-----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, FYsPbp4PgUZuHD5a+J9y0WMgekxC1hZtOPtU3R03n8W1Yvln0jGib4R+GDW3OD/f x4Ssb/G5qNzPMQHZm1Th9A== 0000944209-97-000071.txt : 19970129 0000944209-97-000071.hdr.sgml : 19970129 ACCESSION NUMBER: 0000944209-97-000071 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19970128 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: U S RENTALS INC CENTRAL INDEX KEY: 0001028726 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS EQUIPMENT RENTAL & LEASING [7350] IRS NUMBER: 943061974 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-17783 FILM NUMBER: 97512213 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/A 1 FORM S-1/A--AMENDMENT # 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1997 REGISTRATION NO. 333-17783 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- AMENDMENT NO. 1 TO 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 (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATON) 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 TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION REGISTERED REGISTERED PER SHARE PRICE(1) FEE - ----------------------------------------------------------------------------------- Common Stock, par value $.01 per share......... 11,500,000 Shares $21.00 $241,500,000 $73,182(2)
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Estimated solely for purposes of determining the registration fee pursuant to Rule 457 under the Securities Act of 1933, as amended. (2) Of this amount, $62,728 was paid with original filing and $10,454 is being paid with this amendment. --------------- 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) IF 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 and Canada (the "U.S. Offering") of an aggregate of 8,000,000 shares of Common Stock, par value $.01 per share (the "Common Stock"), of U.S. Rentals, Inc. (9,500,000 shares if the U.S. Underwriters' over-allotment option is exercised in full), together with separate Prospectus pages relating to a concurrent offering outside the United States and Canada of an aggregate of 2,000,000 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. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ PROSPECTUS SUBJECT TO COMPLETION, DATED JANUARY 28, 1997 , 1997 10,000,000 SHARES [LOGO OF U.S. RENTALS] COMMON STOCK All of the 10,000,000 shares of common stock, $.01 par value per share (the "Common Stock"), offered hereby are being sold by U.S. Rentals, Inc. Of the 10,000,000 shares of Common Stock offered by the Company, 8,000,000 shares are being offered for sale in the United States and Canada by the U.S. Underwriters (the "U.S. Offering") and 2,000,000 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 $19.00 and $21.00 per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. The Common Stock has been approved for listing on the New York Stock Exchange upon notice of issuance under the symbol "USR." SEE "RISK FACTORS" BEGINNING ON PAGE 8 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 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 $1,350,000. (3) The Company has granted to the U.S. Underwriters a 30-day option to purchase up to 1,500,000 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 Map of United States with dots indicating the locations of the Profit Centers. The dots are located primarily in the Western and Southwestern states. Below the map on the left side of the page is a picture of a delivery truck transporting rental equipment. On the far right side of the page there are two columns that list the location of each Profit Center. 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. 2 A picture in the middle of the page has numerous workers standing with various pieces of rental equipment. A picture of an overview of a Profit Center is below the center picture. Pictures on the left side of the first fold out page are, from top to bottom: a crane truck at a construction site; an overview of a Profit Center; an excavator working by a water inlet; and a construction worker using a tamper. Pictures on the right side on the second fold out page are, from top to bottom: a bulldozer at a work site; a Bobcat at a work site; a motor grader at a work site; and an overview of a Profit Center. The background of the fold out page is a ghosted picture of a motor grader. 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 $20.00 per share of Common Stock of the Company, 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 80 equipment rental yards ("Profit Centers") in 11 states and in 1996 generated an average of approximately 95,000 rental contracts per month from a diverse base of customers including commercial and residential construction, industrial and homeowner customers. Management estimates that more than 200,000 customers did business with the Company in 1996. 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 $367.7 million at December 31, 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 routinely 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 28 start-up and acquired equipment rental yards since January 1992. As a result of the Company's strategy, total revenues increased to $305.8 million in 1996 from $120.2 million in 1992, a compound annual growth rate of 26.3%. During the same period, operating income before non-rental depreciation increased to $49.7 million from $11.7 million, a compound annual growth rate of 43.6%. 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 1996, managers of profitable locations earned an average of approximately 92% of their base salaries in profit sharing compensation. Management believes that its innovative operating and compensation philosophy significantly contributed to same Profit Center revenue growth of 20.0% and 17.1% in 1995 and 1996, 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 1995 and published in 1996 by 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 survey conducted by The CIT Group for 1995 and published in 1996 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 an estimated 5% in 1995. 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. According to a May 1996 article published by Rental Equipment Register, an industry trade magazine, the 100 largest rental equipment companies, based on 1995 rental revenue, represented less than 20% of total industry rental revenue estimated at $15 billion. 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, management believes 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 routinely 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 12 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 the Company's 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. 4 Rentals has acquired 15 rental yards and has opened 13 start-up rental yards since January 1, 1992. The Company routinely analyzes potential acquisitions of rental yards but is not currently a party to any material acquisition agreement. Market Leadership. Management believes 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. In 1996 U.S. Rentals generated an average of approximately 95,000 customer contracts per month from a diverse customer base. Management estimates that more than 200,000 customers did business with the Company in 1996. 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 1996, managers of profitable locations earned an average of approximately 92% of their base salaries in profit sharing compensation. 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 industry experience, is among the most experienced in the 5 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 numerous operational and managerial capacities in the Company during his career. The Company was incorporated in Delaware in November 1987 but has not had operations prior to the Offerings. See "Offering Related Transactions." 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. THE OFFERINGS Common Stock offered hereby: U.S. Offering .................. 8,000,000 shares International Offering ......... 2,000,000 shares ----------------- Total......................... 10,000,000 shares ================= Common Stock to be outstanding after the Offerings.................... 30,748,975 shares(a) Use of proceeds .................. The estimated net proceeds to the Company of $186.2 million from the Offerings will be used to repay substantially all outstanding indebtedness of the Company, pay related prepayment penalties and for working capital and general corporate purposes, including possible future acquisitions. See "Use of Proceeds." New York Stock Exchange symbol.... USR
- -------------------- (a) Excludes 4,600,000 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." 6 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.
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------- PRO FORMA AS ADJUSTED(A) 1992 1993 1994 1995 1996 1996 -------- -------- -------- -------- -------- -------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA: Total revenues.......... $120,172 $143,582 $187,758 $242,847 $305,837 $305,837 Gross profit............ 27,213 36,129 55,151 74,975 85,616 85,616 Operating income........ 8,638 12,686 23,786 38,022 (b) 42,154 (b) 43,678 Other income (expense), net.................... 782 (31) (242) (1,620) (665)(c) 62 Interest income (expense), net......... 1,219 1,236 (1,060) (5,310) (8,031) (13) Income before income taxes.................. 10,639 13,891 22,484 31,092 33,458 43,727 Income taxes............ 529 405 499 468 374 17,598 Net income.............. 10,110 13,486 21,985 30,624 33,084 Pro forma net income(d). 6,318 8,181 13,263 18,312 20,002 26,129 Pro forma net income per share.................. 0.85 BALANCE SHEET DATA (END OF PERIOD): Rental equipment, net... $ 49,326 $ 65,606 $112,563 $152,848 $205,982 $205,982 Total assets............ 102,085 125,390 187,525 245,184 324,448 296,895 Total debt.............. 31,392 48,419 84,751 105,696 186,710 500 Total stockholder's equity................. 51,739 48,608 57,951 83,077 80,730 233,834 SELECTED OPERATING DATA: Gross equipment capital expenditures........... $ 24,279 $ 42,892 $ 83,157 $ 88,861 $119,348 $119,348 Rental equipment depreciation........... 20,231 24,300 33,754 43,885 56,105 56,105 Non-rental depreciation. 3,060 3,294 4,092 5,513 7,528 7,528 Profit Centers (end of period)................ 57 57 65 71 80 80 Same Profit Center revenue growth(e)...... 2.6% 16.0% 23.5% 20.0% 17.1% 17.1%
- -------------------- (a) Gives effect to (i) the Offering Related Transactions, (ii) the sale of 10,000,000 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 $20.00 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 "Offering Related Transactions," "Use of Proceeds," "Capitalization," "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) Operating income for the years ended December 31, 1995 and 1996 includes $645,000 and $1,524,000 of non-recurring compensation expense related to the Predecessor's deferred incentive compensation agreements that were terminated in January 1997. See "Certain Transactions--Offering Related Agreements." (c) Includes $1,300,000 of non-recurring expense from non-operating assets of the Predecessor not transferred to the Company as part of the Offering Related Transactions. (d) 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." (e) 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. 7 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 59.5% and 18.0% of its total revenues from its California and Texas locations, respectively, in 1996. 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 results of operations 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 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. 8 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. However, the Company does not maintain key man insurance for any of its employees. 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 67.5% of the outstanding Common Stock (64.3% 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." QUARTERLY FLUCTUATIONS AND SEASONALITY 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 Common Stock. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Quarterly Results." In addition, the Company will incur non-recurring charges of approximately $29.0 million during the first quarter of 1997 as a result of the termination of the Predecessor's deferred incentive compensation agreements prior to the Offerings, the establishment of a deferred tax liability and the associated charges resulting from the termination of the Predecessor's election to be treated as an S corporation for tax purposes and for an expense related to prepayment penalties on indebtedness to be repaid with proceeds from the Offerings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Quarterly Results," "Certain Transactions--Offering Related Agreements" and Note 9 of notes to Combined Financial Statements. 9 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, 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. There also can be no assurance that environmental contamination does not currently exist at any of the Company's locations from prior activities at such locations or from neighboring properties. 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. Phase I environmental assessments on a number of recently acquired facilities indicated the possibility of releases of hazardous materials at those facilities, but the Company has not determined whether releases actually have occurred or whether remediation will be required. In addition, the Company believes that hazardous substances currently requiring remediation are present at seven of its facilities. The Company has applied or is applying for governmental determinations that remediation has been completed at four of such locations and is undertaking or anticipates undertaking remediation at the three other facilities. No assurance can be given that such governmental determinations will be issued without first requiring additional remediation or monitoring. Management believes that the Company is also responsible (pursuant to the terms of certain of its leases) for any required remediation of seven double- walled underground storage tanks. 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 will 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--Liquidity and Capital Resources." 10 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 Amended and Restated Bylaws (the "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 (the "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 30,748,975 shares of Common Stock (32,248,975 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 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 11 intends to register 4,600,000 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, the Predecessor 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 Predecessor is entitled to certain rights to register its shares of Common Stock under the Securities Act of 1933, as amended (the "Securities Act"), for resale, at the expense of the Company. The Predecessor 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 $12.45 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. 12 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 substantially all of its operating assets and associated liabilities to the Company in exchange for 20,748,975 shares of Common Stock of the Company, representing all of the outstanding capital stock of the Company prior to the Offerings. The Predecessor will retain only non-operating assets and liabilities, including approximately $25.7 million of notes receivable from related parties and approximately $23.9 million of notes payable to related parties. These transactions (collectively, the "Offering Related Transactions") are reflected in the pro forma financial information contained in this Prospectus, and all references to the Company or U.S. Rentals reflect these transactions, unless otherwise indicated. See "Certain Transactions-- Offering Related Agreements." 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 under the Internal Revenue Code. 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 10,000,000 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 $186.2 million ($214.3 million if the U.S. Underwriters' over- allotment option is exercised in full), assuming an initial public offering price of $20.00 per share (the midpoint of the offering range set forth on the cover page of this Prospectus). The Company intends to use approximately $182.3 million of the net proceeds from the Offerings to repay substantially all of its outstanding indebtedness, including the indebtedness under the Credit Facility and other indebtedness transferred from the Predecessor in the Offering Related Transactions, approximately $2.0 million to pay related prepayment penalties and approximately $1.9 million for working capital and general corporate purposes, including possible future acquisitions. None of the proceeds will be used to repay any indebtedness retained by the Predecessor. 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 dividends totaled approximately $5.5 million and $35.4 million in 1995 and 1996, 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 Factors--Absence of Dividends" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." 13 DILUTION As of December 31, 1996, the Company had a pro forma net tangible book value of $47.5 million, or $2.29 per share of Common Stock. 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 $20.00 per share (and 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 December 31, 1996 would have been $232.2 million or $7.55 per share of Common Stock. This represents an immediate increase in pro forma net tangible book value of $5.26 per share to the Principal Stockholder and an immediate dilution of $12.45 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........................ $20.00 ------ Pro forma net tangible book value per share before the Offerings..................................................... $2.29 ----- Increase in pro forma net tangible book value per share attributable to new investors................................. 5.26 ----- Pro forma net tangible book value per share after giving effect to the Offerings.............................................. 7.55 ------ Pro forma net tangible book value dilution per share to new investors..................................................... $12.45 ======
The following table sets forth, as of December 31, 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 (through the Predecessor) and new investors purchasing shares of Common Stock from the Company in the Offerings.
SHARES PURCHASED TOTAL CONSIDERATION ------------------ -------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ------------ ------- ------------- Principal Stockholder... 20,748,975 67.5% $ 56,731,000 22.1% $ 2.73 New investors........... 10,000,000 32.5% 200,000,000 77.9% 20.00 ---------- ----- ------------ ----- Total................. 30,748,975 100.0% $256,731,000 100.0% ========== ===== ============ =====
The foregoing table excludes 4,600,000 shares reserved for future issuance under the 1997 Plan. See "Management--Employment Agreements" and "--1997 Performance Award Plan." 14 CAPITALIZATION The following table sets forth the capitalization of the Company as of December 31, 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 the Unaudited Pro Forma Financial Statements and notes thereto included elsewhere in this Prospectus.
AS OF DECEMBER 31, 1996 -------------------------------- PRO FORMA ACTUAL(A) PRO FORMA AS ADJUSTED --------- --------- ----------- (IN THOUSANDS) Cash and cash equivalents..................... $ 2,906 $ 2,906 $ 4,772 ======== ======== ======== Debt: Senior Notes................................ $ 90,000 $ 90,000 $ -- Credit Facility............................. 69,300 89,300 -- (b) Other debt.................................. 27,410 3,467 500 -------- -------- -------- Total debt................................ 186,710 182,767 500 -------- -------- -------- 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 ............................ -- -- -- Common stock of the Company, par value $.01 per share; 100,000,000 shares authorized; 20,748,975 and 30,748,975 shares issued and outstanding pro forma and pro forma as adjusted(c)................................ -- 207 307 Additional paid-in capital.................. 13,186 56,524 242,574 Retained earnings........................... 66,845 (7,030) (9,047) -------- -------- -------- Total stockholder's equity................ 80,730 49,701 233,834 -------- -------- -------- Total capitalization.......................... $267,440 $232,468 $234,334 ======== ======== ========
- --------------------- (a) Reflects the Predecessor's capitalization on a historical basis. (b) In conjunction with the Offerings, the Company has obtained a commitment letter with its existing lenders for the New Credit Facility which will provide availability of $300.0 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." (c) Excludes 4,600,000 shares reserved for future issuance under the 1997 Plan. See "Management--Employment Agreements" and""--1997 Performance Award Plan." 15 SELECTED FINANCIAL DATA The following selected financial data for the years ended December 31, 1994, 1995 and 1996 and as of December 31, 1995 and 1996 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 years ended December 31, 1992 and 1993 and as of December 31, 1992, 1993 and 1994 have been derived from the combined financial statements of the Predecessor, which have been audited but are not contained herein. 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.
YEAR ENDED DECEMBER 31, -------------------------------------------------------------------- PRO FORMA AS ADJUSTED(a) 1996 1992 1993 1994 1995 1996 (UNAUDITED) -------- -------- -------- -------- -------- -------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) REVENUES: Rental revenue.......... $104,802 $127,752 $167,589 $214,849 $257,486 $257,486 Rental equipment sales.. 7,047 6,323 8,098 10,832 24,629 24,629 Merchandise and new equipment sales........ 8,323 9,507 12,071 17,166 23,722 23,722 -------- -------- -------- -------- -------- -------- Total revenues.......... 120,172 143,582 187,758 242,847 305,837 305,837 -------- -------- -------- -------- -------- -------- COST OF REVENUES: Rental equipment expense................ 27,590 33,298 42,034 51,370 65,102 65,102 Rental equipment depreciation........... 20,231 24,300 33,754 43,885 56,105 56,105 Cost of rental equipment sales.................. 2,443 2,298 2,946 4,693 10,109 10,109 Cost of merchandise and new equipment sales.... 4,695 5,948 7,428 11,418 17,423 17,423 Direct operating expense................ 38,000 41,609 46,445 56,506 71,482 71,482 -------- -------- -------- -------- -------- -------- Total cost of revenues.. 92,959 107,453 132,607 167,872 220,221 220,221 -------- -------- -------- -------- -------- -------- Gross profit............ 27,213 36,129 55,151 74,975 85,616 85,616 Selling, general and administrative expense. 15,515 20,149 27,273 31,440(b) 35,934 (b) 34,410 Non-rental depreciation. 3,060 3,294 4,092 5,513 7,528 7,528 -------- -------- -------- -------- -------- -------- Operating income........ 8,638 12,686 23,786 38,022 42,154 43,678 Other income (expense), net.................... 782 (31) (242) (1,620) (665)(c) 62 Interest income (expense), net......... 1,219 1,236 (1,060) (5,310) (8,031) (13) -------- -------- -------- -------- -------- -------- Income before income taxes.................. 10,639 13,891 22,484 31,092 33,458 43,727 Income taxes............ 529 405 499 468 374 17,598 -------- -------- -------- -------- -------- -------- Net income.............. $ 10,110 $ 13,486 $ 21,985 $ 30,624 $ 33,084 ======== ======== ======== ======== ======== Pro forma net income(d). $ 6,318 $ 8,181 $ 13,263 $ 18,312 $ 20,002 $ 26,129 ======== ======== ======== ======== ======== ======== Pro forma net income per share.................. $ 0.85 ======== Number of shares outstanding............ 30,748,975
16
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------- PRO FORMA AS ADJUSTED(A) 1996 1992 1993 1994 1995 1996 (UNAUDITED) -------- -------- -------- -------- -------- -------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) BALANCE SHEET DATA (END OF PERIOD): Rental equipment, net... $ 49,326 $ 65,606 $112,563 $152,848 $205,982 $205,982 Total assets............ 102,085 125,390 187,525 245,184 324,448 296,895 Total debt.............. 31,392 48,419 84,751 105,696 186,710 500 Total stockholder's equity................. 51,739 49,608 57,951 83,077 80,730 233,834 SELECTED OPERATING DATA: Gross equipment capital expenditures........... $ 24,279 $ 42,892 $ 83,157 $ 88,861 $119,348 $119,348 Beginning Profit Centers................ 52 57 57 65 71 71 Profit Centers added.... 5 -- 8 6 9 9 Ending Profit Centers... 57 57 65 71 80 80 Same Profit Center revenue growth(e)...... 2.6% 16.0% 23.5% 20.0% 17.1% 17.1%
- ------------------ (a) Gives effect to (i) the Offering Related Transactions, (ii) the sale of 10,000,000 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 $20.00 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 "Offering Related Transactions," "Use of Proceeds," "Capitalization," "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) Selling, general and administrative expense for the years ended December 31, 1995 and 1996 includes $645,000 and $1,524,000 of non-recurring compensation expense related to the Predecessor's deferred incentive compensation agreements that were terminated in January 1997. See "Certain Transactions--Offering Related Agreements." (c) Includes $1,300,000 of non-recurring expense from non-operating assets of the Predecessor not transferred to the Company as part of the Offering Related Transactions. (d) 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. (e) 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. 17 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 1996, the Company's total revenues grew at a compound annual growth rate of 26.3%. In the same period, the Company's pro forma net income grew to $20.0 million from $6.3 million, a compound annual growth rate of 33.4%. U.S. Rentals has been profitable in 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, is 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 operations. 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 $119.3 million in years ended December 31, 1994, 1995 and 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, 18 all operating assets and liabilities will be transferred to the Company, a C corporation under the Internal Revenue Code. 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 $7.0 million during the period in which the Offering Related Transactions are consummated, currently 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:
YEAR ENDED DECEMBER 31, --------------------------------- 1992 1993 1994 1995 1996 ----- ----- ----- ----- ----- Revenues: Rental revenue.......... 87.2% 89.0% 89.3% 88.5% 84.2% Rental equipment sales.. 5.9 4.4 4.3 4.5 8.0 Merchandise and new equipment sales........ 6.9 6.6 6.4 7.0 7.8 ----- ----- ----- ----- ----- Total revenues............ 100.0 100.0 100.0 100.0 100.0 Cost of revenues(a)....... 77.4 74.8 70.6 69.1 72.0 ----- ----- ----- ----- ----- Gross profit.............. 22.6 25.2 29.4 30.9 28.0 Selling, general and administrative expense... 12.9 14.0 14.5 12.9 11.7 Non-rental depreciation(b).......... 2.5 2.4 2.2 2.3 2.5 ----- ----- ----- ----- ----- Operating income.......... 7.2 8.8 12.7 15.7 13.8 Other income (expense), net...................... 0.7 (0.0) (0.1) (0.7) (0.2) Interest income (expense), net...................... 1.0 0.9 (0.6) (2.2) (2.7) ----- ----- ----- ----- ----- Income before income taxes.................... 8.9 9.7 12.0 12.8 10.9 Income taxes(c)........... 0.4 0.3 0.3 0.2 0.1 ----- ----- ----- ----- ----- Net income................ 8.5% 9.4% 11.7% 12.6% 10.8% ===== ===== ===== ===== ===== Pro forma net income(c)... 5.3% 5.7% 7.1% 7.5% 6.5% ===== ===== ===== ===== =====
- --------------------- (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. YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 Revenues. Total revenues in 1996 increased 25.9% to $305.8 million from $242.8 million in 1995. Rental revenue in 1996 increased 19.8% to $257.5 million or 84.2% of total revenues, as compared to rental revenue of $214.8 million or 88.5% of total revenues in 1995. Of the $42.6 million increase in rental revenue in 1996,$33.6 million was due primarily to increased equipment rental fleet at existing locations. The remaining increase of approximately $9.0 million was primarily due to nine new locations which were added in 1996. Rental equipment sales increased 127.4% to $24.6 million or 8.0% of total revenues in 1996 from $10.8 million or 4.5% of total revenues in 1995 due to increased customer demand and increased sales efforts. Merchandise and new equipment sales increased 38.2% in 1996 to $23.7 million or 7.8% of total revenues as compared to $17.2 million or 7.0% of total revenues in 1995, primarily due to increased rental revenue and demand for new equipment. 19 Gross Profit. Gross profit in 1996 increased 14.2% to $85.6 million from $75.0 million in 1995 primarily due to increased rental revenue. Gross profit decreased to 28.0% of total revenues in 1996 from 30.9% in 1995. This decrease was due primarily to a 27.8% increase in rental equipment depreciation resulting from the increase in rental fleet, offset in part by a change in depreciation method for equipment purchases subsequent to January 1, 1996 (see Note 1 to the Notes to Combined Financial Statements). In addition, rental equipment expense increased 26.7% due to the impact of increased rental volume. Gross profit was also impacted by an increase in direct operating expenses in 1996 which increased 26.5% to $71.5 million as compared to $56.5 million 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 9.6% in 1996 as compared to 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 in 1996 increased 14.3% to $35.9 million or 11.7% of total revenues compared to $31.4 million or 12.9% of total revenues 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 1996 as compared to 1995. Selling, general and administrative expense includes $1.5 million and $0.6 million in 1996 and 1995, respectively, of non-recurring compensation expense related to the Predecessor's deferred incentive compensation agreements that were terminated in January 1997. Other Income (Expense). Other expense decreased 59.0% to $0.7 million in 1996 from $1.6 million in 1995 as a result of a reduction in the level of charitable contributions made at the direction of the Principal Stockholder offset in part by a non-recurring write-off of $1.3 million on a non-operating investment. Substantially all other expense items for 1996 are not expected to be incurred by the Company in the future as a result of the Offering Related Transactions. Interest Expense. Interest expense net of interest income increased 51.2% to $8.0 million in 1996 from $5.3 million in 1995. The increase was primarily the result of higher average borrowings under the Credit Facility and other debt outstanding of $122.6 million in 1996 as compared to $72.5 million in 1995. However, this increase was partially offset by a decrease in the average interest rate to 6.1% in 1996 as compared to 7.2% 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 1.1% of pre-tax income in 1996 as compared to 1.5% of pre-tax income in 1995. On a pro forma C corporation basis, the Predecessor's effective tax rate would have been 40.2% in 1996 as compared to 41.1% in 1995. Net Income. Net income increased 8.0% to $33.1 million in 1996 from $30.6 million in 1995. Pro forma for the Offering Related Transactions and as adjusted for the Offerings, net income in 1996 was $21.1 million and $26.1 million, respectively. 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 in 1995 increased 28.2% to $214.8 million or 88.5% of total revenues, as compared to rental revenue of $167.6 million or 89.3% of total revenues in 1994. Of the $47.2 million increase in rental revenue in 1995, $43.0 million was due primarily to increased equipment rental fleet at existing locations. The remaining increase of approximately $4.2 million was primarily due to six new locations that were added in 1995. In addition, a total of six new locations were opened during 1995, providing $4.2 million in rental revenue. Rental equipment sales increased 33.8% to $10.8 million or 4.5% of total revenues in 1995 from $8.1 million or 4.3% of total revenues in 1994. Merchandise and new equipment sales increased 42.2% to $17.2 million or 7.0% of total revenues in 1995 as 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. 20 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 14 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 14 locations added in 1994 and 1995. Selling, general and administrative expense includes $0.6 million of non-recurring compensation expense related to the Predecessor's deferred incentive compensation agreements that were terminated in January 1997. Other Income (Expense), Net. Other expense increased to $1.6 million in 1995 from $0.2 million in 1994 primarily 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 in 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 as compared to 2.2% for 1994. On a pro forma C corporation basis, the Predecessor's effective tax rate would have been 41.1% for 1995 as compared to 41.0% for 1994. Net Income. Net income increased 39.3% to $30.6 million in 1995 from $22.0 million in 1994. On a pro forma C corporation basis, net income increased 38.1% to $18.3 million from $13.3 million in 1994. 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. In 1996, the Company's operating activities provided net cash flow of $70.7 million as compared to $75.0 million in 1995. Cash flows generated by operating activities before adjustments for changes in operating assets and liabilities increased to $85.3 million in 1996 from $76.9 million in 1995. This increase was attributable to an increase in net income and depreciation expense due to a larger rental equipment fleet that supported growth in revenues. However, the increase was more than offset by stable levels of accounts payable (notwithstanding significantly higher levels of purchases of rental equipment) attributable to shorter payment terms from suppliers in exchange for pricing discounts to obtain lower rental equipment prices. Net cash provided by operating activities was $75.0 million in 1995 as compared to $65.4 million in 1994. 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 $24.6 million in 1996 as compared to $10.8 million in 1995. 21 Net cash used in investing activities was $115.3 million in 1996 as compared to $89.9 million in 1995. 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 in 1996 were $119.3 million as compared to $88.9 million in 1995. Net cash used in investing activities increased to $89.9 million in 1995 from $86.5 million in 1994, primarily as a result of an increase in purchases of rental equipment. Net cash provided by financing activities was $43.9 million in 1996 as compared to $15.6 million in 1995. The principal cause for the variation between periods was net borrowings of $39.6 million under the Credit Facility in 1996 as compared to net payments of $28.2 million in 1995, partially offset by decreases in issuances of Senior Notes and an increase of $29.9 million in dividends paid to the Principal Stockholder 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 borrowings under the Credit Facility in 1994 of $35.7 million, partially offset by proceeds from issuances of Senior Notes in 1995. 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 has obtained a commitment letter with its existing lenders for the New Credit Facility which will provide availability of up to $300.0 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 availability under the New Credit Facility will be sufficient to support its operations and liquidity requirements for at least the next 12 months. The Company incurs capital expenditures for rental equipment, to satisfy the equipment needs of current and new customers and to provide for the equipment needs of new and acquired rental equipment yards. As of December 31, 1996, the Company had open purchase commitments of $19.6 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." 22 QUARTERLY RESULTS The following table sets forth certain unaudited statement of operations data for the quarters in the years ended December 31, 1995 and 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 DEC. 31 ------- ------- -------- ------- ------- ------- -------- ------- (IN THOUSANDS) Total revenues.......... $45,866 $58,144 $68,844 $69,993 $58,643 $71,172 $86,647 $89,375 Gross profit............ 10,904 18,448 22,731 22,892 14,262 18,292 25,244 27,818 Operating income........ 5,122 10,370 12,799 9,731 5,575 8,714 14,037 13,828 Other income (expense), net.................... (145) (260) (18) (1,197) 134 74 134 (1,007) Interest income (ex- pense), net............ (1,216) (1,310) (1,392) (1,392) (1,475) (1,822) (2,419) (2,315) Income before income taxes.................. 3,761 8,800 11,389 7,142 4,234 6,966 11,752 10,506 Income tax expense...... 24 308 47 89 29 131 156 58 Net income.............. 3,737 8,492 11,342 7,053 4,205 6,835 11,596 10,448 Pro forma net income(a). 2,225 5,163 6,717 4,207 2,523 4,151 7,002 6,326
- --------------------- (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. 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 operations. The operating results for any historical quarter are not necessarily indicative of results for any future period. In addition, the Company will incur non-recurring charges of approximately $29.0 million during the first quarter of 1997 as a result of the termination of the Predecessor's deferred incentive compensation agreements prior to the Offerings, the establishment of a deferred tax liability and the associated charges resulting from the termination of the Predecessor's election to be treated as an S corporation for tax purposes and for an expense related to prepayment penalties on indebtedness to be repaid with proceeds from the Offerings. See "Risk Factors--Quarterly Fluctuations and Seasonality," "Certain Transactions--Offering Related Agreements" and Note 9 of notes to Combined Financial Statements. 23 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 80 Profit Centers in 11 states and in 1996 generated an average of approximately 95,000 contracts per month from a diverse base of customers including commercial and residential construction, industrial and homeowner customers. Management estimates that more than 200,000 customers did business with the Company in 1996. 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 $367.7 million at December 31, 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 28 start-up and acquired equipment rental yards since January 1992. As a result of the Company's strategy, total revenues increased to $305.8 million in 1996 from $120.2 million in 1992, a compound annual growth rate of 26.3%. During the same period, operating income before non-rental depreciation increased to $49.7 million from $11.7 million, a compound annual growth rate of 43.6%. 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 1996, managers of profitable locations earned an average of approximately 92% of their base salaries in profit sharing compensation. Management believes that its innovative operating and compensation philosophy significantly contributed to same Profit Center revenue growth of 20.0% and 17.1% in 1995 and 1996, respectively. 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 1995 and published in 1996 by 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 24 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 for 1995 and published in 1996 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 an estimated 5% in 1995. 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. According to a May 1996 article published by Rental Equipment Register, an industry trade magazine, the 100 largest rental equipment companies, based on 1995 rental revenue, represented less than 20% of total industry rental revenue estimated at $15 billion. 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, management believes 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 routinely 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 12 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 the Company's 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 15 rental yards and has opened 13 start-up rental yards since January 1, 1992. The Company routinely analyzes potential acquisitions of rental yards but is not currently 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 believes 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. 25 Extensive Customer Base. In 1996 U.S. Rentals generated an average of approximately 95,000 customer contracts per month from a diverse customer base. Management estimates that more than 200,000 customers did business with the Company in 1996. 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 1996, managers of profitable locations earned an average of approximately 92% of their base salaries in profit sharing compensation. 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 industry experience, 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 numerous operational and managerial capacities in the Company during his career. See "Risk Factors-- Risks Relating to Growth" and "--Dependence on Key Personnel." CUSTOMERS Management estimates that in 1996 U.S. Rentals had more than 200,000 customers, ranging from Fortune 100 companies to small contractors and homeowners. During 1996, no one customer accounted for more than 1% of the Company's total revenues, and the top 10 customers represented less than 4.5% of total revenues. Customers look to U.S. Rentals as an ongoing, comprehensive source of rental equipment because of the 26 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 1996, commercial and residential construction, industrial and homeowner and other customers accounted for approximately 64%, 20% 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 survey conducted by The CIT Group for 1995 and published in 1996 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 an estimated 5% in 1995. 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 any 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 and residential 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 1996, equipment rental revenue together with rental-related revenue such as repair services, delivery and damage waiver income accounted for approximately 84.2% 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 7.8% of U.S. Rentals' total revenues in 1996. Approximately 8.0% of U.S. Rentals' 1996 total revenues 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 $367.7 million as of December 31, 1996. Five categories of equipment represented approximately 78.9% of U.S. Rentals' total rental equipment fleet (based on original equipment cost) as of December 31, 1996: (i) earth-moving equipment (22.3%); (ii) aerial 27 work platforms (21.8%); (iii) forklifts (16.4%); (iv) trucks (11.8%); and (v) compaction rollers (6.6%). The mix of rental equipment at each of U.S. Rentals' 80 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. As of December 31, 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 approximately 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 Profit Center managers have an average of 16 years of rental experience in the industry. The Company operates all of its Profit Centers under the name USRentals(R), other than two Profit Centers that are operated under the name Contractors Equipment Rental and one Profit Center that is operated under the name U.S. HiReach. 28 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 175 field-based salespersons and approximately 846 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 employees at all levels of 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 construction 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 is launching an Internet web page (www.usrentals.com) that is expected to describe 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 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 1996, the Company purchased approximately $119.3 million of rental equipment, of which approximately 58.8% was obtained from its top 10 suppliers. No single supplier accounted for more than 12.8% 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. 29 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 80 Profit Centers in the following 11 states: Arizona (2), Arkansas (3), California (46), Idaho (1), Kansas (1), Louisiana (3), Nevada (4), New Mexico (2), Oklahoma (1), Texas (16) and Washington (1). U.S. Rentals owns 27 of its Profit Centers and leases the other 53, as well as its approximately 12,000 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 $17.6 million at December 31, 1996, and the average annual lease expense on each leased facility was approximately $53,000 in 1996. Management believes that none of U.S. Rentals' leased facilities, individually, is material to the Company's operations. In addition, as of December 31, 1996 U.S. Rentals owned a fleet of approximately 774 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 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 As of December 31, 1996, U.S. Rentals had a total of 1,841 employees, of which 309 were salaried and 1,532 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 30 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. Since 1993, 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 environmental 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. Phase I environmental assessments on a number of recently acquired facilities indicated the possibility of releases of hazardous or toxic substances at those facilities, but the Company has not determined whether releases actually have occurred or whether remediation will be required. Moreover, there can be no assurance that a Phase I environmental assessment will disclose all environmental contamination located at that site. The remaining owned and leased facilities were acquired without first obtaining a Phase I environmental assessment. Environmental contamination has been found at certain of those facilities, principally in connection with the removal of underground storage tanks. No assurance can be given that environmental contamination is not present at the other locations. 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 believes that hazardous substances currently requiring remediation are present at seven of its facilities. The Company has applied or is applying for governmental determinations that remediation has been completed at four locations and is undertaking or anticipates undertaking remediation at the three other facilities. Management believes that the Company is also responsible (pursuant to the terms of certain of its leases) for any required remediation of seven double-walled underground storage tanks. The Company has reserved approximately $1.1 million for such remediation and removal of additional underground storage tanks and associated potential liability. The 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." 31 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." 32 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 of Directors 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 of Directors 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 more than 30 years with the Company and its predecessor, Mr. Berry has held numerous operational and managerial positions, including Profit Center Manager, Division Manager and Regional Vice President. 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 is not an employee of the Company. Mr. Lyons, a corporate lawyer, has represented numerous clients in his more than 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 more than 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 more than 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 several years with Hertz Equipment Rental Corporation. 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. 33 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 Upon consummation of the Offerings, the Company does not expect to pay its directors who are employees of the Company for their services as directors. The Company expects to pay its directors who are not employees (including Bernard E. Lyons but not the Principal Stockholder) reasonable cash compensation consistent with compensation paid by other publicly held companies, but the Company has not yet set the specific amount of such director compensation. Prior to the Offerings, the Predecessor paid a $5,000 monthly retainer to its directors. 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. No officers or employees of the Company, other than William F. Berry, John S. McKinney and Bernard E. Lyons, participated in deliberations concerning such compensation matters. 34 EXECUTIVE COMPENSATION The following table shows the compensation paid by the Company to the Chief Executive Officer and each of the Company's other four most highly compensated executive officers (collectively, the "Named Executive Officers") with respect to fiscal 1996. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ----------------- ALL OTHER NAME AND PRINCIPAL POSITION SALARY BONUS(A) COMPENSATION --------------------------- -------- -------- ------------ William F. Berry President and Chief Executive Officer...... $145,000 $400,000 $260,418(b)(c) John S. McKinney Vice President--Finance and Chief Financial Officer.................................... 104,167 120,000 159,893(b)(c) William F. Locklin Vice President and Region Manager.......... 104,167 120,000 1,470(b) Steven E. Nadelman Vice President and Region Manager.......... 104,167 120,000 1,109(b) Grace M. Crickette Vice President--Risk Management............ 72,500 35,000 200(b)
