolidated results of the operations and cash flows for said year in conformity with GAAP and that the examination of such accountants in connection with such financial statements has been conducted in accordance with generally accepted auditing standards and included such tests of the accounting records and such other auditing procedures as said accountants deemed necessary in the circumstances; (c) Auditor's Reports. Promptly upon receipt thereof, one copy of each ----------------- interim or special audit made by independent accountants of the books of the Company or any Restricted Subsidiary and any management letter received from such accountants; (d) SEC and Other Reports. Promptly upon their becoming available and in --------------------- any event within 15 days following the date of filing thereof, one copy of each financial statement, report, notice or proxy statement sent by the Company to its creditors and stockholders generally and of each regular or periodic report, and any registration statement or prospectus filed by the Company or any Subsidiary with any securities exchange or the Securities and Exchange Commission or any successor agency, and copies of any orders in any proceedings to which the Company or any of its Subsidiaries is a party, issued by any governmental agency, Federal or state, having jurisdiction over the Company or any of its Subsidiaries; (e) ERISA Reports. Promptly upon the occurrence thereof, written notice ------------- of (1) a Reportable Event with respect to any Plan; (2) the institution of any steps by the Company, any ERISA Affiliate, - -28- the PBGC or any other Person to terminate any Plan; (3) the institution of any steps by the Company or any ERISA Affiliate to withdraw from any Plan; (4) a non-exempt "prohibited transaction" within the meaning of Section 406 of ERISA in connection with any Plan; (5) any material increase in the contingent liability of the Company or any Restricted Subsidiary with respect to any post- retirement welfare liability; or (6) the taking of any action by, or the threatening of the taking of any action by, the Internal Revenue Service, the Department of Labor or the PBGC with respect to any of the foregoing; (f) Officer's Certificates. Within the periods provided in paragraphs ---------------------- (a) and (b) above, a certificate of the chief financial officer of the Company stating that such officer has reviewed the provisions of this Agreement and setting forth: (1) the information and computations (in sufficient detail) required in order to establish whether the Company was in compliance with the requirements of (S)(S)5.6 through 5.12 at the end of the period covered by the financial statements then being furnished, and (2) whether there existed as of the date of such financial statements and whether, to the best of such officer's knowledge, there exists on the date of the certificate or existed at any time during the period covered by such financial statements any Default or Event of Default and, if any such condition or event exists on the date of the certificate, specifying the nature and period of existence thereof and the action the Company is taking and proposes to take with respect thereto; (g) Accountant's Certificates. Within the period provided in paragraph ------------------------- (b) above, a certificate of the accountants who render an opinion with respect to such financial statements, stating that they have reviewed this Agreement and stating further whether, in making their audit, such accountants have become aware of any Default or Event of Default under any of the terms or provisions of this Agreement insofar as any such terms or provisions pertain to or involve accounting matters or determinations, and if any such condition or event then exists, specifying the nature and period of existence thereof; and (h) Requested Information. With reasonable promptness, such other data --------------------- and information (other than information on a "by- --- - -29- store" basis) as you or any such Institutional Holder may reasonably ----- request. Without limiting the foregoing, the Company will permit you, so long as you are the holder of any Note, and each Institutional Holder of the then outstanding Notes (or such Persons as either you or such Institutional Holder may designate), to visit and inspect, under the Company's guidance, any of the properties of the Company or any Restricted Subsidiary, to examine all of their books of account, records, reports and other papers, to make copies and extracts therefrom and to discuss their respective affairs, finances and accounts with their respective officers, employees, and independent public accountants (and by this provision the Company authorizes said accountants to discuss with you the finances and affairs of the Company and its Restricted Subsidiaries), all at such reasonable times and as often as may be reasonably requested. Any visitation shall be at the sole expense of you or such Institutional Holder, unless a Default or Event of Default shall have occurred and be continuing or the holder of any Note or of any other evidence of Indebtedness of the Company or any Restricted Subsidiary gives any written notice or takes any other action with respect to a claimed default, in which case, any such visitation or inspection shall be at the sole expense of the Company. Section 5.18. Notes to Rank Pari Passu. The Company will keep and -------------------------------------- maintain the obligation of the Company with respect to the Notes and all other monetary obligations outstanding at any one time owing to the holders of the Notes under this Agreement as direct obligations of the Company ranking pari passu as against assets of the Company with all of the present and future secured Senior Indebtedness of the Company. Section 5.19. Completion of Lien Perfection. Not later than August 31, ------------------------------------------- 1995, the Company shall have caused to be completed and recorded or filed for record in such public office as may be deemed necessary or appropriate by the holders of the Notes or their special counsel the Security Document and/or financing statements or similar notices thereof if and to the extent permitted or required by applicable law in order to complete perfection of the Lien and security interests granted or conveyed by the Security Document. Without limiting the foregoing, the Company shall also, not later than October 15, 1995, have caused to be delivered to the holders of the Notes - -30- and their special counsel an opinion of counsel to the Company to the effect that the Security Document (or financing statements or similar notices thereof to the extent permitted or required by applicable law) has been filed for record or recorded in all public offices wherein such filing or recordation is necessary to perfect the security interest granted by the Security Document in the collateral therein described as against creditors of and purchasers from the Company and its Subsidiaries and the Security Document creates a valid and perfected security interest in such collateral effective as against creditors of and purchasers from the Company and its Subsidiaries, subject only to encumbrances expressly permitted by the terms of the Security Document. SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR. Section 6.1. Events of Default. Any one or more of the following shall ------------------------------ constitute an "Event of Default" as such term is used herein: ---------------- (a) Default shall occur in the payment of interest on any Note when the same shall have become due and such default shall continue for more than five Business Days; or (b) Default shall occur in the making of any other payment of the principal of any Note or premium, if any, thereon at the expressed or any accelerated maturity date or at any date fixed for prepayment; or (c) Default shall occur in the observance or performance of any covenant or agreement contained in (S)5.5 through (S)5.12 or (S)5.15; or (d) Default shall occur in the observance or performance of any other provision of this Agreement which is not remedied within 30 days after the earlier of (1) the day on which a Responsible Officer of the Company first obtains knowledge of such default, or (2) the day on which written notice thereof is given to the Company by the holder of any Note; or (e) Default shall be made in the payment when due (whether by lapse of time, by declaration, by call for redemption or otherwise) of the principal of or interest on any Indebtedness for borrowed money - -31- (other than the Notes) of the Company or any Restricted Subsidiary aggregating in excess of $5,000,000 and such default shall continue beyond the period of grace, if any, allowed with respect thereto; or (f) Default or the happening of any event shall occur under any indenture, agreement or other instrument under which any Indebtedness for borrowed money (other than the Notes) of the Company or any Restricted Subsidiary aggregating in excess of $5,000,000 may be issued and such default or event shall continue for a period of time sufficient to permit the acceleration of the maturity of any Indebtedness for borrowed money of the Company or any Restricted Subsidiary outstanding thereunder; or (g) Any representation or warranty made by the Company herein, or made by the Company in any statement or certificate furnished by the Company in connection with the consummation of the issuance and delivery of the Notes or furnished by the Company pursuant hereto, is untrue in any material respect as of the date of the issuance or making thereof; or (h) Final judgment or judgments for the payment of money aggregating in excess of $1,000,000 is or are outstanding against the Company or any Restricted Subsidiary or against any property or assets of either and any one of such judgments has remained unpaid, unvacated, unbonded or unstayed by appeal or otherwise for a period of 45 days from the date of its entry; or (i) An event of default (as such term is defined in the Security Document) or event which with the lapse of time or the giving of notice, or both, would constitute an event of default (as such term is defined in the Security Document) under the Security Document; or (j) The Security Document shall cease to be in full force and effect for any reason whatsoever, including, without limitation, a determination of any governmental body or court that the Security Document is invalid, void or unenforceable or the first and prior perfected security interests created pursuant thereto is not legal, valid and binding or the Company shall contest or deny in writing the - -32- validity or enforceability of any of its obligations under the Security Document; or (k) A custodian, liquidator, trustee or receiver is appointed for the Company or any Restricted Subsidiary or for the major part of the property of either and is not discharged within 60 days after such appointment; or (l) The Company or any Restricted Subsidiary becomes insolvent or bankrupt, is generally not paying its debts as they become due or makes an assignment for the benefit of creditors, or the Company or any Restricted Subsidiary applies for or consents to the appointment of a custodian, liquidator, trustee or receiver for the Company or such Restricted Subsidiary or for the major part of the property of either; or (m) Bankruptcy, reorganization, arrangement or insolvency proceedings, or other proceedings for relief under any bankruptcy or similar law or laws for the relief of debtors, are instituted by or against the Company or any Restricted Subsidiary and, if instituted against the Company or any Restricted Subsidiary, are consented to or are not dismissed within 60 days after such institution. Section 6.2. Notice to Holders and Collateral Agent. When any Event of --------------------------------------------------- Default described in the foregoing (S)6.1 has occurred, or if the holder of any Note or of any other evidence of Indebtedness for borrowed money of the Company gives any notice or a Responsible Officer of the Company becomes aware that any such holder has taken any other action with respect to a claimed default, the Company agrees to give notice within three Business Days of such event to all holders of the Notes then outstanding and to the Collateral Agent. Section 6.3. Acceleration of Maturities. When any Event of Default --------------------------------------- described in paragraph (a) or (b) of (S)6.1 has happened and is continuing, any holder of any Note may, by notice in writing sent to the Company in the manner provided in (S)9.6, declare the entire principal and all interest accrued on such Note to be, and such Note shall thereupon become forthwith due and payable, without any presentment, demand, protest or other notice of any - -33- kind, all of which are hereby expressly waived. When any Event of Default described in paragraphs (a) through (j), inclusive, of said (S)6.1 has happened and is continuing, the holder or holders of 25% or more of the principal amount of the Notes at the time outstanding may, by notice in writing to the Company in the manner provided in (S)9.6, declare the entire principal and all interest accrued on all Notes to be, and all Notes shall thereupon become, forthwith due and payable, without any presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived. When any Event of Default described in paragraph (k), (l) or (m) of (S)6.1 has occurred, then all outstanding Notes shall immediately become due and payable without presentment, demand or notice of any kind. Upon the Notes becoming due and payable as a result of any Event of Default as aforesaid, the Company will forthwith pay to the holders of the Notes the entire principal and interest accrued on the Notes and, to the extent not prohibited by applicable law, an amount as liquidated damages for the loss of the bargain evidenced hereby (and not as a penalty) equal to the Make-Whole Amount, determined as of the date on which the Notes shall so become due and payable. No course of dealing on the part of the holder or holders of any Notes nor any delay or failure on the part of any holder of Notes to exercise any right shall operate as a waiver of such right or otherwise prejudice such holder's rights, powers and remedies. The Company further agrees, to the extent permitted by law, to pay to the holder or holders of the Notes all costs and expenses incurred by them in the collection of any Notes upon any default hereunder or thereon, including reasonable compensation to such holder's or holders' attorneys for all services rendered in connection therewith. Section 6.4. Rescission of Acceleration. The provisions of (S)6.3 are --------------------------------------- subject to the condition that if the principal of and accrued interest on all or any outstanding Notes have been declared immediately due and payable by reason of the occurrence of any Event of Default described in paragraphs (a) through (j), inclusive, of (S)6.1, the holders of 76% in aggregate principal amount of the Notes then outstanding may, by written instrument filed with the Company, rescind and annul such declaration and the consequences thereof, provided that -------- at the time such declaration is annulled and rescinded: (a) no judgment or decree has been entered for the payment of any monies due pursuant to the Notes or this Agreement; - -34- (b) all arrears of interest upon all the Notes and all other sums payable under the Notes and under this Agreement (except any principal, interest or premium on the Notes which has become due and payable solely by reason of such declaration under (S)6.3) shall have been duly paid; and (c) each and every other Default and Event of Default shall have been made good, cured or waived pursuant to (S)7.1; and provided further, that no such rescission and annulment shall extend to ---------------- or affect any subsequent Default or Event of Default or impair any right consequent thereto. SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS. Section 7.1. Consent Required. Any term, covenant, agreement or ----------------------------- condition of this Agreement may, with the consent of the Company, be amended or compliance therewith may be waived (either generally or in a particular instance and either retroactively or prospectively), if the Company shall have obtained the consent in writing of the holders of at least 51% in aggregate principal amount of outstanding Notes; provided that without the written consent of the -------- holders of all of the Notes then outstanding, no such amendment or waiver shall be effective (a) which will change the time of payment of the principal of or the interest on any Note or change the principal amount thereof or change the rate of interest thereon, or (b) which will change any of the provisions with respect to optional prepayments, or (c) which will change the percentage of holders of the Notes required to consent to any such amendment or waiver of any of the provisions of this (S)7 or (S)6. Section 7.2. Solicitation of Holders. So long as there are any Notes ------------------------------------ outstanding, the Company will not solicit, request or negotiate for or with respect to any proposed waiver or amendment of any of the provisions of this Agreement or the Notes unless each holder of Notes (irrespective of the amount of Notes then owned by it) shall be informed thereof by the Company and shall be afforded the opportunity of considering the same and shall be supplied by the Company with sufficient information to enable it to make an informed decision with respect thereto. The Company will not, directly or indirectly, pay or cause to be paid any remuneration, whether by - -35- way of supplemental or additional interest, fee or otherwise, to any holder of Notes as consideration for or as an inducement to entering into by any holder of Notes of any proposed or actual