-----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, I+3i+SKWIASwCC+gHorTOfRGHuYXfqELdSrUuAUB2DIVg4IpIVJimM4UlPkLdrCs YsdZxHoeQddYXa/vJuKxxw== 0000950130-97-004716.txt : 19971103 0000950130-97-004716.hdr.sgml : 19971103 ACCESSION NUMBER: 0000950130-97-004716 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 25 FILED AS OF DATE: 19971030 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED RENTALS INC CENTRAL INDEX KEY: 0001047166 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 061493538 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-39117 FILM NUMBER: 97704263 BUSINESS ADDRESS: STREET 1: FOUR GREENWICH OFFICE PARK CITY: GREENWICH STATE: CT ZIP: 06830 BUSINESS PHONE: 2036223131 MAIL ADDRESS: STREET 1: FOUR GREENWICH OFFICE PARK CITY: GREENWICH STATE: CT ZIP: 06830 S-1 1 REGISTRATION STATEMENT AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1997 REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- UNITED RENTALS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 7353 06-1493538 (STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER) INCORPORATION OR ORGANIZATION) FOUR GREENWICH OFFICE PARK GREENWICH, CONNECTICUT 06830 (203) 622-3131 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) BRADLEY S. JACOBS UNITED RENTALS, INC. FOUR GREENWICH OFFICE PARK GREENWICH, CONNECTICUT 06830 (203) 622-3131 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ---------------- Copies of all communications to: JOSEPH EHRENREICH, STEPHEN M. BESEN, ESQ. PHYLLIS G. KORFF, ESQ. ESQ. WEIL, GOTSHAL & MANGES LLP SKADDEN, ARPS, SLATE, EHRENREICH & KRAUSE 767 FIFTH AVENUE MEAGHER & FLOM LLP 1140 AVENUE OF THE NEW YORK, NEW YORK 10153 919 THIRD AVENUE AMERICAS (212) 310-8000 NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK (212) 735-3000 10036 (212) 302-8050 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please 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 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE - ------------------------------------------------------------------------- Common Stock, $0.01 par value................. $80,000,000 $24,243
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) promulgated under the Securities Act of 1933. ---------------- 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 BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- EXPLANATORY NOTE This Registration Statement contains two forms of prospectus: one to be used in connection with an offering in the United States and Canada (the "U.S. Prospectus") and one to be used in a concurrent offering outside the United States and Canada (the "International Prospectus"). The two prospectuses are identical except for the front and back cover pages, the inside front cover page, and the section entitled "Underwriting." The form of the U.S. Prospectus is included herein and is followed by the alternate pages to be used in the International Prospectus. Each of the alternate pages for the International Prospectus included herein is labeled "Alternate Page for International Prospectus." Final forms of each Prospectus will be filed with the Securities and Exchange Commission under Rule 424(b). SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS, DATED , 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 SHARES [LOGO] UNITED RENTALS, INC. COMMON STOCK ----------- All of the shares of Common Stock, $.01 par value (the "Common Stock"), offered hereby are being offered by United Rentals, Inc., a Delaware corporation (the "Company"). Of the Common Stock offered hereby, shares are being offered initially in the United States and Canada by the U.S. Underwriters (the "U.S. Offering"), and shares are being offered initially in a concurrent international offering outside the United States and Canada by the International Managers (the "International Offering", and together with the U.S. Offering, the "Offerings"). The initial public offering price and the underwriting discount per share are identical for each of the Offerings. See "Underwriting." Prior to the Offerings, there has been no public market for the Common Stock. It is currently estimated that the initial public offering price will be between $ and $ per share. For information relating to factors to be considered in determining the initial public offering price, see "Underwriting." Shares of Common Stock are being offered for sale to certain employees, directors and business associates of, and certain other persons designated by, the Company at the initial public offering price. Such employees, directors and other persons are expected to purchase, in the aggregate, not more than 10% of the Common Stock offered in the Offerings. Application will be made to list the Common Stock on the under the symbol " ", subject to official notice of issuance. SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. ----------- 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. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO PRICE TO PUBLIC DISCOUNT(1) THE COMPANY(2) - -------------------------------------------------------------------------------------------- Per Share...................................... $ $ $ - -------------------------------------------------------------------------------------------- Total(3)....................................... $ $ $
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) The Company has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (2) Before deducting expenses of the Offerings payable by the Company estimated at $ . (3) The Company has granted the U.S. Underwriters and the International Managers options to purchase up to an additional shares and shares of Common Stock, respectively, in each case exercisable within 30 days of the date hereof, solely to cover over-allotments, if any. If such options are exercised in full, the total Price to Public, Underwriting Discount 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 issued to and accepted by them, subject to the approval of certain legal matters by counsel for the Underwriters and to certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the shares of Common Stock will be made in New York, New York, on or about , 1997. ----------- MERRILL LYNCH & CO. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION DEUTSCHE MORGAN GRENFELL ----------- The date of this Prospectus is , 1997 Certain persons participating in the Offerings may engage in transactions that stabilize, maintain or otherwise affect the price of the Common Stock. Such transactions may include stabilizing, the purchase of Common Stock to cover syndicate short positions and the imposition of penalty bids. For a description of these activities, see "Underwriting." 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety, and should be read in conjunction with, the more detailed information and financial statements and notes thereto appearing elsewhere in this Prospectus. Unless otherwise indicated, the terms "United Rentals" and "the Company" refer collectively to United Rentals, Inc. and its subsidiaries. The Company commenced rental operations in October 1997 by acquiring six established equipment rental companies (the "Initial Acquired Companies"). All financial and operating data for the Company contained herein with respect to 1996 and the first nine months of 1997 is on a pro forma basis giving effect to the acquisition of the Initial Acquired Companies and the financing thereof as of the beginning of the specified period. Unless otherwise indicated, the information contained in this Prospectus assumes no exercise of the Underwriters' over-allotment option. THE COMPANY United Rentals was formed in September 1997 for the purpose of creating a large geographically diversified equipment rental company and commenced rental operations in October 1997 by acquiring six established equipment rental companies. The Company rents a broad array of equipment to a diverse customer base that includes construction industry participants, industrial companies, homeowners and other individuals. The Company also engages in related activities such as selling used rental equipment, acting as a distributor for certain new equipment, and selling related merchandise and parts. The Company had pro forma revenues of $51.9 million during 1996 and $42.1 million during the first nine months of 1997. United Rentals currently operates 12 rental locations in five states: California (6), Colorado (1), North Carolina (3), Texas (1), and Utah (1). The Company's locations are managed by experienced professionals who have been involved in the equipment rental industry an average of 24 years and have substantial knowledge of the local markets served. These managers are former owners/employees of the businesses acquired by the Company. The types of rental equipment offered by the Company include a broad range of light to heavy construction and industrial equipment (such as pumps, generators, forklifts, backhoes, cranes, bulldozers, aerial lifts and compressors), general tools and equipment (such as hand tools and garden and landscaping equipment) and party/special event equipment (such as tents, tables and chairs). The equipment mix varies at each of the Company's locations, with some locations offering a general mix and some specializing in specific equipment categories. As of October 28, 1997, the Company's rental equipment included over 12,000 units (not including party/special