- --------------------- (a) Estimates of amounts earned in 1996 pursuant to the Company's profit sharing program that are expected to be paid in 1997. (b) Includes matching amounts contributed by the Company pursuant to the Company's 401(k) plan. (c) Includes director and executive committee fees paid for 1996, as well as deferred compensation earned in 1996. 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), 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 with the Company. Under Mr. Berry's agreement, he will be entitled to receive deferred compensation of $1,402,605 on the earliest of December 31, 2006, death, disability, a Change in Control Event (as defined in 1997 Plan) or termination without cause. If Mr. Berry voluntarily terminates his employment with the Company or if his employment is terminated for cause, he will be entitled to an amount equal to the vested portion of such deferred compensation, initially equal to 10% and increasing 10% per year. Mr. McKinney's employment agreement will be substantially identical to Mr. Berry's except that Mr. McKinney's minimum annual base salary will be $105,000 and his deferred compensation will be $701,302. Upon consummation of the Offerings, Messrs. Berry and McKinney will be issued options to purchase 2,254,925 and 1,127,462 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 ten equal installments over a 9.5 year period commencing upon the first anniversary of the consummation of the Offerings. See "--1997 Performance Award Plan." 35 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 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 1996, the Profit Center manager earned approximately 2.5 times his base salary in profit sharing. In 1996 managers of profitable locations earned an average of approximately 92% of their base salaries in profit sharing compensation. 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 operations. Unprofitable locations generally must make up cumulative 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 1996, the Company matched 50% of employee contributions up to a maximum contribution by the Company of $200 per employee. 1997 PERFORMANCE AWARD PLAN The Company intends to establish the 1997 Plan to attract, reward and retain talented and experienced officers, other key employees and certain other eligible persons (collectively, "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 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 will have 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 the Predecessor, the Principal Stockholder or one of his affiliates, successors, heirs or relatives, 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. 36 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 4,600,000 shares. The number of shares of Common Stock subject to awards granted to any individual in any calendar year is limited to 2,500,000. The number and kind of shares available for grant and the shares subject to outstanding 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 incentive stock option may be granted at a price that is less than fair market value of the Common Stock (less than 110% of fair market value of the Common Stock on the date of grant for certain participants) on the date of grant. Automatic Annual Grants to Non-Employee Directors. Under the 1997 Plan, each director who is not an employee (including Bernard E. Lyons but not the Principal Stockholder) (each a "Non-Employee Director") will be granted stock options to purchase 2,500 shares of Common Stock upon becoming a director at an exercise price equal to the market price of the Common Stock on that date. In addition, at the close of trading on the day of the annual stockholders meeting 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 stock options to purchase 1,000 shares of Common Stock at an exercise price equal to the market price of the Common Stock on that date. No Non-Employee Director may receive options to purchase more than 10,000 shares of Common Stock under the 1997 Plan. All Non- Employee Director stock options have a 10-year term and will vest in equal annual installments over a five-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 the director's death, disability or retirement, any portion of stock options held by such director that are exercisable will remain exercisable for six months after such termination of services or until the expiration of the term of such option, whichever occurs first. If the Non-Employee Director dies, becomes disabled or retires, stock options held by such director will become exercisable immediately and remain exercisable for two years after the date of such termination of services. 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. On the day the Company and the Underwriters agree on the initial public offering price of the Common Stock, the Board of Directors of the Company intends to grant options relating to up to an aggregate of 3,877,387 shares of Common Stock to Eligible Persons including options to purchase 2,254,925 and 1,127,462 shares of Common Stock that will be granted to William F. Berry and John S. McKinney, respectively. The exercise price of each option granted will be the initial public offering price per share of the Common Stock offered hereby. Other than Messrs. Berry and McKinney's options which will vest over a 9.5 year period in ten equal installments, such options vest in equal annual installments over a period of five years. 37 CERTAIN TRANSACTIONS REGISTRATION RIGHTS AGREEMENT The Predecessor and the Company have entered into a Registration Rights Agreement under which the Predecessor (and certain permitted transferees) will be entitled to certain rights with respect to the registration of its shares of Common Stock under the Securities Act. Under this agreement, the Predecessor will have the right to cause the Company to file a registration statement on Form S-1 with respect to its Common Stock on two separate occasions commencing six months after the date of the Offerings. 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 Predecessor 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 Predecessor may require from time to time that the Company file such a registration statement with respect to its 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. OFFERING RELATED AGREEMENTS The Company and the Predecessor have entered into an asset contribution agreement effective immediately prior to the consummation of the Offerings. Under this agreement, the Predecessor will transfer substantially all of its operating assets and associated liabilities to the Company in exchange for 20,748,975 shares of Common Stock of the Company, representing all of the outstanding capital stock of the Company prior to the consummation of the Offerings. The Predecessor will retain only non-operating assets and liabilities, including approximately $25.7 million of notes receivable from related parties and approximately $23.9 million of notes payable to related parties. For a period of five years from the consummation of the Offerings, the Predecessor has agreed to indemnify the Company and any of its directors, officers, employees and agents against any losses incurred by any of them arising from any of the assets and liabilities not transferred from the Predecessor in the Offering Related Transactions. For the same period, or the expiration of the applicable statute of limitations in the case of taxes and environmental liabilities, the Company has agreed to indemnify the Predecessor and its directors, officers, employees and agents against any losses incurred by any of them arising from the operating business and any of the assets and liabilities transferred to the Company in the Offering Related Transactions. In addition, if any adjustment is made after the consummation of the Offerings to the Predecessor's taxable income attributable to the Predecessor's business for any period or any portion of any period ending on or prior to the consummation of the Offerings that results in additional taxes being owed by the Principal Stockholder, the Company will pay the Predecessor (for distribution to the Principal Stockholder) an amount equal to such additional taxes. The Predecessor will indemnify the Company against any liability for taxes relating to any of the assets and liabilities not transferred as part of the Offering Related Transactions. In January 1997, the Predecessor entered into a Cancellation of Deferred Compensation Agreement with each of William F. Berry and John S. McKinney. Pursuant to such agreements, the Predecessor will pay Messrs. Berry and McKinney $13,333,333 and $6,666,667, respectively, and the Predecessor's prior deferred incentive compensation agreements will be terminated. Prior to the Offerings, the Predecessor expects to draw down $20.0 million under the Credit Facility to fund such payments. The Company will assume the liability for the indebtedness under the Credit Facility pursuant to the Asset Contribution Agreement. The cost of the cancellation will be expensed in the income statement of the Company in the first quarter of 1997. See "Risk Factors-- Quarterly Fluctuations and Seasonality," "Management's Discussion and Analysis of Financial Condition and Results of Operations--Quarterly Results" and Note 9 of Notes to Combined Financial Statements. 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%. 38 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 income totalled $572,514 in 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 transferred 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 were $65,000 and $88,000, 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 $79,000. The Company believes that these leases are on commercially fair and reasonable terms. All six leases will be transferred by the Predecessor to the Company prior to consummation of the Offerings. MISCELLANEOUS The Predecessor paid legal fees of $81,000 to an affiliate of the Principal Stockholder as reimbursement to such affiliate for legal services rendered in 1996 for the Predecessor by Bernard E. Lyons, a Director and officer of the Company. Prior to the consummation of the Offerings, the Predecessor had a $2.5 million revolving credit arrangement (which provided for interest at a bank reference rate plus 0.5%) with USR Leasing Company ("USRL"), an entity owned by the Principal Stockholder. The Predecessor leased non-rental vehicles from USRL under operating leases and agreed with USRL's lender to guarantee up to $7.0 million of USRL's indebtedness. Lease charges from USRL amounted to approximately $3.2 million for 1996. Prior to the consummation of the Offerings, the Principal Stockholder will contribute all of the stock of USRL to the Predecessor and the Predecessor will contribute such stock to the Company as part of the Offering Related Transactions. 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. 39 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)................................ 20,748,975 67.5% 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)............................................. 20,748,975 67.5 ========== ====
- --------------------- *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." 40 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 30,748,975 shares of Common Stock will be issued and outstanding (assuming no exercise of the U.S. Underwriters' over-allotment option) and no shares of Preferred Stock will be issued or outstanding. 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 the 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. 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 "Risk Factors--Absence of Dividends" and "Dividend Policy." 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 therein) 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, 41 (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 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 American Stock Transfer and Trust Company. LISTING There is no public trading market for the Common Stock. The Common Stock has been approved for listing on the New York Stock Exchange ("NYSE") upon notice of issuance under the symbol "USR." 42 SHARES ELIGIBLE FOR FUTURE SALE Upon the consummation of the Offerings, the Company will have outstanding 30,748,975 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, the Predecessor, the Principal Stockholder and the Underwriters, which will occur 180 days after the date of this Prospectus (the "Effective Date"), all of the 20,748,975 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 307,490 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 Predecessor and the Principal Stockholder have agreed with the Underwriters that until 180 days after the Effective Date 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, 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." 43 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. NUMBER OF U.S. UNDERWRITERS SHARES ---------- Donaldson, Lufkin & Jenrette Securities Corporation............... Merrill Lynch, Pierce, Fenner & Smith Incorporated................ Salomon Brothers Inc.............................................. ---------- U.S. Offering subtotal.......................................... 8,000,000 INTERNATIONAL MANAGERS Donaldson, Lufkin & Jenrette Securities Corporation............... Merrill Lynch International....................................... Salomon Brothers International Limited............................ ---------- International Offering subtotal................................. 2,000,000 ---------- Total......................................................... 10,000,000 ==========
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. 44 The Company has granted to the U.S. Underwriters an option to purchase up to an aggregate of 1,500,000 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, the Predecessor and the Principal Stockholder have agreed not to directly or indirectly 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 date of this Prospectus 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. 45 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. Up to an aggregate of 500,000 shares of Common Stock, or approximately 5% of the shares offered hereby, have been reserved for sale at the public offering price to certain employees of the Company and other persons designated by the Company. The maximum investment of any such person may be limited by the Company in its sole discretion. The number of shares of Common Stock available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. Any reserved shares not so purchased will be offered by the Underwriters to the general public on the same basis as the other shares offered hereby. This program will be administered by DLJ. The Common Stock has been approved for listing on the NYSE upon notice of issuance. In order to meet the requirements for listing on the NYSE, the Underwriters have undertaken to sell lots of 100 or more shares of Common Stock to a minimum of 2,000 beneficial holders. 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 of U.S. Rentals, Inc., the Predecessor, as of December 31, 1995 and 1996 and for each of the three years in the period ended December 31, 1996 and of U.S. Rentals, Inc., the Company, as of December 31, 1996 included in this Prospectus have been so included in reliance on the reports of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 46 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, the Common Stock has been approved for listing on the NYSE upon notice of issuance, 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. 47 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-14 Balance Sheet.......................................................... F-15 Note to Balance Sheet.................................................. F-16 UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS: Pro Forma Combined Balance Sheets...................................... F-17 Pro Forma Combined Statements of Operations............................ F-18 Notes to Pro Forma Combined Financial Statements....................... F-19
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, 1995 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, 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 January 27, 1997 F-2 U.S. RENTALS, INC. (PREDECESSOR) COMBINED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE AMOUNTS)
PRO FORMA DECEMBER 31, (NOTE 1) ----------------- DECEMBER 31, 1995 1996 1996 -------- -------- ------------ (UNAUDITED) ASSETS Cash............................................ $ 3,479 $ 2,906 $ 2,906 Accounts receivable, net........................ 28,581 35,653 35,653 Notes receivable from affiliate................. 24,891 25,365 -- Notes receivable, other......................... 1,350 563 218 Inventories..................................... 3,938 5,841 5,841 Rental equipment, net........................... 152,848 205,982 205,982 Property and equipment, net..................... 26,370 42,345 42,345 Deferred offering costs......................... -- -- 561 Prepaid expenses and other assets............... 3,727 5,793 2,084 -------- -------- -------- Total assets.................................... $245,184 $324,448 $295,590 ======== ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Accounts payable and other liabilities.......... $ 56,411 $ 57,008 $ 56,092 Notes payable to related parties................ 23,884 23,943 -- Notes payable, other............................ 81,812 162,767 182,767 Deferred taxes.................................. -- -- 7,030 -------- -------- -------- Total liabilities............................... 162,107 243,718 245,889 -------- -------- -------- Commitments and contingencies (Note 7) Stockholder's equity: Common stock, at stated value; 2,500 shares authorized, 900 shares issued and outstanding. 699 699 207 Paid-in capital................................ 13,186 13,186 56,524 Retained earnings.............................. 69,192 66,845 (7,030) -------- -------- -------- Total stockholder's equity...................... 83,077 80,730 49,701 -------- -------- -------- Total liabilities and stockholder's equity...... $245,184 $324,448 $295,590 ======== ======== ========
See accompanying notes. F-3 U.S. RENTALS, INC. (PREDECESSOR) COMBINED STATEMENTS OF OPERATIONS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ---------------------------- 1994 1995 1996 -------- -------- -------- Revenues: Rental revenue................................... $167,589 $214,849 $257,486 Rental equipment sales........................... 8,098 10,832 24,629 Merchandise and new equipment sales.............. 12,071 17,166 23,722 -------- -------- -------- Total revenues.................................. 187,758 242,847 305,837 -------- -------- -------- Cost of revenues: Rental equipment expense......................... 42,034 51,370 65,102 Rental equipment depreciation.................... 33,754 43,885 56,105 Cost of rental equipment sales................... 2,946 4,693 10,109 Cost of merchandise and new equipment sales...... 7,428 11,418 17,423 Direct operating expense......................... 46,445 56,506 71,482 -------- -------- -------- Total cost of revenues.......................... 132,607 167,872 220,221 -------- -------- -------- Gross profit.................................... 55,151 74,975 85,616 Selling, general and administrative expense....... 27,273 31,440 35,934 Non-rental depreciation........................... 4,092 5,513 7,528 -------- -------- -------- Operating income................................ 23,786 38,022 42,154 Other expense, net................................ (242) (1,620) (665) Interest income from affiliate.................... 3,324 3,343 3,420 Interest income, other ........................... 182 223 26 Interest expense, related parties................. (2,899) (4,078) (3,078) Interest expense, other........................... (1,667) (4,798) (8,399) -------- -------- -------- Income before income taxes...................... 22,484 31,092 33,458 Income tax expense................................ 499 468 374 -------- -------- -------- Net income...................................... $ 21,985 $ 30,624 $ 33,084 ======== ======== ======== Unaudited pro forma data (Note 6): Historical income before income taxes............ $ 22,484 $ 31,092 $ 33,458 Provision for income taxes....................... 9,221 12,780 13,456 -------- -------- -------- Pro forma net income............................ $ 13,263 $ 18,312 $ 20,002 ======== ======== ========
See accompanying notes. F-4 U.S. RENTALS, INC. (PREDECESSOR) 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, 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................. 33,084 33,084 Dividends.................. (35,431) (35,431) --- ---- ------- -------- -------- Balance at December 31, 1996...................... 900 $699 $13,186 $ 66,845 $ 80,730 === ==== ======= ======== ========
See accompanying notes. F-5 U.S. RENTALS, INC. (PREDECESSOR) COMBINED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, -------------------------- 1994 1995 1996 ------- ------- -------- Operating activities: Net income........................................ $21,985 $30,624 $ 33,084 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation..................................... 37,846 49,398 63,633 Gain on sale of equipment........................ (5,322) (6,342) (14,955) Principal adjustment on notes receivable......... (243) (220) (572) Provision for doubtful accounts.................. 2,807 3,441 4,075 Changes in operating assets and liabilities: Accounts receivable.............................. (8,633) (10,526) (11,147) Inventories...................................... (514) (1,413) (1,903) Prepaid expenses and other assets................ 17 (1,515) (2,066) Accounts payable and other liabilities........... 17,462 11,588 597 ------- ------- -------- Net cash provided by operating activities.......... 65,405 75,035 70,746 ------- ------- -------- Investing activities: Purchases of rental equipment..................... (83,157) (88,861) (119,348) Proceeds from sale of rental equipment............ 8,098 10,832 24,629 Purchases of property and equipment, net.......... (10,514) (10,764) (23,068) Funding of notes receivable, net.................. (922) (1,061) 2,537 ------- ------- -------- Net cash used in investing activities.............. (86,495) (89,854) (115,250) ------- ------- -------- Financing activities: Proceeds from (payments on) line of credit, net... 35,697 (28,200) 39,553 Proceeds from senior notes........................ -- 50,000 40,000 Payments on other obligations..................... (9,975) (718) (191) Dividends paid.................................... (3,642) (5,498) (35,431) ------- ------- -------- Net cash provided by financing activities.......... 22,080 15,584 43,931 ------- ------- -------- Net increase (decrease) in cash.................... 990 765 (573) Cash at beginning of period........................ 1,724 2,714 3,479 ------- ------- -------- Cash at end of period.............................. $ 2,714 $ 3,479 $ 2,906 ======= ======= ======== 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 -- -- 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 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 December 31, 1996, the Predecessor operated 80 equipment rental yards located in 11 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 consummation of the Offerings, the Predecessor's stockholder will contribute all of the stock of USR Leasing Company ("USRL") (a special purpose entity owned by the Predecessor's stockholder) to the Predecessor. In connection with the Offerings, the Predecessor will contribute the stock of USRL to U.S. Rentals. 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 include the accounts of the Predecessor and USRL, 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 $7,030,000 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 Predecessor had been taxed as a C corporation rather than an S corporation for all periods presented. F-7 U.S. RENTALS, INC. (PREDECESSOR) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 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 $136,573,000 and $161,765,000 at December 31, 1995 and 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 rental 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 January 1, 1996 or results of operations for the year ended December 31, 1996. 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 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. F-8 U.S. RENTALS, INC. (PREDECESSOR) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 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 and 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, 1996 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 $6,166,000 and $6,991,000 at December 31, 1995 and 1996, respectively. Advertising Costs The Predecessor 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. California assesses a corporate level income tax on S corporations and certain states in which the Predecessor does business do not recognize S corporation status. Therefore, the Predecessor remains subject to, and has made provision for, taxes in those states. Because of certain transactions discussed above 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. F-9 U.S. RENTALS, INC. (PREDECESSOR) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 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 Predecessor earned interest income from the affiliate of $3,324,000, $3,343,000, and $3,420,000 for each of the three years in the period ended December 31, 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 $243,000, $220,000, and $572,000 for each of the three years in the period ended December 31, 1996, respectively. 3. PROPERTY AND EQUIPMENT Property and equipment, net, consists of the following (in thousands):
DECEMBER 31, ---------------- 1995 1996 ------- ------- Land....................................................... $ 8,233 $14,099 Buildings.................................................. 9,736 12,806 Vehicles and delivery equipment............................ 20,111 28,000 Yard equipment............................................. 2,660 3,000 Furniture and fixtures..................................... 3,826 4,626 Leaseholds................................................. 5,672 8,942 ------- ------- 50,238 71,473 Less accumulated depreciation.............................. (23,868) (29,128) ------- ------- $26,370 $42,345 ======= =======
4. ACCOUNTS PAYABLE AND OTHER LIABILITIES Accounts payable and other liabilities consist of the following (in thousands):
DECEMBER 31, --------------- 1995 1996 ------- ------- Trade payables and other accruals........................... $37,189 $34,264 Profit sharing accrual...................................... 8,945 8,742 Self-insurance reserve...................................... 10,277 14,002 ------- ------- $56,411 $57,008 ======= =======
F-10 U.S. RENTALS, INC. (PREDECESSOR) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 5. NOTES PAYABLE Notes payable consist of the following (in thousands):
DECEMBER 31, ----------------- 1995 1996 -------- -------- 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 (13.25% at December 31, 1996).............................................. $ 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 10.25% at December 31, 1996............................ 3,884 3,943 -------- -------- 23,884 23,943 -------- -------- 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% (8.25% at December 31, 1996). 3,900 26,300 Revolving line of credit, interest payable monthly at money market rate (ranging from 6.13% to 6.19% at December 31, 1996)..................................... 23,000 43,000 Notes payable to a bank, interest and principal payable monthly at rates ranging from 5.74% to 9.51%, due 1997. 4,162 2,967 Notes payable related to the purchase of certain businesses, imputed interest averaging 7%, due through 1999................................................... 750 500 -------- -------- 81,812 162,767 -------- -------- $105,696 $186,710 ======== ========
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, 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 $2,899,000, $4,078,000, and $3,078,000 on borrowings from related parties for each of the three years in the period ended December 31, 1996, respectively. Cash paid for interest was $4,535,000, $7,545,000, and $11,185,000 for each of the three years in the period ended December 31, 1996, respectively. F-11 U.S. RENTALS, INC. (PREDECESSOR) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) Maturities of debt are as follows at December 31, 1996 (in thousands): 1997........................................................... $ 76,510 1998........................................................... 100 1999........................................................... 10,100 2000........................................................... 10,000 2001........................................................... 30,000 Thereafter..................................................... 60,000 -------- $186,710 ========
6. INCOME TAXES The income tax provision is comprised of current state income tax expense of $499,000, $468,000, and $374,000 for each of the three years in the period ended December 31, 1996, respectively. Deferred taxes for such periods have been immaterial. Cash payments of state income taxes made by the Predecessor were $353,000, $597,000, and $353,000 for each of the three years in the period ended December 31, 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:
YEAR ENDED DECEMBER 31, ----------------------- 1994 1995 1996 ------- ------- ------- Federal income taxes................................. 35.0% 35.0% 35.0% State income taxes, net of federal benefit........... 5.3% 5.3% 4.9% Other................................................ 0.7% 0.8% 0.3% ------- ------- ------- 41.0% 41.1% 40.2% ======= ======= =======
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):
DECEMBER 31, 1996 ------------ (UNAUDITED) Self-insurance reserves.................................... $ 5,983 Compensation related accruals.............................. 1,783 Allowances for doubtful accounts........................... 2,663 State income taxes......................................... 523 Others, net................................................ 972 ------- 11,924 Depreciation............................................... (18,954) ------- $(7,030) =======
F-12 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 $3,160,000, $3,365,000, and $3,681,000 for each of the three years in the period ended December 31, 1996, respectively. Future minimum rental commitments as of December 31, 1996 under noncancelable operating leases are (in thousands): 1997............................................................ $ 3,743 1998............................................................ 2,893 1999............................................................ 2,510 2000............................................................ 1,730 2001............................................................ 1,051 Thereafter...................................................... 2,802 ------- $14,729 =======
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 not have a material adverse effect on the Predecessor's financial position, results of operations or cash flows. The Predecessor has accrued $7,730,000 and $12,011,000 at December 31, 1995 and 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 believes that such removal and remediation will not have a material adverse effect on the Predecessor's financial position, results of operations or cash flows. 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, $246,000, and $122,000 for each of the three years in the period ended December 31, 1996, respectively. 9. SUBSEQUENT EVENTS In January 1997, the Predecessor declared and paid a cash dividend of $2,000,000 to the Predecessor's stockholder. Also in January 1997, the Predecessor entered into an agreement to cancel deferred compensation agreements with certain executives. The cancellation is contingent upon the transfer of operating assets and associated liabilities to U.S. Rentals discussed in Note 1. Prior to the transfer, the Predecessor expects to draw down $20,000,000 under its bank line of credit to fund the cost of cancellation. U.S. Rentals will assume the liability for the indebtedness under the bank line of credit as part of the transfer. The non- recurring cost of the cancellation of $20,000,000 will be expensed in the income statement of U.S. Rentals upon consummation of the transfer. F-13 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 December 31, 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 January 27, 1997 F-14 U.S. RENTALS, INC. (THE COMPANY) BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, 1996 ------------ ASSETS Deferred offering costs............................................ $561 ---- Total assets....................................................... $561 ==== LIABILITIES AND STOCKHOLDER'S EQUITY Accounts payable and other liabilities............................. $561 ---- Total liabilities.................................................. 561 ---- Stockholder's equity: Preferred stock, $.01 par value; 10,000,000 shares authorized, no shares issued or outstanding..................................................... -- Common stock, $.01 par value; 100,000,000 shares authorized, no shares issued or outstanding..................................................... -- Paid-in capital.................................................... -- ---- Total stockholder's equity......................................... -- ---- Total liabilities and stockholder's equity......................... $561 ====
See accompanying notes. F-15 U.S. RENTALS, INC. (THE COMPANY) NOTES TO BALANCE SHEET DECEMBER 31, 1996 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization U.S. Rentals, Inc. (the "Company") is a Delaware 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 companies, industrial enterprises, homeowners and other customers. 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., a California corporation (the "Predecessor"), included elsewhere in this Prospectus. 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. 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. 2. DEFERRED OFFERING COSTS The Company has incurred costs totaling $561,000, as of December 31, 1996, in connection with the planned offerings. These costs have been reflected as deferred offering costs in the accompanying balance sheet. If the planned offerings are consummated, the costs will be deducted from the proceeds received from the offerings. If the planned offerings are not consummated, the costs will be charged to expense in the period in which a decision is made to terminate the offerings. In such event, the costs would be paid by the Predecessor. F-16 U.S. RENTALS, INC. (THE COMPANY) UNAUDITED PRO FORMA COMBINED BALANCE SHEETS DECEMBER 31, 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.................... $ -- $ 2,906 $ -- $ 2,906 $ 1,866 (h) $ 4,772 Accounts receivable, net.................... -- 35,653 -- 35,653 -- 35,653 Notes receivable from affiliate.............. -- 25,365 (25,365)(a) -- -- -- Notes receivables, other.................. -- 563 (345)(a) 218 -- 218 Inventories............. -- 5,841 -- 5,841 -- 5,841 Rental equipment, net... -- 205,982 -- 205,982 -- 205,982 Property and equipment, net.................... -- 42,345 -- 42,345 -- 42,345 Deferred offering costs. 561 -- -- 561 (561)(h) -- Prepaid expenses and other assets........... -- 5,793 (3,709)(a) 2,084 -- 2,084 -------- -------- -------- -------- --------- -------- Total assets............ $ 561 $324,448 $(29,419) $295,590 $ 1,305 $296,895 ======== ======== ======== ======== ========= ======== LIABILITIES AND STOCKHOLDER'S EQUITY Accounts payable and other liabilities...... $ 561 $ 57,008 $ (1,477)(a) $ 56,092 $ (561)(h) $ 55,531 Notes payable to affiliates............. -- 23,943 (23,943)(a) -- -- -- Notes payable, other.... -- 162,767 20,000 (b) 182,767 (182,267)(g) 500 Deferred tax liability.. -- -- 7,030 (c) 7,030 -- 7,030 -------- -------- -------- -------- --------- -------- Total liabilities....... 561 243,718 1,610 245,889 (182,828) 63,061 -------- -------- -------- -------- --------- -------- Stockholder's equity: Common stock of Predecessor........... -- 699 (699)(a) -- -- -- Preferred stock, par value $.01 per share; 10,000,000 shares authorized, no shares outstanding........... -- -- -- -- -- -- Common stock, par value $.01 per share; 100,000,000 shares authorized, 30,748,795 shares issued and outstanding Pro Forma for the Offering Related Transactions and the Offerings..... -- -- 207 (e) 207 100 (h) 307 Paid-in capital........ -- 13,186 43,338 (e) 56,524 186,050 (h) 242,574 Retained earnings...... -- 66,845 (3,300)(a) (7,030) (2,017)(i) (9,047) (20,000)(b) -- -- (7,030)(c) -- -- (43,545)(e) -- -- -------- -------- -------- -------- --------- -------- Total stockholder's equity................. -- 80,730 (31,029) 49,701 184,133 233,834 -------- -------- -------- -------- --------- -------- Total liabilities and stockholder's equity... $ 561 $324,448 $(29,419) $295,590 $ 1,305 $296,895 ======== ======== ======== ======== ========= ========
See accompanying notes. F-17 U.S. RENTALS, INC. (THE COMPANY) UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (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......... $ -- $257,486 $ -- $257,486 $ -- $257,486 Rental equipment sales. -- 24,629 -- 24,629 -- 24,629 Merchandise and new equipment sales....... -- 23,722 -- 23,722 -- 23,722 ----- -------- -------- -------- ------ -------- Total revenues.......... -- 305,837 -- 305,837 -- 305,837 ----- -------- -------- -------- ------ -------- Cost of revenues: Rental equipment expense............... -- 65,102 -- 65,102 -- 65,102 Rental equipment depreciation.......... -- 56,105 -- 56,105 -- 56,105 Cost of rental equipment sales....... -- 10,109 -- 10,109 -- 10,109 Cost of merchandise and new equipment sales... -- 17,423 -- 17,423 -- 17,423 Direct operating expense............... -- 71,482 -- 71,482 -- 71,482 ----- -------- -------- -------- ------ -------- Total cost of revenues.. -- 220,221 -- 220,221 -- 220,221 ----- -------- -------- -------- ------ -------- Gross profit............ -- 85,616 -- 85,616 -- 85,616 Selling, general and administrative expense. -- 35,934 (1,524)(f) 34,410 -- 34,410 Non-rental depreciation. -- 7,528 -- 7,528 -- 7,528 ----- -------- -------- -------- ------ -------- Operating income........ -- 42,154 1,524 43,678 -- 43,678 Other income (expense), net.................... -- (665) 727 (d) 62 -- 62 Interest income from affiliate.............. -- 3,420 (3,420)(d) -- -- -- Interest income, other.. -- 26 -- 26 -- 26 Interest expense, related parties........ -- (3,078) 3,078 (d) -- -- -- Interest expense, other. -- (8,399) -- (8,399) 8,360 (k) (39) ----- -------- -------- -------- ------ -------- Income before income taxes.................. -- 33,458 1,909 35,367 8,360 43,727 Income taxes............ -- 374 13,861 (j) 14,235 3,363 (k) 17,598 ----- -------- -------- -------- ------ -------- Net income.............. $ -- $ 33,084 $(11,952) $ 21,132 $4,997 $ 26,129 ===== ======== ======== ======== ====== ======== Net income per share.... $ 0.85 ======== Weighted average common shares outstanding..... 30,749 ========
See accompanying notes. F-18 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 offering (the "Offerings"), U.S. Rentals, Inc., a California corporation (the "Predecessor"), will transfer substantially all of its operating assets and associated liabilities to U.S. Rentals, Inc. (the "Company"), a Delaware corporation, in exchange for 20,748,975 shares of common stock of the Company. The unaudited pro forma financial data reflects the offering related transactions described below and the Offerings as if such transactions had been completed as of December 31, 1996 for pro forma combined balance sheet data purposes and as of January 1, 1996 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 substantially all operating assets and associated liabilities of the Predecessor to the Company in exchange for 20,748,975 shares of common stock of the Company. Not reflected in this adjustment is cash to be retained to pay dividends to the Principal Stockholder for income taxes due to the Predecessor's election to be treated as an S corporation. Such cash is expected to be generated from the Predecessor's operations from January 1, 1997 through the effective date of the Offerings. b) Prior to the transfer as described in a) above, the Predecessor will draw down $20 million under its bank line of credit, which will be used to fund the cost to cancel deferred incentive compensation agreements with certain executives of the Predecessor. The cost to cancel such agreements will result in a non-recurring expense in the income statement of the Company. c) 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. d) Reflects the pro forma effect on interest expense, interest income and other income (expense), net from the planned transfer of all operating assets and associated liabilities of the Predecessor to the Company. e) 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. f) Reflects the pro forma effect on selling, general and administrative expense related to amounts earned in 1996 under deferred incentive compensation agreements with certain executives of the Predecessor. Expenses related to such agreements will not recur in future periods due to the cancellation of the agreements as described in b) above. F-19 U.S. RENTALS, INC. (THE COMPANY) NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEETS AND STATEMENTS OF OPERATIONS--(CONTINUED) Offerings: g) Reflects the retirement of debt as described in (k) below with a portion of the proceeds from the Offerings. h) Reflects the net proceeds to the Company from the Offerings less the payment of direct expenses relating to the Offerings and the retirement of debt as described in (g) and (i). i) Reflects the pro forma effect on retained earnings of the penalty associated with early repayment of senior notes. j) Adjustment to record the pro forma C corporation tax provision, including effects of adjustments from (d) above. k) 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. 3. PRO FORMA NET INCOME PER SHARE Pro forma per share data is computed based on 30,748,975 shares of Common Stock outstanding after giving effect to the Offering Related Transactions and the Offerings. F-20 There is a large overview of a Profit Center covering the middle and left side of the page. Pictures on the right side of the page are, from top to bottom: an interior view of a Profit Center showroom with a customer looking at a product; an overview of a Profit Center; and an interior view of a Profit Center with a customer being served by a salesperson. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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........................................................ 3 Risk Factors.............................................................. 8 Offering Related Transactions............................................. 13 Use of Proceeds........................................................... 13 Dividend Policy........................................................... 13 Dilution.................................................................. 14 Capitalization............................................................ 15 Selected Financial Data................................................... 16 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 18 Business.................................................................. 24 Management................................................................ 33 Certain Transactions...................................................... 38 Principal Stockholders.................................................... 40 Description of Capital Stock.............................................. 41 Shares Eligible for Future Sale........................................... 43 Underwriting.............................................................. 44 Legal Matters............................................................. 46 Experts................................................................... 46 Available Information..................................................... 47 Index to Financial Statements............................................. F-1