waiver or amendment of any of the terms and provisions of this Agreement or the Notes or as compensation for internal fees charged, incurred or allocated by such holder, or otherwise, unless such remuneration is concurrently offered, on the same terms, ratably to the holders of all Notes then outstanding. Promptly and in any event within 30 days of the date of execution and delivery of any such waiver or amendment, the Company shall provide a true, correct and complete copy thereof to each of the holders of the Notes. Section 7.3. Effect of Amendment or Waiver. Any such amendment or waiver ------------------------------------------ shall apply equally to all of the holders of the Notes and shall be binding upon them, upon each future holder of any Note and upon the Company, whether or not such Note shall have been marked to indicate such amendment or waiver. No such amendment or waiver shall extend to or affect any obligation not expressly amended or waived or impair any right consequent thereon. SECTION 8. INTERPRETATION OF AGREEMENT; DEFINITIONS. Section 8.1. Definitions. Unless the context otherwise requires, the ------------------------ terms hereinafter set forth when used herein shall have the following meanings and the following definitions shall be equally applicable to both the singular and plural forms of any of the terms herein defined: "Acquiring Person" shall mean a "person" or "group of persons" within ---------------- ------ ---------------- the meaning of Section 13(d) and 14(d) of the Securities and Exchange Act of 1934, as amended; provided that notwithstanding the foregoing, "Acquiring -------- --------- Person" shall not be deemed to include any member of the Colburn Control Group, - ------ unless such member has, directly or indirectly, disposed of, sold or otherwise transferred to, or encumbered or restricted (whether by means of voting trust agreement or otherwise) for the benefit of, an Acquiring Person, all or any portion of the voting power of the Voting Stock of the Company directly or indirectly owned or controlled by such member or such member directly or indirectly acquiesces in, consents to or votes all or any portion of the voting power of the Voting Stock of the Company directly or indirectly owned or controlled by such member for the - -36- taking of any action which, directly or indirectly, constitutes or would result in a Change of Control, in which event such member of the Colburn Control Group shall be deemed to constitute an Acquiring Person to the extent of the voting power of the Voting Stock of the Company owned or controlled by such member. "Adjusted Consolidated Tangible Net Worth" shall mean the sum of (a) ---------------------------------------- Consolidated Tangible Net Worth plus (b) Subordinated Indebtedness of the ---- Company. "Adjusted State Income Tax Rate" shall have the meaning set forth in ------------------------------ (S)5.11(b). "Affiliate" shall mean any Person (other than a Restricted Subsidiary), --------- (a) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, the Company, (b) which beneficially owns or holds 5% or more of any class of the Voting Stock of the Company or (c) 5% or more of the Voting Stock (or in the case of a Person which is not a corporation, 5% or more of the equity interest) of which is beneficially owned or held by the Company or a Subsidiary. 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 Stock, by contract or otherwise. "Agreements" shall have the meaning set forth in (S)1.3. ---------- "Bank Agreement" shall mean that certain First Amended and Restated -------------- Credit Agreement between the Company and Bank of America National Trust and Savings Bank dated as of August 11, 1995. "Base Year" shall mean 1995. --------- "Book Value of Consolidated Total Assets" shall mean Consolidated Total --------------------------------------- Assets less interest bearing notes receivable from Affiliates to the Company or any of its Restricted Subsidiaries. - -37- "Business Day" shall mean any day other than a Saturday, Sunday or other ------------ day on which banks in Los Angeles, California or New York City, New York are required by law to close or are customarily closed. "Capitalized Lease" shall mean any lease the obligation for Rentals with ----------------- respect to which is required to be capitalized on a consolidated balance sheet of the lessee and its subsidiaries in accordance with GAAP. "Capitalized Rentals" of any Person shall mean as of the date of any ------------------- determination thereof the amount at which the aggregate Rentals due and to become due under all Capitalized Leases under which such Person is a lessee would be reflected as a liability on a consolidated balance sheet of such Person. "Change of Control" shall mean the earliest to occur of (a) the date of ----------------- a merger between the Company and an Acquiring Person, or the date of a consolidation of the Company with an Acquiring Person or the date of an acquisition of an Acquiring Person by the Company or the acquisition of the Company by an Acquiring Person (whether such acquisition is pursuant to the purchase of all or substantially all of the assets of such Acquiring Person or the purchase of stock of such Acquiring Person or any other transaction involving the sale or other disposition of assets or stock), if immediately after any such event, the Colburn Control Group would own or control less than 51% of the voting power of the outstanding Voting Stock of the Company or of the surviving, resulting or continuing corporation if the Company shall not be the surviving entity; (b) the date of execution of a binding agreement by an Acquiring Person for the purchase, directly or indirectly, in one or more related transactions, of voting power of the outstanding Voting Stock of the Company, such that after giving effect thereto, the Colburn Control Group would legally or beneficially own or control less than 51% of the voting power of the outstanding Voting Stock of the Company, (c) the date of commencement of a tender offer or exchange offer that would result in an Acquiring Person legally or beneficially owning or controlling the voting power of the outstanding Voting Stock of the Company, such that after giving effect thereto, the Colburn Control Group would legally or beneficially own or control less than 51% of the voting power of the outstanding Voting Stock of the Company, (d) the date of a public announcement that an Acquiring Person has acquired or has obtained the right to acquire legal or beneficial - -38- ownership of more than 50% of the voting power of the outstanding Voting Stock of the Company, and (e) the date the Voting Stock of the Company is the subject of a Public Offering and immediately after such event, the Colburn Control Group legally or beneficially owns or controls less than 51% of the voting power of the outstanding Voting Stock of the Company. "Change of Control Delayed Prepayment Date" shall have the meaning set ----------------------------------------- forth in (S)2.2(b). "Change of Control Prepayment Date" shall have the meaning set forth in --------------------------------- (S)2.2(a). "Closing Date" shall have the meaning set forth in (S)1.2. ------------ "Code" shall mean the Internal Revenue Code of 1986, as amended, and the ---- regulations from time to time promulgated thereunder. "Colburn Control Group" shall mean, collectively: (a) Richard D. --------------------- Colburn, (b) the lineal descendants of Richard D. Colburn, (c) the estate of one or more of the Persons named in clause (a) or (b) above, and (d) each trust in respect of which one or more of the Persons described in clauses (a), (b) or (c) above (1) are the principal beneficiaries and (2) constitute majority of the trustees with voting power over such trust. "Colburn School of Performing Arts Notes" shall mean, collectively (a) --------------------------------------- that certain Subordinated Promissory Note of the Company dated December 28, 1993, due December 31, 2013, payable to Richard D. Colburn, in the principal amount of $10,000,000 with respect to which all right, title and interest has been assigned by Richard D. Colburn to The Colburn School of Performing Arts and (b) that certain Subordinated Promissory Note of the Company dated December 30, 1993, due December 31, 2014, payable to Richard D. Colburn, in the principal amount of $10,000,000 with respect to which all right, title and interest has been assigned by Richard D. Colburn to The Colburn School of Performing Arts, in each case, as in effect on the Closing Date, together with those certain Subordination Provisions Applicable to Subordinated Indebtedness executed by The Colburn School on August 17, 1995 pursuant to which the obligations of the Company under - -39- such Subordinated Promissory Notes have been subordinated to the Company's obligations under the Notes. "Collateral" shall mean all collateral under the Security Document. ---------- "Collateral Agent" shall mean Bank of America National Trust and Savings ---------------- Association. "Company" shall mean U.S. Rentals, Inc., a California corporation, and ------- any Person who succeeds to all, or substantially all, of the assets and business of U.S. Rentals, Inc. "Company Notice" shall have the meaning set forth in (S)2.2. -------------- "Competitor" shall mean any Person which is primarily engaged in the ---------- manufacture, distribution, rental or leasing of construction equipment and "Competitor Affiliate" shall mean with respect to any Competitor (a) any other -------------------- Person at the time directly or indirectly controlling, controlled by or under direct or indirect common control with such Competitor, (b) any other Person of which such Competitor at the time owns 25% or more on a consolidated basis of the equity interest of such Person, and (c) any other Person which at the time owns 25% or more of any class of the capital stock of such Competitor, provided -------- that: (a) the provision of investment advisory services by a Person to a Plan which is owned or controlled by a Person which would otherwise be a Competitor or Competitor Affiliate shall not of itself cause the Person providing such services to be deemed to be a Competitor or Competitor Affiliate; (b) in no event shall an Institutional Holder be deemed a Competitor or Competitor Affiliate unless such Institutional Holder controls, or is controlled by, or is under common control with, a Person which is primarily engaged in the manufacture, distribution, rental or leasing of construction equipment; and (c) an Institutional Holder which would otherwise be deemed a Competitor or Competitor Affiliate pursuant to the foregoing - -40- provisions of this definition by virtue of its ownership or control as a portfolio investment of the equity Securities of any Person primarily engaged in the manufacture, distribution, rental or leasing of construction equipment shall not be deemed a Competitor or Competitor Affiliate if such Institutional Holder has established "firewall" like- -------- procedures which will prevent confidential information supplied to such Institutional Holder by the Company from being transmitted or otherwise made available to such Person. "Consolidated Fixed Charges" for any period shall mean on a consolidated -------------------------- basis the sum of (a) all Rentals (other than Rentals on Capitalized Leases) payable during such period by the Company and its Restricted Subsidiaries pursuant to Long-Term Leases, and (b) all Interest Expense on all Indebtedness (including the interest component of Rentals on Capitalized Leases) of the Company and its Restricted Subsidiaries payable during such period. "Consolidated Net Income" for any period shall mean the gross revenues ----------------------- of the Company and its Restricted Subsidiaries for such period less all expenses ---- and other proper charges (including taxes on income, whether payable by the Company or its shareholders), determined on a consolidated basis after eliminating earnings or losses attributable to outstanding Minority Interests, but excluding in any event: (a) any gains or losses on the sale or other disposition of Investments or fixed or capital assets, and any taxes on such excluded gains and any tax deductions or credits on account of any such excluded losses; (b) the proceeds of any life insurance policy; (c) net earnings and losses of any Restricted Subsidiary accrued prior to the date it became a Restricted Subsidiary; (d) net earnings and losses of any corporation (other than a Restricted Subsidiary), substantially all the assets of which have been acquired in any manner by the Company or any Restricted Subsidiary, realized by such corporation prior to the date of such acquisition; - -41- (e) net earnings and losses of any corporation (other than a Restricted Subsidiary) with which the Company or a Restricted Subsidiary shall have consolidated or which shall have merged into or with the Company or a Restricted Subsidiary prior to the date of such consolidation or merger; (f) net earnings of any business entity (other than a Restricted Subsidiary) in which the Company or any Restricted Subsidiary has an ownership interest unless such net earnings shall have actually been received by the Company or such Restricted Subsidiary in the form of cash distributions; (g) any portion of the net earnings of any Restricted Subsidiary which for any reason is unavailable for payment of dividends to the Company or any other Restricted Subsidiary; (h) earnings resulting from any reappraisal, revaluation or write-up of assets; (i) any deferred or other credit representing any excess of the equity in any Subsidiary at the date of acquisition thereof over the amount invested in such Subsidiary; (j) any gain arising from the acquisition of any Securities of the Company or any Restricted Subsidiary; (k) any reversal of any contingency reserve, except to the extent that provision for such contingency reserve shall have been made from income arising during such period; and (l) any other extraordinary gain or loss. "Consolidated Net Income Available for Fixed Charges" for any period --------------------------------------------------- shall mean the sum of (a) Consolidated Net Income during such period plus (to ---- the extent deducted in determining Consolidated Net Income), (b) all provisions for any Federal, state or other income taxes made by the Company and its Restricted Subsidiaries during such period and (c) Consolidated Fixed Charges during such period. - -42- "Consolidated Secured Indebtedness" shall mean all Indebtedness of the --------------------------------- Company and its Restricted Subsidiaries which is secured by a mortgage, trust deed, deed of trust, deed to secure debt, security agreement, pledge, conditional sale or other title retention agreement or other like agreement granting or conveying a Lien upon property, whether real, personal or mixed, of the Company or any of its Restricted Subsidiaries. "Consolidated Tangible Net Worth" shall mean as of the date of any ------------------------------- determination thereof, the arithmetic sum of: (a) the amount of the capital stock accounts (net of treasury stock, at cost) plus (or minus in the case of deficit) the surplus and retained ---- ----- earnings of the Company and its Restricted Subsidiaries, MINUS ----- (b) the net book value, after deducting any reserves applicable thereto, of all items of the following character which are included in the assets of the Company and its Restricted Subsidiaries, to wit: (1) the incremental increase in an asset resulting from any reappraisal, revaluation or write-up of assets, provided that the -------- incremental increase of any such reappraisal, revaluation or write- up of assets need not be deducted in any computation of "Consolidated Tangible Net Worth" if the Company's independent ------------------------------- public accountants shall have concurred in such reappraisal, revaluation or write-up; (2) goodwill, patents, patent applications, permits, trademarks, trade names, copyrights, licenses, franchises, experimental expense, organizational expense, unamortized debt discount and expense, the excess of cost of shares acquired over book value of related assets and such other assets as are properly classified as "intangible ---------- assets" in accordance with GAAP, in any such case acquired after the ------ Closing Date; and (3) Restricted Investments made following the Closing Date; - -43- all determined in accordance with GAAP. "Consolidated Total Assets" shall mean as of the date of any ------------------------- determination thereof total assets of the Company and its Restricted Subsidiaries determined on a consolidated basis in accordance with GAAP. "CPI" shall mean the Consumer Price Index--U.S. City Average (1982-84 = --- 100) for All Items for All Urban Consumers as published by the Bureau of Labor Statistics, provided that in the event the CPI shall hereafter be converted to a -------- different standard reference base or otherwise revised, the determination of the CPI Percentage Increase shall be made with the use of such conversion factor, formula or table for converting the CPI as may be published by the Bureau of Labor Statistics or, if said Bureau shall not publish the same, then with the use of such conversion factor, formula or table as may be published by Prentiss Hall, Inc. or failing such publication by any other nationally recognized publisher of similar statistical information. "CPI Percentage Increase" shall mean the amount obtained by multiplying ----------------------- the percentage equal to the sum of the increases in the CPI from and including the Base Year times the aggregate net book value of Investments within the limitations of clause (c) of the definition of "Restricted Investments" contained in this (S)8.1. "Default" shall mean any event or condition the occurrence of which ------- would, with the lapse of time or the giving of notice, or both, constitute an Event of Default. "Designated Member of the European Community" shall mean any one of the ------------------------------------------- following jurisdictions: Belgium, Denmark, France, Germany, Luxembourg, The Netherlands, Switzerland and the United Kingdom. "Environmental Law" shall mean any international, federal, state or ----------------- local statute, law, regulation, order, consent decree, judgment, permit, license, code, covenant, deed restriction, common law, treaty, convention, ordinance or other requirement relating to public health, safety or the environment, including, without limitation, those relating to releases, discharges or emissions to air, water, land or groundwater, to the withdrawal or use of groundwater, to the use and handling of polychlorinated biphenyls or - -44- asbestos, to the disposal, treatment, storage or management of hazardous or solid waste, or Hazardous Substances or crude oil, or any fraction thereof, or to exposure to toxic or hazardous materials, to the handling, transportation, discharge or release of gaseous or liquid Hazardous Substances and any regulation, order, notice or demand issued pursuant to such law, statute or ordinance, in each case applicable to the property of the Company and its Subsidiaries or the operation, construction or modification of any thereof, including without limitation, the following: the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, the Solid Waste Disposal as amended by the Resource Conservation and Recovery Act of 1976 and the Hazardous and Solid Waste Amendments of 1984, the Hazardous Materials Transportation Act, as amended, the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1976, the Safe Drinking Water Control Act, the Clean Air Act of 1966, as amended, the Toxic Substances Control Act of 1976, the Emergency Planning and Community Right-to-Know Act of 1986, the National Environmental Policy Act of 1975, the Oil Pollution Act of 1990 and any similar or implementing state law, and any state statute and any further amendments to these laws providing for financial responsibility for cleanup or other actions with respect to the release or threatened release of Hazardous Substances or crude oil, or any fraction thereof, and all rules, regulations, guidance documents and publications promulgated thereunder. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, ----- as amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA shall be construed to also refer to any successor sections. "ERISA Affiliate" shall mean any corporation, trade or business that is, --------------- along with the Company, a member of a controlled group of corporations or a controlled group of trades or businesses, as described in section 414(b) and 414(c), respectively, of the Code or Section 4001 of ERISA. "Event of Default" shall have the meaning set forth in (S)6.1. ---------------- - -45- "GAAP" shall mean generally accepted accounting principles at the time. ---- "Guaranties" by any Person shall mean all obligations (other than ---------- endorsements in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing, or in effect guaranteeing, any Indebtedness, dividend or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, --------------- without limitation, all obligations incurred through an agreement, contingent or otherwise, by such Person: (a) to purchase such Indebtedness or obligation or any property or assets constituting security therefor, (b) to advance or supply funds (1) for the purchase or payment of such Indebtedness or obligation, or (2) to maintain working capital or any balance sheet or income statement condition or otherwise to advance or make available funds for the purchase or payment of such Indebtedness or obligation, (c) to lease property or to purchase Securities or other property or services primarily for the purpose of assuring the owner of such Indebtedness or obligation of the ability of the primary obligor to make payment of the Indebtedness or obligation, or (d) otherwise to assure the owner of the Indebtedness or obligation of the primary obligor against loss in respect thereof. For the purposes of all computations made under this Agreement, a Guaranty in respect of any Indebtedness for borrowed money shall be deemed to be Indebtedness equal to the principal amount of such Indebtedness for borrowed money which has been guaranteed, and a Guaranty in respect of any other obligation or liability or any dividend shall be deemed to be Indebtedness equal to the maximum aggregate amount of such obligation, liability or dividend. "Hazardous Substance" shall mean any hazardous or toxic material, ------------------- substance or waste, pollutant or contaminant which is regulated under any statute, law, ordinance, rule or regulation of any local, state, regional or federal authority having jurisdiction over the property of the Company and its Subsidiaries or its use, including but not limited to any material, substance or waste which is: (a) defined as a hazardous substance under Section 311 of the Federal Water Pollution Control Act (33 U.S.C. (S)1317), as amended; (b) regulated as a hazardous waste under Section 1004 or Section 3001 of the Federal Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act (42 U.S.C. (S)6901 et seq.), as amended; (c) defined as a ------ - -46- hazardous substance under Section 101 of the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. (S)9601 et seq.), as ------ amended; or (d) defined or regulated as a hazardous substance or hazardous waste under any rules or regulations promulgated under any of the foregoing statutes. "Indebtedness" of any Person shall mean and include all obligations of ------------ such Person which in accordance with GAAP shall be classified upon a balance sheet of such Person as liabilities of such Person, and in any event shall include all (a) obligations of such Person for borrowed money or which have been incurred in connection with the acquisition of property or assets, (b) obligations secured by any Lien upon property or assets owned by such Person, even though such Person has not assumed or become liable for the payment of such obligations, (c) obligations created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person, notwithstanding the fact that the rights and remedies of the seller, lender or lessor under such agreement in the event of default are limited to repossession or sale of property, (d) Capitalized Rentals (e) Guaranties of obligations of others of the character referred to in this definition, and (f) obligations of such Person in respect of mandatorily redeemable Preferred Stock. "Institutional Holder" shall mean any of the following Persons: (a) any -------------------- bank, savings and loan association, savings institution, trust company or national banking association, acting for its own account or in a fiduciary capacity, (b) any charitable foundation, (c) any insurance company, (d) any fraternal benefit society, (e) any pension, retirement or profit-sharing trust or fund within the meaning of Title I of ERISA or for which any bank, trust company, national banking association or investment adviser registered under the Investment Advisers Act of 1940, as amended, is acting as trustee or agent, (f) any investment company or business development company, as defined in the Investment Company Act of 1940, as amended, (g) any small business investment company licensed under the Small Business Investment Act of 1958, as amended, (h) any broker or dealer registered under the Securities Exchange Act of 1934, as amended, or any investment adviser registered under the Investment Advisers Act of 1940, as amended, (i) any government, any public employees' pension or retirement system, or any other government agency supervising the investment of public funds, (j) any - -47- other entity all of the equity owners of which are Institutional Holders or (k) any other Person which may be within the definition of "qualified institutional buyer" as such term is used in Rule 144A, as from time to time in effect, promulgated under the Securities Act of 1933, as amended. "Intercreditor Agreement" shall have the meaning set forth in (S)1.4. ----------------------- "Interest Expense" of the Company and its Restricted Subsidiaries for ---------------- any period shall mean all interest and all amortization of debt discount and expense on any particular Indebtedness (including, without limitation, payment- in-kind, zero coupon and other like Securities) for which such calculations are being made. "Investments" shall mean all investments, in cash or by delivery of ----------- property, made directly or indirectly in any property or assets or in any Person, whether by acquisition of shares of capital stock, Indebtedness or other obligations or Securities or by loan, advance, capital contribution or otherwise. "Lien" shall mean any interest in property securing an obligation owed ---- to, or a claim by, a Person other than the owner of the property, whether such interest is based on the common law, statute or contract, and including but not limited to the security interest lien arising from a mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term "Lien" shall include reservations, exceptions, ---- encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances (including, with respect to stock, stockholder agreements, voting trust agreements, buy-back agreements and all similar arrangements) affecting property. For the purposes of this Agreement, the Company or a Subsidiary shall be deemed to be the owner of any property which it has acquired or holds subject to a conditional sale agreement, Capitalized Lease or other arrangement pursuant to which title to the property has been retained by or vested in some other Person for security purposes and such retention or vesting shall constitute a Lien. "Long-Term Lease" shall mean any lease of real or personal property --------------- (other than a Capitalized Lease) having an original term, including any period - -48- for which the lease may be renewed or extended at the option of the lessor, of more than one year. "Make-Whole Amount" shall mean in connection with any prepayment or ----------------- acceleration of the Notes the excess, if any, of (a) the aggregate present value as of the date of such prepayment or payment of each dollar of principal being prepaid or paid and the amount of interest (exclusive of interest accrued to the date of prepayment or payment) that would have been payable in respect of such dollar if such prepayment or payment had not been made, determined by discounting such amounts at the Reinvestment Rate from the respective dates on which they would have been payable, over (b) 100% of the principal amount of the outstanding Notes being prepaid or paid. If the Reinvestment Rate (i) in the case of the Series A Notes is equal to or higher than 6.82% per annum, (ii) in the case of the Series B Notes is equal to or higher than 6.89% per annum, (iii) in the case of the Series C Notes is equal to or higher than 7.04% per annum or (iv) in the case of the Series D Notes is equal to or higher than 7.13% per annum, then the Make-Whole Amount shall be zero. For purposes of any determination of the Make-Whole Amount: "Reinvestment Rate" shall mean (1) the sum of 0.50%, plus the yield ----------------- ---- reported on page "USD" of the Bloomberg Financial Markets Services Screen (or, if not available, any other nationally recognized trading screen reporting on-line intraday trading in the United States government Securities) at 11:00 A.M. (New York City, New York time) for the United States government Securities having a maturity (rounded to the nearest month) corresponding with the maturity date of the principal of the Notes of the series being prepaid or paid or (2) in the event that no nationally recognized trading screen reporting on-line intraday trading in the United States government Securities is available, Reinvestment Rate shall mean the sum of 0.50%, plus the arithmetic mean ---- of the yields for the two columns under the heading "Week Ending" ----------- published in the Statistical Release under the caption "Treasury -------- Constant Maturities" for the maturity (rounded to the nearest month) ------------------- corresponding to the maturity date of the principal of the Notes of the series being prepaid or paid. If no published maturity exactly corresponds to the maturity date of the principal of the Notes of the series being prepaid or paid, yields for the two published maturities - -49- most closely corresponding to such Weighted Average Life to Maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For the purposes of calculating the "Reinvestment Rate", the most recent Statistical Release published prior ----------------- to the date of determination of the Make-Whole Amount shall be used. "Statistical Release" shall mean the then most recently published ------------------- statistical release designated "H.15(519)" or any successor publication --------- which is published weekly by the Federal Reserve System and which establishes yields on actively traded U.S. Government Securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination hereunder, then such other reasonably comparable index which shall be designated by the holders of 66-2/3% in aggregate principal amount of the outstanding Notes. "Material" shall mean in relation to the business, operations, affairs, -------- financial condition, assets, properties or prospects of the Company and its Restricted Subsidiaries taken as a whole. "Material Adverse Effect" shall mean a material adverse effect on (a) ----------------------- the business, operations, affairs, financial condition, assets or properties of the Company and its Restricted Subsidiaries taken as a whole, or (b) the ability of the Company to perform its obligations under this Agreement, the Notes and the Security Document, or (c) the validity or enforceability of this Agreement, the Notes or the Security Document. "Minority Interests" shall mean any shares of stock of any class of a ------------------ Restricted Subsidiary (other than directors' qualifying shares as required by law) that are not owned by the Company and/or one or more of its Wholly-owned Restricted Subsidiaries. Minority Interests shall be valued by valuing Minority Interests constituting preferred stock at the voluntary or involuntary liquidating value of such preferred stock, whichever is greater, and by valuing Minority Interests constituting common stock at the book value of capital and surplus applicable thereto adjusted, if necessary, to reflect any changes from - -50- the book value of such common stock required by the foregoing method of valuing Minority Interests in preferred stock. "Multiemployer Plan" shall have the same meaning as in ERISA. ------------------ "Noteholder Notice" shall have the meaning set forth in (S)2.2(a). ----------------- "Notes" shall have the meaning set forth in (S)1.1. ----- "Overdue Rate" shall mean the lesser of (a) the maximum interest rate ------------ permitted by law and (b) 8.82% per annum in the case of the Series A Notes, 8.89% per annum in the case of the Series B Notes, 9.04% per annum in the case of the Series C Notes and 9.13% per annum in the case of the Series D Notes. "PBGC" shall mean the Pension Benefit Guaranty Corporation and any ---- entity succeeding to any or all of its functions under ERISA. "Person" shall mean an individual, partnership, limited liability ------ company, corporation, trust or unincorporated organization, and a government or agency or political subdivision thereof. "Plan" shall mean a "pension plan," as such term is defined in ERISA, ---- established or maintained by the Company or any ERISA Affiliate or as to which the Company or any ERISA Affiliate contributed or is a member or otherwise may have any liability. "Preferred Stock" shall mean in respect of any corporation, shares of --------------- the capital stock of such corporation which are entitled to (a) preference or priority over any other shares of the capital stock of such corporation in respect of payment of dividends or (b) distribution of assets upon liquidation, or both. "Public Offering" shall mean any offer or sale of any of the Voting --------------- Stock of the Company for which registration is required pursuant to Section 5 of the Securities Act of 1933, as amended, or any successor provision thereto. "Purchasers" shall have the meaning set forth in (S)1.1. ---------- - -51- "Rentals" shall mean and include as of the date of any determination ------- thereof all fixed payments (including as such all payments which the lessee is obligated to make to the lessor on termination of the lease or surrender of the property) payable by the Company or a Restricted Subsidiary, as lessee or sublessee under a lease of real or personal property, but shall be exclusive of any amounts required to be paid by the Company or a Restricted Subsidiary (whether or not designated as rents or additional rents) on account of maintenance, repairs, insurance, taxes and similar charges. Fixed rents under any so-called "percentage leases" shall be computed solely on the basis of the ----------------- minimum rents, if any, required to be paid by the lessee regardless of sales volume or gross revenues. "Reportable Event" shall have the same meaning as defined in ERISA. ---------------- "Responsible Officer" shall mean the Chairman of the Board, the Chief ------------------- Executive Officer or the Chief Financial Officer of the Company. "Restricted Investments" shall mean all Investments, other than: ---------------------- (a) Investments by the Company and its Restricted Subsidiaries in and to Restricted Subsidiaries, including any Investment in a corporation which, after giving effect to such Investment, will become a Restricted Subsidiary; (b) Investments