event equipment) and had an original purchase price of approximately $62.5 million and a weighted average age (based on original purchase price) of approximately four years. The domestic equipment rental industry generates annual revenues in excess of $20 billion and has grown at a compound annual rate in excess of 20% since 1990. The Company believes that this growth reflects increasing recognition by customers of the many advantages that equipment rental may offer compared with ownership, including the ability to: (i) avoid the large capital investment required for equipment purchases, (ii) reduce storage and maintenance costs, (iii) supplement owned equipment, thereby increasing the range and number of jobs that can be worked on, (iv) access a broad selection of equipment and select the equipment best suited for each particular job, (v) obtain equipment as needed and minimize the costs associated with idle equipment, and (vi) access the latest technology without investing in new equipment. The equipment rental industry is highly fragmented and consists of a small number of multi-location regional or national operators and a large number of relatively small, independent businesses serving discrete local markets. The fragmented nature of the industry is reflected in the following data: (i) there are only five equipment rental companies that had 1996 equipment rental revenues in excess of $100 million (with the largest company having 1996 equipment rental revenues of approximately $400 million), (ii) the largest 100 equipment rental companies combined have less than a 20% share of the market based on 1996 equipment rental revenues (with the largest company having less than a 3% market share), and (iii) there are approximately 100 equipment 3 rental companies that had 1996 equipment rental revenues between $5 million and $100 million. In addition, the Company estimates that there are more than 20,000 companies with annual equipment rental revenues of less than $5 million. The Company believes that the fragmented nature of the industry presents substantial consolidation and growth opportunities for companies with access to capital and the ability to implement a disciplined acquisition program and effectively integrate and operate acquired companies. GROWTH STRATEGY The Company's growth strategy is to expand through a disciplined acquisition program, the opening of new rental locations and internal growth and to further diversify its equipment categories and customer markets. The Company believes that as it expands it should gain competitive advantages relative to smaller operators, including greater purchasing power, a lower cost of capital, the ability to provide customers with a broader range of equipment and services and with newer and better maintained equipment, and greater flexibility to transfer equipment among locations in response to customer demand. The Company is seeking to acquire companies of varying size, including relatively large companies to serve as platforms for regional development and smaller companies to complement existing or anticipated locations. In evaluating potential acquisition targets, the Company considers a number of factors, including the quality of the target's rental equipment and management, the opportunities to improve operating margins and increase internal growth at the target, the economic prospects of the region in which the target is located, the potential for additional acquisitions in the region, and the competitive landscape in the target's markets. The Company will seek expansion opportunities in the United States and Canada and will pursue acquisition candidates with varying types of equipment and customer specializations. The Company believes that geographic and customer diversification will allow the Company to participate in the overall growth of the equipment rental industry and reduce the Company's sensitivity to fluctuations in regional economic conditions or changes that affect particular market segments. The Company believes that there will be significant opportunities to improve operating margins at acquired companies through the efficient integration of new and existing operations, the elimination of duplicative costs, reduction in overhead, the centralization of functions such as purchasing and information technology, and the application of best practices. The Company also believes that a lack of capital has constrained expansion and modernization at many small and mid-sized equipment rental companies and that as a result there is significant potential to increase internal growth at many acquired companies through capital investment. The Company will seek to increase internal growth by investing in additional and more modern equipment, using advanced information technology systems to improve asset utilization and tracking, increasing sales and marketing efforts, expanding the customer segments and geographic areas served, and opening complementary locations. BACKGROUND The Company was founded by eight of the Company's officers, who contributed an aggregate of $44.4 million in cash to the capital of the Company. Each of the founders was formerly a senior executive of United Waste Systems, Inc. ("United Waste"), a solid waste management company that was sold in August 1997, or a senior member of United Waste's acquisition team. United Waste executed a growth strategy that combined a disciplined acquisition program (including over 200 acquisitions completed from January 1995 through August 1997), the integration and optimization of acquired facilities, and internal growth. The Company believes that the extensive experience of its management team in acquiring and effectively integrating and operating acquisition targets should enable the Company to capitalize on consolidation opportunities in the equipment rental industry. United Rentals, Inc. was incorporated under the laws of the State of Delaware in August 1997, initially capitalized in September 1997 and commenced rental operations in October 1997 by acquiring the six Initial Acquired Companies. The executive offices of the Company are located at Four Greenwich Office Park, Greenwich, Connecticut 06830, and its telephone number is (203) 622-3131. 4 THE OFFERINGS Common Stock offered hereby ..... shares(1) Common Stock to be outstanding after the Offerings ............ shares(2) Use of Proceeds ................. The net proceeds from the Offerings will be used (i) to repay approximately $35 million of outstanding indebtedness under the Company's $55 million revolving credit facility (the "Credit Facility") and (ii) for future acquisitions, capital expenditures and general corporate purposes. See "Use of Proceeds." Proposed Symbol .................
- -------- (1) Assumes no exercise of the over-allotment options granted by the Company to the Underwriters. (2)Does not include (i) 6,342,858 shares issuable upon the exercise of outstanding warrants ("Warrants"), all of which are currently exercisable at an exercise price of $10.00 per share, (ii) 219,000 shares issuable upon the exercise of outstanding options granted pursuant to the Company's 1997 Stock Option Plan, which provide for a weighted average exercise price of $11.83 per share, (iii) 4,781,000 shares reserved for possible future grants of options under the Company's 1997 Stock Option Plan, and (iv) shares issuable upon conversion of a $300,000 convertible note which provides for a conversion price per share equal to 120% of the initial public offering price per share in the Offerings. Also does not reflect adjustments which may change the number of shares issued as consideration for the acquisition of one of the Initial Acquired Companies. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Consideration Paid for Initial Acquired Companies," "Management--Capital Contributions by Officers and Directors" and "Description of Capital Stock--Warrants, Options and Convertible Notes." RISK FACTORS See "Risk Factors" beginning on page 7 for a discussion of certain risks that should be considered in connection with an investment in the Common Stock offered hereby. 5 SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The Company was incorporated in August 1997, initially capitalized in September 1997, and commenced rental operations in October 1997 by acquiring the six Initial Acquired Companies. The following unaudited pro forma income statement data with respect to each of the periods set forth below gives effect to the acquisition of each of the Initial Acquired Companies, the financing of each such acquisition and all issuances of Common Stock after the beginning of the period, as if all such transactions had occurred at the beginning of the period presented. The following unaudited pro forma balance sheet data as of September 30, 1997 gives effect to the acquisition of each of the Initial Acquired Companies, the financing of each such acquisition, and all issuances of Common Stock after September 30, 1997, as if all such transactions had occurred on such date. The following unaudited pro forma as adjusted balance sheet data gives effect to the foregoing and to completion of the Offerings at an assumed initial public offering price of $ per share and the application of a portion of the estimated net proceeds therefrom to repay outstanding indebtedness under the Credit Facility. See "Use of Proceeds" and "Capitalization."