------------ 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. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 10,000,000 SHARES [LOGO OF U.S. RENTALS] 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. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ PROSPECTUS SUBJECT TO COMPLETION, DATED JANUARY 28, 1997 , 1997 10,000,000 SHARES [LOGO OF U.S. RENTALS] COMMON STOCK All of the 10,000,000 shares of common stock, $.01 par value per share (the "Common Stock"), offered hereby are being sold by U.S. Rentals, Inc. Of the 10,000,000 shares of Common Stock offered by the Company, 8,000,000 shares are being offered for sale in the United States and Canada by the U.S. Underwriters (the "U.S. Offering") and 2,000,000 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 $19.00 and $21.00 per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. The Common Stock has been approved for listing on the New York Stock Exchange upon notice of issuance under the symbol "USR." SEE "RISK FACTORS" BEGINNING ON PAGE 8 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 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 $1,350,000. (3) The Company has granted to the U.S. Underwriters a 30-day option to purchase up to 1,500,000 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 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 43 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 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 IMCOME 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. 44 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. NUMBER OF U.S. UNDERWRITERS SHARES ---------- Donaldson, Lufkin & Jenrette Securities Corporation............... Merrill Lynch, Pierce, Fenner & Smith Incorporated................ Salomon Brothers Inc.............................................. ---------- U.S. Offering subtotal.......................................... 8,000,000 INTERNATIONAL MANAGERS Donaldson, Lufkin & Jenrette Securities Corporation............... Merrill Lynch International....................................... Salomon Brothers International Limited............................ ---------- International Offering subtotal................................. 2,000,000 ---------- Total......................................................... 10,000,000 ==========
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. 45 The Company has granted to the U.S. Underwriters an option to purchase up to an aggregate of 1,500,000 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, the Predecessor and the Principal Stockholder have agreed not to directly or indirectly 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 date of this Prospectus 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. 46 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. Up to an aggregate of 500,000 shares of Common Stock, or approximately 5% of the shares offered hereby, have been reserved for sale at the public offering price to certain employees of the Company and other persons designated by the Company. The maximum investment of any such person may be limited by the Company in its sole discretion. The number of shares of Common Stock available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. Any reserved shares not so purchased will be offered by the Underwriters to the general public on the same basis as the other shares offered hereby. This program will be administered by DLJ. The Common Stock has been approved for listing on the NYSE upon notice of issuance. In order to meet the requirements for listing on the NYSE, the Underwriters have undertaken to sell lots of 100 or more shares of Common Stock to a minimum of 2,000 beneficial holders. 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 of U.S. Rentals, Inc., the Predecessor, as of December 31, 1995 and 1996 and for each of the three years in the period ended December 31, 1996 and of U.S. Rentals, Inc., the Company, as of December 31, 1996 included in this Prospectus have been so included in reliance on the reports of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 47 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, the Common Stock has been approved for listing on the NYSE upon notice of issuance, 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 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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........................................................ 3 Risk Factors.............................................................. 8 Offering Related Transactions............................................. 13 Use of Proceeds........................................................... 13 Dividend Policy........................................................... 13 Dilution.................................................................. 14 Capitalization............................................................ 15 Selected Financial Data................................................... 16 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 18 Business.................................................................. 24 Management................................................................ 32 Certain Transactions...................................................... 37 Principal Stockholders.................................................... 39 Description of Capital Stock.............................................. 40 Shares Eligible for Future Sale........................................... 42 Certain United States Federal Tax Consequences to Non-United States Holders of Common Stock.................................................. 43 Underwriting.............................................................. 45 Legal Matters............................................................. 47 Experts................................................................... 47 Available Information..................................................... 48 Index to Financial Statements............................................. F-1
------------ 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. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 10,000,000 SHARES [LOGO OF U.S. RENTALS] 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.............. $ 73,182 NASD filing fee.................................................. 24,650 NYSE listing fee................................................. 107,350 Accounting fees and expenses..................................... 350,000 Legal fees and expenses.......................................... 325,000 Blue Sky qualification fees and expenses......................... 7,500 Printing and engraving expenses.................................. 150,000 Transfer agent and registrar fees................................ 12,000 D&O Insurance.................................................... 290,000 Miscellaneous.................................................... 10,318 ---------- Total........................................................ $1,350,000 ==========
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, 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 II-1 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 The Predecessor has been in the equipment rental business since 1969. Immediately prior to the closing of the Offerings, in connection with a reorganization of the Company, the Company intends to issue an aggregate of 20,748,975 shares of the Company's Common Stock to the Predecessor in exchange for the Predecessor's transfer of substantially all of its operating assets and associated liabilities. See "Offering Related Transactions." The Company intends to issue the shares to the Predecessor 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 2.1** Asset Contribution Agreement 3.1 Restated Certificate of Incorporation of the Company 3.2 Amended and Restated 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 Employment Agreement between the Company and John S. McKinney 10.3 Form of Registration Rights Agreement 10.4** 1997 Performance Award Plan 10.5** Form of Employment Agreement between the Company and William F. Berry 10.6* Second Amended and Restated Credit Agreement by and among the Predecessor, Bank of America NT&SA as agent, and the banks named therein dated as of August 21, 1996 10.7* Form of Privately Placed Note Agreement 10.8 Security Agreement by and among the Predecessor, Bank of America NT&SA as agent, and the banks named therein dated as of August 21, 1996 10.9 Form of Intercreditor Agreement 10.10* Schedule to Forms of Note Agreement and Intercreditor Agreement 10.11** Cancellation of Deferred Compensation Agreement between the Predecessor and William F. Berry dated as of January 27, 1997 10.12** Cancellation of Deferred Compensation Agreement between the Predecessor and John S. McKinney dated as of January 27, 1997 11 Statement of Computation of Per Share Earnings 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 27.1 Financial Data Schedule
- --------------------- *Previously filed **To be filed by amendment (b) Financial Statement Schedules Schedule II All other schedules are omitted because they are not required, are not applicable, or the information is included in the Financial Statements or notes thereto. II-2 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 Amendment No. 1 to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Modesto, State of California, on January 28, 1997. U.S. RENTALS, INC. By: /s/ John S. McKinney ---------------------------------- John S. McKinney Chief Financial Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- * Chairman of the Board January 28, 1997 - ----------------------------------- Richard D. Colburn * President, Chief Executive January 28, 1997 - ----------------------------------- Officer and Director William F. Berry /s/ John S. McKinney Vice President--Finance, January 28, 1997 - ----------------------------------- Chief Financial Officer, and John S. McKinney Director (chief financial officer and principal accounting officer) * Director January 28, 1997 - ----------------------------------- Bernard E. Lyons
*By: /s/ John S. McKinney - ----------------------------- John S. McKinney Attorney-in-fact II-4 SCHEDULE II U.S. RENTALS, INC. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN THOUSANDS)
ADDITIONS BALANCE AT --------------------------------- BEGINNING OF CHARGED TO COSTS CHARGED TO OTHER DEDUCTIONS: BALANCE AT DESCRIPTION PERIOD AND EXPENSES ACCOUNTS WRITE-OFFS END OF PERIOD ----------- ------------ ---------------- ---------------- ----------- ------------- 1994 Allowance for Doubtful Accounts............. $4,216 $2,807 $ -- $(1,822) $5,201 1995 Allowance for Doubtful Accounts............. $5,201 $3,441 $ -- $(2,476) $6,166 1996 Allowance for Doubtful Accounts............. $6,166 $4,075 $ -- $(3,250) $6,991
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT PAGE ------- ---------------------- ---- 1.1** Form of Underwriting Agreement 2.1** Asset Contribution Agreement 3.1 Restated Certificate of Incorporation of the Company 3.2 Amended and Restated 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 Employment Agreement between the Company and John S. McKinney 10.3 Form of Registration Rights Agreement 10.4** 1997 Performance Award Plan 10.5** Form of Employment Agreement between the Company and William F. Berry 10.6* Second Amended and Restated Credit Agreement by and among the Predecessor, Bank of America NT&SA as agent, and the banks named therein dated as of August 21, 1996 10.7* Form of Privately Placed Note Agreement 10.8 Security Agreement by and among the Predecessor, Bank of America NT&SA as agent, and the banks named therein dated as of August 21, 1996 10.9 Form of Intercreditor Agreement 10.10* Schedule to Forms of Note Agreement and Intercreditor Agreement 10.11** Cancellation of Deferred Compensation Agreement between the Predecessor and William F. Berry dated as of January 27, 1997 10.12** Cancellation of Deferred Compensation Agreement between the Predecessor and John S. McKinney dated as of January 27, 1997 11 Statement of Computation of Per Share Earnings 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 27.1 Financial Data Schedule
- --------------------- *Previously filed **To be filed by amendment EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION RESTATED CERTIFICATE OF INCORPORATION OF U.S. RENTALS, INC. a Delaware corporation U.S. Rentals, Inc., a corporation organized and existing under the laws of the State of Delaware (hereinafter referred to as the "CORPORATION") hereby certifies as follows: 1. The undersigned is the duly elected, qualified and acting Chief Financial Officer and Assistant Secretary of the Corporation. 2. The name of the Corporation is U.S. Rentals, Inc. The Corporation's original Certificate of Incorporation was filed with the Secretary of State of Delaware on November 13, 1987 under the same name. 3. Pursuant to Sections 241 and 245 of the General Corporation Law of the State of Delaware, and having been adopted in accordance therewith, this Restated Certificate of Incorporation restates, integrates and amends the provisions of the Certificate of Incorporation of the Corporation. 4. The text of the Certificate of Incorporation of the Corporation, as it may have heretofore been amended or supplemented, is hereby further amended and restated to read in its entirety as follows: FIRST: The name of the Corporation is: ----- U.S. Rentals, Inc. SECOND: The address, including street, number, city and county, of ------ the registered office of the Corporation in the State of Delaware is: THE CORPORATION TRUST COMPANY Corporation Trust Center 1209 Orange Street Wilmington, New Castle County, Delaware 19801 THIRD: The nature of the business and of the purposes to be conducted ----- and promoted by the Corporation shall be to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: The total number of shares of stock which the Corporation ------ shall have authority to issue is One Hundred Ten Million (110,000,000), to be divided into two classes designated "Common Stock" and "Preferred Stock". The Corporation shall be authorized to issue (a) One Hundred Million (100,000,000) shares of Common Stock, par value $.01 per share, and (b) Ten Million (10,000,000) shares of Preferred Stock, par value $.01 per share. The Board of Directors of the Corporation (the "BOARD") is hereby empowered to cause the Preferred Stock to be issued from time to time for such consideration as it may from time to time fix, to cause such Preferred Stock to be issued in series with such voting powers and such designations, preferences, privileges and relative, participating, optional or other special rights as designated by the Board in the resolution providing for the issuance of such series and, within the limits and restrictions stated in any resolution or resolutions of the Board originally defining the number of shares constituting any series, to increase or decrease (but not below the number of shares of such series then outstanding), the number of shares of any such series subsequent to the issue of shares of that series. Shares of Preferred Stock of any one series shall be identical in all respects. All shares of any series of Preferred Stock that shall have been redeemed, converted, exchanged or otherwise surrendered to or acquired by the Corporation pursuant to its terms, shall be cancelled and have the status of authorized but unissued shares of Preferred Stock of the Corporation. FIFTH: Subject to the rights, if any, of the holders of shares of ----- Preferred Stock then outstanding, if any, to elect additional directors under specified circumstances, the number of the directors of the Corporation shall be fixed from time to time by or pursuant to the Bylaws of the Corporation. At each annual meeting of the stockholders of the Corporation, the directors shall be elected to hold office until such person's successor is elected and qualified or until such person's death, retirement, resignation or removal. The directors need not be stockholders. Elections of directors are not required to be held by written ballot. SIXTH: Subject to the rights, if any, of the holders of shares of ----- Preferred Stock then outstanding, if any, any or all of the directors of the Corporation may be removed from office by the stockholders only for cause and only by the affirmative vote of at least 66-2/3% of the outstanding shares of Common Stock of the Corporation at any annual or special meeting of stockholders of the Corporation, the notice of which shall state that the removal of a director or directors is among the purposes of the meeting. SEVENTH: Newly created directorships resulting from any increase in ------- the authorized number of directors or any vacancy on the Board resulting from death, resignation, retirement, disqualification, removal from office or otherwise shall be filled by the affirmative vote of a majority of the remaining directors then in office, even 2 though less than a quorum, or by a sole remaining director. The directors so chosen shall hold office until the next annual election of directors and until their successors are duly elected and qualified, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. No decrease in the number of directors constituting the Board shall shorten the term of any incumbent director. EIGHTH: Special meetings of the stockholders of the Corporation, for ------ any purpose or purposes, unless otherwise prescribed by statute, may be called by the Chairman of the Board, any Vice Chairman of the Board or the President, and shall be called by the President, the Secretary or the Assistant Secretary at the request in writing of a majority of the Board, the Chairman or any Vice Chairman of the Board, and shall be held at such place, on such date, and at such time as shall be fixed by the person or persons calling the meeting. Such special meetings may not be called by any other person or persons. Such request shall state the purpose or purposes of the proposed meeting. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. NINTH: At an annual meeting of stockholders, only such business shall ----- be conducted, and only such proposals shall be acted upon, as shall have been brought before the annual meeting (a) by, or at the direction of, a majority of the directors, or (b) by any stockholder of the Corporation who complies with the notice procedures set forth in this Article. For a proposal to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to, or mailed and received at, the principal executive office of the Corporation not less than 60 days prior to the scheduled annual meeting, regardless of any postponements, deferrals or adjournments of that meeting to a later date; provided, however, that if less than 70 days' notice or prior public disclosure of the date of the scheduled annual meeting is given or made, notice by the stockholder, to be timely, must be so delivered or received not later than the close of business on the tenth day following the earlier of the day on which such notice of the date of the scheduled annual meeting was mailed or the day on which such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the proposal desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business and any other stockholders known by such stockholder to be supporting such proposal, (c) the class and number of shares of the Corporation's stock 3 that are beneficially owned by the stockholder on the date of such stockholder notice and by any other stockholders known by such stockholder to be supporting such proposal on the date of such stockholder notice, and (d) any financial interest of the stockholder in such proposal. The presiding officer of the annual meeting shall determine and declare at the annual meeting whether the stockholder proposal was made in accordance with the terms of this Article. If the presiding officer determines that a stockholder proposal was not made in accordance with the terms of this Article, the presiding officer shall so declare at the annual meeting and any such proposal shall not be acted upon at the annual meeting. This provision shall not prevent the consideration and approval or disapproval at the annual meeting of reports of officers, and committees of the Board, but, in connection with such reports, no new business shall be acted upon at such annual meeting unless stated, filed and received as provided in this Article. TENTH: Subject to the rights, if any, of the holders of shares of ----- Preferred Stock then outstanding, if any, only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election to the Board may be made at a meeting of stockholders by or at the direction of the Board, by any nominating committee or person appointed by the Board, or by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Article. Such nominations, other than those made by or at the direction of the Board or by any nominating committee or person appointed by the Board, shall be made pursuant to timely notice in writing to the Secretary. To be timely, a stockholder's notice must be delivered to, or mailed and received at, the principal executive office of the Corporation not less than 60 days prior to the scheduled annual meeting, regardless of any postponement, deferrals or adjournments of that meeting to a later date; provided, however, that if less than 70 days' notice or prior public disclosure of the date of the scheduled annual meeting is given or made, notice by the stockholder, to be timely, must be so delivered or received not later than the close of business on the tenth day following the earlier of the day on which such notice of the date of the scheduled annual meeting was mailed or the day on which such public disclosure was made. A stockholder's notice to the Secretary shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director, (i) the name, age, business address and residence address of the person, (ii) the class and number of shares of capital stock of the Corporation that are beneficially owned by the person and (iii) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Rule 14a under the Securities Exchange Act of 1934, as amended; and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the Corporation's books, of the stockholder and (ii) the class and number of shares of the Corporation's stock that are beneficially owned by the stockholder on the date of such stockholder notice. The 4 Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as director of the Corporation. The presiding officer of the annual meeting shall determine and declare at the annual meeting whether the nomination was made in accordance with the terms of this Article. If the presiding officer determines that a nomination was not made in accordance with the terms of this Article, the presiding officer shall so declare at the annual meeting and any such defective nomination shall be disregarded. ELEVENTH: Notwithstanding anything contained in this Certificate of -------- Incorporation to the contrary, the affirmative vote of the holders of at least 50% of the outstanding shares of Common Stock of the Corporation shall be required to amend or repeal Articles FIFTH, SIXTH, SEVENTH, EIGHTH, NINTH, TENTH, ELEVENTH, TWELFTH or THIRTEENTH of this Certificate of Incorporation or to adopt any provision inconsistent therewith. The Board is expressly empowered to adopt, amend or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of the Bylaws of the Corporation by the Board shall require the approval of a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any resolution providing for adoption, amendment or repeal is presented to the Board). The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation. In addition to any vote of the holders of any class or series of stock of the Corporation required by law, the affirmative vote of the holders of at least fifty percent (50%) of the outstanding shares of Common Stock of the Corporation shall be required to adopt, amend or repeal any provision of the Bylaws of the Corporation. TWELFTH: The Corporation may indemnify any person who was or is made ------- a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "PROCEEDING"), by reason of the fact that such person, or a person of whom such person is the legal representative, is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another Corporation or of a partnership, joint venture, limited liability company, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against any Loss. "Loss" means any expense, liability or loss (including, but not limited to, attorneys' fees, 5 judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) actually and reasonably incurred or suffered by such person in connection therewith, and such indemnification shall inure to the benefit of his or her heirs, executors and administrators. THIRTEENTH: The personal liability of the directors of the ---------- Corporation is hereby eliminated to the fullest extent permitted by paragraph (7) of subsection (b) of Section 102 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented. FOURTEENTH: The Corporation is to have perpetual existence. ---------- FIFTEENTH: From time to time any of the provisions of this --------- Certificate of Incorporation may be amended, altered or repealed, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the stockholders of the Corporation by this Restated Certificate of Incorporation are granted subject to the provisions of this Article. [remainder of page intentionally left blank] 6 IN WITNESS WHEREOF, this Corporation has caused this Restated Certificate of Incorporation to be signed by John S. McKinney, its Chief Financial Officer and Assistant Secretary, this ____ day of _________, 1997. U.S. RENTALS, INC., a Delaware corporation By: ------------------------------------------- John S. McKinney Chief Financial Officer and Assistant Secretary S-1 EX-3.2 3 AMENDED AND RESTATED BYLAWS OF THE COMPANY AMENDED AND RESTATED BYLAWS OF U.S. RENTALS, INC. A DELAWARE CORPORATION TABLE OF CONTENTS -----------------
Page ---- ARTICLE 1 Offices................................................... 1 1.1 Registered Office......................................... 1 1.2 Other Offices............................................. 1 ARTICLE 2 Meetings of Stockholders.................................. 1 2.1 Place of Meetings......................................... 1 2.2 Annual Meeting of Stockholders............................ 1 2.3 Quorum; Adjourned Meetings and Notice Thereof............. 1 2.4 Voting.................................................... 2 2.5 Proxies................................................... 2 2.6 Special Meetings.......................................... 2 2.7 Notice of Stockholder's Meetings.......................... 2 2.8 Stockholder Proposals..................................... 3 2.9 Maintenance and Inspection of Stockholder List............ 3 2.10 Action by Written Consent................................. 4 ARTICLE 3 Directors................................................. 4 3.1 Number, Election and Tenure............................... 4 3.2 Vacancies................................................. 4 3.3 Notification of Nomination................................ 5 3.4 Powers.................................................... 6 3.5 Directors' Meetings....................................... 6 3.6 Regular Meetings.......................................... 6 3.7 Special Meetings.......................................... 6 3.8 Quorum.................................................... 6 3.9 Action Without Meeting.................................... 6 3.10 Telephonic Meetings....................................... 6 3.11 Committees of Directors................................... 7 3.12 Minutes of Committee Meetings............................. 7 3.13 Compensation of Directors................................. 7 3.14 Indemnification........................................... 7 ARTICLE 4 Officers.................................................. 10 4.1 Officers.................................................. 10 4.2 Election of Officers...................................... 10 4.3 Subordinate Officers...................................... 10 4.4 Compensation of Officers.................................. 10 4.5 Term of Office; Removal and Vacancies..................... 10 4.6 Chairman of the Board..................................... 11 4.7 President................................................. 11
i
Page ---- 4.8 Vice President............................................ 11 4.9 Secretary................................................. 11 4.10 Assistant Secretaries..................................... 11 4.11 Chief Financial Officer................................... 12 4.12 Assistant Treasurer....................................... 12 ARTICLE 5 Certificates of Stock..................................... 12 5.1 Certificates.............................................. 12 5.2 Signatures on Certificates................................ 12 5.3 Statement of Stock Rights, Preferences, Privileges........ 13 5.4 Lost Certificates......................................... 13 5.5 Transfers of Stock........................................ 13 5.6 Fixing Record Date........................................ 13 5.7 Registered Stockholders................................... 14 ARTICLE 6 General Provisions........................................ 14 6.1 Dividends................................................. 14 6.2 Payment of Dividends...................................... 14 6.3 Checks.................................................... 14 6.4 Fiscal Year............................................... 14 6.5 Corporate Seal............................................ 14 6.6 Manner of Giving Notice................................... 14 6.7 Waiver of Notice.......................................... 14 6.8 Annual Statement.......................................... 15 ARTICLE 7 Amendments................................................ 15 7.1 Amendment by Directors or Stockholders.................... 15
ii AMENDED AND RESTATED BYLAWS of U.S. RENTALS, INC. a Delaware corporation ARTICLE 1 OFFICES ------- 1.1 REGISTERED OFFICE. The registered office of the Corporation shall be in ----------------- the City of Wilmington, County of New Castle, State of Delaware. 1.2 OTHER OFFICES. The Corporation may also have offices at such other ------------- places as the Board of Directors (the "BOARD") may from time to time determine or the business of the Corporation may require. ARTICLE 2 MEETINGS OF STOCKHOLDERS ------------------------ 2.1 PLACE OF MEETINGS. Meetings of stockholders shall be held at any place ----------------- designated by the Board. In the absence of any such designation, stockholders' meetings shall be held at the principal executive office of the Corporation. 2.2 ANNUAL MEETING OF STOCKHOLDERS. The annual meeting of stockholders shall ------------------------------ be held each year on a date and a time designated by the Board. At each annual meeting directors shall be elected and any other proper business may be transacted. 2.3 QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF. A majority of the stock --------------------------------------------- issued and outstanding and entitled to vote at any meeting of stockholders, the holders of which are present in person or represented by proxy, shall constitute a quorum for the transaction of business except as otherwise provided by law, by the Certificate of Incorporation, or by these Amended and Restated Bylaws (the "BYLAWS"). A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum and the votes present may continue to transact business until adjournment. If, however, such quorum shall not be present or represented at any meeting of the stockholders, a majority of the voting stock represented in person or by proxy may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may 1 be transacted that might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote thereat. 2.4 VOTING. When a quorum is present at any meeting, the vote of the holders ------ of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of law, or the Certificate of Incorporation, or these Bylaws, a different vote is required in which case such express provision shall govern and control the decision of such question. 2.5 PROXIES. At each meeting of the stockholders, each stockholder having the ------- right to vote may vote in person or may authorize another person or persons to act for the stockholder by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than three years prior to said meeting, unless said instrument provides for a longer period. All proxies must be filed with the Secretary of the Corporation at the beginning of each meeting in order to be counted in any vote at the meeting. Each stockholder shall have one vote for each share of stock having voting power, registered in the stockholder's name on the books of the Corporation on the record date set by the Board as provided in Article 5, Section 5.6. All elections shall be had and all questions decided by a plurality vote, unless a higher voting standard is required by the Corporation's Certificate of Incorporation, these Bylaws, or the law. 2.6 SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose, ---------------- or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called by the Chairman of the Board, any Vice Chairman of the Board or the President, and shall be called by the President, the Secretary or the Assistant Secretary at the request in writing of a majority of the Board, the Chairman or any Vice Chairman of the Board and shall be held at such place, on such date, and at such time as shall be fixed by the person or persons calling the meeting. Such special meetings may not be called by any other person or persons. Such request shall state the purpose or purposes of the proposed meeting. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. 2.7 NOTICE OF STOCKHOLDER'S MEETINGS. Whenever stockholders are required or -------------------------------- permitted to take any action at a meeting, a written notice of the meeting shall be given. The notice shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. The written notice of any meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at the stockholder's address as it appears on the records of the Corporation. 2 2.8 STOCKHOLDER PROPOSALS. At an annual meeting of stockholders, only such --------------------- business shall be conducted, and only such proposals shall be acted upon, as shall have been brought before the annual meeting (a) by, or at the direction of, a majority of the directors, or (b) by any stockholder of the Corporation who complies with the notice procedures set forth in this Section. For a proposal to be properly brought before an annual meeting by a stockholder, the stockholder must be given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to, or mailed and received at, the principal executive office of the Corporation not less than 60 days prior to the scheduled annual meeting, regardless of any postponements, deferrals or adjournments of that meeting to a later date; provided, however, that if less than 70 days' notice or prior public disclosure of the date of the scheduled annual meeting is given or made, notice by the stockholder, to be timely, must be so delivered or received not later than the close of business on the tenth day following the earlier of the day on which such notice of the date of the scheduled annual meeting was mailed or the day on which such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the proposal desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business and any other stockholders known by such stockholder to be supporting such proposal, (c) the class and number of shares of the Corporation's stock that are beneficially owned by the stockholder on the date of such stockholder notice and by any other stockholders known by such stockholder to be supporting such proposal on the date of such stockholder notice, and (d) any financial interest of the stockholder in such proposal. The presiding officer of the annual meeting shall determine and declare at the annual meeting whether the stockholder proposal was made in accordance with the terms of this Section. If the presiding officer determines that a stockholder proposal was not made in accordance with the terms of this Section, the presiding officer shall so declare at the annual meeting and any such proposal shall not be acted upon at the annual meeting. This provision shall not prevent the consideration and approval or disapproval at the annual meeting of reports of officers, directors and committees of the Board, but, in connection with such reports, no new business shall be acted upon at such annual meeting unless stated, filed and received as provided in this Section. 2.9 MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST. The officer who has charge ---------------------------------------------- of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, 3 either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 2.10 ACTION BY WRITTEN CONSENT. Unless otherwise restricted by the Certificate ------------------------- of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the stockholders may be taken by the written consent of the stockholders, if a consent in writing, setting forth the action to be taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present. Where the approval of the stockholders is given without a meeting, the Secretary shall give prompt notice of the corporate action approved by the stockholders. Such notice shall be given in the same manner as notice of stockholders' meetings. All such written consents shall be filed with the minutes of proceedings of the stockholders and actions authorized or taken under such actions shall have the same force and effect as those adopted by vote of the stockholders. ARTICLE 3 DIRECTORS --------- 3.1 NUMBER, ELECTION AND TENURE. The authorized number of directors which --------------------------- shall constitute the Board shall not be less than four (4) nor more than seven (7). The exact number shall be determined from time to time by resolution of the Board. Until otherwise determined by such resolution, the Board shall consist of four (4) persons. Directors shall be elected at the annual meeting of stockholders and each director shall serve until such person's successor is elected and qualified or until such person's death, retirement, resignation or removal. The directors need not be stockholders. Elections of directors are not required to be held by written ballot. Subject to the rights, if any, of the holders of shares of Preferred Stock then outstanding, if any, any or all directors of the Corporation may be removed from office by the stockholders only for cause and only by the affirmative vote of at least 50% of the outstanding shares of Common Stock of the Corporation at any annual or special meeting of stockholders of the Corporation, the notice of which shall state that the removal of a director or directors is among the purposes of the meeting. 3.2 VACANCIES. Vacancies on the Board by reason of death, resignation, --------- retirement, disqualification, removal from office, or otherwise, and newly created directorships resulting from any increase in the authorized number of directors shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum, or by a sole remaining director. The directors so chosen shall hold office until the next annual election of directors and until their successors are duly elected and qualified, unless sooner displaced. If there are no directors in office, then an 4 election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. No decrease in the number of directors constituting the Board shall shorten the term of any incumbent director. 3.3 NOTIFICATION OF NOMINATION. Subject to the rights, if any, of the holders -------------------------- of shares of Preferred Stock then outstanding, if any, only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election to the Board may be made at a meeting of stockholders by or at the direction of the Board, by any nominating committee or person appointed by the Board, or by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section. Such nominations, other than those made by or at the direction of the Board or by any nominating committee or person appointed by the Board, shall be made pursuant to timely notice in writing to the Secretary. To be timely, a stockholder's notice must be delivered to, or mailed and received at, the principal executive office of the Corporation not less than 60 days prior to the scheduled annual meeting, regardless of any postponements, deferrals or adjournments of that meeting to a later date; provided, however, that if less than 70 days' notice or prior public disclosure of the date of the scheduled annual meeting is given or made, notice by the stockholder, to be timely, must be so delivered or received not later than the close of business on the tenth day following the earlier of the day on which such notice of the date of the scheduled annual meeting was mailed or the day on which such public disclosure was made. A stockholder's notice to the Secretary shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director, (i) the name, age, business address and residence address of the person, (ii) the class and number of shares of capital stock of the Corporation that are beneficially owned by the person and (iii) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Rule 14a under the Securities Exchange Act of 1934, as amended; and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the Corporation's books, of the stockholder and (ii) the class and number of shares of the Corporation's stock that are beneficially owned by the stockholder on the date of such stockholder notice. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as director of the Corporation. The presiding officer of the annual meeting shall determine and declare at the annual meeting whether the nomination was made in accordance with the terms of this Section. If the presiding officer determines that a nomination was not made in 5 accordance with the terms of this Section, the presiding officer shall so declare at the annual meeting and any such defective nomination shall be disregarded. 3.4 POWERS. The property and business of the Corporation shall be managed by ------ or under the direction of its Board. In addition to the powers and authorities by these Bylaws expressly conferred upon them, the Board may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. 3.5 DIRECTORS' MEETINGS. The directors may hold their meetings, cause the ------------------- Corporation to have one or more offices, and keep the books of the Corporation, outside of the State of Delaware. 3.6 REGULAR MEETINGS. Regular meetings of the Board may be held without notice ---------------- at such time and place as shall from time to time be determined by the Board. 3.7 SPECIAL MEETINGS. Special meetings of the Board may be called by the ---------------- President on forty-eight hours' notice to each director, either personally or by mail or by telegram; special meetings shall be called by the President or the Secretary in like manner and on like notice on the written request of two directors unless the Board consists of only one director; in which case special meetings shall be called by the President or Secretary in like manner or on like notice on the written request of the sole director. 3.8 QUORUM. At all meetings of the Board a majority of the authorized number ------ of directors shall be necessary and sufficient to constitute a quorum for the transaction of business, and the vote of a majority of the directors present at any meeting at which there is a quorum, shall be the act of the Board, except as may be otherwise specifically provided by statute, by the Certificate of Incorporation or by these Bylaws. If a quorum shall not be present at any meeting of the Board the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. If only one director is authorized, such sole director shall constitute a quorum. 3.9 ACTION WITHOUT MEETING. Unless otherwise restricted by the Certificate of ---------------------- Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. 3.10 TELEPHONIC MEETINGS. Unless otherwise restricted by the Certificate of ------------------- Incorporation or these Bylaws, members of the Board, or any committee designated by the Board, may participate in a meeting of the Board, or any committee, by means of conference telephone or similar communications equipment by means of which all 6 persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting. 3.11 COMMITTEES OF DIRECTORS. The Board may, by resolution passed by a majority ----------------------- of the whole Board, designate one or more committees, each such committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not the member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the Bylaws of the Corporation; and, unless the resolution or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. 3.12 MINUTES OF COMMITTEE MEETINGS. Each committee shall keep regular minutes ----------------------------- of its meetings and report the same to the Board when required. 3.13 COMPENSATION OF DIRECTORS. Unless otherwise restricted by the Certificate ------------------------- of Incorporation or these Bylaws, the Board shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board and may be paid a fixed sum for attendance at each meeting of the Board or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. 3.14 INDEMNIFICATION. --------------- (a) THIRD PARTY ACTIONS. The Corporation shall indemnify any ------------------- person who was or is made a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another 7 Corporation, partnership, joint venture, limited liability company, trust or other enterprise, against all expense, liability and loss (including, but not limited to, attorneys' fees, judgments, fines, ERISA excise taxes and amounts paid or to be paid in settlement) actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (b) ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The --------------------------------------------- Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, or agent of another corporation, partnership, joint venture, limited liability company, trust or other enterprise against expenses, liability and loss (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation and except that no such indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such Court of Chancery or such other court shall deem proper. (c) SUCCESSFUL DEFENSE. To the extent that a director, officer, ------------------ employee or agent of the Corporation shall be successful on the merits or otherwise in defense of any action, suit or proceeding referred to in paragraphs (a) and (b), or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (d) DETERMINATION OF CONDUCT. Any indemnification under ------------------------ paragraphs (a) and (b) (unless ordered by a court) shall be made by the 8 Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in paragraphs (a) and (b). Such determination shall be made (1) by the Board by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders. (e) PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred in ------------------------------ defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board in the manner provided in paragraph (d) upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that such person is entitled to be indemnified by the Corporation as authorized in this Section. (f) INDEMNITY NOT EXCLUSIVE. The indemnification provided by ----------------------- this Section shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (g) INSURANCE INDEMNIFICATION. The Board may authorize, by a ------------------------- vote of a majority of a quorum of the Board, the Corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation have the power to indemnify such person against such liability under the provisions of this Section. (h) DEFINITIONS. For the purposes of this Section, references to ----------- "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another 9 corporation, partnership, joint venture, limited liability company, trust or other enterprise, shall stand in the same position under the provisions of this Section with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. Further, for purposes of this Section, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Section. ARTICLE 4 OFFICERS -------- 4.1 OFFICERS. The officers of the Corporation shall be chosen by the Board and -------- shall include a Chairman of the Board, if elected, a President, a Secretary, and a Chief Financial Officer. The Corporation may also have at the discretion of the Board such other officers as are desired, including one or more Vice Presidents, one or more Assistant Secretaries and Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 4.3. In the event there are two or more Vice Presidents, then one or more may be designated as Executive Vice President, Senior Vice President, or other similar or dissimilar title. At the time of the election of officers, the directors may by resolution determine the order of their rank. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these Bylaws otherwise provide. 4.2 ELECTION OF OFFICERS. The Board, at its first meeting after each -------------------- annual meeting of stockholders, shall choose the officers of the Corporation. 4.3 SUBORDINATE OFFICERS. The Board may appoint such other officers and -------------------- agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. 4.4 COMPENSATION OF OFFICERS. The salaries of all officers and agents of ------------------------ the Corporation shall be fixed by the Board or by a compensation committee established by the Board. 4.5 TERM OF OFFICE; REMOVAL AND VACANCIES. The officers of the ------------------------------------- Corporation shall hold office until their successors are chosen and qualify in their stead. Any officer 10 elected or appointed by the Board may be removed at any time by the affirmative vote of a majority of the Board. If the office of any officer or officers becomes vacant for any reason, the vacancy shall be filled by the Board. 4.6 CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an officer --------------------- be elected, shall, if present, preside at all meetings of the Board and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board or prescribed by these Bylaws. If there is no President, the Chairman of the Board shall in addition be the Chief Executive Officer of the Corporation and shall have the powers and duties prescribed in Section 4.7. 4.7 PRESIDENT. Subject to such supervisory powers, if any, as may be --------- given by the Board to the Chairman of the Board, if there be such an officer, the President shall be the Chief Executive Officer of the Corporation and shall, subject to the control of the Board, have general supervision, direction and control of the business and officers of the Corporation. The President shall preside at all meetings of the stockholders and, in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board. The President shall be an ex-officio member of all committees and shall have the general powers and duties of management usually vested in the office of President and Chief Executive Officer of corporations, and shall have such other powers and duties as may be prescribed by the Board or these Bylaws. 4.8 VICE PRESIDENT. In the absence or disability of the President, the -------------- Vice Presidents in order of their rank as fixed by the Board, or if not ranked, the Vice President designated by the Board, shall perform all the duties of the President, and when so acting shall have all the powers of and be subject to all the restrictions upon the President. The Vice Presidents shall have such other duties as from time to time may be prescribed for them, respectively, by the Board. 4.9 SECRETARY. The Secretary shall attend all sessions of the Board and --------- all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose; and shall perform like duties for the standing committees when required by the Board. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board, and shall perform such other duties as may be prescribed by the Board or these Bylaws. The Secretary shall keep in safe custody the seal of the Corporation, and when authorized by the Board, affix the same to any instrument requiring it, and when so affixed shall be attested by the Secretary's signature or by the signature of an Assistant Secretary. The Board may give general authority to any other officer to affix the seal of the Corporation and to attest to the affixing by such person's signature. 4.10 ASSISTANT SECRETARIES. The Assistant Secretary, or if there be more --------------------- than one, the Assistant Secretaries in the order determined by the Board, or if there be no such determination, the Assistant Secretary designated by the Board, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary 11 and shall perform such other duties and have such other powers as the Board may from time to time prescribe. 4.11 CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall have the ----------------------- custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys, and other valuable effects in the name and to the credit of the Corporation, in such depositories as may be designated by the Board. The Chief Financial Officer shall disburse the funds of the Corporation as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the Board, at its regular meetings, or when the Board so requires, an account of all his transactions as Chief Financial Officer and of the financial condition of the Corporation. If required by the Board, the Chief Financial Officer shall give the Corporation a bond, in such sum and with such surety or sureties as shall be satisfactory to the Board, for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the possession or under the control of the Chief Financial Officer and belonging to the Corporation. 4.12 ASSISTANT TREASURER. The Assistant Treasurer, or if there shall be ------------------- more than one, the Assistant Treasurers in the order determined by the Board, or if there be no such determination, the Assistant Treasurer designated by the Board, shall, in the absence or disability of the Chief Financial Officer, perform the duties and exercise the powers of the Chief Financial Officer and shall perform such other duties and have such other powers as the Board may from time to time prescribe. ARTICLE 5 CERTIFICATES OF STOCK --------------------- 5.1 CERTIFICATES. Every holder of stock of the Corporation shall be entitled ------------ to have a certificate signed in the name of the Corporation by the Chairman or Vice Chairman of the Board, or the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Chief Financial Officer or Assistant Treasurer of the Corporation, certifying the number of shares represented by the certificate owned by such stockholder in the Corporation. 5.2 SIGNATURES ON CERTIFICATES. Any or all of the signatures on the -------------------------- certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. 12 5.3 STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES. If the Corporation -------------------------------------------------- shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualification, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 5.4 LOST CERTIFICATES. The Board may direct a new certificate or certificates ----------------- to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. 5.5 TRANSFERS OF STOCK. Upon surrender to the Corporation, or the transfer ------------------ agent of the Corporation, of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. 5.6 FIXING RECORD DATE. In order that the Corporation may determine the ------------------ stockholders entitled to notice of or to vote at any meeting of the stockholders, or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix a record date which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. 13 5.7 REGISTERED STOCKHOLDERS. The Corporation shall be entitled to treat ----------------------- the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of the State of Delaware. ARTICLE 6 GENERAL PROVISIONS ------------------ 6.1 DIVIDENDS. Dividends upon the capital stock of the Corporation, subject to --------- the provisions of the Certificate of Incorporation, if any, may be declared by the Board at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. 6.2 PAYMENT OF DIVIDENDS. Before payment of any dividend there may be set -------------------- aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interests of the Corporation, and the directors may abolish any such reserve. 6.3 CHECKS. All checks or demands for money and notes of the Corporation ------ shall be signed by such officer or officers as the Board may from time to time designate. 6.4 FISCAL YEAR. The fiscal year of the Corporation shall be fixed by ----------- resolution of the Board. 6.5 CORPORATE SEAL. The corporate seal shall have inscribed thereon the -------------- name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. 6.6 MANNER OF GIVING NOTICE. Whenever, under the provisions of the statutes ----------------------- or of the Certificate of Incorporation or of these Bylaws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram. 6.7 WAIVER OF NOTICE. Whenever any notice is required to be given under the ---------------- provisions of the statutes or of the Certificate of Incorporation or of these Bylaws, a 14 waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time therein, shall be deemed to be equivalent. 6.8 ANNUAL STATEMENT. The Board shall present at each annual meeting, and ---------------- at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the Corporation. ARTICLE 7 AMENDMENTS ---------- 7.1 AMENDMENT BY DIRECTORS OR STOCKHOLDERS. The Board is expressly empowered -------------------------------------- to adopt, amend or repeal Bylaws of the Corporation, without the approval of the stockholders. Any adoption, amendment or repeal of Bylaws of the Corporation by the Board shall require the approval of a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any resolution providing for adoption, amendment or repeal is presented to the Board). The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation. In addition to any vote of the holders of any class or series of stock of the Corporation required by law or by the Certificate of Incorporation, the affirmative vote of the holders of at least fifty percent (50%) of the outstanding shares of Common Stock of the Corporation shall be required to adopt, amend or repeal any provisions of the Bylaws of the Corporation. 15 CERTIFICATE OF SECRETARY OF U.S. RENTALS, INC. a Delaware corporation I certify that: (1) I am the duly elected and acting Chief Financial Officer and Assistant Secretary of U.S. Rentals, Inc., a Delaware corporation; and (2) The foregoing Bylaws, comprising fifteen (15) pages, constitute the Bylaws of said Corporation as duly adopted by Unanimous Written Consent of the Board of Directors of said Corporation as of __________________, 1997. IN WITNESS WHEREOF, I have hereunto subscribed my name this _______ day of ____________, 1997. -------------------------------------- John S. McKinney Chief Financial Officer and Assistant Secretary EX-4.1 4 SPECIMEN COMMON STOCK CERTIFICATE Temporary Certificate--Exchangeable for Definitive Engraved Certificate When Ready for Delivery COMMON STOCK COMMON STOCK USR [LOGO OF U.S. RENTALS, INC.] U.S. RENTALS, INC. SEE REVERSE FOR CERTAIN DEFINITIONS AND A STATEMENT AS TO THE RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS ON SHARES CUSIP 902966 10 0 INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE THIS CERTIFIES THAT IS THE OWNER OF FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE PER SHARE, OF U.S. RENTALS, INC. transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate is not valid until countersigned and registered by the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and the facsmilie signatures of its duly authorized officers. Dated: /s/ William F. Berry [SEAL OF U.S. RENTALS, INC.] /s/ R.D. COLBURN PRESIDENT AND CHAIRMAN CHIEF EXECUTIVE OFFICER COUNTERSIGNED AND REGISTERED: AMERICAN STOCK TRANSFER & TRUST COMPANY TRANSFER AGENT AND REGISTRAR BY AUTHORIZED SIGNATURE +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ + AMERICAN BANK NOTE COMPANY JAN 17, 1997 dw + + 3504 ATLANTIC AVENUE + + SUITE 12 + + LONG BEACH, CA 90807 048458fc + + (310) 989-2333 + + (FAX) (310) 426-7450 270-19X proof /s/ FM REV 2 + + ------ + +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ A statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights as established, from time to time, by the Certificate of Incorporation of the Corporation and by any certificate of determination, the number of shares constituting each class and series, and the designations thereof, may be obtained by the holder hereof upon request and without charge at the principal office of the Corporation. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common TEN ENT -- as tenants by the entireties JT TEN -- as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT -- ................... Custodian ................... (Cust) (Minor) under Uniform Gifts to Minors Act ............................................. (State) UNIF TRF MIN ACT -- ................... Custodian (until age .......) (Cust) ......................... under Uniform Transfers (Minor) to Minors Act ................................... (State) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, _________________ hereby sell(s), assign(s) and transfer(s) unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ++++++++++++++++++++++++++++++++++++++++ + + + + ++++++++++++++++++++++++++++++++++++++++ ________________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) ________________________________________________________________________________ ________________________________________________________________________________ __________________________________________________________________________Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ________________________________________________________________________Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated _____________________ X ___________________________________________________ X ___________________________________________________ NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed By ____________________________________________________________ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. ++++++++++++++++++++++++++++++++++++++++++++++++++ + AMERICAN BANK NOTE COMPANY JAN 16, 1997 dw + + 3504 ATLANTIC AVENUE + + SUITE 12 + + LONG BEACH, CA 90807 048458bk + + (310) 989-2333 + + (FAX) (310) 426-7450 proof /s/ SE NEW + + ------ + ++++++++++++++++++++++++++++++++++++++++++++++++++ EX-10.1 5 INDEMNIFICATION AGREEMENT INDEMNIFICATION AGREEMENT TABLE OF CONTENTS
Page ---- 1. Definitions............................................................. 1 ----------- 2. Indemnification......................................................... 2 --------------- 2.1 Indemnification in Third Party Actions............................ 2 2.2 Indemnification in Proceedings By or In the Name of the Company... 2 2.3 Partial Indemnification........................................... 2 2.4 Indemnification Hereunder Not Exclusive........................... 3 2.5 Indemnification of Indemnified Costs of Successful Party.......... 3 2.6 Indemnified Costs Advanced........................................ 3 2.7 Limitations on Indemnification.................................... 3 3. Presumptions............................................................ 4 ------------ 3.1 Presumption Regarding Standard of Conduct......................... 4 3.2 Determination of Right to Indemnification......................... 4 3.2.1 Burden.................................................... 4 3.2.2 Standard.................................................. 4 4. Other Agreements........................................................ 4 ---------------- 4.1 Change in Control................................................. 4 4.2 Maintenance of Liability Insurance................................ 5 4.2.1 Affirmative Covenant of the Company....................... 5 4.2.2 Indemnitee Named as Insured............................... 5 4.3 Agreement to Serve................................................ 5 4.4 Effect of this Agreement on Employment Agreement.................. 5 4.5 Nature of Rights; Separability.................................... 6 4.6 Savings Clause.................................................... 6 4.7 Repayment of Indemnified Costs.................................... 6 4.8 Repayment......................................................... 6 5. Indemnification Procedure............................................... 6 ------------------------- 5.1 Notice............................................................ 6 5.2 Company Participation............................................. 6 5.3 Settlement........................................................ 7 5.4 Subrogation....................................................... 7 6. Miscellaneous Provisions................................................ 7 ------------------------ 6.1 Amendments; Waivers............................................... 7 6.2 Integration....................................................... 7 6.3 Interpretation; Governing Law..................................... 7 6.4 Headings.......................................................... 8
i 6.5 Counterparts.................................................... 8 6.6 Successors and Assigns.......................................... 8 6.7 Expenses; Legal Fees............................................ 8 6.8 Representation by Counsel; Interpretation....................... 8 6.9 Specific Performance............................................ 8 6.10 Time is of the Essence.......................................... 8 6.11 Notices......................................................... 8
ii U.S. RENTALS, INC. INDEMNIFICATION AGREEMENT ------------------------- This Indemnification Agreement (this "AGREEMENT") is made as of __________, 1997, by and between U.S. Rentals, Inc., a Delaware corporation (the "COMPANY"), and the individual whose name appears below the word "Indemnitee" on the signature page (the "INDEMNITEE"). In consideration of the services of the Indemnitee, and to induce the Indemnitee to continue to serve as a director and/or officer, the Company and the Indemnitee agree as follows: R E C I T A L S A. The Indemnitee has agreed to serve as a director and/or officer of the Company and in such capacity will render valuable services to the Company. B. The Company has concluded that insurance and statutory indemnity provisions may provide inadequate protection to individuals requested to serve as its directors and officers. C. To induce and encourage the Indemnitee to serve as a director and/or officer of the Company, the Company's Board of Directors has decided that this Agreement is not only reasonable and prudent, but necessary, to promote and ensure the best interests of the Company and its stockholders. 1. DEFINITIONS ----------- As used in this Agreement: "AGENT" means a director, officer, employee or agent of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise that the Indemnitee served in any of such capacities at the request of the Company. "CHANGE IN CONTROL" has the meaning set forth in the Company's 1997 Performance Award Plan. "EXPENSES" includes, but is not limited to, attorneys' fees, disbursements and retainers, accounting and witness fees, travel and deposition costs, expenses of investigations and amounts paid in settlement by or on behalf of the Indemnitee, and any expenses of establishing a right to indemnification pursuant to this Agreement, to the extent actually and reasonably incurred by the Indemnitee in connection with any Proceeding. "EXPENSES" does not include the amount of judgments, fines, penalties or ERISA excise taxes actually levied against the Indemnitee. 1 "INDEMNIFIED COSTS" means all Expenses, judgments, fines, penalties and ERISA excise taxes actually and reasonably incurred by the Indemnitee in connection with the investigation, defense, appeal, or settlement of any Proceeding. A "POTENTIAL CHANGE IN CONTROL" will be deemed to have occurred if: (a) the Company enters into an agreement or arrangement that would constitute a Change in Control if consummated; (b) any person (including the Company) publicly announces an intention to take or to consider taking actions that would constitute a Change in Control if consummated; or (c) the Board of Directors adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. "PROCEEDING" means any threatened, pending or completed action, suit or proceeding (including appeals thereof), whether brought by or in the name of the Company or otherwise and whether of a civil, criminal or administrative or investigative nature, in which the Indemnitee is or will be a party at the time because the Indemnitee is or was an Agent, whether or not the Indemnitee is serving in such capacity at the time any liability or Expense is incurred for which indemnification or reimbursement is to be provided under this Agreement. 2. INDEMNIFICATION --------------- 2.1 INDEMNIFICATION IN THIRD PARTY ACTIONS. The Company will indemnify the -------------------------------------- Indemnitee if the Indemnitee becomes a party to, is threatened to be made a party to, is a witness or other participant in, or is otherwise involved in any Proceeding (other than a Proceeding by or in the name of the Company to procure a judgment in its favor), because the Indemnitee is or was an Agent, against all Indemnified Costs, to the fullest extent permitted by applicable law. Any settlement must be approved in writing by the Company. 2.2 INDEMNIFICATION IN PROCEEDINGS BY OR IN THE NAME OF THE COMPANY. The --------------------------------------------------------------- Company will indemnify the Indemnitee if the Indemnitee is a party to, is threatened to be made a party to, is a witness or other participant in, or is otherwise involved in any Proceeding by or in the name of the Company to procure a judgment in its favor because the Indemnitee was or is an Agent of the Company against all Expenses in connection with the defense or settlement of the Proceeding, to the fullest extent permitted by applicable law. 2.3 PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under any provision ----------------------- of this Agreement to indemnification by the Company for some or a portion of, but not the total 2 amount of, the Indemnified Costs, the Company will nevertheless indemnify the Indemnitee for the portion of the Indemnified Costs to which the Indemnitee is entitled. 2.4 INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The indemnification provided by --------------------------------------- this Agreement is not exclusive of any other rights to which the Indemnitee may be entitled under the Certificate of Incorporation, the Bylaws, any agreement, any vote of stockholders or disinterested directors, applicable law, or otherwise, both as to action in the Indemnitee's official capacity and as to action in another capacity on behalf of the Company. 2.5 INDEMNIFICATION OF INDEMNIFIED COSTS OF SUCCESSFUL PARTY. Notwithstanding -------------------------------------------------------- any other provisions of this Agreement, to the extent that the Indemnitee has been successful in defense of any Proceeding or in defense of any claim, issue or matter in the Proceeding, on the merits or otherwise, including, but not limited to, the dismissal of a Proceeding without prejudice, the Indemnitee will be indemnified against all Indemnified Costs incurred in connection therewith to the fullest extent permitted by applicable law. 2.6 INDEMNIFIED COSTS ADVANCED. The Indemnified Costs incurred by the -------------------------- Indemnitee in any Proceeding will be paid promptly by the Company in advance of the final disposition of the Proceeding at the written request of the Indemnitee to the fullest extent permitted by applicable law. The advances to be made will be paid by the Company to the Indemnitee within (30) days following delivery of the written request by Indemnitee to the Company, accompanied by substantiated documentation. 2.7 LIMITATIONS ON INDEMNIFICATION. The Company is not required to make ------------------------------ payments to: (a) indemnify or advance Indemnified Costs with respect to Proceedings initiated or brought voluntarily by the Indemnitee and not by way of defense, except with respect to Proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under applicable law; (b) indemnify the Indemnitee for any Indemnified Costs for which payment is actually made to the Indemnitee under an insurance policy, except for any excess beyond the amount of payment under the policy; (c) indemnify the Indemnitee for any Indemnified Costs sustained in any Proceeding for an accounting of profits made from the purchase or sale by the Indemnitee of securities of the Company pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder and amendments thereto or similar provisions of any federal, state or local law; (d) indemnify the Indemnitee for any Indemnified Costs resulting from Indemnitee's conduct that is finally adjudged by a court of competent jurisdiction to have been willful misconduct, knowingly fraudulent or deliberately dishonest; or 3 (e) indemnify the Indemnitee if a court of competent jurisdiction finally determines that such payment is unlawful. 3. PRESUMPTIONS ------------ 3.1 PRESUMPTION REGARDING STANDARD OF CONDUCT. The Indemnitee will be ----------------------------------------- conclusively presumed to have met the relevant standards of conduct as defined by applicable law for indemnification pursuant to this Agreement unless a determination that the Indemnitee has not met the relevant standards is made by (a) the Board of Directors of the Company by a majority vote of a quorum consisting of directors who are not parties to the Proceeding, (b) the stockholders of the Company by majority vote, or (c) in a written opinion by independent legal counsel, selection of whom has been made by the Company's Board of Directors and approved by the Indemnitee. 3.2 DETERMINATION OF RIGHT TO INDEMNIFICATION. ----------------------------------------- 3.2.1 BURDEN. If a claim under this Agreement is not paid by the Company ------ within 30 days of receipt of written notice, the right to indemnification as provided by this Agreement will be enforceable by the Indemnitee in any court of competent jurisdiction. The burden of proving by clear and convincing evidence that indemnification or advances are not appropriate will be on the Company. Neither the failure of the directors, stockholders, or independent legal counsel to have made a determination prior to the commencement of the action that indemnification or advances are proper in the circumstances because the Indemnitee has met the applicable standard of conduct, nor an actual determination by the directors, stockholders or independent legal counsel that the Indemnitee has not met the applicable standard of conduct, will be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct. 3.2.2 STANDARD. The Indemnitee's Expenses incurred in connection with any -------- Proceeding concerning the Indemnitee's right to indemnification or advances in whole or in part pursuant to this Agreement will also be indemnified by the Company regardless of the outcome of the Proceeding, unless a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in the Proceeding was not made in good faith or was frivolous. 4. OTHER AGREEMENTS ---------------- 4.1 CHANGE IN CONTROL. If there is a Change in Control or a Potential Change ----------------- in Control of the Company (other than a Change in Control or Potential Change in Control that has been approved by a majority of the Company's Board of Directors who were directors immediately prior to the Change in Control or Potential Change in Control), then with 4 respect to all matters thereafter arising concerning the rights of the Indemnitee to be indemnified for Indemnified Costs, the Company will seek legal advice only from independent counsel selected by the Indemnitee, and reasonably satisfactory to the Company, and who has not otherwise performed other services for the Company or the Indemnitee within the last three years ("SPECIAL INDEPENDENT COUNSEL"). The Special Independent Counsel, among other things, will render its written opinion to the Company and the Indemnitee as to whether and to what extent the Indemnitee would be permitted to be indemnified under applicable law. The Company will pay the reasonable fees and expenses of the Special Independent Counsel. 4.2 MAINTENANCE OF LIABILITY INSURANCE. ---------------------------------- 4.2.1 AFFIRMATIVE COVENANT OF THE COMPANY. While the Indemnitee continues ----------------------------------- to serve as a director or officer of the Company, and thereafter while the Indemnitee is subject to any possible Proceeding, the Company will promptly obtain and maintain in full force and effect directors' and officers' liability insurance ("D&O INSURANCE") in reasonable amounts from reputable insurers. The Company has no obligation, however, to obtain or maintain D&O Insurance if it determines in good faith that insurance is not reasonably available, the premium costs for insurance are disproportionate to the amount of coverage provided, the coverage provided by insurance is so limited by exclusions that it provides an insufficient benefit, or the Indemnitee is covered by similar insurance maintained by a subsidiary of the Company. If at the time it receives a notice a Proceeding has commenced the Company has D&O Insurance, the Company will give prompt notice of such commencement to the insurers as required by the respective policies. The Company will thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. 4.2.2 INDEMNITEE NAMED AS INSURED. In all D&O Insurance policies, the --------------------------- Indemnitee will be named as an insured in a manner that provides the Indemnitee the same rights and benefits accorded to the most favorably insured of the Company's directors and officers. 4.3 AGREEMENT TO SERVE. Indemnitee will serve or continue to serve as an Agent ------------------ of the Company for so long as the Indemnitee is duly elected or appointed or until the Indemnitee voluntarily resigns. Indemnitee will give notice to the Company at least thirty (30) days prior to voluntarily resigning. 4.4 EFFECT OF THIS AGREEMENT ON EMPLOYMENT AGREEMENT. Any present or future ------------------------------------------------ employment agreement between the Indemnitee and the Company is not modified by this Agreement. Nothing contained in this Agreement creates in the Indemnitee any right of continued employment. 5 4.5 NATURE OF RIGHTS; SEPARABILITY. The rights afforded to the Indemnitee by ------------------------------ this Agreement are contract rights and may not be diminished, eliminated or otherwise affected by amendments to the Company's Certificate of Incorporation, Bylaws or agreements, including D&O Insurance policies. Each provision of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision of this Agreement is held to be invalid or unenforceable for any reason, the invalidity or unenforceability will not affect the validity or enforceability of the other provisions. To the extent required, any provision of this Agreement may be modified by a court of competent jurisdiction to preserve its validity and to provide the Indemnitee with the broadest possible indemnification permitted under applicable law. 4.6 SAVINGS CLAUSE. If this Agreement or any portion of it is invalidated on -------------- any ground by any court of competent jurisdiction, then the Company will nevertheless indemnify the Indemnitee as to Indemnified Costs with respect to any Proceeding to the full extent permitted by any applicable portion of this Agreement that is not invalidated, or by any applicable law. 4.7 REPAYMENT OF INDEMNIFIED COSTS. The Indemnitee will reimburse the Company ------------------------------ for all Indemnified Costs paid by the Company in defending any Proceeding against the Indemnitee if and only to the extent that a court of competent jurisdiction finally decides that the Indemnitee is not entitled to be indemnified by the Company for such Indemnified Costs under the provisions of applicable law, the Company's Bylaws, Certificate of Incorporation, this Agreement, or otherwise. The Indemnitee will repay such amounts advanced only if, and to the extent that, it is ultimately determined that Indemnitee is not entitled to be indemnified for such Indemnified Costs by the Company pursuant to this Agreement. 4.8 REPAYMENT. The Indemnitee will promptly repay to the Company any amounts --------- paid to the Indemnitee pursuant to other rights of indemnification or under any insurance policy, to the extent those payments are duplicative of payments under this Agreement. 5. INDEMNIFICATION PROCEDURE ------------------------- 5.1 NOTICE. Promptly after receipt of notice that a Proceeding has commenced, ------ the Indemnitee will, if a claim is to be made under this Agreement, notify the Company of that fact. The failure to notify the Company will not relieve it from any liability that it may have to the Indemnitee except to the extent of the Company's material damage resulting from such failure. 5.2 COMPANY PARTICIPATION. The Company will be entitled to participate in any --------------------- Proceeding at its own expense and, except as otherwise provided below, to the extent that it may wish, the Company may assume the defense of any Proceeding for which indemnification is sought hereunder, with counsel reasonably satisfactory to the Indemnitee. After the Company notifies the Indemnitee of the Company's election to assume the defense of a 6 Proceeding, during the Company's good faith active defense the Company will not be liable to the Indemnitee under this Agreement for any legal or other expenses subsequently incurred by the Indemnitee in connection with the defense of the Proceeding, other than reasonable costs of investigation or as otherwise provided below. The Indemnitee will have the right to employ the Indemnitee's counsel in any Proceeding, but the fees and expenses of the counsel incurred after the Company assumes the defense of the Proceeding will be at the expense of the Indemnitee, unless (a) the employment of counsel by the Indemnitee has been authorized by the Company, (b) the Indemnitee has reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of the defense of a Proceeding, or (c) the Company has not in fact employed counsel to assume the defense of a Proceeding. In each of the foregoing cases the fees and expenses of the Indemnitee's counsel will be at the expense of the Company. The Company will not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company or as to which the Indemnitee has made the conclusion that there may be a conflict of interest between the Company and the Indemnitee. 5.3 SETTLEMENT. The Company will not settle or compromise any Proceeding in ---------- any manner that would impose any penalty or limitation on the Indemnitee without the Indemnitee's consent. The Indemnitee will not settle or compromise any Proceeding without the Company's consent. Neither the Company nor the Indemnitee will unreasonably withhold their consent or approval under this Agreement. 5.4 SUBROGATION. If the Company pays Indemnified Costs, the Company will be ----------- subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee against third parties. The Indemnitee will do all things reasonably necessary to secure such rights, including the execution of documents necessary to enable the Company effectively to bring suit to enforce such rights. 6. MISCELLANEOUS PROVISIONS ------------------------ 6.1 AMENDMENTS; WAIVERS. Amendments, waivers, consents and approvals under ------------------- this Agreement must be in writing and designated as such. No failure or delay in exercising any right will be deemed a waiver of such right. 6.2 INTEGRATION. This Agreement is the entire agreement between the parties ----------- pertaining to its subject matter, and supersedes all prior agreements and understandings of the parties in connection with such subject matter. 6.3 INTERPRETATION; GOVERNING LAW. This Agreement is to be construed as a ----------------------------- whole and in accordance with its fair meaning. This Agreement is to be interpreted in accordance with the laws of the State of Delaware relating to indemnification of Agents. 7 6.4 HEADINGS. Headings of Sections and subsections are for convenience only -------- and are not a part of this Agreement. 6.5 COUNTERPARTS. This Agreement may be signed in one or more counterparts, ------------ all of which constitute one agreement. 6.6 SUCCESSORS AND ASSIGNS. This Agreement is binding upon and inures to the ---------------------- benefit of each party and such party's respective heirs, personal representatives, successors and assigns. Nothing in this Agreement, express or implied, is intended to confer any rights or remedies upon any other person. 6.7 EXPENSES; LEGAL FEES. Each party will pay its own expenses in the -------------------- negotiation, preparation and performance of this Agreement. The prevailing party in any action relating to this Agreement will be entitled to reasonable legal fees, costs and expenses incurred in such action. 6.8 REPRESENTATION BY COUNSEL; INTERPRETATION. Each party acknowledges that it ----------------------------------------- has been given an opportunity to be represented by counsel in connection with this Agreement. Any rule of law, including, but not limited to, Section 1654 of the California Civil Code, or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it, has no application and is expressly waived. 6.9 SPECIFIC PERFORMANCE. The Company acknowledges that in view of the -------------------- uniqueness of the matters contemplated by this Agreement, the Indemnitee would not have an adequate remedy at law for money damages if this Agreement is not being performed in accordance with its terms. The Company therefore agrees that the Indemnitee will be entitled to specific enforcement of the terms hereof in addition to any other remedy to which the Indemnitee may be entitled. 6.10 TIME IS OF THE ESSENCE. Time is of the essence in the performance of each ---------------------- provision of this Agreement. 6.11 NOTICES. Any notice to be given hereunder must be in writing and delivered ------- as follows (or to another address designated in writing): IF TO U.S. RENTALS, INC.: IF TO THE INDEMNITEE: - ------------------------ -------------------- 1581 Cummins Drive, Suite 155 At the Indemnitee's most recent address Modesto, California 95358 on the books and records of the Company Attention: President 8 The parties have signed this Agreement as of the date on page one. INDEMNITEE -------------------------------------- Print Name: ------------------------- U.S. RENTALS, INC. By: --------------------------------- Title: ------------------------------ S-1 EX-10.3 6 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT BETWEEN U.S. RENTALS, INC. A DELAWARE CORPORATION AND USR HOLDINGS, INC. A CALIFORNIA CORPORATION TABLE OF CONTENTS -----------------
PAGE NO. -------- 1. Certain Definitions.................................................... 1 ------------------- 2. Registration Rights.................................................... 3 ------------------- 2.1 Demand Registration.............................................. 3 2.1.1 Size of Offering......................................... 3 2.1.2 Company Participation.................................... 3 2.1.3 Delay.................................................... 4 2.2 "Piggyback" Registration......................................... 5 2.2.1 Notice................................................... 5 2.2.2 Underwritten Offering.................................... 5 2.2.3 Best Efforts............................................. 5 2.2.4 Withdrawals.............................................. 6 2.3 Selection of Underwriters........................................ 6 3. Registration Procedures................................................ 6 ----------------------- 3.1 Copies; Review................................................... 6 3.2 Amendments....................................................... 6 3.3 Notification..................................................... 7 3.4 Information Included............................................. 7 3.5 Copies........................................................... 8 3.6 Blue Sky Registration............................................ 8 3.7 Other Registrations.............................................. 8 3.8 Certificates..................................................... 8 3.9 Other Actions.................................................... 8 3.10 Due Diligence.................................................... 9 3.11 Section 11(a) Notice............................................. 9 3.12 Expenses......................................................... 9 4. Indemnification........................................................ 9 --------------- 4.1 Indemnification by the Company................................... 9 4.2 Indemnification by Holder of Registrable Securities.............. 10 4.3 Contribution..................................................... 11 4.4 Conduct of Indemnification Proceedings........................... 11 5. Other Agreements....................................................... 12 ---------------- 5.1 Holdback Agreements.............................................. 12 5.1.1 Restrictions on Public Sale by the Company............... 12 5.1.2 Restrictions on Public Sale by the Holder................ 12 5.2 Rule 144......................................................... 12
(i) 5.3 Representations and Warranties................................... 12 5.3.1 Validity................................................. 12 5.3.2 No Inconsistent Agreements............................... 13 5.3.3 Furnish Information...................................... 13 5.3.4 Assignment............................................... 13 6. Miscellaneous Provisions............................................... 13 ------------------------ 6.1 Amendments; Waivers.............................................. 13 6.2 Integration...................................................... 13 6.3 Interpretation; Governing Law.................................... 13 6.4 Headings......................................................... 13 6.5 Counterparts..................................................... 14 6.6 Successors and Assigns........................................... 14 6.7 Expenses; Legal Fees............................................. 14 6.8 Representation by Counsel; Interpretation........................ 14 6.9 Specific Performance............................................. 14 6.10 Time is of the Essence........................................... 14 6.11 Notices.......................................................... 14
(ii) REGISTRATION RIGHTS AGREEMENT ----------------------------- THIS REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT"), is entered into as of January __, 1997, between U.S. Rentals, Inc., a Delaware corporation (the "COMPANY"), and USR Holdings, Inc., a California corporation (the "HOLDER"). The parties agree as follows. RECITALS -------- A. The Holder owns shares of the Company's Common Stock (the "COMMON STOCK"). B. The Common Stock was issued without registration under the Securities Act, and therefor, its resale by the Holder is subject to restrictions under the Securities Act. C. In connection with the Company's initial Offering of its Common Stock the Company has agreed to enter into this Agreement with the Holder. 1. CERTAIN DEFINITIONS ------------------- As used in this Agreement: "AFFILIATE" means any Person directly or indirectly controlling or controlled by or under direct or indirect common control with another Person. "BUSINESS DAY" means any day that commercial banks are not authorized or required to close in Los Angeles, California. "COMMISSION" means the Securities and Exchange Commission or any other similar or successor agency of the United States government administering the Securities Act. "COMMON STOCK" means the Common Stock of the Company, par value $0.01 per share. "EXCHANGE ACT" means the Securities Exchange Act of 1934, and any similar or successor federal statute, and the rules and regulations of the Commission thereunder, as in effect at the time. "OFFERING" means the registration of the Company's securities under the Securities Act, whether underwritten or not, for sale to the public. "S-3 REGISTRATION STATEMENT" means a Registration Statement on Form S-3. 1 "PERMITTED TRANSFEREE" means (a) any entity all of the equity of which is directly or indirectly owned by the transferor; (b) in the case of a transferor who is an individual, (i) such transferor's spouse and lineal descendants, (ii) such transferor's successors, personal representatives and heirs, (iii) any trustee of any trust created primarily for the benefit of any, some or all of such spouse and lineal descendants (but that may include beneficiaries that are charities) or of any revocable trust created by such transferor, (iv) following the death of such transferor, all beneficiaries under either such trust, (v) the transferor, in the case of a transfer from any Permitted Transferee back to its transferor and (vi) any entity all of the equity of which is directly or indirectly owned by any of the foregoing; or (c) any charitable or educational organization that is exempt from federal income taxes. "PERSON" means a corporation, an association, a trust, a partnership, a limited liability company, a joint venture, an organization, a business, an individual, a government or political subdivision thereof, or a governmental body. "PROSPECTUS" means the prospectus included in any Registration Statement, together with and including any amendment or supplement to such prospectus, covering the Offering of any portion of the Registrable Securities covered by a Registration Statement, and all material incorporated by reference in such Prospectus. "REGISTRABLE SECURITIES" means shares of the Common Stock held by the Holder or otherwise acquired by the Holder (collectively, the "SHARES") and any securities issued or issuable with respect to the Shares by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation, reclassification or other reorganization. A security will cease to be a Registrable Security when it (a) has been effectively registered under the Securities Act and disposed of in accordance with the Registration Statement covering it, (b) is distributed to the public pursuant to Rule 144 (or any similar rule then in force) under the Securities Act or (c) has otherwise been transferred and a new certificate not bearing a restrictive legend and not subject to any stop transfer order lawfully has been delivered by or on behalf of the Company and no other restriction on transfer exists. "REGISTRATION STATEMENT" means a registration statement filed by the Company with the Commission covering Registrable Securities. "SECURITIES ACT" means the Securities Act of 1933, as amended, or any similar federal statute, together with the rules and regulations of the Commission promulgated thereunder, as in effect at the time. 2 Other Definitions. The following terms have the meanings set forth in the - ----------------- following sections:
Definition Section ---------- ------- "COMPANY" Introduction "CONTROLLING PERSON" 6.1 "DEMAND NOTICE" 2.1 "DEMAND REGISTRATION STATEMENT" 2.1 "COMMON STOCK" Recitals "OTHER SHARES" 2.1.2 "PIGGYBACK NOTICE" 2.2.1 "PIGGYBACK REGISTRATION STATEMENT" 2.2 "REGISTRATION EXPENSES" 5 "SHARES" 1