in property or assets to be used in the ordinary course of the business of the Company and its Restricted Subsidiaries as described in (S)5.5 of this Agreement; (c) Investments of the Company existing as of the Closing Date and described on Schedule II hereto, including, without limitation, notes receivable from Affiliates existing on the Closing Date, plus, with ---- respect to notes receivable from Affiliates only, the CPI Percentage Increase; (d) Investments in commercial paper of corporations organized under the laws of the United States or any state thereof maturing in 270 days or less from the date of issuance which, at the - -52- time of acquisition by the Company or any Restricted Subsidiary, is accorded a rating of "A-2" or better by Standard & Poor's Ratings Group --- or "P-2" by Moody's Investors Service, Inc.; --- (e) Investments in direct obligations of the United States of America or any agency or instrumentality of the United States of America, the payment or guarantee in full of which constitutes a full faith and credit obligation of the United States of America, in either case, maturing within three years from the date of acquisition thereof; (f) Investments in certificates of deposit and banker's acceptances maturing within one year from the date of issuance thereof, either (1) issued by a bank or trust company organized under the laws of the United States or any State thereof, having capital, surplus and undivided profits aggregating at least $100,000,000, provided that at the time of -------- acquisition thereof by the Company or a Restricted Subsidiary, the senior unsecured long-term debt of such bank or trust company or of the holding company of such bank or trust company is rated "AA" or better by Standard & Poor's Ratings Group or "Aa" or better by Moody's Investors Service, Inc. or (2) issued by any bank or trust company organized under the laws of the United States or any state thereof to the extent that such Investments are fully insured by the Federal Depository Insurance Corporation; (g) Investments in repurchase agreements maturing in 90 days or less from the date of issuance with respect to any Security described in clause (e) of this definition entered into with a depository institution or trust company acting as principal described in clause (f)(1) of this definition if such repurchase agreements are by their terms to be performed by the repurchase obligor and such repurchase agreements are deposited with a bank or trust company of the type described in clause (f)(1) of this definition; (h) Investments in any money market fund which is classified as a current asset in accordance with GAAP, the aggregate asset value of which "marked to market" is at least $500,000,000 and which is managed ---------------- by a fund manager of recognized national standing, and - -53- which invests substantially all of its assets in obligations described in clauses (d) through (f) above; and (i) Investments in readily-marketable obligations of indebtedness of any State of the United States or any municipality organized under the laws of any State of the United States or any political subdivision thereof which, at the time of acquisition by the Company or any Subsidiary, are accorded either of the two highest ratings by Standard & Poor's Ratings Group or Moody's Investors Service, Inc. or another nationally recognized credit rating agency of similar standard, which in any such case mature no later than three years after the date of acquisition thereof; In valuing any Investments for the purpose of applying the applicable limitations contained in this Agreement, such Investments shall be taken at the original cost thereof, without allowance for any subsequent write-offs or appreciation or depreciation therein, but less any amount repaid or recovered in cash on account of capital or principal. "Restricted Subsidiary" shall mean any Subsidiary (a) which is organized --------------------- under the laws of the United States or any State thereof, Canada or any Province thereof, any Designated Member of the European Community or Mexico; (b) which conducts substantially all of its business and has substantially all of its assets within the United States, Canada, any Member of the European Community or Mexico; (c) of which more than 80% (by number of votes) of the Voting Stock is beneficially owned, directly or indirectly, by the Company; and (d) is designated as a Restricted Subsidiary on Schedule II attached hereto or is designated as such in writing by the Company to each of the holders of the Notes, provided, however, that no Unrestricted Subsidiary may be designated as ----------------- a Restricted Subsidiary and no Restricted Subsidiary may be designated as an Unrestricted Subsidiary if, at the time of such action and after giving effect thereto: (i) the Company would not be permitted by the provisions of (S)5.9(a)(3) or (4) to incur at least $1.00 of additional Indebtedness, or (ii) a Default or Event of Default would exist, and provided, further, that no ----------------- Unrestricted Subsidiary shall at any time after the Closing Date be designated a Restricted Subsidiary if such Unrestricted Subsidiary shall have twice been previously designated a Restricted Subsidiary, and no Restricted Subsidiary shall at any time after the Closing - -54- Date be designated as an Unrestricted Subsidiary if such Restricted Subsidiary shall have twice been previously designated as an Unrestricted Subsidiary. "Security" shall have the same meaning as in Section 2(1) of the -------- Securities Act of 1933, as amended. "Security Document" shall have the meaning set forth in (S)1.4. ----------------- "Senior Indebtedness" shall mean all Indebtedness of the Company, other ------------------- than Subordinated Indebtedness of the Company. "Series A Notes" shall have the meaning set forth in (S)1.1. -------------- "Series B Notes" shall have the meaning set forth in (S)1.1. -------------- "Series C Notes" shall have the meaning set forth in (S)1.1. -------------- "Series D Notes" shall have the meaning set forth in (S)1.1. -------------- "Subordinated Indebtedness" shall mean (a) the Colburn School of ------------------------- Performing Arts Notes and (b) all other Indebtedness of the Company which (i) has, when issued, a weighted average life to maturity greater than the remaining weighted average life to maturity of the Notes, (ii) provides by its terms that payments or repayments may only be made pursuant to and within the limitations of the terms of (S)5.11 of this Agreement, and (iii) is at all times evidenced by a written instrument or instruments containing subordination provisions substantially in the form set forth in Exhibit E attached hereto providing for the subordination thereof to other Indebtedness of the Company, including, without limitation, the Notes, or such other provisions as may be approved in writing by the holders of at least 66-2/3% of the outstanding principal amount of the Notes. The term "subsidiary" shall mean as to any particular parent corporation ---------- any corporation of which more than 50% (by number of votes) of the Voting Stock shall be beneficially owned, directly or indirectly, by such parent corporation. The term "Subsidiary" shall mean a subsidiary of the Company. ---------- - -55- "Tax Dividend" shall have the meaning set forth in (S)5.11(b). ------------ "Tax Year" shall have the meaning set forth in (S)5.11(b). -------- "Taxable Income" shall have the meaning set forth in (S)5.11(b). -------------- "Unrestricted Subsidiary" shall mean any Subsidiary which is not ----------------------- designated as a Restricted Subsidiary in Schedule II attached hereto or in accordance with the definition of "Restricted Subsidiary". --------------------- "Voting Stock" shall mean Securities of any class or classes, the ------------ holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions). "Wholly-owned" when used in connection with any Subsidiary shall mean a ------------ Subsidiary of which all of the issued and outstanding shares of stock (except shares required as directors' qualifying shares) and all Indebtedness for borrowed money shall be owned by the Company and/or one or more of its Wholly-owned Subsidiaries. Section 8.2. Accounting Principles. Where the character or amount of any ---------------------------------- asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, the same shall be done in accordance with GAAP, to the extent applicable, except where such principles are inconsistent with the requirements of this Agreement. Section 8.3. Directly or Indirectly. Where any provision in this ----------------------------------- Agreement refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether the action in question is taken directly or indirectly by such Person. SECTION 9. MISCELLANEOUS. Section 9.1. Registered Notes. The Company shall cause to be kept at its ----------------------------- principal office a register for the registration and transfer of the Notes, and the Company will register or transfer or cause to be registered or - -56- transferred, as hereinafter provided, any Note issued pursuant to this Agreement. At any time and from time to time the holder of any Note which has been duly registered as hereinabove provided may transfer such Note upon surrender thereof at the principal office of the Company duly endorsed or accompanied by a written instrument of transfer duly executed by the holder of such Note or its attorney duly authorized in writing. The Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes of this Agreement. Payment of or on account of the principal, premium, if any, and interest on any Note shall be made to or upon the written order of such holder. Section 9.2. Exchange of Notes. At any time and from time to time, upon ------------------------------ surrender of such Note at its office, the Company will deliver in exchange therefor, without expense to such holder, except as set forth below, a Note for the same aggregate principal amount as the then unpaid principal amount of the Note so surrendered, or Notes in the denomination of $1,000,000 (or such lesser amount as shall constitute 100% of the Notes of such holder) or any amount in excess thereof as such holder shall specify, dated as of the date to which interest has been paid on the Note so surrendered or, if such surrender is prior to the payment of any interest thereon, then dated as of the date of issue, registered in the name of such Person or Persons as may be designated by such holder, and otherwise of the same form and tenor as the Notes so surrendered for exchange. The Company may require the payment of a sum sufficient to cover any stamp tax or governmental charge imposed upon such exchange or transfer. Section 9.3. Loss, Theft, Etc. of Notes. Upon receipt of evidence --------------------------------------- satisfactory to the Company of the loss, theft, mutilation or destruction of any Note, and in the case of any such loss, theft or destruction upon delivery of a bond of indemnity in such form and amount as shall be reasonably satisfactory to the Company, or in the event of such mutilation upon surrender and cancellation of the Note, the Company will make and deliver without expense to the holder thereof, a new Note, of like tenor, in lieu of such lost, stolen, destroyed or mutilated Note. If the Purchaser or any - -57- subsequent Institutional Holder is the owner of any such lost, stolen or destroyed Note, then the affidavit of an authorized officer of such owner, setting forth the fact of loss, theft or destruction and of its ownership of such Note at the time of such loss, theft or destruction shall be accepted as satisfactory evidence thereof and no further indemnity shall be required as a condition to the execution and delivery of a new Note other than the written agreement of such owner to indemnify the Company. Section 9.4. Expenses, Stamp Tax Indemnity. Whether or not the ------------------------------------------ transactions herein contemplated shall be consummated, the Company agrees to pay directly all of your out-of-pocket expenses in connection with the preparation, execution and delivery of this Agreement, the Security Document and the Intercreditor Agreement and the transactions contemplated hereby, including but not limited to the charges and disbursements of Chapman and Cutler, your special counsel, duplicating and printing costs and charges for shipping the Notes, adequately insured to you at your home office or at such other place as you may designate, and all such expenses relating to any amendments, waivers or consents pursuant to the provisions hereof (whether or not the same are actually executed and delivered), including, without limitation, any such amendments, waivers, or consents resulting from any work-out, renegotiation or restructuring relating to the performance by the Company of its obligations under this Agreement, the Security Document, the Intercreditor Agreement and the Notes. The Company also agrees to pay, within five Business Days of receipt thereof, supplemental statements of Chapman and Cutler for disbursements unposted or not incurred as of the Closing Date. The Company further agrees that it will pay and save you harmless against any and all liability with respect to stamp and other taxes, if any, which may be payable or which may be determined to be payable in connection with the execution and delivery of this Agreement, the Security Document, the Intercreditor Agreement or the Notes, whether or not any Notes are then outstanding. The Company agrees to protect and indemnify you against any liability for any and all brokerage fees and commissions payable or claimed to be payable to any Person in connection with the transactions contemplated by this Agreement, the Security Document or the Intercreditor Agreement. Without limiting the foregoing, the Company agrees to pay the cost of obtaining the private placement number for the Notes and authorizes the submission of such information as may be required by - -58- Standard & Poor's CUSIP Service Bureau for the purpose of obtaining such number. Section 9.5. Powers and Rights Not Waived; Remedies Cumulative. No delay -------------------------------------------------------------- or failure on the part of the holder of any Note in the exercise of any power or right shall operate as a waiver thereof; nor shall any single or partial exercise of the same preclude any other or further exercise thereof, or the exercise of any other power or right, and the rights and remedies of the holder of any Note are cumulative to, and are not exclusive of, any rights or remedies any such holder would otherwise have. Section 9.6. Notices. All communications provided for hereunder shall be -------------------- in writing and, if to you, delivered or mailed prepaid by registered or certified mail or overnight air courier, or by facsimile communication, in each case addressed to you at your address appearing on Schedule I to this Agreement or such other address as you or the subsequent holder of any Note initially issued to you may designate to the Company in writing, and if to the Company, delivered or mailed by registered or certified mail or overnight air courier, or by facsimile communication, to the Company at 1581 Cummins Drive, Suite 155, Modesto, California 95358, Attention: Chief Financial Officer, or to such other address as the Company may in writing designate to you or to a subsequent holder of the Note initially issued to you; provided, however, that a notice to you by -------- ------- overnight air courier shall only be effective if delivered to you at a street address designated for such purpose in Schedule I, and a notice to you by facsimile communication shall only be effective if confirmed by transmission of a copy thereof by prepaid overnight air courier, or, in either case, as you or a subsequent holder of any Note initially issued to you may designate to the Company in writing. Section 9.7. Successors and Assigns. This Agreement shall be binding ----------------------------------- upon the Company and its successors and assigns and shall inure to your benefit and to the benefit of your successors and assigns, including each successive holder or holders of any Notes. Section 9.8. Survival of Covenants and Representations. All covenants, ------------------------------------------------------ representations and warranties made by the Company herein and in any certificates delivered pursuant hereto, whether or not in connection with - -59- the Closing Date, shall survive the closing and the delivery of this Agreement and the Notes. Section 9.9. Severability. Should any part of this Agreement for any ------------------------- reason be declared invalid or unenforceable, such decision shall not affect the validity or enforceability of any remaining portion, which remaining portion shall remain in force and effect as if this Agreement had been executed with the invalid or unenforceable portion thereof eliminated and it is hereby declared the intention of the parties hereto that they would have executed the remaining portion of this Agreement without including therein any such part, parts or portion which may, for any reason, be hereafter declared invalid or unenforceable. Section 9.10. Governing Law. This Agreement and the Notes issued and --------------------------- sold hereunder shall be governed by and construed in accordance with Illinois law, including all matters of construction, validity and performance. Section 9.11. Captions. The descriptive headings of the various Sections ---------------------- or parts of this Agreement are for convenience only and shall not affect the meaning or construction of any of the provisions hereof. - -60- The execution hereof by you shall constitute a contract between us for the uses and purposes hereinabove set forth, and this Agreement may be executed in any number of counterparts, each executed counterpart constituting an original but all together only one agreement. U.S. RENTALS, INC. By Its Accepted as of August 21, 1995. [VARIATION] By -------------------------------- Its - -61- ATTACHMENTS TO NOTE AGREEMENT: Schedule I -- Names and Addresses of Purchasers and Amounts of Commitments Schedule II -- Indebtedness; Liens Securing Indebtedness (including Capitalized Leases); Subsidiaries; Restricted Subsidiaries as of the Closing Date; Etc. Exhibit A-1 -- Form of 6.82% Senior Secured Notes, Series A, Due August 21, 1999 Exhibit A-2 -- Form of 6.89% Senior Secured Notes, Series B, Due August 21, 2000 Exhibit A-3 -- Form of 7.04% Senior Secured Notes, Series C, Due August 21, 2001 Exhibit A-4 -- Form of 7.13% Senior Secured Notes, Series D, Due August 21, 2002 Exhibit B -- Representations and Warranties of the Company Exhibit C -- Description of Special Counsel's Closing Opinion Exhibit D -- Description of Closing Opinion of Counsel to the Company Exhibit E -- Subordination Provisions Applicable to Subordinated Indebtedness - -62-