HISTORICAL PRO FORMA ------------------- ------------------------------------ PERIOD FROM AUGUST 14, 1997 NINE MONTHS (INCEPTION) THROUGH YEAR ENDED ENDED SEPTEMBER 30, 1997 DECEMBER 31, 1996 SEPTEMBER 30, 1997 ------------------- ----------------- ------------------ (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Total revenues.......... $ -- $51,889 $42,095 Gross profit............ -- 19,445 15,210 Operating income (loss)................. (348) 7,255 5,542 Interest expense ....... -- 1,719 1,328 Other (income) expense, net.................... (75) (317) (482) ------- ------- ------- Income (loss) before in- come taxes............. (273) 5,853 4,696 Income taxes............ -- 2,341 1,976 ------- ------- ------- Net income (loss)....... $ (273) $ 3,512 $ 2,720 ======= ======= ======= Earnings (loss) per com- mon share.............. $ $ 0.22 $ 0.17 ======= ======= ======= AS OF SEPTEMBER 30, 1997 -------------------------------------------------------- PRO FORMA HISTORICAL PRO FORMA AS ADJUSTED ------------------- ----------------- ------------------ (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equiva- lents.................. $54,638 $ 50 Rental equipment, net... -- 37,117 Total assets............ 54,851 93,107 Debt.................... -- 27,733 Stockholders' equity.... 54,699 59,469
6 RISK FACTORS An investment in the shares of Common Stock offered hereby involves a high degree of risk. In addition to the other information in this Prospectus, the following Risk Factors should be considered carefully in evaluating an investment in the Common Stock. RECENTLY FORMED COMPANY; ABSENCE OF OPERATING HISTORY The Company was incorporated in August 1997, initially capitalized in September 1997 and commenced equipment rental and related operations in October 1997 by acquiring the six Initial Acquired Companies. The Company's historical financial statements included herein only cover the period from inception through September 30, 1997, and principally reflect the initial activities of the Company relating to the Company's organization, search for acquisition candidates and development of the management team and infrastructure required to support its growth strategy and manage the expanded operations that the Company is seeking to build. Since the acquisitions of the Initial Acquired Companies were closed subsequent to September 30, 1997 and accounted for as purchases, the Company's historical financial statements do not reflect the results of the acquired businesses even though such businesses have been in existence an average of 25 years. Consequently, the Company has no operating history relating to its business upon which an evaluation of the Company and its prospects can be based. INITIAL ACQUIRED COMPANIES NOT HISTORICALLY OPERATED AS A COMBINED BUSINESS Although the Initial Acquired Companies have been in existence an average of 25 years, the businesses of these companies have not historically been operated as a combined business. There can be no assurance that the Company will be able to integrate successfully the businesses of the Initial Acquired Companies (or the businesses of any companies acquired in the future), to operate them profitably on a combined basis, or to effectively manage the combined business. Failure by the Company to successfully integrate or effectively manage the Initial Acquired Companies could have a material adverse effect on the Company's results of operations and financial condition. START-UP LOSSES During the period from August 14, 1997 (inception) through September 30, 1997, the Company had a net loss of $273,000. This loss reflected the fact that during this period (which preceded the commencement of the Company's equipment rental operations) the Company had no revenues but incurred costs relating to the Company's organization, search for acquisition candidates and development of the management team and infrastructure required to support its growth strategy and manage the expanded operations that the Company is seeking to build. The Company may also report a net loss for the fourth quarter of 1997, reflecting the fact that (i) the Company in the fourth quarter continued to incur substantial expenses for the foregoing purposes and (ii) the results of the Initial Acquired Companies will only be included in the Company's results for a portion of the quarter. The Pro Forma Consolidated Financial Statements of the Company included elsewhere herein give pro forma effect to the acquisitions of the Initial Acquired Companies and the financing thereof, as more fully described in the Notes to such statements. On such a pro forma basis, the Company had revenues of $51.9 million and $42.1 million during 1996 and the first nine months of 1997, respectively, and net income during such periods of $3.5 million and $2.7 million, respectively. Such pro forma results, however, are not necessarily indicative of the actual results of operations that would have occurred had the acquisitions of the Initial Acquired Companies occurred at the beginning of the respective periods presented or of the results that may occur in the future. There can be no assurance that the Company will achieve profitability in the near term, if at all. RISKS RELATING TO GROWTH STRATEGY Principal components of the Company's growth strategy include continued expansion through an ongoing acquisition program, the opening of start-up locations, and internal growth. However, there can be no assurance 7 that the Company will successfully implement its growth strategy or that, if implemented, such strategy will result in profitability. The Company's growth strategy involves a number of risks and uncertainties, including: Availability of Acquisition Targets and Sites for Start-up Locations. The Company may encounter substantial competition in its efforts to identify and acquire appropriate acquisition candidates and sites for start-up locations, which could have the effect of increasing prices for acquisitions or such sites. There can be no assurance that the Company will succeed in identifying appropriate acquisition candidates or sites for start-up locations or that the Company will be able to acquire any acquisition candidate or site that it does identify on terms that are acceptable to the Company. Need to Integrate New Operations. As the Company grows, the Company intends to focus substantial efforts on the efficient integration of new operations, the elimination of duplicative costs and reduction in overhead. There can be no assurance, however, that the Company will be successful in these efforts or that these efforts may not in certain circumstances adversely affect existing operations. Need to Recruit Additional Personnel. The Company will require additional personnel in order to implement its growth strategy and support expanded operations. Accordingly, the Company is in the process of recruiting additional operating, acquisition, finance and other personnel from the equipment rental industry and from other industries. There can be no assurance, however, that the Company will succeed in recruiting the requisite qualified personnel as and when needed. Certain Risks Related to Start-up Locations. The Company to date has not established any start-up locations and there can be no assurance that the Company will successfully establish any such locations in the near term or at all. The Company expects that start-up locations may initially have a negative impact on results of operations and margins due to several factors, including: (i) the Company will incur significant start-up expenses in connection with establishing each start-up location and (ii) it will generally take some time following the commencement of operations at a start-up location before profitability can be achieved. There can be no assurance that any start-up location will become profitable within the first several years of operations, if at all. DEPENDENCE ON ADDITIONAL CAPITAL TO FINANCE GROWTH The Company's growth strategy will require substantial capital investment. Capital will be required by the Company for, among other purposes, completing acquisitions, establishing new rental locations, integrating completed acquisitions, acquiring rental equipment and maintaining the condition of its rental equipment. The Company intends to pay for future acquisitions using cash, capital stock, notes and/or assumption of indebtedness. To the extent that cash generated internally and cash available under the Credit Facility is not sufficient to provide the capital required for such purposes and future operations, the Company will require additional debt and/or equity financing in order to provide for such capital. There can be no assurance, however, that such financing will be available or, if available, will be available on terms satisfactory to the Company. Failure by the Company to obtain sufficient additional capital in the future could limit the Company's ability to implement its business strategy. Future debt financings, if available, may result in increased interest and amortization expense, increased leverage, decreased income available to fund further acquisitions and expansion, and may limit the Company's ability to withstand competitive pressures and render the Company more vulnerable to economic downturns. Future equity financings may dilute the equity interest of existing stockholders. POSSIBLE UNDISCOVERED LIABILITIES OF ACQUIRED COMPANIES Although the Company performs a due diligence investigation of each business that it acquires, there may nevertheless be liabilities of the Initial Acquired Companies or future acquired companies that the Company fails or is unable to discover during its due diligence investigation and for which the Company, as a successor owner, may be responsible. The Company seeks to minimize the impact of these liabilities by obtaining indemnities and warranties from the seller which may be supported by deferring payment of a portion of the purchase price. However, these indemnities and warranties, if obtained, may not fully cover the liabilities due to their limited scope, amount, or duration, the financial limitations of the indemnitor or warrantor, or other reasons. 8 DEPENDENCE ON MANAGEMENT The Company is highly dependent upon its senior management team. The loss of the services of any member of senior management may have a material adverse effect on the Company. The Company's Credit Facility provides that the failure of certain members of the Company's current senior management to continue to hold executive positions with the Company for a period of 30 consecutive days constitutes an event of default under the Credit Facility unless replacement officers satisfactory to the lenders are appointed. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Liquidity and Capital Resources." The Company does not presently maintain "key man" life insurance with respect to members of senior management. The Company's rental locations are managed by regional and local managers who have an average of 24 years of experience in the equipment rental industry and substantial knowledge of the local markets served. These managers are former owners/employees of the businesses acquired by the Company. The loss of one or more of these managers may have a material adverse effect on the Company in the event that the Company is unable to find a suitable replacement in a timely manner. The Company's present dependence on regional and local managers is heightened by the fact that the Company's founding senior management team, while having substantial acquisition and operating experience in other industries (particularly the solid waste industry), does not have experience in the equipment rental industry. NEED FOR INTEGRATED INFORMATION TECHNOLOGY SYSTEMS Due to the recent formation of the Company, the Company has not yet fully implemented the type of integrated information technology systems that it will require in order to effectively integrate, manage and optimize its operations. Consequently, each acquired business is currently using the systems that it had in place at the time it was acquired. The Company is currently in the process of selecting and implementing the required information technology systems. This process involves substantial time and costs. There can be no assurance that the Company will not encounter unexpected delays and costs in connection with implementing such systems or that such systems when installed will initially function in accordance with the Company's expectations. COMPETITION The equipment rental industry is highly fragmented and competitive. The Company's competitors include public companies or divisions of public companies; regional competitors which operate in one or more states; small, independent businesses with one or two rental locations; and equipment vendors and dealers who both sell and rent equipment directly to customers. Certain of the Company's competitors are larger and have greater financial resources than the Company. There can be no assurance that the Company will not encounter increased competition from existing competitors or new market entrants or that equipment manufacturers will not commence, or increase their efforts, to rent or sell equipment directly to the Company's customers. In addition, to the extent that competitors seek to gain or retain market share by reducing prices, the Company may be required to lower its prices, thereby affecting operating results. See "Business--Competition." SENSITIVITY TO GENERAL ECONOMIC AND WEATHER CONDITIONS The Company believes that the equipment rental business is sensitive to changes in economic conditions and that demand for rental equipment can be reduced significantly by adverse weather conditions. There can be no assurance that the Company's business and financial condition will not be adversely affected by (i) changes in general economic conditions, including national, regional and local changes in construction and industrial activity, (ii) increases in interest rates that may result in a higher cost of funds to the Company, or (iii) adverse weather conditions that may decrease construction and industrial activity. QUARTERLY FLUCTUATIONS OF OPERATING RESULTS The Company expects that its revenues and operating results may fluctuate from quarter to quarter due to a number of factors, including: seasonal rental patterns of the Company's customers (with rental activity tending to be lower in the winter); changes in general economic conditions in the Company's markets; the timing of acquisitions and the opening of start-up locations (which generally will require a period of time to become profitable) and related costs; the effect of the integration of acquired businesses and start- up locations; the timing 9 of expenditures for new equipment and the disposition of used equipment; and price changes in response to competitive factors. These factors, among others, may result in the Company's results of operations in some future periods not meeting expectations, which could have a material adverse impact on the market price of the Common Stock. LIABILITY AND INSURANCE The Company is subject to various possible claims, including claims for personal injury or death caused by equipment rented or sold by the Company or motor vehicle accidents involving Company delivery and service personnel and compensation and other employment related claims. Although each of the Initial Acquired Companies maintains its own insurance, the Company is in the process of acquiring insurance subject to deductibles on a company-wide basis. However, 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, might not be covered by the Company's insurance. There can be no assurance that insurance will be available to the Company on economically reasonable terms, if at all, that existing or future claims will not exceed the level of the Company's insurance, or that the Company will have sufficient capital available to pay any uninsured claims. ENVIRONMENTAL REGULATION The Company uses hazardous materials, such as solvents, to clean and maintain its rental equipment and generates and disposes of wastes such as used motor oil, radiator fluid, solvents and batteries. In addition, the Company currently dispenses, or may in the future dispense, petroleum products from underground and above-ground storage tanks located at certain rental locations. These and other activities of the Company are subject to various federal, state and local laws and regulations governing 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, among other things, (i) 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, and (ii) environmental contamination at facilities where its waste is or has been disposed. 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. Although the Company investigates each business or property that it acquires or leases, there can be no assurance that acquired or leased locations have been operated in compliance with environmental laws and regulations, that historic or current operations have not resulted in conditions that will require investigation and/or remediation under environmental laws, or that future uses or conditions will not result in the imposition of environmental liability upon the Company or expose the Company to third-party actions such as tort suits. Furthermore, there can be no assurance that changes in environmental regulations in the future will not require the Company to make significant capital expenditures to change methods of disposal of hazardous materials or otherwise alter aspects of its operations. See "Business--Environmental Regulation." BROAD DISCRETION ON APPLICATION OF PROCEEDS The Company's business plan is general in nature and subject to change based upon changing conditions and opportunities. As a result, the Company will have broad discretion in applying the portion of the net proceeds not allocated to the repayment of outstanding indebtedness under the Credit Facility (as well as the proceeds of any future borrowings under the Credit Facility). The Company may use the net proceeds for future acquisitions. The Company at present is not party to any definitive agreements relating to future acquisitions. CONCENTRATED CONTROL Immediately following completion of the Offerings, the officers and directors of the Company will own an aggregate of 12,785,714 shares of Common Stock, representing approximately % of the Company's outstanding Common Stock (including 10,000,000 shares, representing approximately % of the Company's outstanding Common Stock, beneficially owned by Bradley Jacobs, Chairman and Chief Executive Officer of the Company) and will therefore be able to elect the entire Board of Directors of the Company and to control the Company's management and affairs. See "Principal Stockholders." 10 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 after 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 an indication of the actual value of the stock or 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 financial markets 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. IMMEDIATE AND SUBSTANTIAL DILUTION The purchasers of the Common Stock offered hereby will experience immediate and substantial dilution of $ per share (assuming an initial public offering price of $ per share, the midpoint of the estimated price range), representing the amount by which the purchase price of the Common Stock offered hereby will exceed the pro forma net tangible book value of the Common Stock as of September 30, 1997. If the Company issues additional Common Stock in the future, including shares that may be issued in connection with future acquisitions, purchasers of Common Stock in the Offerings may experience further dilution in net tangible book value per share of Common Stock. See "Dilution." ABSENCE OF DIVIDENDS The Company has never paid any dividends on its Common Stock and has no plans to pay dividends on its Common Stock in the foreseeable future. See "Dividend Policy." SHARES ELIGIBLE FOR FUTURE SALE Sales of substantial amounts of Common Stock (including shares issued upon exercise of warrants or options), or the perception that such sales could occur, could adversely affect prevailing market prices for the Common Stock. The number of outstanding shares of Common Stock available for sale in the public market will be limited by (i) agreements with the Underwriters pursuant to which the Company, each of its officers and directors, and the holders of 318,712 shares issued as consideration for an acquisition have agreed not to sell or otherwise dispose of any shares of Common Stock (including shares that may be acquired upon the exercise of currently exercisable warrants) for a period of 180 days after the date of this Prospectus without the prior written consent of Merrill Lynch & Co., on behalf of the Underwriters (except that the Company may issue shares as consideration for acquisitions, provided that the Company may not issue in excess of 500,000 shares for acquisitions unless the recipients of such excess shares agree to be subject to the foregoing lock-up agreement with respect to such excess shares); (ii) agreements with the Company (the "Stockholder Lock-up Agreements") pursuant to which each other holder of currently outstanding shares of Common Stock has agreed not to sell or otherwise transfer such shares without the prior written consent of the Company (such agreements to lapse with respect to one-third of such shares on the first, second and third anniversaries of the closing of the Offerings); and (iii) an agreement with the Underwriters pursuant to which the Company has agreed not to waive any Stockholder Lock-up Agreement for a period of 180 days after the date of this Prospectus without the prior written consent of Merrill Lynch & Co., on behalf of the Underwriters. See "Underwriting." Subject to the foregoing agreements, substantially all of the Company's outstanding shares of Common Stock and all shares that may hereafter be issued upon the exercise of outstanding warrants will be eligible for sale pursuant to a shelf registration statement that the Company intends to file prior to completion of the Offerings relating to the currently outstanding shares of the Company's Common Stock and the shares of Common Stock underlying 11 currently outstanding warrants. The Company expects to have such shelf registration statement declared effective upon the completion of the Offerings. This registration statement will (subject to the above-mentioned agreements and restrictions) enable the holders of such shares to publicly dispose of such shares from time to time. ANTI-TAKEOVER PROVISIONS Certain provisions of the Company's Certificate of Incorporation and By- laws, as well as applicable Delaware law, may have the effect of discouraging unsolicited acquisition proposals or making it more difficult for a third party to gain control of the Company. These provisions provide, among other things, that (i) the Board of Directors shall be divided into three classes, with directors of each class serving for a