2. REGISTRATION RIGHTS ------------------- 2.1 DEMAND REGISTRATION. Commencing six months after the initial Offering of ------------------- the Common Stock, the Holder may, by notice to the Company (the "DEMAND NOTICE"), demand that the Company file, and the Company will file, a Registration Statement as soon as practicable covering the Registrable Securities specified in the Demand Notice (a "DEMAND REGISTRATION STATEMENT"). Such Demand Registration Statement will be filed on an appropriate form under the Securities Act, no later than 90 days after the Company receives the Demand Notice. The Company is only required to file two Demand Registration Statements (other than on Form S-3). In addition, the Holder will be entitled at any time while the Company is eligible to file Registration Statements on Form S-3, to demand that the Company file and cause to be declared effective S-3 Registration Statements as provided herein. The Company will use its best efforts to cause any Demand Registration Statement to be declared effective on the date requested by the managing underwriter for the Offering (no earlier than 60 days from the date of the Demand Notice), or, if such Offering is not underwritten, as soon as practicable after the filing with the Commission. The Company will keep such Demand Registration Statement effective until the Offering is completed (but not more than 180 days from the effective date of the Demand Registration Statement). 2.1.1 SIZE OF OFFERING. The Holder will not make a Demand Notice unless ---------------- the proposed size of the Offering is at least $10,000,000 (based upon the reported trading price of the Registrable Securities at the time of the Demand Notice). 2.1.2 COMPANY PARTICIPATION. The Company can elect to register equity --------------------- securities of the Company in any Demand Registration Statement or to participate in the Offering, by including any of its equity securities in the Demand Registration Statement, subject to the following: 3 (a) NOTICE. The Company must give notice of such election to the ------ Holder within 15 days after the Demand Notice was given to it, including the number of Shares proposed to be sold by the Company in the Offering (the "OTHER SHARES"); (b) CONDITIONS. The Company must agree to sell such Other Shares on ---------- the same basis provided in the underwriting arrangements approved by the Holder and the Company (including standard indemnification provisions) and to timely complete and execute all questionnaires, powers of attorney, indemnities, holdback agreements, underwriting agreements and other documents reasonably required by such underwriting arrangements, by the Commission, or by any state securities regulatory body; (c) LIMITATION ON AMOUNT. The number of Other Shares that may be -------------------- sold by the Company will be limited if the managing underwriter decides that market conditions require a limitation. In such event, the number of shares of Common Stock that may be sold in the Offering will be allocated first to the Holder, second, to the extent available, to the Company, and, third, to the extent available, to any other party having registration rights with respect to the Common Stock. 2.1.3 DELAY. The Company may delay the filing of a Demand Registration ----- Statement if upon receipt of the Demand Notice (a) the Company notifies the Holder that it is contemplating filing a registration statement within 120 days of such demand, (b) the Company notifies the Holder that a material event has occurred or is likely to occur that has not been publicly disclosed that, if disclosed, would have a material adverse effect on the Company and its ability to consummate the Offering under the Demand Registration Statement, or (c) the Company decides that the registration and offering could interfere with any material financing, acquisition, disposition, corporate reorganization or other material transaction involving the Company or its subsidiaries. In the case of clause (a) of this subsection, the Company will use its best efforts, as soon as practicable, upon the earlier of the Company's abandonment of its contemplated registration statement or the expiration of the 120-day period to file the Demand Registration Statement, unless such Demand Notice is withdrawn by the Holder. In the case of clause (b) or clause (c), the Company may not delay the filing of the Demand Registration Statement for more than 120 days from the date of the Demand Notice unless such Demand Notice is withdrawn by the Holder. The Company cannot exercise the foregoing rights of postponement more than once in any 12-month period. If there is a postponement under any clause above, the Demand Notice may be withdrawn by the Holder by notice to the Company. In such case, no Demand Notice will have been delivered for the purposes of Section 2.1. 4 2.2 "PIGGYBACK" REGISTRATION. If at any time, or from time to time, the ------------------------ Company decides to file a Registration Statement covering any shares of its Common Stock (other than a registration statement on Form S-4 or S-8, or any form substituted therefor) for its own account or for the account of any stockholder (a "PIGGYBACK REGISTRATION STATEMENT"), the Holder will be entitled to include Registrable Securities in such registration and related Offering on the following terms and conditions. 2.2.1 NOTICE. The Company will promptly give notice of such decision to ------ the Holder (a "PIGGYBACK NOTICE"). The Holder will have the right to request, by notice to the Company within ten (10) Business Days after it receives the Piggyback Notice, that a specific number of Registrable Securities held by the Holder be included in the Piggyback Registration Statement and related underwritten Offering. If the Piggyback Registration Statement relates to an underwritten Offering, the Piggyback Notice must specify the name of the managing underwriter for such Offering. The Piggyback Notice must also specify the number of shares to be registered for the account of the Company and for the account of any stockholder, and the intended method of disposition of such shares. 2.2.2 UNDERWRITTEN OFFERING. If the Piggyback Registration Statement --------------------- relates to an underwritten Offering, as a condition to participation in such Piggyback Registration Statement the Holder must agree to sell its Registrable Securities on the same basis provided in the underwriting arrangements approved by the Company (including standard indemnification provisions) and to timely complete and execute all questionnaires, powers of attorney, indemnities, holdback agreements, underwriting agreements and other documents required under the terms of such underwriting arrangements, by the Commission or by any state securities regulatory body. 2.2.3 BEST EFFORTS. The Company will use its best efforts to include in ------------ the Piggyback Registration Statement the number of Registrable Securities requested in response to the Piggyback Notice. If the managing underwriter for any underwritten Offering under the Piggyback Registration Statement reasonably decides that inclusion of all or any portion of the Holder's specified Registrable Securities in such Offering would materially and adversely affect the ability of the underwriters to sell all of the securities requested to be included in such Offering, and delivers to the Holder its written opinion to such effect, the number of securities that may be sold in such Offering will be limited. Securities to be sold will be allocated first to the Company (or, if the Offering is being made principally for the account of another Person, to such Person), second to the Holder, and, third, to any other party having registration rights with respect to the Common Stock. 5 2.2.4 WITHDRAWALS. The Holder will have the right to withdraw its ----------- Registrable Securities from the Piggyback Registration Statement, but if it relates to an underwritten Offering, it may only do so during the time period and on terms agreed upon by the Holder and the underwriters for such underwritten Offering. The Company will, on five (5) Business Days notice to the Holder, have the right to withdraw any Piggyback Registration Statement at any time prior to the effective date thereof. 2.3 SELECTION OF UNDERWRITERS. If the Registrable Securities covered by a ------------------------- Demand Registration Statement are to be sold in an underwritten Offering, the managing underwriter of such Offering may be designated by the Holder. Such underwriter must be reasonably acceptable to the Company. If the Registrable Securities included in a Piggyback Registration Statement are to be sold in an underwritten Offering, the managing underwriter of such Offering will be designated by the Company. 3. REGISTRATION PROCEDURES ----------------------- The Company will use its best efforts to effect any registration under Section 2 in a manner that permits the sale of the Registrable Securities covered thereby in accordance with the intended method or methods of disposition. The Company will, as promptly as practicable, do the following. 3.1 COPIES; REVIEW. At least five (5) Business Days before filing a -------------- Registration Statement or Prospectus, the Company will furnish to the Holder (if the Holder is participating in such Registration Statement) (the "REGISTERING HOLDER") and the underwriters, if any, copies of all such documents proposed to be filed. Such documents will be subject to the review of the Registering Holder and such underwriters (and their respective counsel). The Company will not file any Registration Statement or any Prospectus to which the Registering Holder or the underwriters, if any, reasonably object. If the Registration Statement is a Piggyback Registration Statement relating to an underwritten Offering and the underwriters do not agree with such objection by the Registering Holder, and the Registering Holder is permitted to withdraw its Registrable Securities from such Offering, the Company can file the Piggyback Registration Statement notwithstanding such objection by the Registering Holder. 3.2 AMENDMENTS. The Company will (a) prepare and file with the Commission ---------- such amendments and post-effective amendments to the Registration Statement as may be necessary to keep the Registration Statement effective for the applicable time period required herein, (b) cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act, and (c) comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended methods of disposition by the Registering Holder set forth in such Registration Statement or Prospectus supplement. 6 3.3 NOTIFICATION. The Company will promptly notify the Registering Holder and ------------ the managing underwriters, and (if requested by any such Person) confirm such notification in writing, (a) when the Prospectus has been filed, and, with respect to the Registration Statement, when it has become effective, (b) of any request by the Commission for amendments or supplements to the Registration Statement or the Prospectus or for additional information, (c) of the issuance of any stop order suspending the effectiveness of the Registration Statement, or the refusal or suspension of qualification of registration of Registrable Securities, or the initiation of any proceedings for that purpose, (d) if at any time the representations and warranties of the Company contemplated by Section 8 cease to be true and correct, and (e) of any event that makes any material statement made in the Registration Statement, the Prospectus or any document incorporated therein by reference untrue or that requires the making of any changes in the Registration Statement, the Prospectus or any document incorporated therein by reference in order to make the statements therein not misleading in any material respect. The Company will make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the Registration Statement at the earliest possible moment. If any event contemplated by clause (e) occurs, the Company will promptly prepare a supplement or post-effective amendment to the Registration Statement or the Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading. Upon receipt of any notice from the Company that any event of the kind described in clause (e) has happened, the Registering Holder will discontinue offering the Registrable Securities until the Registering Holder receives the copies of the supplemented or amended Prospectus contemplated by the previous sentence, or until it is advised in writing by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus. The period during which distribution of the Shares is suspended will not be counted toward completion of the required period of effectiveness for any Registration Statement. 3.4 INFORMATION INCLUDED. If requested by the managing underwriters or the -------------------- Registering Holder, the Company will immediately incorporate in a Prospectus supplement or post-effective amendment such information as the managing underwriters and the Registering Holder agree should be included therein relating to the sale of the Registrable Securities, including, but not limited to, information with respect to the number of Registrable Securities being sold to such underwriters or other Persons, the purchase price being paid therefor by such underwriters or other Persons and any other terms of the distribution of the Registrable Securities to be sold in such Offering. Such information will include, if applicable, any required disclosure of arrangements with underwriters. The Company will make all required filings of such Prospectus supplement or post-effective amendment as promptly as practicable after being notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment. 7 3.5 COPIES. The Company will (a) promptly furnish to the Registering Holder ------ and each managing underwriter without charge, at least one signed copy of the Registration Statement and any post-effective amendment thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits (including those incorporated by reference), and (b) promptly deliver to the Registering Holder and the underwriters without charge, as many copies of the Prospectus (including each preliminary Prospectus) and any amendment or supplement thereto as such Persons may reasonably request. The Company consents to the use of the Prospectus or any amendment or supplement thereto by the Registering Holder and the underwriters in connection with the Offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto. 3.6 BLUE SKY REGISTRATION. Prior to any Offering of Registrable Securities --------------------- covered by a Registration Statement under Section 2, the Company will register or qualify or cooperate with the Registering Holder, the underwriters and their respective counsel in connection with the registration or qualification of such Registrable Securities under the securities or blue sky laws of such jurisdictions as the Registering Holder or underwriter reasonably request in writing, and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of such Registrable Securities. The Company will not be required to take any actions under this subsection if such actions would require it to submit to the general taxation of such jurisdiction or to file therein any general consent to service of process, unless this limitation means that the Registrable Securities would not be qualified (or exempt from qualification) for offer and sale in at least 20 states. 3.7 OTHER REGISTRATIONS. The Company will use its best efforts to cause the ------------------- Registrable Securities covered by the Registration Statement to be registered with or approved by such governmental agencies or authorities other than the Commission and state securities regulatory bodies as may be necessary to enable the Registering Holder or the underwriters to consummate the disposition of such Registrable Securities. 3.8 CERTIFICATES. The Company will cooperate with the Registering Holder and ------------ the managing underwriter to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold that do not bear any restrictive legends. Such certificates will be in such denominations and registered in such names as the managing underwriter requests at least two business days prior to any sale of Registrable Securities to the underwriters. 3.9 OTHER ACTIONS. In addition, the Company will (a) make such representations ------------- and warranties to the Registering Holder and the underwriters as are customarily made by issuers to underwriters in primary underwritten offerings (or as may be reasonably requested by the underwriters), (b) obtain opinions of counsel to the Company and updates (which counsel and opinions must be reasonably satisfactory to the Registering Holder), (c) obtain customary "cold comfort" letters and updates from the Company's independent certified public accountants addressed to the underwriters, and use its best 8 efforts to obtain such a letter for the Registering Holder or to obtain a letter from such accountants authorizing the Registering Holder to rely on such "cold comfort" letter, (d) if an underwriting agreement is entered into, ensure that it sets forth in full the indemnification provisions and procedures of Section 6 with respect to the Company and the Registering Holder, and (e) deliver such documents and certificates as may be requested by the Registering Holder and the managing underwriter to evidence compliance with clause (a) and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company with the Registering Holder. The above will be done in connection with each closing under such underwriting or similar agreement or as and to the extent required thereunder. 3.10 DUE DILIGENCE. The Company will make available for inspection by the ------------- Registering Holder, any underwriter participating in any, and any attorney or accountant retained by the Registering Holder or managing underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to be available to discuss and to supply all information reasonably requested by any such person in connection with the Registration Statement. All such records, information or documents will be subject to standard confidentiality arrangements. 3.11 SECTION 11(a) NOTICE. The Company will make generally available to its -------------------- stockholders earnings statements satisfying the provisions of Section 11(a) of the Securities Act. 3.12 EXPENSES. Except as set forth in the next to last sentence of this -------- Section, all expenses incident to the Company's performance of or compliance with this Agreement, including, but not limited to, all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger expenses, telephone and delivery expenses, and fees and disbursements of Company counsel and of independent certified public accountants of the Company (including the expenses of any special audit required by or incident to such performance), will be borne by the Company. The Company will also pay its internal expenses, the expense of any annual audit and the fees and expenses of any Person retained by the Company. In addition, the Company will pay all reasonable fees and disbursements of counsel to the Holder. All such expenses are referred to as "REGISTRATION EXPENSES." All underwriting fees and commissions with respect to an underwritten Offering, and transfer taxes, if any, will be borne by the Holder in proportion to the number of Registrable Securities sold by it. 4. INDEMNIFICATION --------------- 4.1 INDEMNIFICATION BY THE COMPANY. The Company will indemnify and hold ------------------------------ harmless the Holder, its officers, directors, agents (including, but not limited to counsel) and employees and each Person who controls the Holder (within the meaning of Section 15 of the Securities Act) (each, a "CONTROLLING PERSON") (all of the foregoing are "INDEMNIFIED PERSONS") from and against any and all losses, claims, damages and 9 liabilities (including any investigation, legal or other expenses ("LOSSES") reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted) to which the Indemnified Person may become subject under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such Losses arise out of or are based upon (a) any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or preliminary prospectus or any amendment or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (b) any violation by the Company of the Securities Act or the Exchange Act, or other federal or state law applicable to the Company and relating to any action or inaction required of the Company in connection with such registration. In addition, the Company will reimburse the Indemnified Person for any investigation, legal or other expenses incurred by such Indemnified Person in connection with investigating or defending any such Loss. The Company will not be liable with respect to the portion of any such Loss that arises out of or is based upon any alleged untrue statement or alleged omission made in such Registration Statement, preliminary Prospectus, Prospectus, or amendment or supplement in reliance upon and in conformity with written information furnished to the Company by the Indemnified Person specifically for use therein. Such indemnity will remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person, and will survive the transfer of such securities by the Indemnified Person. The Company will also indemnify underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, their officers and directors and each Person who controls such Persons (within the meaning of Section 15 of the Securities Act) to the same extent customarily requested by such Persons in similar circumstances. 4.2 INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES. If the Holder sells --------------------------------------------------- Registrable Securities under a Prospectus that is part of a Registration Statement, the Holder will indemnify and hold harmless the Company, its directors and each officer who signed such Registration Statement and each Person who controls the Company (within the meaning of Section 15 of the Securities Act) under the same circumstances as the foregoing indemnity from the Company to the Holder but only to the extent that such Losses arise out of or are based upon any untrue statement of a material fact or omission of a material fact that was made in the Prospectus, the Registration Statement, or any amendment or supplement thereto, in reliance upon and in conformity with written information relating to the Holder furnished to the Company by the Holder expressly for use therein. In no event will the aggregate liability of the Holder exceed the amount of the net proceeds received by the Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. Such indemnity will remain in full force and effect regardless of any investigation made by or on behalf of the Company or such officer, director, employee or Controlling Person, and will survive the transfer of such securities by the Holder. The Company and the Holder will be entitled to receive indemnities from underwriters, selling brokers, dealer managers and similar securities 10 industry professionals participating in the distribution, to the same extent as customarily furnished by such Persons in similar circumstances. 4.3 CONTRIBUTION. If the indemnification provided for in the foregoing ------------ Sections is unavailable to an indemnified party or is insufficient to hold such indemnified party harmless for any Losses in respect of which the foregoing Sections would otherwise apply by their terms (other than by reason of exceptions provided in the foregoing Sections), then each applicable indemnifying party, in lieu of indemnifying such indemnified party, will have a joint and several obligation to contribute to the amount paid or payable by such indemnified party as a result of such Losses. Such contribution will be in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and such indemnified party, on the other hand, in connection with the actions, statements or omissions that resulted in such Losses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party, on the one hand, and indemnified party, on the other hand, will be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been taken or made by, or relates to information supplied by, such indemnifying party or indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent any such action, statement or omission. The amount paid or payable by a party as a result of any such Losses will be deemed to include any investigation, legal or other fees or expenses incurred by such party in connection with any investigation or proceeding, to the extent such party would have been indemnified for such expenses if the indemnification provided for in the foregoing Sections was available to such party. 4.4 CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to -------------------------------------- indemnification hereunder will (a) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification, and (b) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. Any Person entitled to indemnification hereunder will have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel will be at the expense of such Person and not of the indemnifying party unless (x) the indemnifying party has agreed to pay such fees or expenses, (y) the indemnifying party has failed to assume the defense of such claim and employ counsel reasonably satisfactory to such Person, or (z) in the opinion of counsel of the Person to be indemnified, a conflict of interest may exist between such Person and the indemnifying party with respect to such claims. In the case of (z) if the Person notifies the indemnifying party in writing that such Person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party will not have the right to assume the defense of such claim on behalf of such Person. If such defense is not assumed by the indemnifying party, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). No indemnified party will be required to consent to entry of any judgment or enter into any settlement that does not include as an unconditional term the 11 giving of a release, by all claimants or plaintiffs, to such indemnified party from all liability in respect to such claim or litigation. Any indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel in each relevant jurisdiction for all parties indemnified by such indemnifying party with respect to such claim. 5. OTHER AGREEMENTS ---------------- 5.1 HOLDBACK AGREEMENTS. ------------------- 5.1.1 RESTRICTIONS ON PUBLIC SALE BY THE COMPANY. The Company will not ------------------------------------------ effect any public or private sale or distribution of securities of the same class as the Registrable Securities, or securities convertible into or exchangeable or exercisable for securities of the same class as the Registrable Securities during the 10-day period prior to, and during the 90-day period beginning on the closing date of, an Offering made pursuant to Demand Notice. 5.1.2 RESTRICTIONS ON PUBLIC SALE BY THE HOLDER. If requested by the ----------------------------------------- managing underwriter of an underwritten Offering, the Holder will not effect any public sale or distribution of securities of the same class (or securities exchangeable or exercisable for or convertible into securities of the same class) as the securities included in the Offering (including, but not limited to, a sale pursuant to Rule 144 of the Securities Act) during the 10-day period prior to and the 90- day period (in the case of Offerings subsequent to the initial Offering (or shorter period requested by the underwriter) beginning on the effective date of, such Offering. 5.2 RULE 144. The Company will file, on a timely basis, all reports required -------- to be filed by it under the Securities Act and the Exchange Act, and will take such further action and provide such documents as any holder of Registrable Securities may request, all to the extent required from time to time to enable the Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the conditions provided by (a) Rule 144 under the Securities Act, as such rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission. Upon the request of the Holder, the Company will deliver to the Holder a statement verifying that it has complied with such information and requirements. 5.3 REPRESENTATIONS AND WARRANTIES. ------------------------------ 5.3.1 VALIDITY. The Company represents and warrants to the Holder that -------- this Agreement has been duly and validly executed and delivered by the Company and constitutes a legally valid and binding agreement of the Company enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and except that the remedy of 12 specific performance and injunctive and other forms of equitable relief are subject to certain equitable defenses and to the discretion of the court before which any proceeding therefor may be brought and except as rights to indemnity and contribution hereunder may be limited by federal or state securities laws. 5.3.2 NO INCONSISTENT AGREEMENTS. The Company represents and warrants -------------------------- that it has not previously entered into, and will not on or after the date of this Agreement enter into, any agreement with respect to its securities that is inconsistent with the terms of this Agreement, including any agreement that impairs or limits the registration rights granted to the Holder or that otherwise conflicts with the provisions hereof or would preclude the Company from discharging its obligations under this Agreement. 5.3.3 FURNISH INFORMATION. The Company will promptly deliver to the ------------------- Holder copies of all financial statements, reports and proxy statements that the Company is required to send to its stockholders generally. 5.3.4 ASSIGNMENT. This Agreement and the rights hereunder are assignable ---------- by any Holder to Permitted Transferees in connection with the transfer of Registrable Securities, and upon assignment such Permitted Transferees will become "HOLDER" under this Agreement. Such Permitted Transferees must agree in writing to be bound by the terms of this Agreement and to any lender in connection with a loan to a Holder that is secured by Registerable Securities, so long as such lender agrees in writing to be bound by the terms hereof. Other than as set forth above, this Agreement is not assignable. Further, no rights under this Agreement may be assigned without the concurrent assignment of the related Shares. 6. MISCELLANEOUS PROVISIONS ------------------------ 6.1 AMENDMENTS; WAIVERS. Amendments, waivers, demands, consents and approvals ------------------- under this Agreement must be in writing and designated as such. No failure or delay in exercising any right will be deemed a waiver of such right. 6.2 INTEGRATION. This Agreement is the entire agreement between the parties ----------- pertaining to its subject matter, and supersedes all prior agreements and understandings of the parties in connection with such subject matter. 6.3 INTERPRETATION; GOVERNING LAW. This Agreement is to be construed as a ----------------------------- whole and in accordance with its fair meaning. This Agreement is to be interpreted in accordance with the laws of the State of California. 6.4 HEADINGS. Headings of Sections and subsections are for convenience only -------- and are not a part of this Agreement. 13 6.5 COUNTERPARTS. This Agreement may be executed in one or more counterparts, ------------ all of which constitute one agreement. 6.6 SUCCESSORS AND ASSIGNS. This Agreement is binding upon and inures to the ---------------------- benefit of each party and such party's respective heirs, personal representatives, successors and assigns, including any Permitted Transferees. Nothing in this Agreement, express or implied, is intended to confer any rights or remedies upon any other person. 6.7 EXPENSES; LEGAL FEES. Each party will pay its own expenses in the -------------------- negotiation, preparation and performance of this Agreement. The prevailing party in any action relating to this Agreement will be entitled to recover, in addition to other appropriate relief, reasonable legal fees, costs and expenses incurred in such action. 6.8 REPRESENTATION BY COUNSEL; INTERPRETATION. Each party acknowledges that it ----------------------------------------- has been represented by counsel in connection with this Agreement. Any rule of law, including, but not limited to, Section 1654 of the California Civil Code, or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it, has no application and is expressly waived. 6.9 SPECIFIC PERFORMANCE. In view of the uniqueness of the matters -------------------- contemplated by this Agreement, the Indemnitee would not have an adequate remedy at law for money damages if this Agreement is not being performed in accordance with its terms. The Company therefore agrees that the Indemnitee will be entitled to specific enforcement of the terms hereof in addition to any other remedy to which the Indemnitee may be entitled. 6.10 TIME IS OF THE ESSENCE. Time is of the essence in the performance of each ---------------------- and every term, provision and covenant in this Agreement. 6.11 NOTICES. Any notice to be given hereunder must be in writing and delivered ------- as follows (or to another address as either shall designate in writing): IF TO U.S. RENTALS, INC.: IF TO USR HOLDINGS, INC.: - ------------------------ ------------------------ 1581 Cummins Drive, Suite 155 At the most recent address on the books Modesto, California 95358 and records of the Company for USR Attention: President Holdings, Inc. [ REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ] 14 This Registration Rights Agreement has been signed as of the date on page one. U.S. RENTALS, INC. _____________________________ By: Its: USR HOLDINGS, INC. _____________________________ By: Richard D. Colburn Its: President EX-10.8 7 SECURITY AGREEMENT EXHIBIT 10.8 CONFORMED COPY ================================================================================ THIRD AMENDED AND RESTATED SECURITY AGREEMENT RE: RECEIVABLES, INVENTORY, EQUIPMENT, AND DOCUMENTS Dated as of July 1, 1996 By and Between U.S. RENTALS, INC. (the "Company") And BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Collateral Agent (the "Collateral Agent") ================================================================================ TABLE OF CONTENTS
Section Heading Page Parties..................................................................... 1 Recitals.................................................................... 1 Section 1. Grant of Security Interest in the Collateral............ 3 Section 2. Terms Defined in the Credit Agreement................... 6 Section 3. Covenants, Agreements, Representations and Warranties... 6 Section 4. Special Provisions Re: Receivables...................... 12 Section 5. Collection of Receivables............................... 13 Section 6. Special Provisions Re: Inventory........................ 15 Section 7. Power of Attorney....................................... 16 Section 8. Defaults and Remedies................................... 16 Section 9. Application of Proceeds................................. 19 Section 10. Continuing Agreement.................................... 19 Section 11. Miscellaneous........................................... 19 Signature................................................................... 22
Attachments to Security Agreement: Exhibit 1 -- Form of Account Letter Agreement Schedule A -- Description of Accounts Schedule B -- Locations Schedule C -- Permitted Trade Names -i- THIRD AMENDED AND RESTATED SECURITY AGREEMENT RE: RECEIVABLES, INVENTORY, EQUIPMENT, AND DOCUMENTS This Third Amended and Restated Security Agreement (the "Agreement") is dated as of July 1, 1996, by and between U.S. Rentals, Inc., a California corporation, with its mailing address at 1581 Cummins Drive, Suite 155, Modesto, California 95358 (the "Company"), and Bank of America National Trust and Savings Association, acting as collateral agent hereunder for the Banks and the Agent (as hereinafter defined) and for the Noteholders hereinafter identified and defined (in such capacity, and any successor or successors thereto acting in such capacity, being hereinafter referred to as the "Collateral Agent"), with its mailing address at 1455 Market Street, 13th Floor, San Francisco, California 94103, Attention: Agency Management Services No. 10831. RECITALS: A. The Company and Bank of America National Trust and Savings Association (in its capacity as a lender, "BofA") have heretofore entered into that certain First Amended and Restated Credit Agreement dated as of August 11, 1995 (as amended from time to time, the "BofA Credit Agreement"), pursuant to which BofA has extended credit to the Company on the terms provided therein. The BofA Credit Agreement may be further amended, restated, superseded or otherwise modified from time to time in the form of a syndicated credit agreement among the Company, certain banks, including BofA, from time to time party thereto, and Bank of America National Trust and Savings Association, as the agent for such banks (in such capacity, and any successor or successors thereto acting in such capacity, being hereinafter referred to as the "Agent") (a "Syndicated Credit Agreement"; such a Syndicated Credit Agreement and the BofA Credit Agreement are referred to collectively and separately, as applicable, as the "Credit Agreement"). The banks, including BofA, from time to time party to a Syndicated Credit Agreement and BofA, as a lender under the BofA Credit Agreement, are referred to herein as the "Banks." B. Loans outstanding under the BofA Credit Agreement were secured by that certain Revised, Amended and Restated Security Agreement (Receivables, Inventory, Equipment and Documents) dated September 30, 1990 (the "1990 Security Agreement"). C. Pursuant to the terms of those certain Note Agreements dated as of August 15, 1995 (as amended from time to time, the "1995 Note Agreements"), between the Company and the several Purchasers named in Schedule I thereto (the "1995 Purchasers" and, together with each successive holder from time to time of the 1995 Senior Notes described below, the "1995 Noteholders"), the Company has heretofore sold and the 1995 Purchasers have heretofore purchased from the Company its (1) 6.82% Senior Secured Notes, Series A, Due 1999, in the aggregate principal amount of $10,000,000, (2) 6.89% Senior Secured Notes, Series B, Due 2000, in the aggregate principal amount of $10,000,000, (3) 7.04% Senior Secured Notes, Series C, Due 2001, in the aggregate principal amount of $10,000,000, and (4) 7.13% Senior Secured Notes, Series D, Due 2002, in the aggregate principal amount of $20,000,000 (collectively, the "1995 Senior Notes"). D. Loans outstanding under the BofA Credit Agreement and all obligations of the Company under the 1995 Note Agreements and the 1995 Senior Notes are secured by that certain Second Amended and Restated Security Agreement Re: Receivables, Inventory, Equipment and Documents dated August 15, 1995 (the "1995 Security Agreement") which agreement amended and restated the 1990 Security Agreement. E. Pursuant to the terms of those certain Note Agreements dated as of July 1, 1996 (as amended from time to time, the "1996 Note Agreements"; the 1996 Note Agreements together with the 1995 Note Agreements are hereinafter referred to as the "Note Agreements"), between the Company and the several Purchasers named in Schedule I thereto (the "1996 Purchasers" and, together with each successive holder from time to time of the 1996 Senior Notes described below and with the 1995 Noteholders, the "Noteholders"), the Company has agreed to sell and the 1996 Purchasers have agreed to purchase from the Company its (1) 7.62% Senior Secured Notes, Series E, Due 2001, in the aggregate principal amount of $20,000,000 and (2) 7.76% Senior Secured Notes, Series F, Due 2002, in the aggregate principal amount of $20,000,000 (collectively, the "1996 Senior Notes"; the 1996 Senior Notes together with the 1995 Senior Notes are hereinafter referred to as the "Senior Notes"). F. As a condition to the continuance or maintenance of financial accommodations to be given to the Company by the Banks and the 1995 Noteholders, and as a condition precedent to the purchase of the 1996 Senior Notes by the 1996 Purchasers, BofA, the 1995 Noteholders and the 1996 Purchasers have required that the Company and the Collateral Agent enter into this Agreement amending and restating the 1995 Security Agreement in order to modify the terms, conditions and covenants thereof to provide that the obligations of the Company in respect of the Note Agreements and the Senior Notes constitute secured obligations thereunder, and as otherwise more particularly set forth herein. G. Pursuant to the terms of the Intercreditor Agreement dated as of August 15, 1995, as amended, modified or supplemented from time to time, among the Banks and the Noteholders, the Collateral Agent has agreed to act as collateral agent for and on behalf of the Agent, the Banks and the Noteholders. H. The Company has agreed to execute and deliver this Agreement to the Collateral Agent as collateral agent for the Agent, the Banks and the Noteholders. I. The Company has determined that the execution and delivery of this Agreement is in furtherance of its corporate purposes and is in its best interest and that it will derive substantial benefit, whether directly or indirectly, from the execution of this Agreement, having regard for all relevant facts and circumstances. -2- NOW, THEREFORE, in consideration of the premises and for the purpose of inducing the purchase and acceptance of the 1996 Senior Notes by the 1996 Purchasers and the continuance and maintenance of financial accommodations by the Banks pursuant to the Credit Agreement and by the 1995 Noteholders pursuant to the 1995 Note Agreements, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company does hereby covenant and agree with the Collateral Agent as follows: Section 1. Grant of Security Interest in the Collateral. (a) The Company hereby ratifies and confirms its grant of a security interest in, and acknowledges and agrees that the Collateral Agent has and shall continue to have for the benefit of the Agent, the Banks and the Noteholders a continuing security interest in, any and all right, title and interest of the Company, whether now existing or hereafter acquired or arising, in and to: (1) Receivables. All Receivables, whether now existing or hereafter arising, and however evidenced or acquired, in which the Company now has or hereafter acquires any rights (the term "Receivables" means and includes accounts, accounts receivable, rents, contract rights, including without limitation rights under contracts for the purchase of supplies, instruments, notes, drafts, acceptances, documents, chattel paper, any right of the Company to payment for goods sold, leased or rented or for services rendered, whether arising out of the sale, lease or rental of Inventory (as hereinafter defined) or otherwise and whether or not earned by performance, and all other forms of obligations owing to the Company, and all of the Company's rights to any goods and merchandise (including without limitation any returned or repossessed goods and the right of stoppage in transit) which is represented by, arises from or is related to any of the foregoing); (2) General Intangibles. All general intangibles, whether now owned or hereafter acquired or arising, or in which the Company now has or hereafter acquires any rights, including without limitation all causes of action, goodwill and similar intangibles and all income tax refunds, all privileges, franchises, immunities, licenses, permits and similar intangibles, any rights under contracts or agreements to which the Company is, or may become, a party (including, without limitation, all notes receivable from affiliates of the Company or any of its Subsidiaries), any rights to receive any payments in connection with the termination of any pension plan or employee stock ownership plan or trust established for the benefit of employees of the Company and all other intangible personal property (including things in action) not otherwise covered by this Agreement; (3) Know-How and Trade Secret Collateral. All know-how, inventions, processes, methods, information, data and plans, to the extent that the foregoing constitute trade secrets of the Company, and all licenses or other similar agreements granted to or by the Company with respect to any of the foregoing, in any case whether now existing or hereafter created or developed; -3- (4) Inventory. All Inventory, whether now owned or hereafter acquired, and all documents of title at any time evidencing or representing any part thereof (the term "Inventory" means and includes all goods (i) which are held for sale, lease or rental, including without limitation any and all aerial work platforms, bulldozers, cranes, forklifts, earth moving equipment, compaction equipment, trucks, portable air compressors, hand tools, plumbing, landscape and garden equipment and all similar goods held for sale, lease or rental by the Company or are to be furnished under contracts of service or consumed in the Company's business, or (ii) which are raw materials, work-in-process, finished goods (including, without limitation, supplies and related products), packaging materials and all other materials and supplies of every nature in each case used or usable in connection with the acquisition, processing, supply, servicing, storing, packing, shipping, advertising, selling, leasing, rental or furnishing of such goods and any constituents or parts thereof, or (iii) which are returned or repossessed goods); (5) Equipment. All equipment (exclusive of equipment constituting Inventory as described in clause (4) above), whether now owned or hereafter acquired, wherever located, including without limitation, any and all apparatus, computer equipment, computer software, fittings, fixtures, furnishings, furniture, hardware improvements, machinery, building signs, maintenance and repair equipment, office equipment, copiers, security systems, telephone systems and typewriters as the same are now and will hereafter be constituted, whether now owned by the Company or hereafter acquired, together with all appliances, instruments, improvements, accessories, equipment, parts and appurtenances appertaining or attached thereto, or from time to time incorporated herein or installed as part thereof, and all substitutions, renewals and replacements of and additions, improvements, assessions and accumulations to all thereof which are now owned or hereafter acquired by the Company; (6) Accounts, Investments, Monies, etc. (i) All accounts now owned or hereafter acquired by the Company and, in any event shall include, without limitation, the accounts described on Schedule A attached hereto (the "Accounts"); and all funds held in the Accounts and all certificates and instruments, if any, from time to time representing or evidencing the Accounts, (ii) all notes, certificates of deposit, deposit accounts, checks and other instruments from time to time hereafter delivered to or otherwise possessed by the Company or the Agent, the Banks for or on behalf of the Company in substitution for or in addition to any or all of the then existing Collateral (as defined below), (iii) all Investments from time to time, and all certificates and instruments, if any, from time to time representing or evidencing such Investments and (iv) all cash, currency, coins and monies held by the Company or held in any deposit account by the Company (collectively, "Cash"); (7) Other. Any and all other property or interests in property of any type whatsoever in the possession of the Company to the extent such property is not covered by the foregoing and to the extent a security interest may legally be granted in -4- such property or interests in property under the Code (as hereinafter defined), but excluding in any event all real estate owned by the Company and fixtures thereon; (8) Records. Supporting evidence and