PRINCIPAL AMOUNT NAMES AND ADDRESSES OF NOTES TO BE SERIES OF OF PURCHASERS PURCHASED NOTES MASSACHUSETTS MUTUAL LIFE $2,300,000 Series C INSURANCE COMPANY $2,000,000 Series D 1295 State Street Springfield, Massachusetts 01111 Attention: Mr. John B. Joyce Mr. John B. Wheeler Securities Investment Division
Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "U.S. Rentals, Inc., 7.04% Senior Secured Notes, Series C, due August 21, 2001, PPN 90341*AC 3, principal, premium or interest" or "U.S. Rentals, Inc. 7.13% Senior Secured Notes, Series D, Due August 21, 2002, PPN 90341*AD 1, principal, premium or interest") to: SCHEDULE I (to Note Agreement) Chase Manhattan Bank, N.A. 4 Chase MetroTech Center New York, NY 10081 ABA No. 021000021 For MassMutual IFM Traditional Account No. 910-1388131 Re: Description of security, principal and interest split With telephone advice of payment to the Securities Custody and Collection Department of Massachusetts Mutual Life Insurance Company at (413) 744-3878 Notices All notices and communications to be addressed as first provided above, except notices with respect to payments and corporate actions, to be addressed Attention: Securities Custody and Collection Department, F381. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 04-1590850 I-2
PRINCIPAL AMOUNT NAMES AND ADDRESSES OF NOTES TO BE SERIES OF OF PURCHASERS PURCHASED NOTES MASSACHUSETTS MUTUAL LIFE $2,300,000 Series C INSURANCE COMPANY $2,000,000 Series D 1295 State Street Springfield, Massachusetts 01111 Attention: Mr. John B. Joyce Mr. John B. Wheeler Securities Investment Division
Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "U.S. Rentals, Inc., 7.04% Senior Secured Notes, Series C, due August 21, 2001, PPN 90341*AC 3, principal, premium or interest" or "U.S. Rentals, Inc. 7.13% Senior Secured Notes, Series D, Due August 21, 2002, PPN 90341*AD 1, principal, premium or interest") to: I-3 Chase Manhattan Bank, N.A. 4 Chase MetroTech Center New York, NY 10081 ABA No. 021000021 For MassMutual IFM Non-Traditional Account No. 910-2509073 Re: Description of security, principal and interest split With telephone advice of payment to the Securities Custody and Collection Department of Massachusetts Mutual Life Insurance Company at (413) 744-3878 Notices All notices and communications to be addressed as first provided above, except notices with respect to payments and corporate actions, to be addressed Attention: Securities Custody and Collection Department, F381. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 04-1590850 I-4
PRINCIPAL AMOUNT NAMES AND ADDRESSES OF NOTES TO BE SERIES OF OF PURCHASERS PURCHASED NOTES MASSACHUSETTS MUTUAL LIFE $2,400,000 Series C INSURANCE COMPANY $2,000,000 Series D 1295 State Street Springfield, Massachusetts 01111 Attention: Mr. John B. Joyce Mr. John B. Wheeler Securities Investment Division
Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "U.S. Rentals, Inc., 7.04% Senior Secured Notes, Series C, due August 21, 2001, PPN 90341*AC 3, principal, premium or interest" or "U.S. Rentals, Inc. 7.13% Senior Secured Notes, Series D, Due August 21, 2002, PPN 90341*AD 1, principal, premium or interest") to: I-5 Chase Manhattan Bank, N.A. 4 Chase MetroTech Center New York, NY 10081 ABA No. 021000021 For MassMutual Pension Management Account No. 910-2594018 Re: Description of security, principal and interest split With telephone advice of payment to the Securities Custody and Collection Department of Massachusetts Mutual Life Insurance Company at (413) 744-3878 Notices All notices and communications to be addressed as first provided above, except notices with respect to payments and corporate actions, to be addressed Attention: Securities Custody and Collection Department, F381. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 04-1590850 I-6
PRINCIPAL AMOUNT NAMES AND ADDRESSES OF NOTES TO BE SERIES OF OF PURCHASERS PURCHASED NOTES JEFFERSON-PILOT LIFE INSURANCE $5,000,000 Series B COMPANY $3,000,000 Series C 100 North Greene $4,000,000 Series D Greensboro, North Carolina 27401 Attention: Securities Administration 3630 Telefacsimile: (910) 691-3025
Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "U.S. Rentals, Inc., 6.89% Senior Secured Notes, Series B, Due August 21, 2000, PPN 90341*AB 5, principal, premium or interest" or "U.S. Rentals, Inc., 7.04% Senior Secured Notes, Series C, Due August 21, 2001, PPN 90341*AC 3, principal, premium or interest" or "U.S. Rentals, Inc., 7.13% Senior Secured Notes, Series D, Due August 21, 2002, PPN 90341*AD 1, principal, premium or interest", as the case may be), to: NationsBank of North Carolina (ABA #053 000 196) Charlotte, North Carolina (Greensboro office) for credit to: Jefferson-Pilot Life Insurance Company Account Number 020-000-014 Attention: Cathy Crisson (910) 691-3133 Notices All notices and communications, including notices with respect to payments and written confirmation of each such payment (including name and address of bank transmitting payment), to be addressed as first provided above. Name of Nominee in which Notes are to be issued: None I-7 Taxpayer I.D. Number: 56-0359860 I-8
PRINCIPAL AMOUNT NAMES AND ADDRESSES OF NOTES TO BE SERIES OF OF PURCHASERS PURCHASED NOTES PRINCIPAL MUTUAL LIFE INSURANCE $10,000,000 Series A COMPANY 711 High Street Des Moines, Iowa 50392-0800 Attention: Investment Department-- Securities Division Regarding Bond Number 1-B-60511 Telefacsimile: (515) 248-2490 Confirmation: (515) 248-3495
Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "U.S. Rentals, Inc., 6.82% Senior Secured Notes, Series A, Due August 21, 1999, PPN 90341*AA 7, Bond Number 1-B-60511, principal, premium or interest") to: Norwest Bank Iowa, N.A. (ABA #0730 0022 8) 7th and Walnut Streets Des Moines, Iowa 50309 for credit to: Principal Mutual Life Insurance Company General Account Number 014752 Notices All notices concerning payment on or in respect of the Notes, to: Principal Mutual Life Insurance Company 711 High Street Des Moines, Iowa 50392-0960 Attention: Investment-- Accounting & Treasury-- Securities Telefacsimile: (515) 247-5930 I-9 All notices and communications other than those in respect to payments to be addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 42-012-7290 I-10
PRINCIPAL AMOUNT NAMES AND ADDRESSES OF NOTES TO BE SERIES OF OF PURCHASERS PURCHASED NOTES PHOENIX HOME LIFE MUTUAL $5,000,000 Series D INSURANCE COMPANY One American Row Hartford, Connecticut 06115 Attention: Private Placements Division Telecopier Number: (203) 275-5451
Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "U.S. Rentals, Inc., 7.13% Senior Secured Notes, Series D, Due August 21, 2002, PPN 90341*AD 1, principal, premium or interest") to: Chase Manhattan Bank (ABA #021 0000 21) BNF-SSG Private Income Processing/AC-9009000200 for credit to: Phoenix Home Life Mutual Insurance Company Account Number G-05143 Notices All notices and communications, including notices with respect to payments and written confirmation of each such payment, to be addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 06-0493340 I-11
PRINCIPAL AMOUNT NAMES AND ADDRESSES OF NOTES TO BE SERIES OF OF PURCHASERS PURCHASED NOTES PHOENIX HOME LIFE MUTUAL $3,000,000 Series D INSURANCE COMPANY One American Row Hartford, Connecticut 06115 Attention: Private Placements Division Telecopier Number: (203) 275-5451
Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "U.S. Rentals, Inc., 7.13% Senior Secured Notes, Series D, Due August 21, 2002, PPN 90341*AD 1, principal, premium or interest") to: Chase Manhattan Bank (ABA #021 0000 21) BNF-SSG Private Income Processing/AC-9009000200 for credit to: Phoenix Home Life Mutual Insurance Company Account Number G-05515 Notices All notices and communications, including notices with respect to payments and written confirmation of each such payment, to be addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 06-0493340 I-12
PRINCIPAL AMOUNT NAMES AND ADDRESSES OF NOTES TO BE SERIES OF OF PURCHASERS PURCHASED NOTES PHOENIX AMERICAN LIFE $2,000,000 Series D INSURANCE COMPANY c/o Phoenix Home Life Mutual Insurance Company One American Row Hartford, Connecticut 06115 Attention: Private Placements Division Telecopier Number: (203) 275-5451
Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "U.S. Rentals, Inc., 7.13% Senior Secured Notes, Series D, Due August 21, 2002, PPN 90341*AD1, principal, premium or interest") to: Chase Manhattan Bank (ABA #021 0000 21) BNF-SSG Private Income Processing/AC-9009000200 for credit to: Phoenix American Life Insurance Company Account Number G-05464 Notices All notices and communications, including notices with respect to payments and written confirmation of each such payment, to be addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 06-0493340 I-13
PRINCIPAL AMOUNT NAMES AND ADDRESSES OF NOTES TO BE SERIES OF OF PURCHASERS PURCHASED NOTES ALEXANDER HAMILTON LIFE INSURANCE $5,000,000 Series B COMPANY OF AMERICA 33045 Hamilton Court Farmington Hills, Michigan 48334 Attention: Jean Elizabeth Benefiel, Department R-12A Phone: (810) 489-4728 Fax: (810) 489-4792
Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "U.S. Rentals, Inc., 6.89% Senior Secured Notes, Series B, Due August 21, 2000, PPN 90341*AB 5, principal, premium or interest") to: Comerica Bank, Det / 03 ABA Number 0720-0009-6 Account Number: 82043 Bnfac: 21585-98539, Master Trust Notices All notices and communications, including notices with respect to payments and written confirmation of each such payment (including name and address of bank transmitting payment), to: Comerica Bank Institutional Trust 411 West Lafayette Detroit, Michigan 48226 Attn: Janis Dudek I-14 Phone: (313) 222-4085 Fax: (313) 963-8524 Duplicate copies and all notices and communications to be addressed as first provided above. Name of Nominee in which Notes are to be issued: Calhoun & Co. Taxpayer I.D. Number: 38-2190143 I-15 DESCRIPTION OF DEBT, LEASES AND INVESTMENTS 1. Indebtedness (other than Capitalized Rentals) of the Company and its Restricted Subsidiaries outstanding on the Closing Date is as follows: ($s in thousands)
NOTES PAYABLE As of 8/15/95 Revolving notes to Bank under Credit and Security Agreement, interest payable monthly at varying rates tied to the bank's money market rate and reference rate. $ 58,000 Demand note payable to CED, interest payable monthly at prime less .75%. 20,000 Notes payable to Shareholder, assigned to The R.D. Colburn School of Performing Arts, subordinated notes due December 31, 2013 and 2014, interest payable quarterly at a rate of prime plus 5%. 20,000 Demand notes payable to related parties. 3,885 Other notes payable. 1,060 -------- Total Indebtedness $102,945 ========
2. Long-Term Leases of the Company and its Restricted Subsidiaries outstanding on the Closing Date are as follows: [See Attached Schedule II-B] Capitalized Leases of the Company and its Restricted Subsidiaries outstanding on the Closing Date are as follows: None SCHEDULE II (to Note Agreement) 4. Investments of the Company and its Restricted Subsidiaries (other than Subsidiaries) outstanding on the Closing Date, including without limitation, notes receivable from Affiliates are as follows: Yorkshire Enterprises L.P. $ 41,251.21 Kwickform America 992,459.15 Kippington Road 306,000.00 UKP 31.48 Claessen 3,267.25 Tolyco BV 351,905.63 Consortium 2000 Inc. 150,000.00 Subordinated Promissory Notes of Consolidated Electrical Distributors, Inc. in face principal amounts of (current adjusted principal $5,336,050 and $12,844.00 25,056,336 value plus accrued interest) -------------- Total $26,901,250.72
II-2 SUBSIDIARIES OF THE COMPANY 1. RESTRICTED SUBSIDIARIES: PERCENTAGE OF VOTING STOCK NAME OF JURISDICTION OF OWNED BY COMPANY AND SUBSIDIARY INCORPORATION EACH OTHER SUBSIDIARY None 2. SUBSIDIARIES (OTHER THAN RESTRICTED SUBSIDIARIES): PERCENTAGE OF VOTING STOCK NAME OF JURISDICTION OF OWNED BY COMPANY AND SUBSIDIARY INCORPORATION EACH OTHER SUBSIDIARY None Schedule II (to Note Agreement) U.S. RENTALS, INC. 6.82% Senior Secured Note, Series A, Due August 21, 1999 No. ____________, ____ $ PPN 90341*AA 7 U.S. RENTALS, INC., a California corporation (the "Company"), for value received, hereby promises to pay to or registered assigns on the twenty-first day of August, 1999 the principal amount of DOLLARS ($______) and to pay interest (computed on the basis of a 360-day year of twelve 30-day months) on the principal amount from time to time remaining unpaid hereon at the rate of 6.82% per annum from the date hereof until maturity, payable semiannually on the twenty-first of February and August in each year (commencing on February 21, 1996) and at maturity. The Company agrees to pay interest on overdue principal (including any overdue required or optional prepayment of principal) and premium, if any, and (to the extent legally enforceable) on any overdue installment of interest, at the Overdue Rate after the due date, whether by acceleration or otherwise, until paid. "Overdue Rate" shall mean the lesser of (a) the maximum interest rate permitted by law and (b) 8.82% per annum. Both the principal hereof and interest hereon are payable at the principal office of the Company in Modesto, California in coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts. If any amount of principal, EXHIBIT A-1 (to Note Agreement) premium, if any, or interest on or in respect of this Note becomes due and payable on any date which is not a Business Day, such amount shall be payable on the immediately preceding Business Day. "Business Day" means any day other than a Saturday, Sunday or other day on which banks in Los Angeles, California or New York City, New York are required by law to close or are customarily closed. This Note is one of the 6.82% Senior Secured Notes, Series A, due August 21, 1999 (the "Series A Notes") of the Company in the aggregate principal amount of $10,000,000 which, together with the Company's $10,000,000 aggregate principal amount 6.89% Senior Secured Notes, Series B, Due August 21, 2000 (the "Series B Notes"), the Company's $10,000,000 aggregate principal amount 7.04% Senior Secured Notes, Series C, Due August 21, 2001 (the "Series C Notes") and the Company's $20,000,000 aggregate principal amount 7.13% Senior Secured Notes, Series D, Due August 21, 2002 (the "Series D Notes", said Series D Notes together with the Series A Notes, the Series B Notes and the Series C Notes are hereinafter referred to collectively as the "Notes"), are issued or to be issued under and pursuant to the terms and provisions of the separate Note Agreements, each dated as of August 15, 1995 (the "Note Agreements"), entered into by the Company with the original Purchasers therein referred to and this Note and the holder hereof are entitled equally and ratably with the holders of all other Notes outstanding under the Note Agreements to all the benefits provided for thereby or referred to therein. Reference is hereby made to the Note Agreements for a statement of such rights and benefits. This Note and the holder hereof are also entitled equally and ratably with the holders of all other Notes to the rights and benefits provided pursuant to the terms and provisions of the Security Document and the Intercreditor Agreement (as each such term is defined in the Note Agreements). Reference is hereby made to each of the foregoing for a statement of the nature and extent of the benefits and security for the Notes afforded thereby and the rights of the holders of the Notes on the Company in respect thereof. This Note and the other Notes outstanding under the Note Agreements may be declared due prior to their expressed maturity dates and certain prepayments are required to be made thereon, all in the events, on the terms and in the manner and amounts as provided in the Note Agreements. A-1-2 The Notes are not subject to prepayment or redemption at the option of the Company prior to their expressed maturity dates except on the terms and conditions and in the amounts and with the premium, if any, set forth in the Note Agreements. This Note is registered on the books of the Company and is transferable only by surrender thereof at the principal office of the Company duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of this Note or its attorney duly authorized in writing. Payment of or on account of principal, premium, if any, and interest on this Note shall be made only to or upon the order in writing of the registered holder. This Note and said Note Agreements are governed by and construed in accordance with the laws of Illinois, including all matters of construction, validity and performance. U.S. RENTALS, INC. By Its A-1-3 U.S. RENTALS, INC. 6.89% Senior Secured Note, Series B, Due August 21, 2000 No. ____________, ____ $ PPN 90341*AB 5 U.S. RENTALS, INC., a California corporation (the "Company"), for value received, hereby promises to pay to or registered assigns on the