staggered three-year period, (ii) directors may be removed only for cause and only upon the affirmative vote of at least 66 2/3% of the voting power of all the then outstanding shares of stock entitled to vote, (iii) stockholders may not act by written consent, (iv) stockholder nominations and proposals may only be made if specified advance notice requirements are complied with, (v) stockholders are precluded from calling a special meeting of stockholders, and (vi) the Board of Directors has the authority to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the powers, preferences and rights of any such series without stockholder approval. Moreover, under certain conditions, Section 203 of the Delaware General Corporation Law may prevent the Company from engaging in a "business combination" with an "interested stockholder." See "Certain Charter and By-law Provisions." USE OF PROCEEDS The net proceeds to the Company from the Offerings are estimated to be $ million ($ million if the Underwriters' over-allotment option is exercised in full), assuming an initial public offering price of $ per share (the midpoint of the estimated price range) and after deduction of the estimated underwriting discount and offering expenses. The Company expects to use such net proceeds (i) to repay approximately $35 million of outstanding indebtedness under the Company's Credit Facility and (ii) for future acquisitions, capital expenditures and general corporate purposes. Pending use of the net proceeds for such purposes, the Company plans to invest the net proceeds in short-term, investment-grade, interest bearing securities. Under the terms of the Credit Facility, the Company may borrow on a revolving basis up to $55 million until October 8, 2000, at which time all outstanding loans must be paid in full. Outstanding loans under the Credit Facility bear interest at a rate per annum equal to the Eurodollar Rate (Reserve Adjusted) (as defined in the loan agreement providing for the Credit Facility) applicable to each interest period plus 1.5% to 2.5% per annum or the Alternate Reference Rate (as defined in such loan agreement) from time to time in effect plus 0% to .25% per annum. At October 30, 1997, the weighted average interest rate on such indebtedness was 7.4%. The proceeds from the outstanding indebtedness under the Credit Facility have been used by the Company to fund acquisitions. The repayment of the outstanding indebtedness under the Credit Facility from the proceeds of the Offerings will give the Company additional flexibility to reborrow funds under the Credit Facility for future acquisitions, capital expenditures and general corporate purposes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" for additional information regarding the Credit Facility. DIVIDEND POLICY The Company intends to retain all earnings for the foreseeable future for use in the operation and expansion of its business and, accordingly, the Company currently has no plans to pay dividends on its Common Stock. The payment of any future dividends will be determined by the Board of Directors in light of conditions then existing, including the Company's earnings, financial condition and requirements, restrictions in financing agreements, business conditions and other factors. Under the terms of the Credit Facility, the Company is prohibited from paying dividends on its Common Stock. In addition, under Delaware law, the Company is prohibited from paying any dividends unless it has capital surplus or net profits available for this purpose. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." 12 DILUTION At September 30, 1997, the pro forma net tangible book value (tangible assets less liabilities) of the Company was $18.6 million, or $1.14 per share of Common Stock, after giving effect to all borrowings under the Credit Facility made subsequent to such date and the acquisition of the Initial Acquired Companies. After giving effect to the foregoing and also giving effect to the sale by the Company of shares of Common Stock in the Offerings (assuming an initial public offering price of $ per share, the midpoint of the estimated price range, and after deduction of the estimated underwriting discount and estimated expenses in connection with the Offerings), the pro forma net tangible book value at September 30, 1997 would have been $ million, or approximately $ per share of Common Stock. This represents an immediate increase in pro forma net tangible book value of approximately $ per share to existing stockholders and an immediate dilution of pro forma net tangible book value of $ per share to new investors purchasing shares in the Offerings. Dilution is determined by subtracting pro forma net tangible book value per share of Common Stock after the Offerings from the initial public offering price. The following table illustrates the per share dilution:
PER SHARE --------- Assumed initial public offering price............................ $ Pro forma net tangible book value per share before the Offer- ings............................................................ Increase in net tangible book value per share attributable to purchase of shares by new investors............................. Pro forma net tangible book value after the Offerings............ ---- Dilution to purchasing stockholders.............................. $ ====
The following table summarizes, on a pro forma basis as of the date of this Prospectus, the following information with respect to the existing stockholders of the Company (excluding stockholders who acquired shares as consideration for acquisitions) and the purchasers of the shares offered hereby: (i) the number of shares of Common Stock purchased from the Company, (ii) the total consideration paid for such shares (assuming an initial public offering price of $ per share, the midpoint of the estimated price range), and (iii) the average price per share paid for such shares.
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ------------------ ------------------- PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ----------- ------- --------- Existing stockholders(1)...... 15,947,444 % $52,774,625 % $3.31 Purchasing stockholders....... ---------- --- ----------- --- ----- Total....................... ========== === =========== === =====
- -------- (1) Certain officers of the Company purchased 12,685,714 units consisting of one share of Common Stock and one-half of a Warrant at a price of $3.50 per unit. The Company estimates that the amount attributable to the share of Common Stock included in the unit was $3.25. See "Management--Capital Contributions by Officers and Directors." 13 CAPITALIZATION The following table sets forth (i) the capitalization of the Company as of September 30, 1997, on an historical basis, (ii) such capitalization on a pro forma basis giving effect to the acquisition of each of the Initial Acquired Companies, the financing of each such acquisition, and all issuances of Common Stock after September 30, 1997, and (iii) such pro forma capitalization as adjusted to give effect to the sale of the shares offered hereby at an assumed initial public offering price of $ per share (the midpoint of the estimated range) and the application of a portion of the net proceeds to repay indebtedness as described under "Use of Proceeds." This table should be read in conjunction with the Consolidated Financial Statements and related Notes thereto and the Pro Forma Consolidated Financial Statements and related Notes thereto of the Company included elsewhere in this Prospectus.
AS OF SEPTEMBER 30, 1997 ------------------------------ PRO FORMA ACTUAL PRO FORMA AS ADJUSTED ------- --------- ----------- (IN THOUSANDS) Debt: Credit Facility............................... $ -- $27,433 Convertible debt.............................. -- 300 ------- ------- Total debt.................................. -- 27,733 Stockholders' equity: Preferred Stock, $.01 par value, 5,000,000 shares authorized; no shares issued and out- standing..................................... -- -- Common Stock, $.01 par value, 75,000,000 shares authorized; 15,714,587 shares issued and outstanding, 16,266,156 shares issued and outstanding pro forma, and shares issued and outstanding pro forma as adjusted(1)..... 157 163 Additional paid-in capital...................... 54,815 59,579 Accumulated deficit............................. (273) (273) ------- ------- Total stockholders' equity.................. 54,699 59,469 ------- ------- Total capitalization............................ $54,699 $87,202 ======= =======
- -------- (1) Does not include (i) 6,342,858 shares issuable upon the exercise of outstanding warrants, all of which are currently exercisable at an exercise price of $10.00 per share, (ii) 219,000 shares issuable upon the exercise of outstanding options which provide for a weighted average exercise price of $11.83 per share, (iii) 4,781,000 shares reserved for possible future grants of options under the Company's 1997 Stock Option Plan, and (iv) shares issuable upon conversion of a $300,000 convertible note which provides for a conversion price per share equal to 120% of the initial public offering price per share in the Offerings. Also does not reflect adjustments which may change the number of shares issued as consideration for the acquisition of one of the Initial Acquired Companies. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Consideration Paid for Initial Acquired Companies," "Management--Capital Contributions by Officers and Directors" and "Description of Capital Stock--Warrants, Options and Convertible Notes." 14 SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The following table presents selected historical and pro forma income statement and balance sheet data for the Company. The historical income statement and balance sheet data are derived from the audited Financial Statements of the Company included elsewhere in this Prospectus. The data presented below should be read in conjunction with the Financial Statements and related Notes thereto and the Pro Forma Consolidated Financial Statements and related Notes thereto of the Company included elsewhere in this Prospectus. The following unaudited pro forma income statement data with respect to each of the periods set forth below gives effect to the acquisition of each of the Initial Acquired Companies, the financing of each such acquisition and all issuances of Common Stock after the beginning of the period, as if all such transactions had occurred at the beginning of the period presented. The following unaudited pro forma balance sheet data as of September 30, 1997 gives effect to the acquisition of each of the Initial Acquired Companies, the financing of each such acquisition, and all issuances of Common Stock after September 30, 1997, as if all such transactions had occurred on such date. The unaudited pro forma income statement data is not necessarily indicative of the actual results of operations that would have occurred had the foregoing transactions occurred at the beginning of the respective periods presented or of the results that may occur in the future. The following unaudited pro forma as adjusted balance sheet data gives effect to the foregoing and to completion of the Offerings at an assumed initial public offering price of $ per share (the midpoint of the estimated range) and the application of a portion of the estimated net proceeds therefrom to repay outstanding indebtedness under the Credit Facility. See "Use of Proceeds" and "Capitalization."