documents relating to any of the above described property, including, without limitation, written applications, credit information, account cards, payment records, correspondence, delivery and installation certificates, invoice copies, delivery receipts, notes and other evidences of indebtedness, insurance certificates and the like, customer lists, together with all books of account, ledgers and cabinets in which the same are reflected or maintained, all whether now existing or hereafter arising (collectively, the "Records"); (9) Additions. All additions to and substitutions and replacements of any and all of the foregoing, whether now existing or hereafter arising; (10) Proceeds and Products. All proceeds and products of the foregoing and all insurance of the foregoing and the proceeds thereof including, without limitation, the proceeds of any business interruption insurance or any key man life insurance policy covering the life of any officer or director of the Company, whether now existing or hereafter arising; and (11) Louisiana Collateral. Upon the execution of the Original Security Agreements between the Company and B of A on November 10, 1986, the Company and B of A executed separate collateral and security document applicable to certain property and rights situated in, or governed under the laws of, the State of Louisiana, including resolutions of the Board of Directors of the Company, Collateral Chattel Mortgage Notes, Collateral Chattel Mortgages, Collateral Pledge Agreements, Assignments of Accounts Receivable, and Notices of Assignments of Accounts Receivable (collectively the "Louisiana Collateral Documents"), certain of which Louisiana Collateral Documents were recorded with the offices of the Clerks of the Court and Recorders of Caddo, Jefferson and Ouachita Parishes, Louisiana. The State of Louisiana subsequently enacted into law a version of Article 9 of the Uniform Commercial Code (designated Chapter 9 of Title 10 of the Louisiana Revised Statutes, as amended). The Company, the Agent, the Banks and the Noteholders intend to continue in effect and perpetuate, in the name of the Collateral Agent, the collateral and security interest under Louisiana law with respect to such Collateral which is presently located in, or is subject to the laws of, the State of Louisiana, uninterrupted from November 10, 1986. Therefore, the Agent, the Banks, the Noteholders and the Company agree that this act of Third Amended and Restated Security Agreement Re: Receivables, Inventory, Equipment and Documents shall apply to and include all such Collateral as may now or in the future be situated in, or subject to the law of, the state of Louisiana, to the same extent and with the same ranking as is otherwise provided for in this act of Third Amended and Restated Security Agreement Re: Receivables, Inventory, Equipment and Documents; all of the foregoing being herein referred to as the "Collateral". -5- (b) Obligations Secured. The lien and security interest herein granted to the Collateral Agent for the benefit of the Agent, the Banks and the Noteholders is made and given to secure, and shall secure, the prompt payment and performance in full when due (whether by lapse of time, acceleration or otherwise) of (i) any and all indebtedness, obligations and liabilities of the Company to the Agent or the Banks under or in connection with or evidenced by (x) the Credit Agreement or (y) the notes of the Company issued under the Credit Agreement or (z) this Agreement, in each case whether now existing or hereafter arising (and whether arising before or after the filing of a petition in bankruptcy), due or to become due, direct or indirect, absolute or contingent, and howsoever evidenced, held or acquired, (ii) all indebtedness, obligations and liabilities of the Company to the Noteholders under or in connection with or evidenced by (x) the Note Agreements or (y) the Senior Notes issued by the Company in connection therewith or (z) this Agreement, in each case whether now existing or hereafter arising (and whether arising before or after the filing of a petition in bankruptcy), due or to become due, direct or indirect, absolute or contingent, and howsoever evidenced, held or acquired, (iii) all indebtedness, obligations and liabilities of the Company to the Collateral Agent under or in connection with or evidenced by this Agreement, in each case whether now existing or hereafter arising (and whether arising before or after the filing of a petition in bankruptcy), due or to become due, direct or indirect, absolute or contingent, and howsoever evidenced, held or acquired, and (iv) any and all expenses and charges, legal or otherwise, suffered or incurred by the Collateral Agent, the Agent, the Banks and the Noteholders in collecting or enforcing any of such indebtedness, obligations and liabilities or in realizing on or protecting or preserving any security therefor, including, without limitation, the lien and security interest granted hereby (all of the indebtedness, obligations, liabilities, expenses and charges described in clauses (i), (ii), (iii) and (iv) above being hereinafter referred to as the "Secured Obligations"). (c) On the date the Company executes and delivers this Agreement, the security interests granted hereunder by the Company shall constitute valid security interests under the Code (as hereinafter defined) securing the Secured Obligations. Section 2. Terms Defined in the Credit Agreement. All capitalized terms used herein without definition shall have the same meanings herein as such terms have in the Credit Agreement as the Credit is in effect on the date hereof. Section 3. Covenants, Agreements, Representations and Warranties. The Company hereby covenants and agrees with, and represents and warrants to, the Collateral Agent, the Agent, the Banks and the Noteholders that: (a) Unless and to the extent the Collateral Agent shall otherwise consent in writing, the Collateral is and will remain in the Accounts or in the Company's possession or control or deemed to be located under the Code at the locations listed under Item A on Schedule B in the form attached hereto, or as Schedule B may hereafter be amended or modified by instrument in writing delivered to the Collateral Agent (collectively the "Permitted Collateral Locations"), except for (i) Collateral which in the ordinary course of the Company's business as presently conducted is in transit between the Permitted Collateral Locations, (ii) Inventory which in the -6- ordinary course of the Company's business as presently conducted is being shipped to customers of the Company or is in the possession of customers of the Company pursuant to a lease or rental arrangement between such customer and the Company, and (iii) Inventory in transit to the Company at a Permitted Collateral Location from the supplier of such items. The Company shall not hold Cash in any depository account other than the Accounts and any other accounts of which the Company has given the Collateral Agent written notice pursuant to periodic updates made by the Company at the Collateral Agent's request. Upon the occurrence of an Event of Default hereunder and upon the request of the Collateral Agent, the Company shall execute an Account Letter Agreement covering such depository account(s) substantially in the form of Exhibit 1 attached hereto and such Account Letter Agreement shall be acknowledged and agreed to by the subject bank; provided that, on or prior to the effective date hereof, the Company shall execute and deliver an Account Letter Agreement acknowledged and agreed to by the Collateral Agent covering the concentration account No. 12331-13468 of the Company maintained with BofA. If for any reason Collateral is at any time kept or located at locations other than those permitted by the foregoing, the Collateral Agent shall nevertheless have and retain a security interest therein. As indicated on Schedule B, the Company owns or leases and will own or lease all the Permitted Collateral Locations. As of the date hereof, the Company's chief executive office and chief place of business is at 1581 Cummins Drive, Suite 155, Modesto, California 95358 and the Company has no other places of business other than those listed on said Schedule B. The Company will not maintain its chief executive office or places of business at any location other than those specified pursuant to the immediately preceding sentence without first providing the Collateral Agent 60 days' prior written notice of its intent to do so; provided, however, that such notice shall not be deemed effective until the Collateral Agent has acknowledged receipt thereof; provided, further, that the Company will at all times maintain its chief executive office in the State of California. (b) The Collateral and every part thereof is and will be free and clear of all security interests, liens (including without limitation mechanics', laborers' and statutory liens), attachments, levies and encumbrances of every kind, nature and description and whether voluntary or involuntary, except for the security interest of the Collateral Agent therein and liens permitted under the Credit Agreement and Note Agreements (collectively the "Permitted Liens"). The Company will warrant and defend the Collateral against any claims and demands (other than the Permitted Liens) of all persons at any time claiming the same or any interest in the Collateral adverse to the Collateral Agent. (c) The Company will pay promptly when due all taxes, assessments, and governmental charges and levies upon or against the Collateral in each case before the same become delinquent and before penalties accrue thereon, unless (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 such Collateral or any material interference with the use thereof by the Company and (2) the Company shall -7- have set aside on its books, reserves deemed by it to be adequate with respect thereto in accordance with and as required by GAAP. (d) The Company will not waste or destroy the Collateral or any part thereof and will not be negligent in the care and use of any Collateral. The Company will not use, sell, lease, rent or distribute any Collateral in violation of any statute, ordinance or other governmental requirement. The Company will perform in all material respects its obligations under any contract or other agreement constituting a part of the Collateral, it being understood and agreed that the Collateral Agent, the Agent, the Banks and the Noteholders have no responsibility to perform such obligations. (e) Subject to (S)(S)(a), 6(b) and 6(c) hereof and except as permitted by the Credit Agreement and Note Agreements, the Company will not, without the Collateral Agent's prior written consent, sell, assign, mortgage, lease or otherwise dispose of or otherwise permit a Lien to exist on the Collateral or any interest therein. (f) The Company will insure the Collateral which is insurable against such risks and hazards as other companies similarly situated insure against, and including in any event commercial general and commercial liability insurance and such other coverage as the Collateral Agent may reasonably specify, in amounts and under policies written by companies of recognized national standing which are authorized to do business in the state in which the Collateral is located, and which are otherwise acceptable to the Collateral Agent, provided that the Company shall be permitted to self-insure in a commercially reasonable manner consistent with its current practices so long as adequate reserves with respect thereto are maintained. All premiums on third party insurance shall be paid by the Company and the policies of such insurance (or certificates therefor) delivered to the Collateral Agent. All such policies of insurance: (1) shall contain loss payable clauses to the Collateral Agent as its interest may appear (and, if the Collateral Agent requests, naming the Collateral Agent, the Agent, the Banks and the Noteholders as additional insureds therein), (2) in the case of policies covering loss or damage to the Collateral, shall provide that losses, if any, shall be payable solely to the Collateral Agent under a standard loss payable clause satisfactory to the Collateral Agent, (3) shall provide that the Collateral Agent's, the Agent's, the Banks' and the Noteholders' interests shall be insured regardless of any breach or violation by the Company of any warranties, declarations or conditions contained in such policies, (4) the insurers shall waive any right of subrogation of the insurers to any set-off or counterclaim or any other deduction, whether by attachment or otherwise, in respect of any liability of the Company, (5) such insurance, as to the interest of the Collateral Agent and/or the Agent, the Banks and the Noteholders, as the case may be, therein, shall not be invalidated by the use or operation of the Collateral for purposes which are not permitted by such policies, nor by any foreclosures or other proceedings relating to the Collateral, nor by change in title to or ownership of the Collateral, (6) if any premium or installment is not paid when due, or if such insurance would lapse or be cancelled, terminated or materially changed for any reason whatsoever, the insurers -8- will promptly notify the Collateral Agent and any such lapse, cancellation, termination or change shall not be effective as to the Collateral Agent and/or the Agent, the Banks and the Noteholders, as the case may be, for 30 days after receipt of such notice, and (7) appropriate certification shall be made to the Collateral Agent by each insurer with respect thereto. The Company hereby authorizes the Collateral Agent, upon the occurrence and during the continuation of any Event of Default hereunder, at the Collateral Agent's option to adjust, compromise and settle any losses under any insurance afforded, and the Company does hereby irrevocably constitute the Collateral Agent, its officers, agents and attorneys, as its attorneys-in-fact, with full power and authority, upon the occurrence and during the continuation of any Event of Default hereunder, to effect such adjustment, compromise and/or settlement and to endorse any drafts drawn by an insurer of the Collateral or any part thereof and to do everything necessary to carry out such purposes and to receive and receipt for any unearned premiums due under policies of such insurance; but unless the Collateral Agent elects to adjust, compromise or settle losses as aforesaid, such adjustment, compromise and/or settlement shall be made by the Company, subject to final approval of the Collateral Agent in the case of losses exceeding $250,000. (g) The Company will, upon reasonable notice, at all times allow the Collateral Agent, the Agent, the Banks and the Noteholders, or their respective representatives, free access to and right of inspection of the Collateral located on premises under the Company's control; provided, however, so long as no Event of Default hereunder exists and is continuing, any such access or inspection shall only be allowed during the Company's normal business hours. The Company will, upon request of the Collateral Agent, and then only to the extent it is within the Company's power so to do, authorize and instruct all bailees and any other parties at any time holding, storing, shipping, leasing or renting all or any part of the Collateral to permit the Collateral Agent or its designees to examine and inspect any of the Collateral then in such party's possession and to verify from such party's own books and records any information concerning the Collateral or any part thereof which the Collateral Agent may seek to verify. The Company shall have the right to accompany the Collateral Agent on any such examination or inspection. As to any premises not owned by the Company wherein any of the Collateral is located, the Company shall, upon the occurrence of an Event of Default hereunder and upon the request of the Collateral Agent, use its best efforts to cause each owner of such premises to enter into an agreement in form and substance satisfactory to the Collateral Agent subordinating any lien such owner may have by contract or under law with respect to such Collateral to the Lien of this Agreement, allowing the removal of such Collateral by the Collateral Agent and otherwise in form and substance reasonably acceptable to the Collateral Agent. (h) The Company agrees from time to time to deliver to the Collateral Agent, the Agent, the Banks and any Noteholder such evidence (including copies) of the existence and identity of the Collateral and of its availability as collateral security -9- pursuant hereto, as the Collateral Agent, the Agent, the Banks or such Noteholder may reasonably request. (i) The Company will comply in all material respects with the terms and conditions of any leases, easements, right-of-way agreements or other agreements binding upon the Company or affecting the Collateral in each case which cover the premises owned, leased or otherwise controlled by the Company wherein the Collateral is located and any orders, ordinances, laws or statutes of any city, state or other governmental entity, department or agency having jurisdiction with respect to such premises or the conduct of business thereon. (j) The Company has not invoiced Receivables or otherwise transacted business, and does not invoice Receivables or otherwise transact business, under any trade names other than the Company's name set forth in the introductory paragraph of this Agreement and except for the invoicing of Receivables on invoices which contain one of the trade names listed on Schedule C attached hereto and made a part hereof, but which indicate such trade name to be a division of or trade name for the Company and so identify the Company by its correct corporate name. The Company will not change its name, or except as aforesaid, transact business under any trade name, in each case without first giving the Collateral Agent 30 days' prior written notice of its intent to do so, provided that in the case of any acquisition by the Company of any business entity or operation giving rise to the requirement to give notice to the Collateral Agent of the use of a new trade name pursuant to the foregoing, such notice shall be given to the Collateral Agent within 30 days following the date such acquisition is finalized. (k) The Company represents that this Agreement creates a valid security interest in the Collateral securing payment and performance of the Secured Obligations and that all filings and other action necessary to perfect such security interest have been taken. The Collateral Agent agrees to prepare, and the Company agrees to cooperate with the Collateral Agent to execute and deliver to the Collateral Agent, such further agreements and assignments or other instruments and to do all such other things necessary or reasonably appropriate to assure the Collateral Agent its security interest hereunder, including such financing statement or statements, continuation statements or amendments thereof or supplements thereto or other instruments as may from time to time be required in order to comply with the California Uniform Commercial Code and any successor statute(s) thereto (the "Code"). All such statements, amendments and supplements prepared by the Collateral Agent shall be presented to the Company for its signature and shall be timely filed by the Collateral Agent in all such places as are necessary to maintain the Collateral Agent's perfected security interest in the Collateral. The Company agrees to deliver to the Collateral Agent on August 1, 2000 an opinion of counsel, which opinion may be from internal counsel, in the State of California and each other state in which Collateral may be located pursuant to the terms of this Agreement, to the effect that -10- this Agreement continues to create a valid security interest in the Collateral securing payment and performance of the Secured Obligations subject to the Permitted Liens and that all filings and other action necessary to perfect such security interest have been taken. Such opinion shall also set forth and describe any filings or other actions which may reasonably be expected to become necessary within the immediately succeeding twenty-four-month period to maintain perfection of such security interest. All such filings and actions shall be promptly made by the Company. The Company hereby agrees that a carbon, photographic or other reproduction of this Agreement or any such financing statement is sufficient for filing as a financing statement by the Collateral Agent without notice thereof to the Company wherever the Collateral Agent in its sole discretion desires to file the same. In the event for any reason the law of any jurisdiction other than California becomes or is applicable to the Collateral or any part thereof, or to any of the Secured Obligations, the Company agrees to execute and deliver all such instruments and to do all such other things as the Collateral Agent in its sole discretion reasonably deems necessary or appropriate to preserve, protect and enforce the security interest of the Collateral Agent as set forth herein under the law of such other jurisdiction to at least the same extent as such security interest would be protected under the Code. If any Collateral is in the possession or control of any of the Company's agents or processors and the Collateral Agent so requests, the Company agrees to notify such agents or processors in writing of the Collateral Agent's security interest therein and, upon the occurrence and continuance of an Event of Default hereunder and at the Collateral Agent's request, instruct all agents and processors in possession of Collateral to hold all such Collateral for the Collateral Agent's account and subject to the Collateral Agent's instructions. The Company agrees to mark its books and records to reflect the security interest of the Collateral Agent in the Collateral. (l) On failure of the Company to perform any of the covenants and agreements herein contained, the Collateral Agent may, at its option, perform the same and in so doing may expend such sums as the Collateral Agent may reasonably deem advisable in the performance thereof, including without limitation the payment of any insurance premiums, the payment of any taxes, liens and encumbrances, expenditures made in defending against any adverse claim and all other expenditures which the Collateral Agent may be compelled to make by operation of law or which the Collateral Agent may make by agreement or otherwise for the protection of the security hereof. All such sums and amounts so expended shall be repayable by the Company immediately without notice or demand, shall constitute so much additional Secured Obligations and shall bear interest from the date said amounts are expended at the rate per annum (computed on the basis of a 360-day year for the actual number of days elapsed) determined by adding 2% to the rate per annum from time to time announced by Bank of America National Trust and Savings Association in San Francisco, California, as its prime commercial rate with any change in such rate per annum as so determined by reason of a change in such prime commercial rate to be effective on the date of such change in said prime commercial rate (such rate per annum as so determined being hereinafter referred to as the "Default Rate"). No such -11- performance of any covenant or agreement by the Collateral Agent on behalf of the Company, and no such advancement or expenditure therefor, shall relieve the Company of any default under the terms of this Agreement. The Collateral Agent, in making any payment hereby authorized may do so according to any bill, statement or estimate procured from the appropriate public office or holder of the claim to be discharged without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax assessment, sale, forfeiture, tax lien or title or claim. The Collateral Agent, in performing any act hereunder, shall be the sole judge in reasonably determining whether the Company is required to perform the same under the terms of this Agreement. (m) Immediately upon the Company's receipt thereof, the Company shall cause to be delivered to the Collateral Agent all chattel paper and instruments relating to the Inventory (other than motor vehicle title documents and other chattel paper evidencing title to equipment) which the Company now owns or may at any time or times hereafter acquire, with appropriate endorsement and assignment in favor of the Collateral Agent, with full recourse to the Company. Upon the request of the Collateral Agent, the Company shall cause to be delivered to the Collateral Agent all such motor vehicle title documents and other chattel paper evidencing title to equipment with appropriate endorsement and assignment in favor of the Collateral Agent, with full recourse to the Company. (n) The Company shall respond promptly to all reasonable requests of the Collateral Agent for information concerning the conduct of all lawsuits brought by the Company (or in which the Company participates) against any other Person. Section 4. Special Provisions Re: Receivables. (a) As of the time any Receivable becomes subject to the security interest provided for hereby, the Company shall be deemed to have warranted as to each and all of such Receivables that each Receivable and all papers and documents relating thereto are genuine and in all respects what they purport to be; that each Receivable is valid and subsisting and, if such Receivable is an account receivable, arises out of a bona fide sale, lease or rental of goods by the Company to, or in the process of being delivered to, or out of and for services theretofore actually rendered by the Company to, the account debtor named therein; that no such Receivable is evidenced by any instrument or chattel paper unless such instrument or chattel paper is promptly endorsed by the Company and delivered to the Collateral Agent (other than chattel paper consisting of rental agreements and other ordinary course agreements relating to the lease, rental or sale of goods which shall only be delivered to the Collateral Agent after the occurrence of an Event of Default hereunder and upon the request of the Collateral Agent); that no surety bond was required or given in connection with said Receivable or the contracts or purchase orders out of which the same arose; and that if said Receivable is scheduled, listed or referred to on any Borrowing Base Certificate as an Eligible Receivable, that said Receivable qualifies as an Eligible Receivable as of the date covered by such Borrowing Base Certificate. (b) The Company shall keep all of its books and records relating to the Receivables only at its chief executive office and places of business as specified pursuant to (S)3(a). -12- (c) Unless and until an Event of Default hereunder occurs and is continuing and the Collateral Agent notifies the Company otherwise, any goods sold by the Company which are returned by a customer or account debtor or otherwise recovered may be resold by the Company in the ordinary course of its business in accordance with (S)6(b) hereof; upon the occurrence and during the continuation of any Event of Default hereunder if the Company is so instructed by the Collateral Agent, such goods shall be set aside and held by the Company as trustee for the Collateral Agent, the Agent, the Banks and the Noteholders and shall remain part of the Collateral Agent's Collateral. Unless and until an Event of Default hereunder occurs and is continuing and the Collateral Agent notifies the Company otherwise, the Company may settle and adjust disputes and claims with its customers and account debtors, handle returns and recoveries and grant discounts, credits and allowances in the ordinary course of business and otherwise for amounts and on terms which the Company in good faith considers advisable. However, upon the occurrence and during the continuation of any Event of Default hereunder and if so instructed by the Collateral Agent, the Company shall notify the Collateral Agent promptly of all returns and recoveries and on request deliver the goods to the Collateral Agent. Upon the occurrence and during the continuation of any Event of Default hereunder and if so instructed by the Collateral Agent, the Company shall also notify the Collateral Agent promptly of all disputes and claims and settle or adjust them at no expense to the Collateral Agent, the Agent, the Banks or the Noteholders, but no discount, credit or allowance other than on normal trade terms in the ordinary course of business shall be granted to any customer or account debtor and no returns of goods shall be accepted by the Company without the Collateral Agent's consent. The Collateral Agent may, at all times upon the occurrence and during the continuation of any Event of Default hereunder, settle or adjust disputes and claims directly with customers or account debtors for amounts and upon terms which the Collateral Agent considers advisable. Section 5. Collection of Receivables. (a) Until an Event of Default hereunder has occurred and is continuing and the Collateral Agent instructs the Company otherwise, the Company shall make collection of all Receivables and may use the same to carry on its business in the ordinary course as presently conducted and otherwise subject to the terms thereof. (b) Upon the occurrence and during the continuation of any Event of Default hereunder, whether or not the Collateral Agent has exercised any or all of its rights under other provisions of this (S)5, upon the request of the Collateral Agent: (1) all instruments and chattel paper at any time constituting part of the Receivables (including any postdated checks) shall, upon receipt by the Company, be immediately endorsed to and deposited with the Collateral Agent; and/or (2) the Company shall instruct all account debtors to remit all payments in respect of Receivables to a lockbox or lockboxes under the sole custody and control of the Collateral Agent to be maintained at post offices selected by the Collateral Agent. (c) Upon the occurrence and during the continuation of any Event of Default hereunder, whether or not the Collateral Agent has exercised any or all of its rights under -13- other provisions of this (S)5, the Collateral Agent or its designee may notify the Company's customers or account debtors at any time without prior notice to the Company that Receivables have been assigned to the Collateral Agent or of the Collateral Agent's security interest therein and either in its own name, or the Company's or both, demand, collect (including without limitation through a lockbox analogous to that described in (S)5(b)(2)), receive, receipt for, sue for, compound and give acquittance for any or all amounts due or to become due on Receivables, and in the Collateral Agent's discretion file any claim or take any other action or proceeding which the Collateral Agent may deem necessary or appropriate to protect and realize upon the security interest of the Collateral Agent in the Receivables. (d) Any proceeds of Receivables or other Collateral transmitted to or otherwise received by the Collateral Agent pursuant to any of the provisions of (S)(S)5(b) or (c) shall be handled and administered by the Collateral Agent in and through a remittance account or accounts maintained by the Collateral Agent at a commercial bank or banks selected by the Collateral Agent (collectively the "Depository Banks" and individually a "Depository Bank") and the Company acknowledges that the maintenance of such remittance accounts by the Collateral Agent is solely for the Collateral Agent's own convenience and that the Company does not have any right, title or interest in such remittance accounts or any amounts at any time standing to the credit thereof and shall be subject to the right of the Collateral Agent therein as set forth in this Agreement. The Collateral Agent may apply all or any part of any proceeds of Receivables or other Collateral received by it from any source to the payment of the Secured Obligations then due and payable in such amounts and in such manner and order as set forth in the Intercreditor Agreement. The Collateral Agent need not apply or give credit for any item included in proceeds of Receivables or other Collateral until the Depository Bank has received final payment therefor at its office in cash or final solvent credits current at the site of deposit acceptable to the Collateral Agent and such Depository Bank as such. However, if the Collateral Agent does permit credit to be given for any item prior to a Depository Bank receiving final payment therefor and such Depository Bank fails to receive such final payment or an item is charged back to the Collateral Agent or any Depository Bank for any reason, the Collateral Agent may at its election in either instance charge the amount of such item back against any such remittance accounts, together with interest thereon at the Default Rate. Concurrently with each transmission of any proceeds of Receivables or other Collateral to any remittance account, the Company shall furnish the Collateral Agent with a report in such form as the Collateral Agent shall require identifying the particular Receivable or other Collateral from which the same arises or relates. The Company hereby indemnifies the Collateral Agent, the Agent, the Banks and the Noteholders from and against all liabilities, damages, losses, actions, claims, judgments, costs, expenses, charges and reasonable attorneys' fees suffered or incurred by such persons because of the maintenance of the foregoing arrangement, except for such liabilities, damages, losses, actions, claims, judgments, costs, expenses, charges and fees which result solely and directly from the gross negligence or willful misconduct of the person seeking to be indemnified. The Collateral Agent, the Agent, the Banks and the Noteholders shall have no liability or responsibility to the Company for a Depository Bank accepting any check, draft or other order for payment of money bearing the legend -14- "payment in full" or words of similar import or any other restrictive legend or endorsement whatsoever or be responsible for determining the correctness of any remittance. Section 6. Special Provisions Re: Inventory. (a) The Company at its own cost and expense will maintain, keep and preserve the Inventory and Records in good condition. (b) The Company may, unless and until an Event of Default hereunder occurs and is continuing and the Collateral Agent instructs the Company otherwise, without further consent or approval of the Collateral Agent, use, consume, sell, lease and rent the Inventory in the ordinary course of its business, but a sale in the ordinary course of business shall not include any transfer or sale in satisfaction, partial or complete, of a debt owing by the Company. (c) As of the time any Inventory becomes subject to the security interest provided for hereby, the Company shall be deemed to have warranted as to any and all of such Inventory that all warranties of the Company set forth in this Agreement are true and correct with respect to such Inventory; such Inventory is located at a location set forth in or pursuant to (S)3(a) hereof other than Inventory of the kind referred to in clauses (i), (ii) and (iii) of (S)3(a) hereof; and if such inventory is scheduled, listed or referred to in any Borrowing Base Certificate, such Inventory qualifies as Eligible Inventory as of the date covered by such Borrowing Base Certificate. (d) The Company shall at the request of the Collateral Agent provide the Collateral Agent from time to time as specified by the Collateral Agent with a report of a physical listing and the location of all Inventory, provided that unless an Event of Default shall have occurred and be continuing, the Company shall not be required to provide such a report to the Collateral Agent more frequently than once in any calendar year. The Company shall at all times hereafter maintain a perpetual inventory for all items of Inventory, keeping correct and accurate records itemizing and describing the kind, type, quality and quantity of Inventory, the Company's cost therefor and daily withdrawals therefrom and additions thereto, all of which records shall be available during the Company's usual business hours at the request of the Collateral Agent. Immediately upon the occurrence of an Event of Default, and at such other times prior to the occurrence of an Event of Default as the Collateral Agent shall request, the Company shall conduct a physical count of the inventory and promptly following such physical inventory shall supply the Collateral Agent with a report in a form and with such specificity as may be reasonably satisfactory to the Collateral Agent concerning such physical count of the Inventory. The Company shall furnish such other reports and information concerning Inventory as the Collateral Agent may reasonably request. (e) If any of the Inventory is at any time evidenced by a document of title, then, upon the request of the Collateral Agent, such document shall be promptly delivered by the Company to the Collateral Agent. (f) The Collateral Agent shall not be responsible for: (i) the safekeeping of the Inventory; (ii) any loss or damage to the Inventory; (iii) any diminution in the value of the -15- Inventory; or (iv) any act or default of any carrier, warehouseman, bailee, forwarding agency, lessee from or customer of the Company leasing or renting Inventory, or any other Person. As among the Company and the Collateral Agent, all risk of loss, damage, destruction or diminution in value of the Inventory shall be borne by the Company. No Inventory shall be at any time or times hereafter stored with a bailee, warehouseman, consignee or similar third party (excluding Inventory leased or rented to a third party in the ordinary course of business) without the Collateral Agent's prior written consent. The Company shall not sell any Inventory to any customer on approval, or any other basis which entitles the customer to return or may obligate the Company to repurchase such Inventory, except in the ordinary course of its business as presently conducted, it being understood that in its ordinary course of business as presently conducted the Company does, in fact, sell Inventory on approval and lease and rent Inventory to third parties with the option to purchase. Section 7. Power of Attorney. In addition to any other powers of attorney contained herein, the Company appoints the Collateral Agent, its nominee, or any other Person whom the Collateral Agent may designate as the Company's attorney in fact, with full power upon the occurrence and during the continuance of an Event of Default hereunder, to sign the Company's name on verifications of accounts and to send requests for verification of Receivables to customers or account debtors, to endorse the Company's name on any checks, notes, acceptances, money orders, drafts or other forms of payment or security that may come into the Collateral Agent's possession, to sign the Company's name on any invoice or bill of lading relating to any Receivables, on claims to enforce collection of any Receivables, on notices to and drafts against customers, on schedules and assignments of Receivables, on notices of assignment and on public records, to notify the post office authorities to change the address for delivery of the Company's mail to an address designated by the Collateral Agent, to receive, open and dispose of all mail addressed to the Company and to do all things necessary to carry out this Agreement. The Company hereby ratifies and approves all acts of any such attorney and agrees that neither the Collateral Agent nor any such attorney will be liable for any acts or omissions nor for any error of judgment or mistake of fact or law other than their gross negligence or willful misconduct. The foregoing power of attorney, being coupled with an interest, is irrevocable so long as the Agreement remains in effect. The Collateral Agent may file one or more financing statements disclosing its security interest in any or all of the Collateral without the Company's signature appearing thereon. The Company also hereby grants the Collateral Agent a power of attorney to execute any such financing statement, or amendments and supplements to financing statements, on behalf of the Company without notice thereof to the Company, which power of attorney is coupled with an interest and is irrevocable until the Secured Obligations have been fully satisfied and the commitment of the Banks and any Noteholder to extend credit to the Company has terminated. Section 8. Defaults and Remedies. (a) The occurrence of any of the following events, or the existence of any of the following conditions, shall constitute an "Event of Default" hereunder: -16- (1) the occurrence of any event or the existence of any condition which is specified as an Event of Default under either the Credit Agreement or the Note Agreements; or (2) any representation or warranty made by the Company herein, or in any written statement or certificate furnished by it pursuant hereto, or in connection with this Agreement shall be untrue in any material respect as of the date of the issuance or making thereof; or (3) default by the Company in the observance or performance of any provision, covenant or agreement contained in (S)3(b), (f), (g), and (k) hereof; or (4) default in the observance or performance by the Company of any other provision of this Agreement which is not remedied within 30 days after the earlier of (i) the day on which a Responsible Officer of the Company first obtains knowledge of such default, or (ii) the day on which written notice thereof is given to the Company by the Collateral Agent. (b) With respect to all of the Collateral other than Cash, upon the occurrence and during the continuation of any Event of Default hereunder, the Collateral Agent shall have, in addition to all other rights provided herein or by law, the rights and remedies of a secured party under the Code (regardless of whether the Code is the law of the jurisdiction where the rights or remedies are asserted and regardless of whether the Code applies to the affected Collateral), and further the Collateral Agent may, without demand and without advertisement, notice, hearing or process of law, all of which the Company hereby waives, at any time or times, sell and deliver any or all Collateral (other than Cash) held by or for it at public or private sale, for cash, upon credit or otherwise, at such prices and upon such terms as the Collateral Agent deems advisable, in its sole discretion, provided that said disposition complies with any and all mandatory legal requirements. In addition to all other sums due the Collateral Agent, any Bank or any Noteholder hereunder, the Company shall pay the Collateral Agent, any Bank and any Noteholder all costs and expenses incurred by the Collateral Agent, such Bank or such Noteholder, including a reasonable allowance for attorneys' fees and court costs, in obtaining, liquidating or enforcing payment of Collateral or Secured Obligations or in the prosecution or defense of any action or proceeding by or against the Collateral Agent, such Bank, such Noteholder or the Company concerning any matter arising out of or connected with this Agreement or the Collateral or Secured Obligations, including without limitation any of the foregoing arising in, arising under or related to a case under the United States Bankruptcy Code (or any successor statute). Any requirement of reasonable notice shall be met if such notice is personally served on or mailed, postage prepaid, to the Company in accordance with (S)11(b) hereof at least 10 days before the time of sale or other event giving rise to the requirement of such notice; however, no notification need be given to the Company if the Company has signed, after an Event of Default hereunder has occurred, a statement renouncing any right to notification of sale or other intended disposition. The Collateral Agent shall not be obligated to make any sale or other disposition of the Collateral regardless of notice having been given. The Collateral Agent, any bank or any noteholder may be the purchaser at any such sale. To the extent -17- permitted by applicable law, the Company hereby waives all of its rights of redemption from any such sale. Subject to the provisions of applicable law, the Collateral Agent may postpone or cause the postponement of the sale of all or any portion of the Collateral by announcement at the time and place of such sale, and such sale may, without further notice, be made at the time and place to which the sale was postponed or the Collateral Agent may further postpone such sale by announcement made at such time and place. (c) With respect to all of the Collateral other than Cash, without in any way limiting the foregoing, the Collateral Agent shall, upon the occurrence and during the continuation of any Event of Default hereunder, have the right, in addition to all other rights provided herein or by law, to take physical possession of any and all of the Collateral (other than Cash) and anything found therein, the right for that purpose to enter without legal process any premises where such Collateral may be found (provided such entry be done lawfully), and the right to maintain such possession on the Company's premises (the Company hereby agreeing to lease such premises without cost or expense to the Collateral Agent or its designee if the Collateral Agent so requests) or to remove the Collateral (other than Cash) or any part thereof to such other places as the Collateral Agent may desire. Upon the occurrence and during the continuation of any Event of Default hereunder, the Company shall, upon the Collateral Agent's demand, assemble the Collateral (other than Cash) and make it available to the Collateral Agent at a place designated by the Collateral Agent. If the Collateral Agent exercises its right to take possession of the Collateral (other than Cash), the Company shall also at its expense perform any and all other steps reasonably requested by the Collateral Agent to preserve and protect the security interest hereby granted in such Collateral, such as placing and maintaining signs indicating the security interest of the Collateral Agent, appointing overseers for such Collateral and maintaining inventory records. (d) With respect to Cash, upon the occurrence and during the continuation of any Event of Default hereunder, the Collateral Agent shall have, in addition to all other rights provided herein or by law, the rights and remedies of a secured party under the Code (regardless of whether the Code is the law of the jurisdiction where the rights or remedies are asserted and regardless of whether the Code applies to the affected Collateral), the right (1) to exercise exclusive control over any proceeds of Collateral in its possession or held at any Depository Bank or in any lockbox established pursuant to (S)5(b) hereof and (2) to exercise any and all rights with respect to deposit accounts of the Company and Cash (including without limitation those maintained with the Collateral Agent, any Bank or any Noteholder), including without limitation the right to collect, withdraw and receive all amounts due or to become due or payable under each such deposit account, and shall have the right to apply such amounts in reduction of the Secured Obligations as contemplated by (S)9 hereof. (e) Failure by the Collateral Agent to exercise any right, remedy or option under this Agreement or any other agreement between the Company and the Collateral Agent or provided by law, or delay by the Collateral Agent in exercising the same, shall not operate as a waiver; no waiver hereunder shall be effective unless it is in writing, signed by the