twenty-first day of August, 2000 the principal amount of DOLLARS ($______) and to pay interest (computed on the basis of a 360-day year of twelve 30-day months) on the principal amount from time to time remaining unpaid hereon at the rate of 6.89% per annum from the date hereof until maturity, payable semiannually on the twenty-first of February and August in each year (commencing on February 21, 1996) and at maturity. The Company agrees to pay interest on overdue principal (including any overdue required or optional prepayment of principal) and premium, if any, and (to the extent legally enforceable) on any overdue installment of interest, at the Overdue Rate after the due date, whether by acceleration or otherwise, until paid. "Overdue Rate" shall mean the lesser of (a) the maximum interest rate permitted by law and (b) 8.89% per annum. Both the principal hereof and interest hereon are payable at the principal office of the Company in Modesto, California in coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts. If any amount of principal, EXHIBIT A-2 (to Note Agreement) premium, if any, or interest on or in respect of this Note becomes due and payable on any date which is not a Business Day, such amount shall be payable on the immediately preceding Business Day. "Business Day" means any day other than a Saturday, Sunday or other day on which banks in Los Angeles, California or New York City, New York are required by law to close or are customarily closed. This Note is one of the 6.89% Senior Secured Notes, Series B, due August 21, 2000 (the "Series B Notes") of the Company in the aggregate principal amount of $10,000,000 which, together with the Company's $10,000,000 aggregate principal amount 6.82% Senior Secured Notes, Series A, Due August 21, 1999 (the "Series A Notes"), the Company's $10,000,000 aggregate principal amount 7.04% Senior Secured Notes, Series C, Due August 21, 2001 (the "Series C Notes") and the Company's $20,000,000 aggregate principal amount 7.13% Senior Secured Notes, Series D, Due August 21, 2002 (the "Series D Notes", said Series D Notes together with the Series A Notes, the Series B Notes and the Series C Notes are hereinafter referred to collectively as the "Notes"), are issued or to be issued under and pursuant to the terms and provisions of the separate Note Agreements, each dated as of August 15, 1995 (the "Note Agreements"), entered into by the Company with the original Purchasers therein referred to and this Note and the holder hereof are entitled equally and ratably with the holders of all other Notes outstanding under the Note Agreements to all the benefits provided for thereby or referred to therein. Reference is hereby made to the Note Agreements for a statement of such rights and benefits. This Note and the holder hereof are also entitled equally and ratably with the holders of all other Notes to the rights and benefits provided pursuant to the terms and provisions of the Security Document and the Intercreditor Agreement (as each such term is defined in the Note Agreements). Reference is hereby made to each of the foregoing for a statement of the nature and extent of the benefits and security for the Notes afforded thereby and the rights of the holders of the Notes on the Company in respect thereof. This Note and the other Notes outstanding under the Note Agreements may be declared due prior to their expressed maturity dates and certain prepayments are required to be made thereon, all in the events, on the terms and in the manner and amounts as provided in the Note Agreements. A-2-2 The Notes are not subject to prepayment or redemption at the option of the Company prior to their expressed maturity dates except on the terms and conditions and in the amounts and with the premium, if any, set forth in the Note Agreements. This Note is registered on the books of the Company and is transferable only by surrender thereof at the principal office of the Company duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of this Note or its attorney duly authorized in writing. Payment of or on account of principal, premium, if any, and interest on this Note shall be made only to or upon the order in writing of the registered holder. This Note and said Note Agreements are governed by and construed in accordance with the laws of Illinois, including all matters of construction, validity and performance. U.S. RENTALS, INC. By Its A-2-3 U.S. RENTALS, INC. 7.04% Senior Secured Note, Series C, Due August 21, 2001 No. ____________, ____ $ PPN 90341*AC 3 U.S. RENTALS, INC., a California corporation (the "Company"), for value received, hereby promises to pay to or registered assigns on the twenty-first day of August, 2001 the principal amount of DOLLARS ($______) and to pay interest (computed on the basis of a 360-day year of twelve 30-day months) on the principal amount from time to time remaining unpaid hereon at the rate of 7.04% per annum from the date hereof until maturity, payable semiannually on the twenty-first of February and August in each year (commencing on February 21, 1996) and at maturity. The Company agrees to pay interest on overdue principal (including any overdue required or optional prepayment of principal) and premium, if any, and (to the extent legally enforceable) on any overdue installment of interest, at the Overdue Rate after the due date, whether by acceleration or otherwise, until paid. "Overdue Rate" shall mean the lesser of (a) the maximum interest rate permitted by law and (b) 8.04% per annum. Both the principal hereof and interest hereon are payable at the principal office of the Company in Modesto, California in coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts. If any amount of principal, EXHIBIT A-3 (to Note Agreement) premium, if any, or interest on or in respect of this Note becomes due and payable on any date which is not a Business Day, such amount shall be payable on the immediately preceding Business Day. "Business Day" means any day other than a Saturday, Sunday or other day on which banks in Los Angeles, California or New York City, New York are required by law to close or are customarily closed. This Note is one of the 7.04% Senior Secured Notes, Series C, Due August 21, 2001 (the "Notes") of the Company in the aggregate principal amount of $10,000,000 which, together with the Company's $10,000,000 aggregate principal amount 6.82% Senior Secured Notes, Series A, Due August 21, 1999 (the "Series A Notes"), the Company's $10,000,000 aggregate principal amount 6.89% Senior Secured Notes, Series B, Due August 21, 2000 (the "Series B Notes") and the Company's $20,000,000 aggregate principal amount 7.13% Senior Secured Notes, Series D, Due August 21, 2002 (the "Series D Notes", said Series D Notes together with the Series A Notes, the Series B Notes and the Series C Notes are hereinafter referred to collectively as the "Notes"), are issued or to be issued under and pursuant to the terms and provisions of the separate Note Agreements, each dated as of August 15, 1995 (the "Note Agreements"), entered into by the Company with the original Purchasers therein referred to and this Note and the holder hereof are entitled equally and ratably with the holders of all other Notes outstanding under the Note Agreements to all the benefits provided for thereby or referred to therein. Reference is hereby made to the Note Agreements for a statement of such rights and benefits. This Note and the holder hereof are also entitled equally and ratably with the holders of all other Notes to the rights and benefits provided pursuant to the terms and provisions of the Security Document and the Intercreditor Agreement (as each such term is defined in the Note Agreements). Reference is hereby made to each of the foregoing for a statement of the nature and extent of the benefits and security for the Notes afforded thereby and the rights of the holders of the Notes on the Company in respect thereof. This Note and the other Notes outstanding under the Note Agreements may be declared due prior to their expressed maturity dates and certain prepayments are required to be made thereon, all in the events, on the terms and in the manner and amounts as provided in the Note Agreements. A-3-2 The Notes are not subject to prepayment or redemption at the option of the Company prior to their expressed maturity dates except on the terms and conditions and in the amounts and with the premium, if any, set forth in the Note Agreements. This Note is registered on the books of the Company and is transferable only by surrender thereof at the principal office of the Company duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of this Note or its attorney duly authorized in writing. Payment of or on account of principal, premium, if any, and interest on this Note shall be made only to or upon the order in writing of the registered holder. This Note and said Note Agreements are governed by and construed in accordance with the laws of Illinois, including all matters of construction, validity and performance. U.S. RENTALS, INC. By Its A-3-3 U.S. RENTALS, INC. 7.13% Senior Secured Note, Series D, Due August 21, 2002 No. ____________, ____ $ PPN 90341*AD 1 U.S. RENTALS, INC., a California corporation (the "Company"), for value received, hereby promises to pay to or registered assigns on the twenty-first day of August, 2002 the principal amount of DOLLARS ($______) and to pay interest (computed on the basis of a 360-day year of twelve 30-day months) on the principal amount from time to time remaining unpaid hereon at the rate of 7.13% per annum from the date hereof until maturity, payable semiannually on the twenty-first of February and August in each year (commencing on February 21, 2002) and at maturity. The Company agrees to pay interest on overdue principal (including any overdue required or optional prepayment of principal) and premium, if any, and (to the extent legally enforceable) on any overdue installment of interest, at the Overdue Rate after the due date, whether by acceleration or otherwise, until paid. "Overdue Rate" shall mean the lesser of (a) the maximum interest rate permitted by law and (b) 8.13% per annum. Both the principal hereof and interest hereon are payable at the principal office of the Company in Modesto, California in coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts. If any amount of principal, EXHIBIT A-4 (to Note Agreement) premium, if any, or interest on or in respect of this Note becomes due and payable on any date which is not a Business Day, such amount shall be payable on the immediately preceding Business Day. "Business Day" means any day other than a Saturday, Sunday or other day on which banks in Los Angeles, California or New York City, New York are required by law to close or are customarily closed. This Note is one of the 7.13% Senior Secured Notes, Series D, due August 21, 2002 (the "Notes") of the Company in the aggregate principal amount of $20,000,000 which, together with the Company's $10,000,000 aggregate principal amount 6.82% Senior Secured Notes, Series A, Due August 21, 1999 (the "Series A Notes"), the Company's $10,000,000 aggregate principal amount 6.89% Senior Secured Notes, Series B, Due August 21, 2000 (the "Series B Notes") and the Company's $10,000,000 aggregate principal amount 7.04% Senior Secured Notes, Series C, Due August 21, 2001 (the "Series C Notes", said Series C Notes together with the Series A Notes, the Series B Notes and the Series D Notes are hereinafter referred to collectively as the "Notes"), are issued or to be issued under and pursuant to the terms and provisions of the separate Note Agreements, each dated as of August 15, 1995 (the "Note Agreements"), entered into by the Company with the original Purchasers therein referred to and this Note and the holder hereof are entitled equally and ratably with the holders of all other Notes outstanding under the Note Agreements to all the benefits provided for thereby or referred to therein. Reference is hereby made to the Note Agreements for a statement of such rights and benefits. This Note and the holder hereof are also entitled equally and ratably with the holders of all other Notes to the rights and benefits provided pursuant to the terms and provisions of the Security Document and the Intercreditor Agreement (as each such term is defined in the Note Agreements). Reference is hereby made to each of the foregoing for a statement of the nature and extent of the benefits and security for the Notes afforded thereby and the rights of the holders of the Notes on the Company in respect thereof. This Note and the other Notes outstanding under the Note Agreements may be declared due prior to their expressed maturity dates and certain prepayments are required to be made thereon, all in the events, on the terms and in the manner and amounts as provided in the Note Agreements. A-4-2 The Notes are not subject to prepayment or redemption at the option of the Company prior to their expressed maturity dates except on the terms and conditions and in the amounts and with the premium, if any, set forth in the Note Agreements. This Note is registered on the books of the Company and is transferable only by surrender thereof at the principal office of the Company duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of this Note or its attorney duly authorized in writing. Payment of or on account of principal, premium, if any, and interest on this Note shall be made only to or upon the order in writing of the registered holder. This Note and said Note Agreements are governed by and construed in accordance with the laws of Illinois, including all matters of construction, validity and performance. U.S. RENTALS, INC. By Its A-4-3 REPRESENTATIONS AND WARRANTIES The Company represents and warrants to you as follows: 1. Subsidiaries. Schedule II attached to the Agreements states the name of each of the Company's Subsidiaries, its jurisdiction of incorporation and the percentage of its Voting Stock owned by the Company and/or its Subsidiaries. Those Subsidiaries listed in Section 1 of said Schedule II constitute Restricted Subsidiaries. The Company and each Subsidiary has good and marketable title to all of the shares it purports to own of the stock of each Subsidiary, free and clear in each case of any Lien. All such shares have been duly issued and are fully paid and non-assessable. 2. Corporate Organization and Authority. The Company, and each Restricted Subsidiary, (a) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation; (b) has all requisite power and authority and all Material licenses and permits to own and operate its properties and to carry on its business as now conducted and as presently proposed to be conducted; and (c) is duly licensed or qualified and is in good standing as a foreign corporation in each jurisdiction wherein the nature of the business transacted by it or the nature of the property owned or leased by it makes such licensing or qualification necessary. 3. Business and Property. The Private Placement Memorandum dated June 1995 (the "Memorandum") prepared by BA Securities, Inc. which in all Material respects sets forth the business conducted and proposed to be conducted by the Company and its Subsidiaries and the principal properties of the Company and its Subsidiaries. 4. Financial Statements. (a) The consolidated balance sheets of the Company and its consolidated Subsidiaries as of December 31 in each of the EXHIBIT B (to Note Agreement) years 1990 to 1994, both inclusive, and the statements of income and retained earnings and changes in financial position or cash flows for the fiscal years ended on said dates, each accompanied by a report thereon containing an opinion unqualified as to scope limitations imposed by the Company and otherwise without qualification except as therein noted, by Price Waterhouse L.L.P., have been prepared in accordance with GAAP consistently applied except as therein noted, are correct and complete and present fairly the financial position of the Company and its consolidated Subsidiaries as of such dates and the results of their operations and changes in their cash flows for such periods. The unaudited consolidated balance sheets of the Company and its consolidated Subsidiaries as of June 30, 1995, and the unaudited statements of income and retained earnings and cash flows for the six-month period ended on said date prepared by the Company have been prepared in accordance with GAAP consistently applied, are correct and complete and present fairly the financial position of the Company and its consolidated Subsidiaries as of said date and the results of their operations and changes in their cash flows for such period. (b) Since December 31, 1994, there has been no change in the condition, financial or otherwise, of the Company and its consolidated Subsidiaries as shown on the consolidated balance sheet as of such date except changes in the ordinary course of business, none of which individually or in the aggregate would have a Material Adverse Effect. 5. Indebtedness; Insurance. Schedule II attached to the Agreements correctly describes all Indebtedness, Long-Term Leases, Capitalized Leases and Investments of the Company and its Restricted Subsidiaries outstanding on the Closing Date. Said Schedule II also correctly describes the levels of insurance and self-insurance of the Company and its Restricted Subsidiaries existing on the Closing Date. 6. Full Disclosure. Neither the financial statements referred to in paragraph 4 hereof nor the Agreements, the Memorandum or any other written statement furnished by the Company to you in connection with the negotiation of the sale of the Notes, contains any untrue statement of a Material fact or omits a Material fact necessary to make the statements contained therein or herein not Materially misleading. There is no fact B-2 peculiar to the Company or its Subsidiaries which the Company has not disclosed to you in writing which would have a Material Adverse Effect. 