HISTORICAL PRO FORMA ------------------- ------------------------------------ PERIOD FROM AUGUST 14, 1997 NINE MONTHS (INCEPTION) THROUGH YEAR ENDED ENDED SEPTEMBER 30, 1997 DECEMBER 31, 1996 SEPTEMBER 30, 1997 ------------------- ----------------- ------------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Total revenues.......... $ -- $51,889 $42,095 Total cost of opera- tions.................. -- 32,444 26,885 ------- ------- ------- Gross profit............ -- 19,445 15,210 Selling, general and ad- ministrative expense... 348 10,854 8,634 Non-rental depreciation and amortization....... -- 1,336 1,034 ------- ------- ------- Operating income (loss)................. (348) 7,255 5,542 Interest expense........ -- 1,719 1,328 Other (income) expense.. (75) (317) (482) ------- ------- ------- Income (loss) before in- come taxes............. (273) 5,853 4,696 Income taxes............ -- 2,341 1,976 ------- ------- ------- Net income (loss)....... $ (273) $ 3,512 $ 2,720 ======= ======= ======= Earnings (loss) per share.................. $ $ 0.22 $ 0.17 ======= ======= ======= Cash dividends on Common Stock.................. -- -- -- AS OF SEPTEMBER 30, 1997 -------------------------------------------------------- PRO FORMA HISTORICAL PRO FORMA AS ADJUSTED ------------------- ----------------- ------------------ (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equiva- lents.................. $54,638 $ 50 Rental equipment, net... -- 37,117 Total assets............ 54,851 93,107 Debt.................... -- 27,733 Stockholders' equity.... 54,699 59,469
15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Financial Statements and related Notes thereto, the unaudited Pro Forma Consolidated Financial Statements and related Notes thereto and the "Selected Historical and Pro Forma Consolidated Financial Information" of the Company included elsewhere in this Prospectus. INTRODUCTION The Company was organized in August 1997, initially capitalized in September 1997, and commenced rental operations in October 1997 by acquiring the six Initial Acquired Companies. These acquisitions were all accounted for as purchases and, accordingly, the results of operations of the Initial Acquired Companies will be included in the Company's financial statements from the respective dates of acquisition. The Company's historical financial statements included herein cover the period from August 14, 1997 (inception) through September 30, 1997 and do not reflect any rental operations (which commenced in October 1997). The Company had a net loss during this period of $273,000 reflecting the fact that, while the Company had no revenues during this period, the Company incurred expenses in connection with the Company's organization, search for acquisition candidates and development of the management team and infrastructure required to support its growth strategy and manage the expanded operations that the Company is seeking to build. Although the Company's results of operations for the fourth quarter of 1997 will reflect the results of the Initial Acquired Companies, the Company may also report a net loss for this quarter, reflecting the fact that (i) the Company in the fourth quarter of 1997 continues to incur substantial expenses for the foregoing purposes and (ii) the results of the Initial Acquired Companies will only be included in the Company's results for a portion of the fourth quarter since the acquisitions closed after the beginning of the quarter. GENERAL The Initial Acquired Companies primarily derived revenues from the following sources: (i) equipment rental (including additional fees that may be charged for equipment delivery, fuel, repair of rental equipment, and damage waivers), (ii) the sale of used rental equipment, (iii) the sale of new equipment, and (iv) the sale of related merchandise and parts. Rental revenues accounted for 68.8% and 66.4% of the Company's pro forma revenues during 1996 and the first nine months of 1997, respectively. Cost of operations consist primarily of depreciation costs associated with rental equipment, the cost of repairing and maintaining rental equipment, the cost of used and new equipment sold, personnel costs, occupancy costs, supplies, and expenses related to information systems. The Company records rental equipment expenditures at cost and depreciates equipment using the straight-line method over the estimated useful life (which ranges from 4 to 6 years), after giving effect to a 10% estimated salvage value. Selling, general and administrative expense includes advertising and marketing expenses, management salaries, and clerical and administrative overhead. Depreciation and amortization, excluding rental equipment, includes (i) depreciation expense associated with equipment that is not offered for rent (such as vehicles, computers and office equipment) and depreciation expense associated with leasehold improvements and (ii) the amortization of intangible assets. The Company's intangible assets include goodwill, which represents the excess of the purchase price of acquired companies over the estimated fair market value of the assets acquired. CONSIDERATION PAID FOR INITIAL ACQUIRED COMPANIES The aggregate consideration paid by the Company for the Initial Acquired Companies consisted of approximately $56.6 million in cash, 318,712 shares of Common Stock (the "Stock Consideration") and a 16 $300,000 convertible note. In addition, the Company agreed to pay the former owners of one of the Initial Acquired Companies a percentage of such company's future revenues until an aggregate of $2.8 million has been paid. Following completion of the Offerings, the Stock Consideration will be valued based upon the average daily closing price of the Common Stock during the 60-day period immediately following completion of the Offerings. If the Stock Consideration as so valued is not equal to $3.25 million, the Stock Consideration will be adjusted (by the Company issuing additional shares or by the holders returning to the Company a portion of the Stock Consideration) as required to make the Stock Consideration as so valued equal to $3.25 million. Additionally, the Company repaid all of the outstanding indebtedness of the Initial Acquired Companies in the aggregate amount of $33.9 million. PRO FORMA RESULTS OF OPERATIONS The Pro Forma Consolidated Financial Statements included herein with respect to a specified period give effect to the acquisition of each of the Initial Acquired Companies, the financing of each such acquisition, and all issuances of Common Stock after the beginning of such period, as if all such transactions had occurred at the beginning of the period (as more fully described in Note 4 to the Pro Forma Consolidated Financial Statements). Such pro forma financial statements, however, do not reflect (i) potential cost savings, synergies and efficiencies that may be achieved through the integration of the businesses and operations of the Initial Acquired Companies, (ii) the expenses that the Company may incur as it seeks to increase internal growth at the Initial Acquired Companies, including expenditures required in order to expand and modernize rental equipment, increase sales and marketing efforts, and expand and diversify the customer segments served, and (iii) the compensation expense relating to the Company's senior management which began accruing in September 1997. The results reflected in such pro forma financial statements are not necessarily indicative of the actual results of operations that would have occurred had the acquisitions of the Initial Acquired Companies occurred at the beginning of the respective periods presented or of future results. Revenues. Total pro forma revenues were $51.9 million and $42.1 million for the year ended December 31, 1996 and for the nine months ended September 30, 1997, respectively. Equipment rental revenues were 68.8% and 66.4% of pro forma revenues for the year ended December 31, 1996 and for the nine months ended September 30, 1997, respectively. The decrease in rental revenues as a percentage of total revenues in 1997 compared with 1996 was primarily attributable to increased sales of used rental equipment during 1997 at certain of the Initial Acquired Companies. Gross Profit. Pro forma gross profit was $19.4 million and $15.2 million for the year ended December 31, 1996 and for the nine months ended September 30, 1997, respectively. Pro forma gross profit as a percentage of revenues was 37.5% for the year ended December 31, 1996 and 36.1% for the nine months ended September 30, 1997. The decrease in pro forma gross profit as a percentage of revenues in 1997 compared with 1996 reflected a decrease in the pro forma gross margin on sales of equipment and merchandise and other revenues, partially offset by an increase in the pro forma gross margin on equipment rental. Selling, General and Administrative Expense. Pro forma selling, general and administrative expense ("SG&A") was $10.9 million for the year ended December 31, 1996 and $8.6 million for the nine months ended September 30, 1997. SG&A as a percentage of revenues was 20.9% for the year ended December 31, 1996 and 20.5% for the nine months ended September 30, 1997. Non-rental Depreciation and Amortization. Pro forma non-rental depreciation and amortization was $1.3 million and $1.0 million for the year ended December 31, 1996 and for the nine months ended September 30, 1997, respectively. Pro forma non-rental depreciation and amortization as a percentage of revenues was 2.6% for the year ended December 31, 1996 and was 2.5% for the nine months ended September 30, 1997. Interest Expense. Pro forma interest expense was $1.7 million and $1.3 million for the year ended December 31, 1996 and for the nine months ended September 30, 1997, respectively. Pro forma interest expense for both periods is a result of borrowings under the Company's Credit Facility to fund a portion of the purchase price of the Initial Acquired Companies. 