party against whom such waiver is sought to be enforced and then only to the extent specifically -18- stated. Neither the Collateral Agent nor any party acting as attorney for the Collateral Agent shall be liable hereunder for any acts or omissions or for any error of judgment or mistake of fact or law other than their gross negligence or willful misconduct. The rights and remedies of the Collateral Agent, the Agent, the Banks and the Noteholders under this Agreement shall be cumulative and not exclusive of any other right or remedy which the Collateral Agent, the Agent, the Banks or the Noteholders may have. Section 9. Application of Proceeds. The proceeds and avails of the Collateral at any time received by the Collateral Agent upon the occurrence and during the continuation of any Event of Default hereunder shall, when received by the Collateral Agent in cash or its equivalent, be applied by the Collateral Agent in reduction of the Secured Obligations as set forth in the Intercreditor Agreement. The Company shall remain liable to the Collateral Agent, the Agent, the Banks and the Noteholders for any deficiency. Any surplus remaining after the full payment and satisfaction of the Secured Obligations shall be returned to the Company or to whomsoever the Collateral Agent reasonably determines is lawfully entitled thereto. Section 10. Continuing Agreement. This Agreement shall be a continuing agreement in every respect and shall remain in full force and effect until all of the Secured Obligations, principal, premium, if any, and interest, and all other amounts then due and payable under any of the Credit Agreement, Note Agreements and the Senior Notes have been fully paid and satisfied in cash and any commitment of the Banks to extend any credit to the Company under the Credit Agreement shall have terminated. Upon such termination of this Agreement, the Collateral Agent shall, upon the request and at the expense of the Company, forthwith release all its liens and security interests hereunder. Section 11. Miscellaneous. (a) This Agreement and the provisions hereof may be changed, discharged or terminated only by an instrument in writing signed by the Company and the Collateral Agent (upon the direction of the Majority Benefited Parties, as such term is defined in the Intercreditor Agreement). This Agreement shall create a continuing security interest in the Collateral and shall be binding upon the Company, its successors and assigns and shall inure, together with the rights and remedies of the Collateral Agent, the Agent, the Banks and the Noteholders hereunder, to the benefit of the Collateral Agent, the Agent, the Banks and the Noteholders and their respective successors and assigns which are permitted under the Note Agreements, the Credit Agreement and the Intercreditor Agreement; provided, however, that the Company may not assign its rights or delegate its duties hereunder without the Collateral Agent's prior written consent. The Company hereby releases the Collateral Agent from any liability for any act or omission relating to the Collateral or this Agreement, except the Collateral Agent's gross negligence or willful misconduct. (b) Except as otherwise specified herein, all notices hereunder shall be in writing (including telecopy) and shall be given to the relevant party at its address or telecopier number set forth below, or such other address or telecopier number as such party may hereafter specify by notice to the other given by United States certified or registered mail, by overnight air courier, by telecopy or by other telecommunication device capable of -19- creating a written record of such notice and its receipt. Notices given by telecopy shall be confirmed in writing within 24 hours by overnight air courier at the address for the relevant party provided below. Notices hereunder shall be addressed: To the Company at: U.S. Rentals, Inc. 1581 Cummins Drive, Suite 155 Modesto, California 95358 Attention: Chief Financial Officer Telephone: (209) 544-9000 Telecopier: (209) 544-6756 To the Collateral Agent at: Bank of America National Trust and Savings Association 1455 Market Street, 13th Floor San Francisco, California 94103 Agency Management Services No. 10831 Attention: Charles Graber Telephone: (415) 436-3495 Telecopier: (415) 436-2700 To the Agent and the Banks at their respective addresses and telecopy numbers set forth in the Credit Agreement To the Noteholders at their respective addresses for notices set forth in the Note Agreements Each such notice, request or other communication shall be effective upon receipt. (c) In the event that any provision hereof shall be deemed to be invalid by reason of the operation of any law or by reason of the interpretation placed thereon by any court, this Agreement shall be construed as not containing such provision, but only as to such jurisdictions where such law or interpretation is operative, and the invalidity of such provision shall not affect the validity of any remaining provision hereof, and any and all other provisions hereof which are otherwise lawful and valid shall remain in full force and effect. (d) This Agreement shall be deemed to have been made in the State of California and shall be governed by and construed in accordance with the laws of the State of California, without regard to principles of conflicts of laws. All terms which are used in this Agreement which are defined in the Code shall have the same meanings herein as said terms do in the Code unless this Agreement shall otherwise specifically provide. The headings in this instrument are for convenience of reference only and shall not limit or otherwise affect the meaning of any provision hereof. -20- (e) In acting under or by virtue of this Agreement, the Collateral Agent shall be entitled to all the rights, authority, privileges and immunities provided in the Intercreditor Agreement and all the provisions of said Intercreditor Agreement are incorporated by reference herein with the same force and effect as if set forth herein in their entirety. The Collateral Agent shall not take action under this Agreement unless permitted or required to do so under the terms of the Intercreditor Agreement. The Collateral Agent hereby disclaims any representation or warranty to the Agent, the Banks and the Noteholders concerning the perfection of the security interest granted hereunder or in the value of any of the Collateral. (f) EACH OF THE COMPANY AND THE COLLATERAL AGENT HEREBY, TO THE FULLEST EXTENT PERMITTED BY LAW, WAIVES TRIAL BY JURY IN ANY ACTION BROUGHT UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE DOCUMENTS OR INSTRUMENTS EXECUTED IN CONNECTION HEREWITH. (g) This Agreement may be executed in any number of counterparts and by different parties hereto on separate counterparts, each constituting an original, but all together one and the same instrument. -21- IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed as of the date first above written. U.S. RENTALS, INC. By /s/ John S. McKinney ------------------------------- Name: John S. McKinney Title: Vice President and Chief Financial Officer -22- Accepted and agreed to by the Collateral Agent as of the date first above written. Bank of America National Trust and Savings Association, as Collateral Agent for the Noteholders, the Agent and the Banks By /s/ Robert W. Troutman ---------------------------------- Name: Robert W. Troutman Title: Vice President -23- FORM OF ACCOUNT LETTER AGREEMENT ________________, 199__ [Name and Address of Bank] Re: U.S. Rentals, Inc. Ladies and Gentlemen: We, U.S. Rentals, Inc. (the "Company"), hereby notify you that, effective immediately, we have transferred exclusive ownership and control of our accounts, numbered __________________ maintained with you together with any other accounts which we may hereafter open with you (collectively, the "Accounts") to Bank of America National Trust and Savings Association, as Collateral Agent (the "Collateral Agent") for the holders of the Senior Obligations (as such term is defined in the hereinafter described Security Agreement), located at 1455 Market Street, 13th Floor, Agency Management Services No. 10831, San Francisco, California 94103. We hereby irrevocably instruct you to make all payments to be made by you out of or in connection with the Accounts in accordance with the instructions of the Collateral Agent. In this regard, we wish to note that the Collateral Agent in the accompanying Acknowledgment and Authorization has authorized you to continue to accept instructions from the Company until you shall have received a Notice of Revocation from the Collateral Agent in the form attached hereto as Annex A (a "Notice of Revocation"). It is understood and agreed that you shall have no obligation to investigate the authority of the Collateral Agent to execute a Notice of Revocation or to verify the circumstances underlying its delivery. Furthermore, we agree to hold you harmless for any actions taken by you in reliance on a Notice of Revocation. No revocation of this letter agreement by the Company shall be valid without the written consent of the Collateral Agent. We also hereby notify you that the Collateral Agent shall be irrevocably entitled to exercise any and all rights in respect of or in connection with the Accounts, including, without limitation, the right to specify when payments are to be made out of or in connection with the Accounts. All funds deposited into the Accounts will not be subject to deductions, setoff, banker's lien or any other right in favor of any other person other than the Collateral Agent, except that you may setoff against the Accounts the face amount of any check deposited in and credited to such Accounts which is subsequently returned for any reason. Your compensation for providing the services contemplated herein shall be as mutually agreed between you and us from time to time and we will continue to pay such compensation, and you agree not to terminate the Accounts without giving the Collateral Agent at least 60 days' prior written notice. EXHIBIT 1 (to Security Agreement) Please agree to the terms of, and acknowledge receipt of, this letter by signing in the space provided below on two of the enclosed copies of this letter and returning both copies to: _________________________. Very truly yours, U.S. RENTALS, INC. By ___________________________ Its Acknowledged and agreed to as of this _____ day of _____________, _______, by: [NAME OF BANK] By ________________________________ Its -2- FORM OF NOTICE OF REVOCATION [Date] [Name and Address of Bank] Re: U.S. Rentals, Inc. Ladies and Gentlemen: Reference is hereby made to (i) that certain Account Letter Agreement dated ____________, 199__ (the "Account Letter Agreement") addressed to you from U.S. Rentals, Inc. (the "Company") and (ii) Section 8(d) of the Third Amended and Restated Security Agreement Re: Receivables, Inventory, Equipment, and Documents dated as of July 1, 1996 (as amended or restated from time to time, the "Security Agreement") by and between the Company and Bank of America National Trust and Savings Association, as Collateral Agent (the "Collateral Agent") for the holders of the Secured Obligations (as such term is defined in the Security Agreement). Pursuant to the terms of the Account Letter Agreement, the Collateral Agent hereby notifies you that (i) an Event of Default under the Security Agreement has occurred and is continuing; and (ii) all authority granted to the Company to direct the payment of funds from the accounts covered by and more particularly described in the Account Letter Agreement (collectively, the "Accounts") pursuant to the Acknowledgment and Authorization from the Collateral Agent to you, which was acknowledged and agreed to by you on _________, 199__, has been revoked. From and after the date hereof, the Collateral Agent will be exercising exclusive control over the Accounts and you are instructed to discontinue accepting instructions from the Company for the payment of funds from said Accounts. All further instructions regarding the Accounts will be delivered by the Collateral Agent. Very truly yours, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Collateral Agent By ____________________________________ Its ANNEX A (to Account Letter Agreement) ACKNOWLEDGMENT AND AUTHORIZATION Bank of America National Trust and Savings Association, as Collateral Agent (the "Collateral Agent") for the holders of the Secured Obligations (as such term is defined in the hereinafter described Security Agreement), hereby acknowledges the transfer to it of exclusive ownership and control of the "Accounts" (as defined in, and pursuant to the terms of the foregoing letter (the "Letter Agreement")) executed by U.S. Rentals, Inc. (the "Company") and acknowledged by [Name of Bank] (the "Bank"). Pursuant to the second paragraph of the Letter Agreement, the Collateral Agent hereby authorizes the Bank to continue to accept instructions from the Company for the payment of funds from said Accounts until the Collateral Agent notifies the Bank in writing to the contrary, which notice shall (a) reference (S)8(d) of the Third Amended and Restated Security Agreement Re: Receivables, Inventory, Equipment, and Documents dated as of July 1, 1996 by and between the Company and the Collateral Agent (as amended or restated from time to time, the "Security Agreement") and (b) state that an Event of Default under the Security Agreement has occurred and is continuing. Any such written notice shall be effective on the business day received by Bank if received before 4:00 P.M. (__________ time) and if not received by such time, on the next succeeding business day. The Collateral Agent agrees to reimburse Bank for all costs and expenses incurred by Bank in connection with the performance of the terms of the Letter Agreement after the date on which the Collateral Agent gives Bank the written notice described in the preceding sentence to the extent such costs and expenses are not reimbursed by the Company. BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Collateral Agent By ____________________________________ Its Acknowledged and agreed to as of this _____ day of ______________, 199___ by: [NAME OF BANK] By _________________________________ Its SCHEDULE A DESCRIPTION OF ACCOUNTS
Location Bank - -------- ---- Home Office and Bank of America CA Profit Centers Corporate Service Center Department #5693 1850 Gateway Blvd. 4th Floor Concord, CA 94520 Attn: Barbara Garibaldi Central Cash Account # 12331-13468 Depository ZBA Account # 12336-11070 AP Controlled Documents ZBA Account # 12334-11071 Group Insurance Account # 12332-11072 1st Union National Bank Account # 79985-14389 - --------------------------------------------------------------------------- Corporate Bank of America 1120 La Collina 555 South Flower Street Beverly Hills, CA 90210 Los Angeles, CA 90071 General Account # 145-9900632 Payroll Account # 145-9700577 USR Leasing Company Bank of America Corporate Service Center Same as above Account # 12333-11807 - --------------------------------------------------------------------------- Jan Turner Gallery Bank of America 9006 Melrose Ave. PO Box 30746 Los Angeles, CA 90069 Los Angeles, CA 90030 (310) 271-4453 Account # 01346-09285
SCHEDULE A DESCRIPTION OF ACCOUNTS
=============================================================================== PC# LOCATION BANK ACCOUNT # =============================================================================== #7 3266 E. Washington St. Bank of America 81751-11893 Phoenix Phoenix, AZ 85034 2902 N. 44th St. 0007 (5) (602) 273-7401 Phoenix, AZ 85018 (602) 248-4609 (800) 284-8491 #12 3448 S. Decatur Blvd. FIB of Nevada 147-0177022 Las Vegas Las Vegas, NV 89102 Spring Mountain Branch 0012 (5) (702) 871-5575 P.O. Box 98588 Las Vegas, NV 89193 (800) 777-3000 #17 1458 Lomaland Drive Montwood National Bank 402-858-9 El Paso El Paso, TX 79935 Main Branch 0017 (4) (915) 598-1264 P.O. Box 937007 El Paso, TX 79937-7007 (915) 779-4800 #27 1011 South Prudence Bank of America 86351-21556 Tucson Tucson, AZ 85710 7880 E. Broadway 0027 (3) (602) 296-7611 Tucson, AZ 85710 (800) 284-8491 #28 790 Glendale Rd. FIB of Nevada 144-9180571 Sparks Sparks, NV 89431 McCarran Boulevard Office 0028 (1) (702) 359-6660 P.O. Box 11007 Reno, NV 89520-0010 (800) 777-3000 (702) 753-4502 #31 112 W. Airline Highway First American Bank 41-3538-5 Kenner Kenner, LA 70062 P.O. Box 550 0031 (5) (504) 467-1512 Vacherie, LA 77090-0550 (504) 265-2265 #32 12017 North Loop Rd. Bank of America, Texas 03174-46264 San Antonio San Antonio, TX 78216 15142 San Pedro 0032 (3) (210) 494-5288 San Antonio, TX 78232 (210) 496-1136 #33 613 Sterlington Rd. Regions Bank 42-0010-4892 Monroe Monroe, LA 71203 P.O. Box 7232 0033 (1) (318) 323-7775 Monroe, LA 71211-7232 (318) 362-8200 #34 2640 Linwood Ave. Hibernia National Bank 3189120 Shreveport Shreveport, LA 71103 P.O. Box 61540 0034 (9) (318) 635-6404 New Orleans, LA 71060 (318) 221-5406 (800) 236-7462
SCHEDULE A DESCRIPTION OF ACCOUNTS
=============================================================================== PC# LOCATION BANK ACCOUNT # =============================================================================== #35 2465 W. Cardinal Drive Lamar Bank 132910 Beaumont Beaumont, TX 77705 3200 Avenue A 0035 (6) (409) 842-5614 Beaumont, TX 77705 (800) 323-3606 (409) 838-4781 #36 609 North Bell Bank One, Northwest Austin 75-00259002 Cedar Park Cedar Park, TX 78613 P.O. Box 2266 0036 (4) (512) 335-0061 Austin, TX 78780-2266 (512) 404-1111 (800) 695-1111 (512) 479-5400 #37 5317 Mansfield High Bank of America Texas 84503-01050 Fort Worth Fort Worth, TX 76119 4351 Little Road 0037 (2) (817) 483-6411 Arlington, TX 76016-5604 (817) 478-2132 #38 1350 South Loop 12 Bank of America Texas 78179-01384 Irving Irving, TX 75060 330 West Irving Boulevard 0038 (0) (214) 579-7506 Irving, TX 75060-2905 (214) 259-2639 #39 17138 US Highway 290 Sterling Bank 001-0193348 Jersey Houston, TX 77040 P.O. Box 40333 Village (713) 466-7040 Houston, TX 77240-0333 0039 (8) (713) 466-8300 (713) 507-7378 Statements #40 5415 Bissonnet Bank of America Texas 24069-00637 Bellaire Houston, TX 77081 4555 Bissonnet 0040 (6) (713) 666-0731 Bellaire, TX 77401-3195 (713) 664-2112 #41 1201 Capital Ave. NationsBank of Texas 232-080751-1 Plano Plano, TX 75074 P.O. Box 831547 0041 (4) (214) 423-8996 Dallas, TX 75283-1547 (800) 462-6289 #42 4301 San Dario Avenue Int'l Bank of Commerce 7095856-01 Laredo Laredo, TX 78041 4501 San Bernardo Ave. 0042 (2) (210) 724-7368 Laredo, TX 78042 (210) 722-7611 #52 3171 N. Deer Run Rd. First Interstate Bank 163-0145300 Carson City Carson City, NV 89701 1550 Highway 50 East 0052 (1) (702) 884-9745 P.O. Box 1010 Carson City, NV 89702-1010 (702) 885-1154
SCHEDULE A DESCRIPTION OF ACCOUNTS
=============================================================================== PC# LOCATION BANK ACCOUNT # =============================================================================== #53 729 West Idaho FIB of Nevada 027-0043380 Elko Elko, NV 89801 P.O. Box 471 0053 (9) (702) 738-3565 Elko, NV 89801 (800) 777-3000 (702) 738-2136 #64 2800 University Blvd. N.E. Bank of America 20619-91582 Albuquerque Albuquerque, NM 87107 5101 Menaul NE 0064 (6) (505) 884-6565 P.O. Box 25000 Albuquerque, NM 87125 (505) 889-1570 #65 1919 E. 8th St. Texas Commerce Bank 095-00968453 Odessa Odessa, TX 79761 620 N. Grant Street 0065 (3) (915) 332-1211 Odessa, TX 79760 (915) 335-4401 #69 9501 Interstate 30 Metropolitan National Bank 105430 Little Rock Little Rock, AR 72209 P.O. Box 8010 0069 (5) (501) 565-5200 Little Rock, AR 72203 (501) 377-7600 #84 P.O. Box 42387 Texas Commerce Bank 018-00049510 Houston Houston, TX 77242 P.O. Box 2558 Credit (713) 784-2330 Houston, TX 77252 0084 (4) (713) 216-7000 #101 1855 South Cole Rd. Bank of America 24513-905 Boise Boise, ID 83704 421 North Cole Rd. 0101 (6) (208) 322-6225 Boise, ID 83704 (208) 323-8700 #102 15 McGill Highway Bank of America - Nevada 967000399 Ely Ely, NV 89301 399 Altman Street 0102 (4) (702) 289-3200 Ely, NV 89301 (702) 289-4425 (702) 289-3843 Fax #111 1122 E. Northeast Loop 323 Southside Bank 1248847 Tyler Tyler, TX 75710 2121 W. Gentry Parkway 0111 (5) (903) 596-7368 Tyler, TX 75702 (903) 531-7111 #112 1425 South Main Bank of America Texas 66867-00796 Keller Keller, TX 76244 P.O. Box 619031 0112 (3) (817) 431-9419 Dallas, TX 75261-9031 (817) 431-8451
SCHEDULE A DESCRIPTION OF ACCOUNTS
=============================================================================== PC# LOCATION BANK ACCOUNT # =============================================================================== #131 1300 South West Street Bank IV 331000031456 Wichita Wichita, KS 67213 500 S. West 0131 (3) (316) 943-4237 Wichita, KS 67201 (316) 261-4242 #132 525 N. Broadway/ Bank IV 331000031463 Salina 1116 Hixson 500 S. West 0132 (1) Salina, KS 67401 Wichita, KS 67201 (913) 823-3779 (316) 261-4242 #133 2795 McConnell Bank of Fayetteville 80016227 Fayetteville Fayetteville, AR 72703 P.O. Box 1728 0133 (9) (501) 442-4233 Fayetteville, AR 72702 (501) 444-4444 #134 2314 South 8th Street Farmers and Merchants Bank 001007-555-0 Rogers Rogers, AR 72756 4th and Chestnut 0134 (7) (501) 636-5055 Rogers, AR 72756 (501) 636-4233 #135 8316 West Interstate 40 Bank of Oklahoma 819024546 Oklahoma Oklahoma City, OK 73128 Windsor Hills City (405) 232-0004 2601 N. Meridian 0135 (4) Oklahoma City, OK 73107 (405) 951-5800 (800) 722-4601
SCHEDULE B
- --------------------------- --------------------------------------------------------------- --------------------------------- P.C. LOCATION MANAGER TELEPHONE STREET ADDRESS CITY ST ZIP - ---------------------------------------------------------------------------------------------------------------------------------- * 02 Downey Torre Niles 310-861-0978 9606 E. Firestone Blvd. Downey CA 90241 * 03 Long Beach Kelly Dingeman 310-422-1283 5640 Cherry Avenue Long Beach CA 90805 04 San Jose Ed Heinz 408-251-7730 2101 Alum Rock Ave. San Jose CA 95116 05 Modesto-Yosemite Burt Baucom 209-522-5211 2443 Yosemite Blvd. Modesto CA 95354 07 Phoenix Don Ebert 602-273-7401 3266 E. Washington St. Phoenix AZ 85034 * 08 Canoga Park Mike Rau 818-340-5881 7755 Canoga Avenue Canoga Park CA 91304 09 Montclair Chris Kerber 909-624-9615 10625 Monte Vista Ave. Montclair CA 91763 10 Victorville Graeme Carr 619-245-3458 16363 "D" Street Victorville CA 92392 11 Ventura Stan Millard 805-644-7319 3665 Market Street Ventura CA 93003 12 Las Vegas Lee Braden 702-871-5575 3448 So. Decatur Blvd. Las Vegas NV 89102 * 13 Fontana Andy Anderson 909-829-4881 16190 Valley Blvd. Fontana CA 92335 14 Carmichael George Carousos 916-487-7887 7424 Fair Oaks Blvd. Carmichael CA 95608 15 Fullerton Bill Jackson 714-871-5712 1301 S. State College Fullerton CA 92631 16 Sacramento-North Greg Aguilera 916-922-9895 3706 Marysville Blvd. Sacramento CA 95838 * 17 El Paso Joseph Villarreal 915-598-1264 1458 Lomaland Drive El Paso TX 79935 18 Sacramento Joe Cors 916-451-7277 6201 Elvas Avenue Sacramento CA 95819 19 Modesto Russ Denner 209-521-6250 1331 Coldwell Avenue Modesto CA 95350 20 Fresno John Call 209-233-5261 4141 E. Belmont Ave. Fresno CA 93702 * 21 Huntington Beach Dave Valdez 714-842-7765 7614 Warner Avenue Huntington Beach CA 92647 22 Fresno-Blackstone Steven Spence 209-222-3091 4470 N. Blackstone Fresno CA 93726 23 Turlock Tom Gerdes 209-632-7561 2800 N. Golden State Turlock CA 95380 24 Stockton John Fuhrman 209-948-9241 2081 Charter Way Stockton CA 95205 * 25 Merced Don Watts 209-383-2984 1346 West 16th Street Merced CA 95340 26 Lodi Kurt Miller 209-334-2850 210 E. Kettleman Lane Lodi CA 95240 * 27 Tucson Lance Evic 602-296-7611 1011 South Prudence Tucson AZ 85710 28 Sparks Craig Dotson 702-359-6660 790 Glendale Road Sparks NV 89431 * 29 Rocklin Randy Erwin 916-624-0641 4755 Pacific Street Rocklin CA 95677 30 Hartley & Nixon Richard Gray 310-437-0921 1900 W. Anaheim Street Long Beach CA 90813 * 31 Kenner Steve Morris 504-467-1512 112 W. Airline Highway Kenner LA 70062 * 32 San Antonio Tommy Taylor 210-494-5288 12017 North Loop Road San Antonio TX 78216 * 33 Monroe Tommy Gilmer 318-323-7775 900 Martin Luther King Drive Monroe LA 71203 34 Shreveport Jack Ravenna 318-635-6404 2640 Linwood Avenue Shreveport LA 71103 * 35 Beaumont Frank Ewing 409-842-5614 2465 W. Cardinal Drive Beaumont TX 77705 * 36 Cedar Park Randy Jones 512-335-0061 609 North Bell Cedar Park TX 78613 * 37 Fort Worth Greg Forbess 817-483-6411 5317 Mansfield Hwy. Fort Worth TX 76119 * 38 Irving Kenny Perkins 214-579-7506 1350 South Loop 12 Irving TX 75060 * 39 Jersey Village Larry Robeson 713-466-7040 17138 US Highway 290 Houston TX 77040 40 Bellaire Jeff McInemy 713-666-0731 5415 Bissonnet Houston TX 77081 * 41 Plano Bill Carpenter 214-423-8996 1201 Capital Avenue Plano TX 75074 * 42 Laredo Orlando Gonzalez 210-724-7368 4317 San Dario Laredo TX 78041 43 Kearny Mesa Jeff Thomas 619-565-7122 5580 Kearny Villa San Diego CA 92123 * 44 Chula Vista Dave Gregg 619-422-1106 501 "C" Street Chula Vista CA 91910 45 Napa Louis Maldonado 707-255-1066 1865 Tanen Street Napa CA 94559 47 Sunnyvale Jim Nolan 408-736-7560 940 W. Evelyn Avenue Sunnyvale CA 94086 49 Oakland Mike Carter 510-562-3000 700 98th Ave. Oakland CA 94603 * 50 Corona John Strom 909-735-9310 525 Maple Street Corona CA 91720 51 Baldwin Park Barry Kennelly 818-962-4468 15402 Arrow Highway Baldwin Park CA 91706 52 Carson City Robert Johnson 702-884-4745 3223 N. Deer Run Road Carson City NV 89701 53 Elko Mark Romeo 702-738-3565 729 West Idaho Elko NV 89801 54 Cathedral City McKee Colburn 619-328-6573 36025 Cathedral Canyon Cathedral City CA 92234 * 55 Ridgecrest Darrin Sullivan 619-446-7628 1241 Inyokern Road Ridgecrest CA 93555 56 Vista KC Jacobson 619-726-7200 240 West Vista Way Vista CA 92083 57 Redding Chad Maughan 916-221-8851 3040 Crossroads Drive Redding CA 96003 * 58 Chico Rick Russell 916-894-7799 2855 Fair Street Chico CA 95928 59 Santa Rosa Del Keffer 707-585-7621 3939 South Moorland Ave. Santa Rosa CA 95407 60 Arroyo Grande Donald Waugh 805-489-3113 1105 El Camino Real Arroyo Grande CA 93420 61 Lancaster James Kennelly 805-948-2654 43631 Sierra Highway Lancaster CA 93534 62 Indio Joel Smith 619-775-6868 83525 Date Street Indio CA 92201 * 63 Gilroy Raz Quiroga 408-848-2510 6390 Chestnut Street Gilroy CA 95020 64 Albuquerque Louis Womack 505-884-6565 2800 University Blvd. N.E. Albuquerque NM 87107 * 65 Odessa Jim Sacson 915-332-1211 1220 S. Grandview Odessa TX 79761 67 San Juan Capistrano Dan Autry 714-496-4783 32821 Calle Perfecto San Juan Capistrano CA 92675 * 68 Madera Marc Watts 209-673-5831 750 Madera Avenue Madera CA 93637 * 69 Little Rock David Dunlop 501-565-5200 9501 Interstate 30 Little Rock AR 72209 * 101 Boise Pat Tilman 208-322-6225 1855 South Cole Rd. Boise ID 83704 102 Ely Jody Hallmark 702-289-3200 H33 Box 33359 Ely NV 89301 104 Antioch Tom Casey 510-757-5422 1204 Sunset Drive Antioch CA 94509 * 111 Tyler Gary Waxler 903-596-7368 1122 E. Northeast Loop 323 Tyler TX 75710 112 Keller John Lowe 817-431-9419 1425 South Main Keller TX 76244 131 Wichita Tom Smith 316-943-4237 1300 South West Street Wichita KS 67213 132 Salina Tom Smith 913-823-3779 1116 Hixson Salina KS 67401 * 133 Fayetteville Lee Holmes 501-442-4233 2795 McConnell Fayetteville AR 72703 134 Rogers Rob Brown 501-636-5055 2314 South 8th Street Rogers AR 72756 135 Oklahoma City Bill Wimberly 405-232-0004 8316 West Interstate 40 Oklahoma City OK 73128 136 Contractors-L.B. Steve Nadelman 310-432-2954 2020 West Pacific Coast Hwy Long Beach CA 90810 137 Contractors-Gardena Steve Nadelman 310-527-9858 13316 South Western Avenue Gardena CA 90249
- ---------------- *=OWNED SCHEDULE C PERMITTED TRADE NAMES U.S. Rentals, Inc. [LOGO OF U.S. RENTALS] (Registered) Hartley Nixon Rentals (DBA) California Equipment Rentals (DBA) Sisco Equipment Rental & Sales (DBA) U.S. Hi-Reach (DBA) Contractors Equipment Rental (DBA) EX-10.9 8 FORM OF INTERCREDITOR AGREEMENT EXHIBIT 10.9 CONFORMED COPY ================================================================================ INTERCREDITOR AGREEMENT AMONG BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION AND THE NOTEHOLDERS 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 of U.S. RENTALS, INC. Dated as of August 15, 1995 ================================================================================ TABLE OF CONTENTS
Section Heading Page Parties............................................................. 1 Recitals............................................................ 1 Section 1. Defined Terms...................................... 2 Section 2. Appointment of Collateral Agent.................... 8 Section 3. Decisions Relating to Administration and Exercise of Remedies Vested in the Majority Benefited Parties.................................. 8 Section 4. Application of Proceeds............................ 10 Section 5. Preferential Payments and Special Trust Account.... 12 Section 6. Information........................................ 13 Section 7. Additional Parties................................. 14 Section 8. Disclaimers, Indemnity, Etc........................ 14 Section 9. Invalidated Payments............................... 18 Section 10. Miscellaneous...................................... 18 Signature Page...................................................... 21
-i- INTERCREDITOR AGREEMENT This INTERCREDITOR AGREEMENT (as amended, restated or otherwise modified from time to time in accordance with the terms hereof, this "Agreement") is dated as of August 15, 1995 and entered into among the Noteholders (as hereinafter defined), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("Bank of America"), as a Lender (as hereinafter defined), and Bank of America National Trust and Savings Association as the Collateral Agent (as hereinafter defined). This Agreement is consented to by U.S. Rentals, Inc., a California corporation ("USR"), by USR's execution of the acknowledgment hereto. RECITALS WHEREAS, USR and Bank of America (together with any Successor Lenders (as hereinafter defined) party thereto from time to time, the "Lenders"), have entered into the First Amended and Restated Credit Agreement dated as of August 11, 1995 (said agreement, as it may hereafter be amended, restated or otherwise modified from time to time (the "Existing Credit Agreement") and together with any Successor Credit Agreement, as hereinafter defined, the "Credit Agreement"). WHEREAS, USR has entered into the Note Agreements (as amended, restated or otherwise modified from time to time, the "Note Agreement") dated as of the date of this Agreement with the Noteholders, pursuant to which the Noteholders have agreed to purchase USR's (i) $10,000,000 6.82% Senior Secured Notes, Series A, Due August 21, 1999, (ii) $10,000,000 6.89% Senior Secured Notes, Series B, Due August 21, 2000, (iii) $10,000,000 7.04% Senior Secured Notes, Series C, Due August 21, 2001 and (iv) $20,000,000 7.13% Senior Secured Notes, Series D, Due August 21, 2002 (collectively, the "Senior Notes"). WHEREAS, the Lenders have consented to the transactions contemplated hereby and by the Note Agreement and Noteholders' Security Agreement (as hereinafter defined). WHEREAS, the loans made by Bank of America to USR are secured pursuant to a Revised, Amended and Restated Security Agreement Receivables, Inventory, Equipment and Documents dated as of September 30, 1990 (said agreement as it may hereafter be amended, restated or otherwise modified from time to time being herein referred to as the "Security Agreement"), between USR and Bank of America, pursuant to which USR has granted a security interest to the Bank of America in the collateral described in said Security Agreement to secure the obligations of USR under the Credit Agreement; WHEREAS, it is a condition precedent to the purchase of the Senior Notes by the Noteholders under the Note Agreement and to the consent of Bank of America to the issuance, sale and delivery of the Senior Notes by USR and the execution and delivery of this Agreement by the Collateral Agent that USR enter into a Second Amended and Restated Security Agreement Re: Receivables, Inventory, Equipment and Documents dated as of the date of this Agreement (said agreement as it may hereafter be amended, restated or otherwise modified from time to time being herein referred to as the "Amended and Restated Security Agreement") to secure the obligations of USR under the Credit Agreement and to secure the obligations of USR under the Note Agreement and the Senior Notes. WHEREAS, the Lenders and the Noteholders (individually a "Party" and collectively the "Parties") have agreed that the Credit Obligations (as hereinafter defined) and the Senior Note Obligations (as hereinafter defined) shall be secured pari passu pursuant to the Amended and Restated Security Agreement; the Parties desire that Bank of America National Trust and Savings Association shall be the collateral agent (the "Collateral Agent") to act on behalf of all Parties regarding the Collateral, all as more fully provided herein; and the Parties have entered into this Agreement to, among other things, further define the rights, duties, authority and responsibilities of the Collateral Agent and the relationship between the Parties regarding their pari passu interests in the Collateral. WHEREAS, it is contemplated that the Lenders or other financial institutions (the "Successor Lenders") may enter into one or more agreements with USR either extending the maturity of or refinancing all or any portion of the Credit Obligations or making additional extensions of credit. WHEREAS, it is contemplated that the Noteholders or other financial institutions (the "Successor Noteholders") may enter into one or more agreements with USR either extending the maturity of or refinancing all or any portion of the Senior Note Obligations or making additional extensions of credit. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the Parties hereto hereby agree as follows: SECTION 1. DEFINED TERMS. As used in this Agreement, and unless the context requires a different meaning, capitalized terms not otherwise defined herein have the respective meanings provided for such terms in the Note Agreement and the following terms have the meanings indicated below, all such definitions to be equally applicable to the singular and plural forms of the terms defined: "Acceleration Premium Obligations" means all obligations of USR to pay a "Make Whole Amount" (as defined in (S)8.1 of the Note Agreement) to the Noteholders as a result of the acceleration of the Senior Note Obligations payable under (S)6.3 of the Note Agreement or any successor provisions thereto. "Affiliate," as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the -2- management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise. "Agreement" has the meaning ascribed to that term in the introductory paragraph hereto. "Amended and Restated Security Agreement" has the meaning ascribed to that term in the introductory paragraph hereto, and shall include any other agreements or instruments relating to security given with respect to any Benefitted Obligation which are executed and delivered after the date hereof. "Bank Documents" means the Credit Agreement, the Credit Notes, the Amended and Restated Security Agreement, the Letters of Credit, any documents delivered pursuant to a Hedging Transaction with a Lender and any other collateral document given to a Lender or the Collateral Agent. "Bank of America" has the meaning ascribed to that term in the introductory paragraph hereto. "Bankruptcy Proceeding" means, with respect to any Person, a general assignment by such Person for the benefit of its creditors, or the institution by or against such Person of any proceeding seeking relief as debtor, or seeking to adjudicate such Person as bankrupt or insolvent, or seeking reorganization, arrangement, adjustment or composition of such Person or its debts, under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking appointment of a receiver, trustee, custodian or other similar official for such Person or for any substantial part of its property. "Benefited Obligations" means (a) all Credit Obligations, (b) all Senior Note Obligations, (c) the outstanding Letter of Credit Usage, (d) all Hedging Exposure and other obligations of USR under or arising in connection with any Interest Rate Protection Agreement, and (e) all other amounts payable by any Grantors under this Agreement and the Amended and Restated Security Agreement (including, without limitation, the reasonable fees and expenses of the Collateral Agent). "Benefited Parties" means the holders, from time to time, of the Benefited Obligations. "Code" means the Uniform Commercial Code as the same may from time to time be in effect in the State of California. "Collateral" means all property and interests in property of the Grantors in which a Lien has been created under the Amended and Restated Security Agreement or the Security Agreement. -3- "Collateral Agent" means Bank of America National Trust and Savings Association in its capacity as collateral agent hereunder and any successor collateral agent appointed pursuant to (S)8 hereof. "Collateral Agent--Related Persons" means the directors, officers, employees and agents of the Collateral Agent. "Credit Agreement" has the meaning ascribed to that term in the introductory paragraph hereto. "Credit Notes" means the promissory notes, if any, issued by USR or any other borrower under the Credit Agreement. "Credit Obligations" means all outstanding and unpaid obligations of every nature of USR from time to time to the Lenders or any of them under the Credit Agreement, the Credit Notes and any other Bank Documents. "Directing Party" means, with respect to any particular instruction given to the Collateral Agent, each Party (and each Benefited Party represented by such Party) that has given such instruction to the Collateral Agent. "Enforcement" means the commencement of enforcement, collection (including judicial or non-judicial foreclosure) or similar proceedings with respect to the Collateral. "Event of Default" means an "Event of Default" or "Default" as defined in any Financing Agreement. "Existing Credit Agreement" shall mean the First Amended and Restated Credit Agreement dated as of August 11, 1995 between USR and the Lender. "Existing Fees and Charges" means any fees, indemnities or other expenses the payment of which is required by the Existing Credit Agreement or the Existing Note Agreement. "Existing Note Agreement" shall mean the Note Agreement dated as of August 15, 1995 between USR and the Noteholders. "Financing Agreements" means the Bank Documents, the Noteholder Documents, any Interest Rate Protection Agreement, this Agreement, each other security document securing the Benefited Obligations, and any other instruments, documents or agreements entered into in connection with any Benefited Obligation or Financing Agreement. "Grantors" means USR and any other Person who grants any Collateral to the Collateral Agent under the Amended and Restated Security Agreement or any other security document securing the Benefited Obligations. -4- "Hedging Exposure" means, on any date of determination for any Hedging Transaction, the amount, as calculated in good faith and in a commercially reasonable manner by the Lender that is USR's counterpart for such Hedging Transaction, which such Lender would pay to a third party (such amount being expressed as a negative number) or receive from a third party (such amount being expressed as a positive number) in an arm's-length transaction as consideration for the third party's entering into a new transaction with such Lender in which: (a) such Lender holds the same position in the Hedging Transaction as it currently holds; (b) the third party holds the same position as USR currently holds; and (c) the new transaction has economic and other terms and conditions identical in all respects to such Hedging Transaction except that (i) the date of calculation shall be deemed to be the date of commencement of the new transaction and (ii) all period end dates shall correspond to all period end dates, if any, for such Hedging Transaction. "Hedging Transaction" means each interest rate swap transaction, basis swap transaction, forward rate transaction, commodity swap transaction, equity transaction, equity index transaction, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction or any other similar transaction (including any option with respect to any of these transactions and any combination of any of the foregoing) entered into by USR from time to time pursuant to an Interest Rate Protection Agreement; provided that such transaction is entered into for purposes of protection from price, interest rate, or currency fluctuations posed by debt, contract or purchase order obligations and not for speculative purposes. "Interest Rate Protection Agreement" means any interest rate swap, cap, floor, collar, forward rate agreement, or other rate protection transaction, or any combination of such transactions or agreements or any option with respect to any such transactions or agreements now existing or hereafter entered into between USR and any Lender. "Lenders" has the meaning ascribed to that term in the recitals hereto. "Letters of Credit" shall mean the standby letters of credit and the commercial letters of credit issued pursuant to the Credit Agreement. "Letters of Credit Usage" shall mean, as at any date of determination, the sum of (i) the Maximum Available Amount plus (ii) the aggregate amount of all drawings under the Letters of Credit honored by the Lenders and not theretofore reimbursed by USR. "Lien" means any lien, mortgage, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest). "Majority Benefited Parties" means (a) the Required Lenders under the Credit Agreement, and (b) Noteholders holding (or representing) at least 51% of the outstanding principal amount of the Senior Notes, each voting as a class, provided that if at any time the aggregate outstanding principal amount of the indebtedness (including all Letters of Credit Usage) evidenced by the Credit Notes or the aggregate outstanding principal amount of the -5- Senior Notes represents less than 10% of the sum of the aggregate outstanding principal amount of the indebtedness evidenced by the Senior Notes and the Credit Notes, then "Majority Benefited Parties" shall mean Benefited Parties, considered as a single class, holding more than 51% of the sum of (i) the outstanding principal amount of the Senior Notes, plus (ii) the outstanding principal amount of the Credit Notes. "Maximum Available Amount" shall mean, as of any date of determination, the amount that may be drawn under the Letters of Credit (whether or not the 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). "New Fees and Charges" means (i) any fees, indemnities or other expenses the payment of which is not required by the Existing Credit Agreement or the Existing Note Agreement or (ii) any increase in the amount of such fees, indemnities or other expenses over the amount of Existing Fees and Charges. "Non-Directing Party" means, with respect to any particular instruction given to the Collateral Agent, each Party (and each Benefited Party represented by such Party) that has not given or agreed with such instruction given to the Collateral Agent. "Note Agreement" has the meaning ascribed to that term in the recitals hereto. "Noteholder Documents" means (i) the Note Agreement; (ii) the Senior Notes; and (iii) the Amended and Restated Security Agreement. "Noteholders" means the Persons named in the Note Agreement and each other Person which is, at the date of determination, a holder of a Senior Note. "Opinion of Counsel" means a written opinion of an attorney or firm of attorneys which in the case of any Person other than the Collateral Agent or Bank of America may not be an employee of such Person but in the case of the Collateral Agent or Bank of America may be an employee thereof, a copy of which opinion is furnished to each Benefited Party. "Party" has the meaning ascribed to that term in the recitals hereto. "Person" means any individual, corporation, partnership, trust or other entity. "Preferential Payment" means any payments or Proceeds from USR or any other source with respect to the Benefited Obligations (including from the exercise of any set-off) which are: (i) received by a Benefited Party within 90 days prior to the commencement of a Bankruptcy Proceeding with respect to USR, or the acceleration of the Senior Notes or the Credit Notes, and which payment reduces the amount of the Benefited Obligations owed to such Benefited Party below the amount owed to such Benefited Party as of the 90th day prior to such occurrence, or -6- (ii) received by a Benefited Party (A) within 90 days prior to the occurrence of any Event of Default (other than an Event of Default arising as a result of the commencement of a Bankruptcy Proceeding) which has not been waived or cured within 45 days after the occurrence thereof and which payment reduces the amount of the Benefited Obligations owed to such Benefited Party below the amount owed to such Benefited Party as of the 90th day prior to the occurrence of such Event of Default or (B) within 45 days after the occurrence of such Event of Default, or (iii) received by a Benefited Party after the occurrence of a Special Event of Default except as provided in (S)5(b). "Proceeds" has the meaning assigned to it under the Code and, in any event, includes, but is not limited to, (a) any and all proceeds of any collection, sale or other disposition of the Collateral, (b) any and all amounts from time to time paid or payable under or in connection with any of the Collateral and (c) amounts collected by the Collateral Agent or any Lender by way of set-off, deduction or counterclaim. "Required Lenders" means those Lenders having aggregate percentages of the revolving loan commitments and term loan commitments under the Credit Agreement entitled to act or refrain from acting under the Credit Agreement. "Required Noteholders" means, with respect to any particular Event of Default, the percentage of Noteholders required to accelerate the maturity of the Notes as a result of such Event of Default under the provisions of the Note Agreement. "Security Agreement" has the meaning ascribed to that term in the recitals hereto, and shall include any other agreements or instruments relating to Collateral which are executed and delivered after the date hereof. "Senior Debt" means debt for borrowed money, other than the Senior Notes and the Credit Agreement, which is not subordinated in right of payment to any other obligation of USR. "Senior Note Obligations" means all outstanding and unpaid obligations of every nature of USR from time to time to the Noteholders under the Noteholder Documents, including, without limitation, the Acceleration Premium Obligations and all fees, collection costs and other expenses otherwise accruing under the Noteholder Documents. "Senior Notes" has the meaning ascribed to that term in the recitals hereto. "Special Event of Default" shall mean (i) the commencement of a Bankruptcy Proceeding with respect to USR, (ii) any other Event of Default which has not been waived or cured within 45 days after the occurrence thereof, or (iii) the acceleration of the Senior Notes or the Credit Notes. -7- "Special Trust Account" shall mean that certain interest bearing trust account maintained by or on behalf of the Collateral Agent for the purpose of receiving and holding Preferential Payments. "Successor Credit Agreement" shall mean any replacement, refinancing or restructuring of the Existing Credit Agreement; provided that each Successor Lender thereunder or an agent acting on behalf of all such Successor Lenders has executed an acknowledgment to this Agreement in the form attached hereto as Exhibit B-1. "Successor Lenders" has the meaning ascribed