7. Pending Litigation. There are no proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any Restricted Subsidiary in any court or before any governmental authority or arbitration board or tribunal which would have a Material Adverse Effect. 8. Title to Properties. The Company and each Restricted Subsidiary has good and marketable title in fee simple (or its equivalent under applicable law) to all Material parcels of real property and has good title to all the other Material items of property it purports to own, including that reflected in the most recent balance sheet referred to in paragraph 4 hereof, except as sold or otherwise disposed of in the ordinary course of business and except for Liens permitted by the Agreements. 9. Patents and Trademarks. The Company and each Restricted Subsidiary owns or possesses all Material patents, trademarks, trade names, service marks, copyrights, licenses and rights with respect to the foregoing necessary for the present conduct of its business, without any known conflict with the rights of others. 10. Sale Is Legal and Authorized. The sale of the Notes and compliance by the Company with all of the provisions of the Agreements, the Security Document, the Intercreditor Agreement and the Notes -- (a) are within the corporate powers of the Company; (b) will not violate any Material provisions of any law or any Material order of any court or governmental authority or agency and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under, the Articles of Incorporation or By-laws of the Company or any indenture or other agreement or instrument to which the Company is a party or by which it may be bound or result in the imposition of any Liens or encumbrances on any Material property of the Company; and B-3 (c) have been duly authorized by proper corporate action on the part of the Company (no action by the stockholders of the Company being required by law, by the Articles of Incorporation or By-laws of the Company or otherwise), executed and delivered by the Company and the Agreements, the Security Document, the Intercreditor Agreement and the Notes constitute the legal, valid and binding obligations, contracts and agreements of the Company enforceable in accordance with their respective terms. 11. No Defaults. No Default or Event of Default has occurred and is continuing. The Company is not in default in the payment of principal or interest on any Indebtedness for borrowed money and is not in Material default under any instrument or instruments or agreements under and subject to which any Indebtedness for borrowed money has been issued and no Material event has occurred and is continuing under the provisions of any such instrument or agreement which with the lapse of time or the giving of notice, or both, would constitute an event of default thereunder. 12. Governmental Consent. No approval, consent or withholding of objection on the part of any regulatory body, state, Federal or local, is necessary in connection with the execution and delivery by the Company of the Agreements, the Security Document or the Intercreditor Agreement or the issuance, sale or delivery of the Notes or compliance by the Company with any of the provisions of the Agreements, the Security Document, the Intercreditor Agreement or the Notes. 13. Taxes. All tax returns required to be filed by the Company or any Restricted Subsidiary in any jurisdiction have, in fact, been filed, and all taxes, assessments, fees and other governmental charges upon the Company or any Restricted Subsidiary or upon any of their respective properties, income or franchises, which are shown to be due and payable in such returns have been paid. For all taxable years ending on or before December 31, 1990, the Federal income tax liability of the Company and its Restricted Subsidiaries has been satisfied and either the period of limitations on assessment of additional Federal income tax has expired or the Company and its Restricted Subsidiaries have entered into an agreement with the Internal Revenue Service closing conclusively the total tax liability for the taxable year. The Company does not know of any proposed additional tax assessment B-4 against it for which adequate provision has not been made on its accounts, and no material controversy in respect of additional Federal or state income taxes due since said date is pending or to the knowledge of the Company threatened. The provisions for taxes on the books of the Company and each Restricted Subsidiary are adequate for all open years, and for its current fiscal period. 14. Use of Proceeds. The net proceeds from the sale of the Notes will be used to refinance existing Indebtedness, to purchase new rental equipment and for other corporate purposes. None of the transactions contemplated in the Agreements (including, without limitation thereof, the use of proceeds from the issuance of the Notes) will violate or result in a violation of Section 7 of the Securities Exchange Act of 1934, as amended, or any regulation issued pursuant thereto, including, without limitation, Regulations G, T and X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II. Neither the Company nor any Subsidiary owns or intends to carry or purchase any "margin stock" within the meaning of said Regulation G. None of the proceeds from the sale of the Notes will be used to purchase, or refinance any borrowing the proceeds of which were used to purchase, any "security" within the meaning of the Securities Exchange Act of 1934, as amended. 15. Private Offering. Neither the Company, directly or indirectly, nor any agent on its behalf has offered or will offer the Notes or any similar Security to or has solicited or will solicit an offer to acquire the Notes or any similar Security from or has otherwise approached or negotiated or will approach or negotiate in respect of the Notes or any similar Security with any Person other than the Purchasers and not more than sixteen other institutional investors, each of whom was offered a portion of the Notes at private sale for investment. Neither the Company, directly or indirectly, nor any agent on its behalf has offered or will offer the Notes or any similar Security to or has solicited or will solicit an offer to acquire the Notes or any similar Security from any Person so as to bring the issuance and sale of the Notes within the provisions of Section 5 of the Securities Act of 1933, as amended. 16. ERISA. The consummation of the transactions provided for in the Agreements and compliance by the Company with the provisions thereof and the Notes issued thereunder will not involve any prohibited transaction B-5 within the meaning of ERISA or Section 4975 of the Code. Each Plan complies in all material respects with all applicable statutes and governmental rules and regulations, and (a) no Reportable Event has occurred and is continuing with respect to any Plan, (b) neither the Company nor any ERISA Affiliate has withdrawn from any Plan or Multiemployer Plan or instituted steps to do so, and (c) no steps have been instituted to terminate any Plan. No condition exists or event or transaction has occurred in connection with any Plan which could result in the incurrence by the Company or any ERISA Affiliate of any material liability, fine or penalty. No Plan maintained by the Company or any ERISA Affiliate, nor any trust created thereunder, has incurred any "accumulated funding deficiency" as defined in Section 302 of ERISA. The present value of all benefits vested under all Plans equals, as of the last annual valuation date, the value of the assets of the Plans allocable to such vested benefits. Neither the Company nor any ERISA Affiliate has any contingent liability with respect to any post-retirement "welfare benefit plan" (as such term is defined in ERISA) except as has been disclosed to the Purchasers. 17. Compliance with Law. (a) Neither the Company nor any Restricted Subsidiary (1) is in violation of any law, ordinance, franchise, governmental rule or regulation to which it is subject; or (2) has failed to obtain any license, permit, franchise or other governmental authorization necessary to the ownership of its property or to the conduct of its business, which violation or failure to obtain would have a Material Adverse Effect. Neither the Company nor any Restricted Subsidiary is in default with respect to any order of any court or governmental authority or arbitration board or tribunal which default would have a Material Adverse Effect. (b) Without limiting the provisions of clause (a) of this paragraph 17, the Company is in compliance with all applicable Environmental Laws, the failure to comply with which would have a Material Adverse Effect. 18. Investment Company Act. The Company is not, and is not directly or indirectly controlled by or acting on behalf of any Person which is, required to register as an "investment company" under the Investment Company Act of 1940, as amended. B-6 19. Foreign Assets Control Regulations, etc. Neither the Company nor any Affiliate of the Company is, by reason of being a "national" of "designated foreign country" or a "specially designated national" within the meaning of the Regulations of the Office of Foreign Assets Control, United States Treasury Department (31 C.F.R., Subtitle B, Chapter V), or for any other reason, subject to any restriction or prohibition under, or is in violation of, any Federal statute or Presidential Executive Order, or any rules or regulations of any department, agency or administrative body promulgated under any such statute or order, concerning trade or other relations with any foreign country or any citizen or national thereof or the ownership or operation of any property. 20. Lien Recordation. The Security Document (or financing statements or similar notices thereof to the extent permitted or required by applicable law) have been filed for record or recorded in all public offices wherein such filing or recordation is necessary to perfect the security interest granted by such Security Document in the collateral therein described as against creditors of and purchasers from the Company and its Subsidiaries and the Security Document create a valid and perfected first security interest in such collateral effective as against creditors of and purchasers from the Company and its Subsidiaries subject only to encumbrances expressly permitted by the terms of the Agreement and such Security Document. B-7 DESCRIPTION OF SPECIAL COUNSEL'S CLOSING OPINION The closing opinion of Chapman and Cutler, special counsel to the Purchasers, called for by (S)4.1 of the Note Agreements, shall be dated the Closing Date and addressed to the Purchasers, shall be satisfactory in form and substance to the Purchasers and shall be to the effect that: 1. The Company is a corporation, validly existing and in good standing under the laws of the State of California and has the corporate power and the corporate authority to execute and deliver the Note Agreements and to issue the Notes. 2. The Note Agreements have been duly authorized by all necessary corporate action on the part of the Company, have been duly executed and delivered by the Company and constitute the legal, valid and binding contracts of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent conveyance or similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). 3. The Notes have been duly authorized by all necessary corporate action on the part of the Company, have been duly executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent conveyance or similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). 4. The issuance, sale and delivery of the Notes under the circumstances contemplated by the Note Agreements does not, under existing law, require the registration of the Notes under the Securities Act of 1933, as amended, or the qualification of an indenture under the Trust Indenture Act of 1939, as amended. EXHIBIT C (to Note Agreement) The opinion of Chapman and Cutler shall also state that the opinion of Bernard E. Lyons, Esq. is satisfactory in scope and form to Chapman and Cutler and that, in their opinion, the Purchasers are justified in relying thereon. In rendering the opinion set forth in paragraph 1 above, Chapman and Cutler may rely solely upon an examination of the Articles of Incorporation certified by, and a certificate of good standing of the Company from, the Secretary of State of the State of California, the By-laws of the Company and the general business corporation law of the State of California. The opinion of Chapman and Cutler is limited to the laws of the State of Illinois, the general business corporation law of the State of California and the Federal laws of the United States. With respect to matters of fact upon which such opinion is based, Chapman and Cutler may rely on appropriate certificates of public officials and officers of the Company. C-2 DESCRIPTION OF CLOSING OPINION OF COUNSEL TO THE COMPANY The closing opinion of Bernard E. Lyons, Esq., counsel for the Company, which is called for by (S)4.1 of the Note Agreements, shall be dated the Closing Date and addressed to the Purchasers, shall be satisfactory in scope and form to the Purchasers and shall be to the effect that: 1. The Company is a corporation, duly incorporated, validly existing and in good standing under the laws of the State of State of California, has the corporate power and the corporate authority to execute and perform the Note Agreements, the Security Document and the Intercreditor Agreement and to issue the Notes and has the full corporate power and the corporate authority to conduct the activities in which it is now engaged and is duly licensed or qualified and is in good standing as a foreign corporation in each jurisdiction in which the character of the properties owned or leased by it or the nature of the business transacted by it makes such licensing or qualification necessary. 2. Each Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and is duly licensed or qualified and is in good standing in each jurisdiction in which the character of the properties owned or leased by it or the nature of the business transacted by it makes such licensing or qualification necessary and all of the issued and outstanding shares of capital stock of each such Subsidiary have been duly issued, are fully paid and non-assessable and are owned by the Company, by one or more Subsidiaries, or by the Company and one or more Subsidiaries. 3. Each Note Agreement, the Security Document and the Intercreditor Agreement have been duly authorized by all necessary corporate action on the part of the Company, has been duly executed and delivered by the Company and constitute the legal, valid and binding contracts of the Company enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance or EXHIBIT D (to Note Agreement) similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). 4. The Notes have been duly authorized by all necessary corporate action on the part of the Company, have been duly executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent conveyance or similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). 5. Each Security Document has been duly authorized by all necessary corporate action on the part of the Company, has been duly executed and delivered by the Company and constitutes the legal, valid and binding contract of such Subsidiary enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). 6. No approval, consent or withholding of objection on the part of, or filing, registration or qualification with, any governmental body, Federal, state or local, is necessary in connection with the execution, delivery and performance of the Note Agreements, the Security Document, the Intercreditor Agreement or the Notes. 7. The Security Document (or financing statements or similar notices thereof to the extent permitted or required by applicable law) have been filed for record or recorded in all public offices wherein such filing or recordation is necessary to perfect the security interest granted by such Security Document in the collateral therein described as against creditors of and purchasers from the Company and its Subsidiaries and the Security Document create a valid and perfected first security interest in such collateral effective as against creditors of and purchasers from the Company and its Subsidiaries subject only to D-2 encumbrances expressly permitted by the terms of such Security Document. 8. The issuance and sale of the Notes and the execution, delivery and performance by the Company of the Note Agreements, the Security Document and the Intercreditor Agreement do not conflict with or result in any breach of any of the provisions of or constitute a default under or result in the creation or imposition of any Lien upon any of the property of the Company pursuant to the provisions of the Articles of Incorporation or By- laws of the Company or any agreement or other instrument known to such counsel to which the Company is a party or by which the Company may be bound. 9. The issuance, sale and delivery of the Notes under the circumstances contemplated by the Note Agreements does not, under existing law, require the registration of the Notes under the Securities Act of 1933, as amended, or the qualification of an indenture under the Trust Indenture Act of 1939, as amended. 10. The issuance of the Notes and the use of the proceeds of the sale of the Notes in accordance with the provisions of and contemplated by the Note Agreements do not violate or conflict with Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. 