17 Income Taxes. Pro forma income taxes was computed for the year ended December 31, 1996 and for the nine months ended September 30, 1997 using an estimated rate of 40%. LIQUIDITY AND CAPITAL RESOURCES The Company has funded its cash requirements to date from (i) the sale of Common Stock and Warrants to the officers and directors of the Company for an aggregate of $44.95 million, (ii) the sale of Common Stock in a private placement in September 1997 for an aggregate of $10.6 million, and (iii) borrowings under the Company's Credit Facility. The Company's Credit Facility with a group of financial institutions, for which Bank of America National Trust and Savings Association acts as agent, enables the Company to borrow up to $55 million on a revolving basis. The facility terminates on October 8, 2000, at which time all outstanding indebtedness is due. Up to $10 million of the Credit Facility is available in the form of letters of credit. Borrowings under the Credit Facility accrue interest, at the Company's option, at either (a) the Floating Rate (which is equal to the greater of (i) the Federal Funds Rate plus 0.5% and (ii) Bank of America's reference rate, in each case, plus a margin ranging from 0% to 0.25% per annum) or (b) the Eurodollar Rate (which is equal to Bank of America's reserve adjusted eurodollar rate plus a margin ranging from 1.5% to 2.5% per annum). As of October 28, 1997, there was $35 million of outstanding indebtedness under the Credit Facility. The Company plans to repay such indebtedness from the net proceeds of the Offerings. The Company will be able to reborrow the amounts so repaid. The Credit Facility contains certain covenants that require the Company to, among other things, satisfy certain financial tests relating to: (a) maintenance of minimum net worth, (b) the ratio of debt to net worth, (c) interest coverage ratio, (d) the ratio of funded debt to cash flow, and (e) the ratio of senior debt to tangible assets. The Credit Facility also contains certain covenants that restrict the Company's ability to, among other things, (i) incur additional indebtedness, (ii) permit liens to attach to its assets, (iii) enter into operating leases requiring payments in excess of specified amounts, (iv) declare or pay dividends or make other restricted payments with respect to its equity securities (including the Common Stock) or subordinated debt, (v) sell assets, (vi) make acquisitions unless certain financial conditions are satisfied, and (vii) engage in any line of business other than the equipment rental industry. The Credit Facility provides that the failure by any two of Messrs. Jacobs, Milne, Nolan and Miner to continue to hold executive positions with the Company for a period of 30 consecutive days constitutes an event of default under the Credit Facility unless replacement officers satisfactory to the lenders are appointed. The Credit Facility is also subject to other customary events of default. The Credit Facility is secured by substantially all of the assets of United Rentals, Inc. and by the stock and assets of its subsidiaries. The Company expects that following completion of the Offerings its principal sources of cash will be borrowings under the Credit Facility, the portion of the net proceeds of the Offerings (approximately $ million) that will not be used for repayment of outstanding indebtedness under the Credit Facility, and cash generated from operations. The Company estimates that such sources will be sufficient to fund the cash required for the Company's existing operations (not including new acquisitions or start-up locations that are not currently under development, which may require additional financing as discussed below) for at least 12 months following completion of the Offerings. The Company expects that following the Offerings its principal needs for cash relating to its operations will be to fund (i) operating activities and working capital, (ii) the purchase of equipment on an ongoing basis to maintain the quality and competitiveness of its existing rental equipment, (iii) the purchase of equipment required to expand and modernize the rental equipment at certain locations, (iv) the purchase of equipment and other items required to maintain sufficient inventory of the new equipment and related merchandise and parts that the Company offers for sale, and (v) the installation of an integrated information technology system. 18 The Company estimates that equipment expenditures for its existing locations will be in the range of $10 million to $15 million over the next 12 months. In addition, the Company expects that it will be required to make equipment expenditures in connection with new acquisitions. The Company cannot quantify at this time the amount of such equipment expenditures. Principal elements of the Company's strategy include expansion through a disciplined acquisition program and the opening of new rental locations. The Company expects to pay for future acquisitions using cash, capital stock, notes and/or assumption of indebtedness. The Company expects that cash required for future acquisitions and start-up locations will be provided by a combination of borrowings under the Credit Facility, the unused net proceeds of the Offerings, cash generated from operations, and future debt or equity financings. There can be no assurance that any such future debt or equity financings will be available or, if available, will be on terms satisfactory to the Company. The Company is in the process of developing two start-up locations. See "Business--Start-up Locations." The Company estimates that the aggregate costs associated with such start-up locations will be in the range of $2 million to $4 million. The Company believes that its existing sources of cash and borrowings under the Credit Facility will be sufficient to fund these costs without additional debt or equity financings. FLUCTUATIONS IN OPERATING RESULTS The Company expects that its revenues and operating results may fluctuate from quarter to quarter due to a number of factors, including: seasonal rental patterns of the Company's customers (with rental activity tending to be lower in the winter); changes in general economic conditions in the Company's markets; the timing of acquisitions and the opening of start-up locations and related costs; the effect of the integration of acquired businesses and start- up locations; the timing of expenditures for new equipment and the disposition of used equipment; and price changes in response to competitive factors. The Company is continually involved in the investigation and evaluation of potential acquisitions. In accordance with generally accepted accounting principles, the Company capitalizes certain direct out-of-pocket expenditures (such as legal and accounting fees) relating to potential or pending acquisitions. Indirect acquisition costs, such as executive salaries, general corporate overhead, public affairs and other corporate services, are expensed as incurred. The Company's policy is to charge against earnings any capitalized expenditures relating to any potential or pending acquisition that the Company determines will not be consummated. There can be no assurance that the Company in future periods will not be required to incur a charge against earnings in accordance with such policy, which charge, depending upon the magnitude thereof, could adversely affect the Company's results of operations. The Company will be required to incur significant start-up expenses in connection with establishing each start-up location. Such expenses may include, among others, pre-opening expenses related to setting up the facility, training employees, installing information systems and marketing. The Company expects that in general start-up locations will initially operate at a loss or at less than normalized profit levels. Consequently, the opening of a start-up location may negatively impact the Company's margins until the location achieves normalized profitability. There may be a lag between the time that the Company purchases new equipment and begins to incur the related depreciation and interest expenses and the time that the equipment begins to generate revenues at normalized rates. As a result, the purchase of new equipment, particularly equipment purchased in connection with expanding and diversifying the Company's rental equipment, may periodically reduce margins. GENERAL ECONOMIC CONDITIONS AND INFLATION The Company's operating results may be adversely affected by (i) changes in general economic conditions, including national, regional and local changes in construction and industrial activity, (ii) increases in interest rates that may result in a higher cost of funds to the Company, or (iii) adverse weather conditions that may decrease construction and other industrial activity. Although the Company cannot accurately anticipate the effect of inflation on its operations, the Company believes that inflation has not had, and is not likely in the foreseeable future to have, a material impact on its results of operations. 19 BUSINESS United Rentals was formed in September 1997 for the purpose of creating a large geographically diversified equipment rental company and commenced rental operations in October 1997 by acquiring six established equipment rental companies. The Company rents a broad array of equipment to a diverse customer base that includes construction industry participants, industrial companies, homeowners and other individuals. The Company also engages in related activities such as selling used rental equipment, acting as a distributor for certain new equipment, and selling related merchandise and parts. The Company had pro forma revenues of $51.9 million during 1996 and $42.1 million during the first nine months of 1997. The Company's growth strategy is to expand through a disciplined acquisition program, the opening of new rental locations and internal growth and to further diversify its equipment categories and customer markets. The Company believes that as it expands it should gain competitive advantages relative to smaller operators, including greater purchasing power, a lower cost of capital, the ability to provide customers with a broader range of equipment and services and with newer and better maintained equipment, and greater flexibility to transfer equipment among locations in response to customer demand. United Rentals currently operates 12 rental locations in five states: California (6), Colorado (1), North Carolina (3), Texas (1), and Utah (1). The Company's locations are managed by experienced professionals who have been involved in the equipment rental industry an average of 24 years and have substantial knowledge of the local markets served. These managers are former owners/employees of the businesses acquired by the Company. The types of rental equipment offered by the Company include a broad range of light to heavy construction and industrial equipment (such as pumps, generators, forklifts, backhoes, cranes, bulldozers, aerial lifts and compressors), general tools and equipment (such as hand tools and garden and landscaping equipment) and party/special event equipment (such as tents, tables and chairs). The equipment mix varies at each of the Company's locations, with some locations offering a general mix and some specializing in specific equipment categories. As of October 28, 1997, the Company's rental equipment included over 12,000 units (excluding party/special event equipment) and had an original purchase price of approximately $62.5 million and a weighted average age (based on original