to that term in the recitals hereto. "Successor Note Agreement" shall mean any replacement, refinancing or restructuring of the Existing Note Agreement; provided that each Successor Lender thereunder or an agent acting on behalf of all such Successor Lenders has executed an acknowledgment to this Agreement in the form attached hereto as Exhibit B-2. "Successor Noteholders" has the meaning ascribed to that term in the recitals hereto. "USR" has the meaning ascribed to that term in the introductory paragraph hereto. SECTION 2. APPOINTMENT OF COLLATERAL AGENT. Each of the Lenders and each Noteholder hereby irrevocably (subject to (S)8(g)) appoints, designates and authorizes the Collateral Agent to take such action on its behalf under the provisions of this Agreement and the Amended and Restated Security Agreement and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or the Amended and Restated Security Agreement, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or the Amended and Restated Security Agreement, the Collateral Agent shall not have any duties or responsibilities except those expressly set forth herein, nor shall the Collateral Agent have or be deemed to have any fiduciary relationship with any Lender or any Noteholder, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or the Amended and Restated Security Agreement or otherwise exist against the Collateral Agent. SECTION 3. DECISIONS RELATING TO ADMINISTRATION AND EXERCISE OF REMEDIES VESTED IN THE MAJORITY BENEFITED PARTIES. (a) Except as set forth in (S)3(g), the Collateral Agent agrees that it will not release Liens or Collateral or commence Enforcement without the direction of the Majority Benefited Parties. The Collateral Agent agrees to administer the Amended and Restated Security Agreement and the Collateral and to make such demands and give such notices under the Amended and Restated Security Agreement as the Majority Benefited Parties may request, and to take such action to enforce the Amended and Restated Security Agreement -8- and to realize upon, collect and dispose of the Collateral or any portion thereof as may be directed by the majority benefited parties. The Collateral Agent shall not be required to take any action that is in the Opinion of Counsel contrary to law or to the terms of this Agreement or the Amended and Restated Security Agreement, or that would in the Opinion of Counsel subject it or any of its officers, employees, agents or directors to liability, and the Collateral Agent shall not be required to take any action under this Agreement or the Amended and Restated Security Agreement unless and until the Collateral Agent shall be indemnified to its reasonable satisfaction by one or more of the Benefited Parties against any and all loss, cost, expense or liability in connection therewith. (b) Each Party agrees that the Collateral Agent shall act as the Majority Benefited Parties may request (regardless of whether any individual Party or Benefited Party agrees, disagrees or abstains with respect to such request), that the Collateral Agent shall have no liability for acting in accordance with such request and that no Directing Party or Non-Directing Party shall have any liability to any Non-Directing Party or Directing Party, respectively, for any such request. The Collateral Agent shall give prompt notice to the Non- Directing Parties of action taken pursuant to the instructions of the Majority Benefited Parties to enforce the Amended and Restated Security Agreement; provided, however, that the failure to give any such notice shall not impair the right of the Collateral Agent to take any such action or the validity or enforceability under this Agreement of the action so taken. Notwithstanding anything herein to the contrary, the Majority Benefited Parties shall agree to release the Collateral from the security interests granted for the benefit of any Non-Directing Party only if the Collateral Agent is concurrently releasing the security interest granted with respect to such Collateral for all Benefited Parties having a security interest in such Collateral. (c) Each Party agrees that the only right of a Non-Directing Party under the Amended and Restated Security Agreement is for Benefited Obligations held by such Non-Directing Party to be secured by the Collateral for the period and to the extent provided therein and in this Agreement and to receive a share of the proceeds of the Collateral, if any, to the extent and at the time provided in the Amended and Restated Security Agreement and in this Agreement. (d) The Collateral Agent may at any time request directions from the Majority Benefited Parties as to any course of action or other matter relating hereto or relating to the Amended and Restated Security Agreement. Except as otherwise provided in this Agreement or the Amended and Restated Security Agreement, directions given by the Majority Benefited Parties to the Collateral Agent hereunder shall be binding on all Benefited Parties, including all Non- Directing Parties, for all purposes. (e) Nothing contained in this Agreement shall affect the rights of any Party to give USR or any other Grantor notice of any default, accelerate or make demand for payment of their respective Benefited Obligations under the Financing Agreements or collect payment thereof other than through a realization on or in respect of the Collateral or any part or portion thereof, nor shall anything contained in this Agreement be deemed or construed to affect the rights of any Party to administer, modify, waive or amend any term or provision -9- of any Financing Agreement to which it and USR is a party, other than this Agreement, the Amended and Restated Security Agreement or any other security document securing the Benefited Obligations. If a Party (upon authorization of the Majority Benefited Parties) instructs the Collateral Agent to take any action, commence any proceedings or otherwise proceed against the Collateral or enforce the Amended and Restated Security Agreement, and such action or proceedings are or may be defective without the joinder of other Parties as parties, then all other Parties shall join in such actions or proceedings. Each Party agrees not to take any action to enforce any term or provision of the Amended and Restated Security Agreement or to enforce any of its rights in respect of the Collateral except through the Collateral Agent in accordance with this Agreement. (f) Any Benefited Party which has actual knowledge of an Event of Default, or facts which indicate that an Event of Default has occurred, shall deliver to the Collateral Agent a written statement describing such Event of Default or facts. Failure to do so, however, does not constitute a waiver of such Event of Default by the Benefited Parties. (g) Unless an Event of Default has occurred and is continuing, the Collateral Agent may, without the approval of the Benefited Parties as required herein, release any Collateral under the Amended and Restated Security Agreement which is permitted to be sold or disposed of by USR pursuant to the Credit Agreement and the Note Agreement and execute and deliver such releases as may be necessary to terminate of record the Benefited Parties' security interest in such Collateral. In determining whether any such release is permitted, the Collateral Agent may rely upon instructions from the Majority Benefited Parties. SECTION 4. APPLICATION OF PROCEEDS. (a) Any and all Proceeds received by the Collateral Agent in connection with an Enforcement and any Preferential Payments required to be paid to all Benefited Parties in accordance with the provisions of (S)5, shall be applied promptly by the Collateral Agent, as follows: First: To the payment of the reasonable costs and expenses of such sale, collection or other realization, including, without duplication, fees and expenses of counsel to the Collateral Agent evidenced by reasonable and customary computer back-up detail, unpaid collateral agency fees, and all reasonable expenses, liabilities and advances made or incurred by the Collateral Agent in connection therewith; Second: To the ratable payment of the Benefited Obligations to Benefited Parties (other than Existing Fees and Charges and New Fees and Charges), calculated in accordance with the provisions of (S)4(b) hereof; Third: To the ratable payment of the Existing Fees and Charges to Benefited Parties; Fourth: To the ratable payment of the New Fees and Charges to Benefited Parties; and -10- Fifth: After payment in full of all Benefited Obligations, to the payment to or upon the order of Grantors, or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such Proceeds. Until such Proceeds are so applied, the Collateral Agent shall hold such Proceeds in its custody in accordance with its regular procedures for handling deposited funds. (b) Any Proceeds received by the Collateral Agent in respect of the Collateral (net of any amounts applied in accordance with (S)4(a) FIRST) shall be applied in accordance with the priority set forth in (S)4(a) SECOND so that each Benefited Party shall receive payment of its proportionate amount of all such Proceeds, as the case may be. Payment shall be based upon the proportion which the amount of such Benefited Obligations of such Benefited Party bears to the total amount of all Benefited Obligations of all such Benefited Parties, including, without limitation, hedging exposure to any lender. For purposes of determining the proportionate amounts of all Benefited Obligations sharing in any such distribution: (i) the amount of the outstanding Credit Obligations shall be deemed to be the sum of the principal amount of the Credit Notes plus, subject to (S)4(c), all Letters of Credit Usage and all accrued interest and fees with respect thereto but excluding New Fees and Charges, (ii) the amount of the outstanding Senior Note Obligations shall be deemed to be the principal amount of the Senior Notes plus all accrued interest and fees with respect thereto, including, without limitation, the Acceleration Premium Obligations, but excluding New Fees and Charges, and (iii) the amount of the outstanding Hedging Exposure shall be deemed to be the amount of USR's obligations then due and payable (exclusive of expenses or similar liabilities, but including early termination payments then due) in connection with any Hedging Transaction and all accrued interest and fees with respect thereto, but excluding New Fees and Charges. (c) Notwithstanding anything herein to the contrary, any amounts distributed for application to USR's liabilities with respect to any such undrawn Letters of Credit shall be held by the Lenders as collateral security for such liabilities until a drawing thereon, at which time such collateral shall be applied to such liabilities. If Letters of Credit constituting part of the Credit Obligations expire without having been drawn upon in full, the undrawn portion shall be excluded from the Credit Obligations for purposes of (S)(S)4(a) and (b) hereof, all as though such undrawn portion had never existed. If distributions have previously been made under (S)(S)4(a) and (b) hereof with respect to Letters of Credit constituting part of the Credit Obligations which expire without having been drawn upon in full, the amounts due each Benefited Party out of such distribution shall be redetermined by excluding the undrawn amount of such expired Letters of Credit from the calculations under such sections and if a redetermination reveals that there has been an overpayment to any Benefited Party, each Benefited Party which received such an overpayment shall pay to those other Benefited Parties who were underpaid in respect of such distribution the amount of the underpayment and in return the remitted Benefited Parties shall receive from each such underpaid Benefited Party a non-recourse participation in the Benefited Obligations owing to such underpaid Benefited Parties in the amount of the underpayment paid over to such Benefited Party. -11- (d) Payments by the Collateral Agent in respect of (i) the Credit Obligations shall be made to the Lenders in accordance with the Credit Agreement; (ii) the Senior Note Obligations shall be made as directed in writing by the Noteholder to whom such Senior Note Obligations are owed; and (iii) Hedging Exposure shall be made as directed by the Lender to which such is owed. SECTION 5. PREFERENTIAL PAYMENTS AND SPECIAL TRUST ACCOUNT. (a) The Collateral Agent shall give each Benefited Party a written notice (a "Notice of Special Default") promptly after being notified in writing by a Benefited Party that a Special Event of Default has occurred. After the receipt of such Notice of Special Default, all Preferential Payments other than those payments received pursuant to (S)5(b) shall be deposited into the Special Trust Account. Each Benefited Party agrees that no event of default shall occur as a result of payments so made on a timely basis to the Collateral Agent. (b) If (i) such Special Event of Default is waived by the Required Lenders or the Required Noteholders, or both, as the case may be, and if no other Event of Default has occurred and is continuing, (ii) such Special Event of Default is cured by USR or by any amendment of the Credit Agreement or the Note Agreement, as the case may be, and if no other Event of Default has occurred and is continuing or (iii) the Benefited Obligations have not been accelerated and the Majority Benefited Parties have not instructed the Collateral Agent to seek the appointment of a receiver, commence litigation against USR, liquidate the Collateral, commence a Bankruptcy Proceeding against USR, seize Collateral, or exercise other remedies of similar character prior to the 90th day following such Special Event of Default, the Collateral Agent thereupon shall return all amounts, together with their pro rata share of interest earned thereon, held in the Special Trust Account representing payment of any Benefited Obligations to the Benefited Party initially entitled thereto, and no payments thereafter received by a Benefited Party shall constitute a Preferential Payment by reason of such cured or waived Special Event of Default. No payment returned to a Benefited Party for which such Benefited Party has been obligated to make a deposit into the Special Trust Account shall thereafter ever be characterized as a Preferential Payment. If the Special Event of Default is an Event of Default under the terms of the Credit Agreement and the Note Agreement, the Collateral Agent shall not return any payments to the Benefited Parties pursuant to (i) above unless the Required Lenders and the Required Noteholders have each waived such Special Event of Default. (c) Each Benefited Party agrees that upon the occurrence of a Special Event of Default it shall (i) promptly notify the Collateral Agent of the receipt of any Preferential Payments, (ii) hold such amounts in trust for the Benefited Parties and act as agent of the Benefited Parties during the time any such amounts are held by it, and (iii) deliver to the Collateral Agent such amounts for deposit into the Special Trust Account. (d) If (i) an Event of Default has occurred and has not been waived or cured within 90 days after the occurrence thereof, (ii) the Benefited Obligations have been accelerated or (iii) the Majority Benefited Parties have instructed the Collateral Agent to seek the appointment of a receiver, commence litigation against USR, liquidate the Collateral, -12- commence a Bankruptcy Proceeding against USR, seize Collateral, or exercise other remedies of similar character, then all funds, together with interest earned thereon, held in the Special Trust Account and all subsequent Preferential Payments shall be applied in accordance with the provisions of (S)4(a) above. Any Lender or any Noteholder which is aware of the same, shall give the Collateral Agent written notice of any Event of Default which has occurred and which has not been waived or cured within 90 days after the occurrence thereof, provided that failure to give any such notice shall not modify, amend or otherwise prejudice or affect the rights of any Lender or Noteholder hereunder. SECTION 6. INFORMATION. If the Collateral Agent proceeds to enforce the Amended and Restated Security Agreement or to collect, sell, otherwise dispose of or take any other action with respect to any of such agreements or the Collateral or any portion thereof or proposes to take any other action pursuant to or contemplated by this Agreement, the Parties hereto agree as follows: (a) Bank of America shall (i) promptly from time to time, upon the written request of the Collateral Agent, notify the Collateral Agent of the outstanding Credit Obligations as at such date as the Collateral Agent may specify; and (ii) promptly from time to time thereafter notify the Collateral Agent of any payment received by the Lenders to be applied to satisfy Credit Obligations. The Lenders shall certify as to such amounts and the Collateral Agent shall be entitled to rely conclusively upon such certification. (b) Each Noteholder shall (i) promptly from time to time, upon the written request of the Collateral Agent, notify the Collateral Agent of the outstanding Senior Note Obligations owed to such Noteholder as at such date as the Collateral Agent may specify; (ii) promptly from time to time, upon the written request of the Collateral Agent, notify the Collateral Agent of the amount that would be payable as a "Make Whole Amount" under (S)6.3 of the Note Agreement or any successor provision thereto if such "Make Whole Amount" were payable as of such date as the Collateral Agent may specify and (iii) promptly from time to time thereafter, notify the Collateral Agent of any payment received thereafter by such Noteholder to be applied to the principal of or interest or "Make Whole Amount" on the Senior Note Obligations owing to such Noteholder. Each Noteholder shall certify as to such amounts and the Collateral Agent shall be entitled to rely conclusively upon such certification. (c) Each Lender party to a Hedging Transaction shall (i) promptly from time to time, upon the written request of the Collateral Agent, notify the Collateral Agent of the notional amount under such Hedging Transaction and the amount payable by USR upon early termination of such Hedging Transaction at the date of termination as fixed by such Interest Rate Protection Agreement and (ii) promptly from time to time thereafter notify the Collateral Agent of any payment received by such Lender to be applied to amounts due upon early termination of such Hedging Transaction. Such -13- Lender shall certify as to such amounts and the Collateral Agent shall be entitled to rely conclusively upon such certification. (d) Each Lender party to any Letter of Credit shall (i) promptly from time to time, upon the written request of the Collateral Agent, notify the Collateral Agent of the Letter of Credit Usage applicable to such Letter of Credit and (ii) promptly from time to time thereafter notify the Collateral Agent of any payment received by such Lender to be applied to amounts due under such Letter of Credit. Such Lender shall certify as to such amounts and the Collateral Agent shall be entitled to rely conclusively upon such certification. SECTION 7. ADDITIONAL PARTIES. Provided that it is permitted to do so by the terms of the Credit Agreement and the Note Agreement, USR may enter into one or more Successor Credit Agreements or Successor Note Agreements and, pursuant thereto, incur additional Senior Debt. The Senior Debt outstanding under such Successor Credit Agreements or Successor Note Agreements, as the case may be, shall be secured by the Collateral as provided herein and in the Amended and Restated Security Agreement; provided that, at the time USR enters into any such Successor Credit Agreements or Successor Note Agreements, each Successor Lender party to such Successor Credit Agreement, or the agent on behalf of all such Successor Lenders to such Successor Credit Agreement, and each Successor Noteholder party to such Successor Note Agreement, as the case may be, shall sign an acknowledgment in the form of Exhibit B-1 or Exhibit B-2, respectively, attached to this Agreement, by which each such Successor Lender or each such Successor Noteholder, as the case may be, agrees to be bound by the terms of this Agreement, and by delivering a signed acknowledgment hereof executed by USR and each Grantor to the Collateral Agent; and provided further that on the date of execution and delivery of such Successor Credit Agreement or Successor Note Agreement, the incurrence by USR of $1.00 of additional Indebtedness would not constitute an Event of Default under the Note Agreement. SECTION 8. DISCLAIMERS, INDEMNITY, ETC. (a) The Collateral Agent may execute any of its duties under this Agreement or the Amended and Restated Security Agreement by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel (including in-house counsel) concerning all matters pertaining to such duties. The Collateral Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care. (b) Neither the Collateral Agent nor any of its employees 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 the Amended and Restated Security Agreement or the transactions contemplated hereby (except for its own or their gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Lenders or Noteholders for any recital, statement, representation or warranty made by USR, or any officer thereof, contained in this -14- Agreement or the Amended and Restated Security Agreement or in any certificate, report, statement or other document referred to or provided for in, or received by the Collateral Agent under or in connection with, this Agreement or the Amended and Restated Security Agreement or the validity, effectiveness, genuineness, enforceability, sufficiency of this Agreement or the Amended and Restated Security Agreement or for any failure of USR to perform its obligations hereunder or thereunder. Neither the Collateral Agent nor any of its employees shall be under any obligation to any Lender or any Noteholder to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or the Amended and Restated Security Agreement, or to inspect the properties, books or records of USR. (c) 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, statement or other document believed by it 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 (but not including counsel to USR), independent accountants and other experts selected by the Collateral Agent. The Collateral Agent shall be fully justified in failing or refusing to take any action under this Agreement or the Amended and Restated Security Agreement unless it shall first receive such advice or concurrence by the Majority Benefited Parties customarily and reasonably acceptable to the Collateral Agent and, if it so requests, it shall first be indemnified by the Benefited Parties ratably in accordance with the amount of the Benefited Obligations held by such Benefited Parties against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action to the extent not otherwise reimbursed hereunder. Any such indemnity given by a Benefited Party which is a bank, trust company, savings and loan association, pension fund, investment company, insurance company, fraternal benefit society, broker or dealer or other similar financial institution or entity, regardless of legal form, may be unsecured at the option of such Benefited Party. The Collateral Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or the Amended and Restated Security Agreement in accordance with a request or consent of the Majority Benefited Parties and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Benefited Parties. (d) The Collateral Agent shall not be deemed to have knowledge or notice of the occurrence of any Event of Default or Special Event of Default, unless the Collateral Agent shall have received written notice from a Lender, a Noteholder or USR referring to this Agreement, describing such Event of Default or Special Event of Default, and stating that such notice is a "notice of default". The Collateral Agent shall take such action with respect to such Event of Default or Special Event of Default as may be requested by the Majority Benefited Parties in accordance with (S)3; provided, however, that unless and until the Collateral Agent has received any such request, the Collateral Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Event of Default or Special Event of Default, as it shall deem advisable or in the best interest of the Lenders and the Noteholders. -15- (e) Each Lender and each Noteholder acknowledges that the Collateral Agent-Related Persons has not made any representation or warranty to it, and that no act by the Collateral Agent hereinafter taken, including any review of the affairs of USR and its Subsidiaries, shall be deemed to constitute any representation or warranty by the Collateral Agent to any Lender or Noteholder. Each Lender and each Noteholder acknowledges that it has, independently and without reliance upon the Collateral Agent 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 USR and its Subsidiaries, and made its own decision to enter into this Agreement and to extend credit to USR hereunder. Each Lender and Noteholder also represents that it will, independently and without reliance upon the Collateral Agent-Related Persons 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 or the Amended and Restated Security Agreement, 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 USR. Except for notices, reports and other documents expressly herein required to be furnished to the Lenders and the Noteholders by the Collateral Agent, the Collateral Agent shall not have any duty or responsibility to provide any Lender or Noteholder with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of USR which may come into the possession of any of the Collateral Agent-Related Persons. (f) Each of the Benefited Parties severally agrees (i) to reimburse the Collateral Agent in accordance with its pro rata share for any expenses incurred by the Collateral Agent, including, without duplication of legal services rendered, reasonable fees and disbursements of counsel to the Collateral Agent evidenced by reasonable and customary computer back-up detail, arising out of or as a result of the execution and delivery of this Agreement or the Amended and Restated Security Agreement or the performance by the Collateral Agent pursuant thereto of its obligations thereunder or in connection of the enforcement or protection of the rights of the Collateral Agent and the Benefited Parties hereunder or under the Amended and Restated Security Agreement, in each case to the extent that the foregoing shall not have been reimbursed by USR or directly by one or more of the Benefited Parties or paid from the proceeds of the Collateral as provided herein and (ii) to the extent not reimbursed by USR or directly by one or more of the Benefited Parties or paid from the proceeds of the Collateral, to indemnify and hold harmless the Collateral Agent and the Collateral Agent-Related Persons in accordance with its pro rata share, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Collateral Agent in its capacity as the Collateral Agent in any way relating to or arising out of this Agreement or the Amended and Restated Security Agreement or any action taken or omitted by them under this Agreement or the Amended and Restated Security Agreement including, without limitation, after the Collateral Agent has given notice pursuant to the second to the last sentence of Section 8(h)(i) hereof, provided that no Benefited Party shall be liable to the Collateral Agent or any Collateral Agent-Related Person for any portion of such liabilities, -16- obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the gross negligence or willful misconduct of the Collateral Agent or any Collateral Agent-Related Person. (g) Bank of America 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 USR and its Subsidiaries and Affiliates as though Bank of America were not the Collateral Agent hereunder and without notice to or consent of the Lenders or the Noteholders. The Lenders and Noteholders acknowledge that, pursuant to such activities, Bank of America or its subsidiaries may receive information regarding USR or its Subsidiaries (including information that may be subject to confidentiality obligations in favor of USR or such Subsidiary) and acknowledge that the Collateral Agent shall be under no obligation to provide such information to them. With respect to its loans to USR, Bank of America shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Collateral Agent, and the terms "Lender" and "Lenders" include Bank of America in its individual capacity. (h) (i) The Collateral Agent may resign at any time by giving at least 30 days' notice thereof to the Parties (such resignation to take effect upon the acceptance by a successor Collateral Agent of any appointment as the Collateral Agent hereunder) and the Collateral Agent may be removed as the Collateral Agent at any time by either (1) Benefited Parties holding (or representing) at least 60% of the outstanding principal amount under the Credit Notes (it being understood that, if the Required Lenders agree on any instruction to be given the Collateral Agent, the Required Lenders shall be entitled to vote on behalf of all Lenders for purposes of this clause) or (2) Benefited Parties holding (or representing) more than 51% of the outstanding principal amount under the Senior Notes. In the event of any such resignation or removal of the Collateral Agent, the Majority Benefited Parties shall thereupon have the right to appoint a successor Collateral Agent which is not a Benefited Party. If no successor Collateral Agent shall have been so appointed by the Majority Benefited Parties and shall have accepted such appointment within 30 days after the notice of the intent of the Collateral Agent to resign or the removal of the Collateral Agent, then the retiring Collateral Agent may, on behalf of the other Parties, appoint a successor Collateral Agent. Any successor Collateral Agent appointed pursuant to this clause shall be a commercial bank or other financial institution organized under the laws of the United States of America or any state thereof having (1) a combined capital and surplus of at least $250,000,000 and (2) a rating upon its long-term senior unsecured indebtedness of "A-2" or better by Moody's Investors Service, Inc. or "A" or better by Standard & Poor's Corporation. Notwithstanding the foregoing, in the event (y) the Collateral Agent shall have received a court order requiring that it resign as Collateral Agent or (z) the Collateral Agent shall have received a written opinion of independent outside counsel reasonably acceptable to the Benefited Parties holding (or representing) more than 51% of the outstanding principal amount of the Senior Notes that the performance by the Collateral Agent of its duties as Collateral Agent constitutes a conflict of interest, then in either such event, the Collateral Agent shall give written notice of such event to the Parties and the Collateral Agent may resign on the earlier of the 120th day following such notice or the date -17- on which a successor Collateral Agent has accepted appointment hereunder. With regard to any such conflict of interest or perceived conflict of interest, the Parties agree to act in a commercially reasonable manner in addressing any such conflict of interest. (ii) Upon the acceptance by a successor Collateral Agent of any appointment as the Collateral Agent hereunder, such successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Collateral Agent. The retiring or removed Collateral Agent shall be discharged from its duties and obligations hereunder upon the appointment of the successor Collateral Agent. After any retiring or removed Collateral Agent's resignation or removal hereunder as the Collateral Agent, the provisions of this (S)8 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Collateral Agent. SECTION 9. INVALIDATED PAYMENTS. If any amount distributed by the Collateral Agent to a Benefited Party in accordance with the provisions of this Agreement is subsequently required to be returned or repaid by the Collateral Agent or such Benefited Party to USR or any Affiliate thereof or their respective representatives or successors in interest, whether by court order, settlement or otherwise (a "Repayment Event"), the Collateral Agent shall thereafter apply Proceeds received in a manner consistent with the terms of this Agreement such that all Benefited Parties receive such proportion of the Proceeds as would have been received had the original payment which gave rise to such Repayment Event not occurred. If a Repayment Event occurs which results in the Collateral Agent being required to return or repay any amount distributed by it under this Agreement, the Benefited Party to which such amount was distributed shall, promptly upon its receipt of a notice thereof from the Collateral Agent, pay the Collateral Agent such amount; provided that, if any Benefited Party shall fail to promptly pay such amount to the Collateral Agent, the Collateral Agent may deduct such amount from any amounts payable thereafter to such Benefited Party under this Agreement. SECTION 10. MISCELLANEOUS. (a) All notices and other communications provided for herein shall be in writing and may be sent by overnight air courier, facsimile communication or United States mail and shall be deemed to have been given when delivered by overnight air courier, upon receipt of facsimile communication if concurrently with transmission of such telecopy or telex, a copy thereof shall be sent by overnight courier to the address specified for such notice or communication, or four business days after deposit in the United States mail, registered or certified, with postage prepaid and properly addressed. For the purposes hereof, the addresses of the parties hereto (until notice of a change thereof is delivered as provided in this (S)10(a)) shall be set forth under each party's name on the signature pages (including acknowledgments) hereof. (b) This Agreement may be amended, modified or waived only by an instrument or instruments in writing signed by all of the holders of Benefited Obligations and the -18- Collateral Agent; provided, however, that (S)7 of this Agreement may not be amended or modified without the written consent of USR. (c) This Agreement shall be binding upon and inure to the benefit of the Collateral Agent, each Party and their respective successors and assigns. In the event that the holder of any Credit Note or Senior Note shall transfer such Credit Note or Senior Note, USR shall promptly so advise the Collateral Agent. Each transferee of any Credit Note or Senior Note shall take such Credit Note or Senior Note subject to the provisions of this Agreement and to any request made, waiver or consent given or other action taken or authorized hereunder, by each previous holder of such Credit Note or Senior Note, prior to the receipt by the Collateral Agent of written notice of such transfer; and, except as expressly otherwise provided in such notice, the Collateral Agent shall be entitled to assume conclusively that the transferee named in such notice shall thereafter be vested with all rights and powers as a Party under this Agreement. The Collateral Agent shall not be obligated to give any Party notice of any such transfer. (d) This Agreement shall continue to be effective among the Parties even though a case or proceeding under any bankruptcy or insolvency law or any proceeding in the nature of a receivership, whether or not under any insolvency law, shall be instituted with respect to USR or any other Grantor, or any portion of the property or assets of USR or any other Grantor, and all actions taken by the Parties with regard to such proceeding shall be by the Majority Benefited Parties; provided, however, that nothing herein shall be interpreted to preclude any Party from filing a proof of claim with respect to its Benefited Obligations or from casting its vote, or abstaining from voting, for or against confirmation of a plan of reorganization in a case of bankruptcy, insolvency or similar law in its sole discretion. (e) Each Party hereto agrees to do such further acts and things and to execute and deliver such additional agreements, powers and instruments as any other Party hereto may reasonably request to carry into effect the terms, provisions and purposes of this Agreement or to better assure and confirm unto such other Party hereto its respective rights, powers and remedies hereunder. (f) This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing any such counterpart. A telecopy of the signature of any party on any counterpart shall be effective as the signature of the party executing such counterpart for purposes of effectiveness of this Agreement. (g) This Agreement shall become effective immediately upon execution by the Parties and shall continue in full force and effect until one year following the date upon which all Benefited Obligations are irrevocably paid in full and all commitments under the Credit Agreement have been terminated. (h) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA. -19- (i) Headings of sections of this Agreement have been included herein for convenience only and should not be considered in interpreting this Agreement. (i) Nothing in this Agreement or the Amended and Restated Security Agreement, expressed or implied, is intended or shall be construed to confer upon or give to any Person other than the Benefited Parties, any right, remedy or claim under or by reason of any such agreement or any covenant, condition or stipulation herein or therein contained. (j) In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. -20- IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed as of the date and year first written above. BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Lender By /s/ Robert Troutman ------------------------------- Robert Troutman Its Managing Director Notice Address: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION Credit Products 5618, 11th Floor 555 S. Flower Street Los Angeles, CA 90071 Attn: Chas McDonell Telecopier No.: 213-228-2756 Tel.: 213-228-2027 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Collateral Agent By /s/ Charles Graber -------------------------------- Charles Graber Its Vice President Notice Address: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION Agency Management Services #5596 1455 Market Street, 13th Floor San Francisco, California 94103 Attn: Charles Graber Telecopier No.: 415-622-4894 Tel: 415-953-4626 -21- MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, as a Noteholder By /s/ John B. Joyce --------------------------------- Its Vice President Notice Address: MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY 1295 State Street Springfield, Massachusetts 01111 Attention: Securities Investment Division JEFFERSON-PILOT LIFE INSURANCE COMPANY, as a Noteholder By /s/ Robert E. Whalen II --------------------------------- Its Second Vice President Notice Address: JEFFERSON-PILOT LIFE INSURANCE COMPANY 100 North Greene Greenboro, North Carolina 27401 Attention: Securities Administration 3630 PRINCIPAL MUTUAL LIFE INSURANCE COMPANY, as a Noteholder By /s/ Jon C. Heiny --------------------------------- Its Counsel By /s/ Annette M. Masterson --------------------------------- Its Assistant Director Securities Investment -22- Notice Address: PRINCIPAL MUTUAL LIFE INSURANCE 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 PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY, as a Noteholder By /s/ Rosemary T. Strekel --------------------------------- Its Vice President Notice Address: PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY One American Row Hartford, Connecticut 06115 Attention: Private Placements Division Telecopier Number: (203) 275-5451 PHOENIX AMERICAN LIFE INSURANCE COMPANY, as a Noteholder By /s/ Lawrence Reitman --------------------------------- Its Vice President Notice Address: PHOENIX AMERICAN LIFE INSURANCE COMPANY c/o Phoenix Home Life Mutual Insurance Company One American Row Hartford, CT 06115 Attn: Private Placements Division -23- ALEXANDER HAMILTON LIFE INSURANCE COMPANY OF AMERICA, as a Noteholder By /s/ William Lang --------------------------------- Its Vice President-Credit Management Notice Address: ALEXANDER HAMILTON LIFE INSURANCE COMPANY OF AMERICA 33045 Hamilton Court Farmington Hills, Michigan 48334 Attention: Bill Lang, Department R-12A -24- U.S. Rentals, Inc. hereby acknowledges and agrees to the foregoing terms and provisions contained in this Intercreditor Agreement. By executing this Intercreditor Agreement, U.S. Rentals, Inc. agrees to be bound by the provisions thereof as they relate to the relative rights of the Benefited Parties as among such Benefited Parties; provided, however, that nothing in this Intercreditor Agreement shall amend, modify, change or supersede the respective terms of the Financing Agreements as between the Benefited Parties or any of them and U.S. Rentals, Inc. In the event of any conflict or inconsistency between the terms of this Intercreditor Agreement and the Financing Agreements, the Financing Agreements shall govern as between the Benefited Parties thereto and U.S. Rentals, Inc. U.S. Rentals, Inc. further agrees that the terms of this Intercreditor Agreement shall not give U.S. Rentals, Inc. any substantive rights vis a vis any Benefited Party or the Collateral Agent and that it shall not use the violation of this Intercreditor Agreement by any of the Parties hereto as a defense to the enforcement by any Benefited Party under any Financing Agreement, nor assert such violation as a counterclaim or basis for set-off or recoupment against any of them. U.S. Rentals, Inc. further acknowledges and agrees that the scope of the agency granted by this Intercreditor Agreement to the Collateral Agent hereunder is strictly limited by this Intercreditor Agreement and the Amended and Restated Security Agreement. By its execution hereof, U.S. Rentals, Inc. hereby represents to each of the Benefited Parties and the Collateral Agent that the execution, delivery and performance by U.S. Rentals, Inc. of the Note Agreement and the other Noteholder Documents does not constitute a violation of any of the provisions of the Credit Agreement or the Security Agreement. Without limiting the foregoing, U.S. Rentals, Inc. agrees with the Collateral Agent that in the event that any Senior Note is transferred and such transfer is registered pursuant to (S)9.1 of the Note Agreement, it will promptly and in any event within 30 days following the date of transfer of such Senior Note notify the Collateral Agent of such fact and identify the transferee of such Senior Note, provided that the agreement to give such notice by USR shall not be a condition to such transfer nor shall the failure for any reason whatsoever of USR to give such notice of any such transfer to the Collateral Agent have any effect whatsoever on the validity and effectiveness of such transfer. U.S. RENTALS, INC. By /s/ John S. McKinney --------------------------------- Title: Vice President and Chief Financial Officer Date: 08/17/95 -25- FORM OF AMENDED AND RESTATED SECURITY AGREEMENT (ATTACHED) [See Conformed Copy at Tab 2] Exhibit A (to Intercreditor Agreement) FORM OF ACKNOWLEDGMENT TO INTERCREDITOR AGREEMENT FOR SUCCESSOR LENDERS UNDER A SUCCESSOR CREDIT AGREEMENT Reference is hereby made to the Intercreditor Agreement dated as of August 15, 1995 (the "Agreement"), among the Lenders party to the Credit Agreement and the Collateral Agent, and the Noteholders party thereto and certain other parties, if any, thereto. The undersigned Successor Lender or its agent has entered into a Credit Agreement dated as of _______________ with U.S. Rentals, Inc. and desires the Credit Obligations with respect thereto to be secured by the Amended and Restated Security Agreement. The undersigned acknowledges the terms of the Agreement and agrees to be bound thereby. __________________________________, as a Successor Lender By_________________________________ Title____________________________ Date_____________________________ Notice Address: ___________________________________ ___________________________________ ___________________________________ Acknowledged and Agreed: U.S. RENTALS, INC. By_________________________________ Title____________________________ Date_____________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Collateral Agent By_________________________________ Its________________________________ Exhibit B-1 (to Intercreditor Agreement) ___________________________________ (Other Grantors) By_________________________________ Title____________________________ Date_____________________________ -2- FORM OF ACKNOWLEDGMENT TO INTERCREDITOR AGREEMENT FOR SUCCESSOR NOTEHOLDERS UNDER A SUCCESSOR NOTE AGREEMENT Reference is hereby made to the Intercreditor Agreement dated as of August 15, 1995 (the "Agreement"), among the Lenders party to the Credit Agreement and the Collateral Agent and the Noteholders party thereto and certain other parties, if any, thereto. The undersigned Successor Noteholder has entered into a Note Agreement dated as of _____________ with U.S. Rentals, Inc. and desires the Senior Note Obligations with respect thereto to be secured by the Amended and Restated Security Agreement. The undersigned acknowledges the terms of the Agreement and agrees to be bound thereby. ___________________________________, as a Successor Noteholder By_________________________________ Title____________________________ Date_____________________________ Notice Address: ___________________________________ ___________________________________ ___________________________________ Acknowledged and Agreed: U.S. RENTALS, INC. By_________________________________ Title____________________________ Date_____________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Collateral Agent By_________________________________ Its________________________________ Exhibit B-2 (to Intercreditor Agreement) __________________________________ (Other Grantors) By_________________________________ Title____________________________ Date_____________________________ -2- EX-11 9 STATEMENT OF COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 U.S. RENTALS, INC. (THE COMPANY) UNAUDITED PRO FORMA COMPUTATION OF EARNINGS PER SHARE
DECEMBER 31, 1996 ------------ Net income......................................................... $26,129,000 Basis for computation of primary earnings per common share: Weighted average number of shares outstanding during period...... 30,748,975 Income per share................................................. $ 0.85
EX-23.1 10 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 January 27, 1997, relating to the financial statements of U.S. Rentals, Inc., a California corporation, and of our report dated January 27, 1997, relating to the financial statements of U.S. Rentals, Inc., a Delaware corporation, which appear in such Prospectus. We also consent to the references to us under the headings "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". Sacramento, California January 27, 1997 EX-27 11 ARTICLE 5 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 12-MOS DEC-31-1995 DEC-31-1996 JAN-01-1995 JAN-01-1996 DEC-31-1995 DEC-31-1996 3,479 2,906 0 0 54,822 61,581 6,166 6,991 3,938 5,841 0 0 179,218 248,327 49,398 63,633 245,184 324,448 0 0 0 0 0 0 0 0 699 699 82,378 80,031 245,184 324,448 242,847 305,837 242,847 305,837 167,872 220,221 204,825 263,683 1,620 665 3,441 4,075 8,876 11,477 31,092 33,458 468 374 30,624 33,084 0 0 0 0 0 0 30,624 33,084 0 0 0 0 REPRESENTS THE PROVISION FOR DOUBTFUL ACCOUNTS.
-----END PRIVACY-ENHANCED MESSAGE-----