11. There is no litigation pending or, to the best knowledge of such counsel, threatened which in such counsel's opinion could reasonably be expected to have a materially adverse effect on the Company's business or assets or which would impair the ability of the Company to issue and deliver the Notes or to comply with the provisions of the Note Agreements, the Security Document and the Intercreditor Agreement, as the case may be. The opinion of Bernard E. Lyons, Esq. shall cover such other matters relating to the sale of the Notes as the Purchasers may reasonably request. With respect to matters of fact on which such opinion is based, such counsel shall be entitled to rely on appropriate certificates of public officials and officers of the Company. D-3 SUBORDINATION PROVISIONS APPLICABLE TO SUBORDINATED INDEBTEDNESS (a) The indebtedness evidenced by the subordinated notes*, any renewals or extensions thereof, premium, if any, interest (including, without limitation, any such interest accruing subsequent to the filing by or against the Company of any proceeding brought under Chapter 11 of the Bankruptcy Code (11 U.S.C. Section 100 et seq.)) and any fees, charges, expenses or other sums payable under or in respect of the agreements pursuant to which such subordinated notes were issued, shall at all times be wholly and unconditionally subordinate and junior in right of payment to all principal, premium, if any, and interest (including, without limitation, any such interest accruing subsequent to the filing by or against the Company of any proceeding brought under Chapter 11 of the Bankruptcy Code (11 U.S.C. Section 100 et seq.), whether or not such interest is allowed as a claim pursuant to the provisions of such Chapter) and all other fees, charges, expenses and other sums payable in respect of (1) the Company's $10,000,000 aggregate principal amount 6.82% Senior Secured Notes, Series A, Due August 21, 1999, $10,000,000 aggregate principal amount 6.89% Senior Secured Notes, Series B, Due August 21, 2000, $10,000,000 7.04% Senior Secured Notes, Series C, Due August 21, 2001 and $20,000,000 aggregate principal amount 7.13% Senior Secured Notes, Series D, Due August 21, 2002 (collectively the "Notes") issued pursuant to the separate and several Note Agreements, each dated as of August 15, 1995 between the Company and Massachusetts Mutual Life Insurance Company, Jefferson-Pilot Life Insurance Company, Principal Mutual Life Insurance Company, Phoenix Home Life Mutual Insurance Company and Alexander Hamilton Life Insurance Company and (2) any other indebtedness for money borrowed of the Company not expressed to be subordinate or junior to any other indebtedness of the Company (the indebtedness described in the preceding clauses (1) and (2) is hereinafter called "Superior Indebtedness"), in the manner and with the force and effect hereafter set forth: (1) In the event of (i) any liquidation, dissolution or other winding up of the Company, voluntary or involuntary, (ii) any execution, sale, receivership, insolvency, bankruptcy, liquidation, - ---------------- *Or debentures or other designation as may be appropriate. EXHIBIT E (to Note Agreement) readjustment, reorganization, composition or other similar proceeding relative to the Company or its property, (iii) any general assignment by the Company for the benefit of creditors, or (iv) any distribution, division, marshalling or application of any of the properties or assets of the Company or the proceeds thereof to creditors, voluntary or involuntary, and whether or not involving legal proceedings, then and in any event: (A) all principal, premium, if any, any interest and all other sums owing on all Superior Indebtedness shall first be paid in full in cash before any payment or distribution of any kind or character, whether in cash, property or securities (other than in securities, including equity securities, or other evidences of indebtedness, the payment of which is unconditionally subordinated, to at least the same degree as the subordinated securities being paid, to the payment of all Superior Indebtedness which may at the time be outstanding) shall be made on indebtedness evidenced by the subordinated notes; (B) any payment or distribution of any kind or character, whether in cash, property or securities which would otherwise (but for the terms hereof) be payable or deliverable in respect of the subordinated notes, shall be paid or delivered directly to the holders of the Superior Indebtedness, for application to the payment of the Superior Indebtedness, until all Superior Indebtedness shall have been paid in full, and the holders of the subordinated notes at the time outstanding irrevocably authorize, empower and direct all receivers, trustees, liquidators, conservators, fiscal agents and others having authority in the premises to effect all such payments and deliveries; (C) any payment or distribution of any kind or character, whether in cash, property or securities which shall be made upon or in respect of the subordinated notes shall be paid over to the holders of Superior Indebtedness, pro rata, for application and payment thereof unless and until such Superior Indebtedness shall have been paid or satisfied in full; and E-2 (D) notwithstanding the foregoing provisions, if for any reason whatsoever any payment or distribution of any kind or character, whether in cash, property or securities, should be received by a holder of the subordinated notes before all such Superior Indebtedness is paid in full, such payment or distribution shall be held in trust for the benefit of, and shall be immediately paid or delivered by such holder to, as the case may be, the holders of such Superior Indebtedness remaining unpaid, or their representative or representatives, for application to the payment of all such Superior Indebtedness, pro rata, unless and until such Superior Indebtedness shall have been paid or satisfied in full. (2) In the event that the subordinated notes are declared or become due and payable because of the occurrence of any event of default hereunder (or under the agreement or indenture, as appropriate) or otherwise than at the option of the Company, under circumstances when the foregoing clause (1) shall not be applicable, then no amount shall be paid by the Company in respect of the principal of, premium, if any, or interest on the subordinated notes in excess of current interest payments as provided herein prior to the 90th day after any holder of the Subordinated Notes has given notice to the Company that such Subordinated Notes have been declared or have become due and payable before their expressed maturity date, unless and until all Superior Indebtedness shall have been paid in full in cash, provided that if during such 90 day period the holders of the Superior Indebtedness initiate legal proceedings to enforce the Company's obligations in respect of the Superior Indebtedness, such period of non- payment shall be tolled for so long as the holders of the Superior Indebtedness continue to prosecute such legal proceedings. (3) Upon the happening of any Superior Indebtedness Payment Default (as defined below), the holders of the subordinated notes shall not be entitled to receive any payment on account thereof during the period beginning on the date such Senior Indebtedness Payment Default shall occur and ending upon the earlier of (i) the date such Superior Indebtedness Payment Default has been waived in writing by the holders of the related Superior Indebtedness, (ii) the date E-3 on which notice that such Superior Indebtedness Payment Default shall have ceased to exist is given by any holder of the related Superior Indebtedness to the Company, and (iii) the date on which such Superior Indebtedness Payment Default has been cured or shall have ceased to exist. "Superior Indebtedness Payment Default" shall mean any default or failure by the Company to make any optional, required or mandatory prepayment or payment of principal, premium, if any, or interest with respect to any Superior Indebtedness. (4) In case any default on any Superior Indebtedness other than a default in respect of the payment of principal, premium, if any, or interest in respect of such Superior Indebtedness ("Superior Indebtedness Nonmonetary Event of Default") shall have occurred and be continuing with respect to any Superior Indebtedness, no holder of the subordinated notes shall be entitled to receive any payment on account thereof during the period beginning on a Payment Blockage Commencement Date (as defined below) and ending upon the earlier of (A) the date such Superior Indebtedness Nonmonetary Event of Default has been waived in writing by the holders of such Superior Indebtedness, (B) the date on which notice that such Superior Indebtedness Nonmonetary Event of Default shall have ceased to exist is given by the holders of such Superior Indebtedness to the Company, and (C) the date on which such Superior Indebtedness Nonmonetary Event of Default has been cured; provided, however, that (x) no more than one blockage period under this paragraph (4) may occur during any period of 360 consecutive days, (y) blockage periods under this paragraph (4) shall not be in effect for more than 150 days during any period of 360 consecutive days, and (z) no facts or circumstances constituting a Superior Indebtedness Nonmonetary Event of Default existing on any Payment Blockage Commencement Date may be used as a basis for any subsequent blockage period unless cured or waived. As used herein, the term "Payment Blockage Commencement Date" shall mean the date on which written notice of a Superior Indebtedness Nonmonetary Event of Default is given by any holder of such Superior Indebtedness to the Company. (b) If any payment or distribution of any kind or character (whether in cash, securities or other property) or any security shall be received by any E-4 holder of the subordinated notes in contravention of any of the terms of this (S)___, such payment or distribution or security shall be held in trust for the benefit of, and shall be paid over or delivered and transferred to, holders of the Superior Indebtedness pro rata for application to the payment of all Superior Indebtedness remaining unpaid, to the extent necessary to pay all such Superior Indebtedness in full in cash. In the event of the failure of any holder of the subordinated notes to endorse or assign any such payment, distribution or security, any holder of the Superior Indebtedness or such holder's representative is hereby irrevocably authorized to endorse or assign the same. (c) The holder of each subordinated note undertakes and agrees for the benefit of each holder of Superior Indebtedness to execute, verify, deliver and file any proofs of claim within 30 days before the expiration of the time to file the same which any holder of Superior Indebtedness may at any time require in order to prove and realize upon any rights or claims pertaining to the subordinated notes and to effectuate the full benefit of the subordination contained herein; and upon failure of the holder of any subordinated note so to do, any such holder of Superior Indebtedness shall be deemed to be irrevocably appointed the agent and attorney-in-fact of the holder of such note to execute, verify, deliver and file any such proofs of claim. (d) No right of any holder of any Superior Indebtedness to enforce subordination as herein provided shall at any time or in any way be affected or impaired by any failure to act on the part of the Company or the holders of Superior Indebtedness, or by any noncompliance by the Company with any of the terms, provisions and covenants of the subordinated notes or the agreement under which they are issued, regardless of any knowledge thereof that any such holder of Superior Indebtedness may have or be otherwise charged with. (e) No holder of any subordinated notes will sell, assign, pledge, encumber or otherwise dispose of any of its subordinated notes unless such sale, assignment, pledge, encumbrance or disposition is made expressly subject to the foregoing provisions. (f) The Company agrees, for the benefit of the holders of Superior Indebtedness, that in the event that any subordinated note is declared due and E-5 payable before its expressed maturity because of the occurrence of a default hereunder, (1) the Company will give prompt notice in writing of such happening to the holders of Superior Indebtedness, (2) all Superior Indebtedness shall forthwith become immediately due and payable upon demand, regardless of the expressed maturity thereof and (3) the holders of such subordinated notes shall not be entitled to receive any payment or distribution in respect thereof or applicable thereto until all Superior Indebtedness at the time outstanding shall have been paid in full in cash. (g) The subordination effected by the foregoing provisions and the rights created thereby of the holders of the Superior Indebtedness shall not be affected by (1) any amendment of or addition or supplement to any Superior Indebtedness or any instrument or agreement relating thereto, (2) any exercise or non-exercise of any right, power or remedy under or in respect of any Superior Indebtedness or any instrument or agreement relating thereto, or (3) the giving or denial of any waiver, consent, release, indulgence, extension, renewal, modification or delay or the taking or nontaking of any other action, inaction or omission, in respect of any Superior Indebtedness or any instrument or agreement relating thereto or to any securities relating thereto or any guarantee thereof, whether or not any holder of any subordinated notes shall have had notice or knowledge of any of the foregoing. E-6 EX-10.10 4 SCHEDULE TO FORMS OF NOTE AGREEMENT AND INTERCREDIT Exhibit 10.10 Schedule to Note Agreement and Intercreditor Agreement A. JULY 1, 1996 PRIVATELY PLACED NOTES. Separate and several Note Agreements ----------------------------------- dated as of July 1, 1996, in the form substantially similar to that of Exhibit 10.6 to this Registration Statement filed on Form S-1, with the differences summarized below, were entered into by Company with each of the institutions named below. The Note Agreements were executed on behalf of the Company by William F. Berry, President and Chief Executive Officer. The separate Note Agreements were addressed to each of the Purchasers named below and accepted by the officers of the respective institutions as shown below. 1. Principle Terms of Note Agreements $20,000,000 7.62% Senior Secured Notes, Series E, Due July 12, 2001, and $20,000,000 7.76% Senior Secured Notes, Series F, Due July 12, 2002 Series E, PPN 90341 *AE 9 Series F, PPN 90341 *AF 6 2. Purchasers MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY 1295 State Street Springfield, Massachusetts 01111 By: /s/ John B. Joyce Vice President CM LIFE INSURANCE COMPANY c/o Massachusetts Mutual Life Insurance Company 1295 State Street Springfield, Massachusetts 01111 By: /s/ Thomas T.S. Li Managing Director PRINCIPAL MUTUAL LIFE INSURANCE COMPANY 711 High Street Des Moines, Iowa 50392-0800 By: /s/ Jon C. Heiny Counsel By: /s/ Annette M. Masterson Director - Securities Investment 1 PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY One American Row Hartford, Connecticut 06115 By: /s/ Anthony Zeppetella Senior Vice President ALEXANDER HAMILTON LIFE INSURANCE COMPANY OF AMERICA P.O. Box 21008 Greensboro, North Carolina 27420 By: /s/ W. Hardee Mills Vice President B. First Amendment to Intercreditor Agreement The First Amendment to Intercreditor Agreement dated as of July 1, 1996 (the "First Amendment") amends the Intercreditor Agreement dated as of August 15, 1995 (the "Intercreditor Agreement"). The First Amendment is substantially similar to the Intercreditor Agreement filed as Exhibit 10.9 to this Registration Statement filed on Form S-1, with the differences summarized below. The First Amendment was entered into by (a) Massachusetts Mutual Life Insurance Company, Jefferson-Pilot Life Insurance Company, Principal Mutual Life Insurance Company, Phoenix Home Life Mutual Insurance Company, Phoenix American Life Insurance Company, Alexander Hamilton Life Insurance Company of America, as holders of the Company's Senior Secured Notes, Series A through D, due 1999-2002 and (b) Bank of America National Trust and Savings Association. The Company sold to Massachusetts Mutual Life Insurance Company, CM Life Insurance Company, Principal Mutual Life Insurance Company, Phoenix Home Life Mutual Insurance Company and Alexander Hamilton Life Insurance Company of America its (i) $20,000,000 7.62% Senior Secured Notes, Series E, Due July 12, 2001 and (ii) $20,000,000 7.76% Senior Secured Notes, Series F, Due July 12, 2002. Pursuant to the First Amendment, the Series E and F Senior Secured Notes are pari passu with the existing Series A through D Senior Secured Notes and are secured ratably with the existing Series A through D Senior Secured Notes pursuant to the Third Amended and Restated Security Agreement. 2 EX-23.1 5 CONSENT OF PRICE WATERHOUSE LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 of our report dated May 22, 1996 relating to the financial statements of U.S. Rentals, Inc., a California corporation, and of our report dated December 6, 1996 relating to the financial statement of U.S. Rentals, Inc., a Delaware corporation, which appear in such Prospectus. We also consent to the references to us under the heading "Experts" and "Selected Financial Data" in such Prospectus. However, it should be noted that Price Waterhouse LLP has not prepared or certified such "Selected Financial Data". PRICE WATERHOUSE LLP Sacramento, California December 13, 1996 EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM U.S. RENTALS, INC. (THE PREDECESSOR) COMBINED FINANCIAL STATEMENTS. 1,000 12-MOS 9-MOS DEC-31-1995 DEC-31-1996 JAN-01-1995 JAN-01-1996 DEC-31-1995 SEP-30-1996 3,479 3,766 0 0 54,822 65,461 6,166 10,397 3,938 4,278 0 0 179,218 242,417 49,398 46,440 245,184 321,390 0 0 0 0 0 0 0 0 699 699 82,378 90,277 245,184 321,390 242,847 216,462 242,847 216,462 167,872 158,664 204,825 188,136 1,620 342 3,441 4,176 8,876 8,286 31,092 22,952 468 316 30,624 22,636 0 0 0 0 0 0 30,624 22,636 0 0 0 0 REPRESENTS THE PROVISION FOR DOUBTFUL ACCOUNTS.
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