purchase price) of approximately four years. INDUSTRY OVERVIEW The domestic equipment rental industry generates annual revenues in excess of $20 billion and has grown at a compound annual rate in excess of 20% since 1990. The Company believes that this growth reflects the following trends: Recognition of Advantages of Renting. There is increasing recognition of the many advantages that equipment rental may offer compared with ownership, including the ability to: (i) avoid the large capital investment required for equipment purchases, (ii) reduce storage and maintenance costs, (iii) supplement owned equipment thereby increasing the range and number of jobs that can be worked on, (iv) access a broad selection of equipment and select the equipment best suited for each particular job, (v) obtain equipment as needed and minimize the costs associated with idle equipment, and (vi) access the latest technology without investing in new equipment. Increase in Contractor Rentals. There has been a fundamental shift in the way contractors meet their equipment needs. While contractors have historically used rental equipment on a temporary basis--to provide for peak period capacity, meet specific job requirements or replace broken equipment-- many contractors are now also using rental equipment on an ongoing basis to meet their long-term equipment requirements. A survey of contractors conducted in September 1996 found that on average the percentage of contractor fleets that was rented increased to 15% at the time of the survey from 7% in 1994. Outsourcing Trend. The general trend toward the corporate outsourcing of non-core competencies is leading large industrial companies increasingly to rent, rather than purchase, equipment that they require for repairing, maintaining and upgrading their facilities. 20 The equipment rental industry is highly fragmented, consisting of a small number of multi-location regional or national operators and a large number of relatively small, independent businesses serving discrete local markets. The fragmented nature of the industry is reflected in the following data: (i) there are only five equipment rental companies that had 1996 equipment rental revenues in excess of $100 million (with the largest company having 1996 equipment rental revenues of approximately $400 million), (ii) the largest 100 equipment rental companies combined have less than a 20% share of the market based on 1996 equipment rental revenues (with the largest company having less than a 3% market share), and (iii) there are approximately 100 equipment rental companies that had 1996 equipment rental revenues between $5 million and $100 million. In addition, the Company estimates that there are more than 20,000 companies with annual equipment rental revenues of less than $5 million. The Company believes that the fragmented nature of the industry presents substantial consolidation and growth opportunities for companies with access to capital and the ability to implement a disciplined acquisition program. The Company also believes that the extensive experience of its management team in acquiring and effectively integrating acquisition targets should enable the Company to capitalize on these opportunities. STRATEGY The Company's objective is to expand its operations and build a large geographically diversified equipment rental company in the United States and Canada. The Company believes that as it expands it should gain competitive advantages relative to smaller operators, including greater purchasing power, a lower cost of capital, the ability to provide customers with a broader range of equipment and services and with newer and better maintained equipment, and greater flexibility to transfer equipment among locations in response to customer demand. The Company's plan for achieving this objective includes the following key elements: Execute Disciplined Acquisition Program. The Company intends to expand through a disciplined acquisition program. The Company will seek to acquire companies of varying size, including relatively large companies to serve as platforms for regional development and smaller companies to complement existing or anticipated locations. In evaluating potential acquisition targets, the Company considers a number of factors, including the quality of the target's rental equipment and management, the opportunities to improve operating margins and increase internal growth at the target, the economic prospects of the region in which the target is located, the potential for additional acquisitions in the region, and the competitive landscape in the target's markets. Improve Operating Margins. The Company plans to focus significant efforts on improving operating margins at acquired companies through the efficient integration of new and existing operations, the elimination of duplicative costs, reduction in overhead, and centralization of functions such as purchasing and information technology. Increase Internal Growth. The Company believes that a lack of capital has constrained expansion and modernization at many small and mid-sized equipment rental companies and that as a result there is significant potential to increase internal growth at many acquired companies through capital investment. The Company will seek to increase internal growth by investing in additional and more modern equipment, using advanced information technology systems to improve asset utilization and tracking, increasing sales and marketing efforts, expanding and diversifying the customer segments served, expanding the geographic areas served, and opening complementary locations. Open New Rental Locations. The Company also intends to grow by selectively opening new rental locations in attractive markets where there are no suitable acquisition targets available or where the cost of a start-up location would be less than the cost of acquiring an existing business. Diversify Locations, Equipment Categories and Customers. The Company plans to diversify geographically and to focus on a broad range of equipment categories and customer markets within the equipment rental industry. The Company believes that this will allow it to participate in the overall growth of the equipment rental 21 industry and reduce the Company's sensitivity to fluctuations in regional eco- nomic conditions or changes that affect particular market segments. In order to achieve this diversification, the Company will consider expansion opportu- nities in the United States and Canada and will pursue acquisition candidates with varying equipment mixes and customer specializations. ACQUISITIONS The Company believes that there will continue to be a large number of attractive acquisition opportunities in the equipment rental industry due to the highly fragmented nature of the industry, the inability of many small and mid-sized equipment rental companies to expand and modernize due to capital constraints, and the desire of many long-time owners for liquidity. The Company has an experienced acquisition team, comprised of senior level executives with extensive acquisition, operating and financial experience, that is engaged in identifying and evaluating acquisition candidates and executing the Company's acquisition program. The Company estimates that, since the formation of the Company in September 1997, it has preliminarily reviewed more than 50 potential acquisition candidates and has conducted preliminary market studies or initiated due diligence on more than 20 of these candidates. The table below provides certain information concerning the six acquisitions completed by the Company to date:
YEARS IN 1996 COMPANY RENTAL SITES BUSINESS REVENUES - ------- ----------------------- -------- ------------- A&A Tool Rentals and Sales, Modesto, CA 34 $11.7 million Inc. Stockton, CA Coran Enterprises, Inc. (dba A- Monterey, CA 32 $ 8.4 million 1 Rents) Salinas, CA and Monterey Bay Equipment San Jose, CA (2 sites) Rental, Inc. Bronco Hi-Lift, Inc. Denver, CO 15 $ 5.5 million Mercer Equipment Company Charlotte, NC (2 sites) 8 $14.5 million Greensboro, NC J&J Rental Services, Inc. Houston, TX 18 $ 9.0 million Rent-It Center, Inc. Salt Lake City, UT 44 $ 2.8 million
The aggregate consideration paid by the Company for the Initial Acquired Companies consisted of approximately $56.6 million in cash, the Stock Consideration (see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Consideration Paid for Initial Acquired Companies") and a $300,000 convertible note. In addition, the Company agreed to pay the former owners of one of the Initial Acquired Companies a percentage of such company's future revenues until an aggregate of $2.8 million has been paid. The Company also repaid all of the outstanding indebtedness of the Initial Acquired Companies in the aggregate amount of $33.9 million. The Company is continually investigating and evaluating potential acquisitions. However, the Company at present is not party to any definitive agreements relating to future acquisitions. START-UP LOCATIONS The Company is in the process of developing two start-up locations (one in Austin, Texas and one in Houston, Texas). These projects were commenced by one of the Initial Acquired Companies prior to being 22 acquired by the Company and are being continued by the Company. The location in Austin, Texas is scheduled to open in the first quarter of 1998. The company is in the process of performing preliminary market studies relating to the location in Houston, Texas. OPERATIONS The Company currently operates 12 rental locations in five states: California (6), Colorado (1), North Carolina (3), Texas (1), and Utah (1). The Company offers for rent a broad array of equipment including light to heavy construction and industrial equipment, general tools and equipment, and party/special event equipment. The Company also engages in related activities such as selling used rental equipment, acting as a distributor for certain new equipment, and selling related merchandise and parts. The Company's customer base is diverse and includes construction industry participants, industrial companies, and homeowners and other individuals. EQUIPMENT RENTAL The Company offers for rent a broad array of equipment on a daily, weekly, monthly and multi-month basis. The following are examples of the types of equipment that the Company rents: Construction and Industrial: aerial lifts, air compressors, backhoes, boom lifts, bulldozers, cranes, ditching equipment, forklifts, generators, high reach equipment, pumps, scissor lifts, tractors. General Tools and Equipment: garden and landscaping equipment, hand tools, high-pressure washers, paint sprayers, power tools, roto tillers. Party/Special Event: barbecue grills, china and flatware, fountains, lighting, staging and dance floors, tables and chairs, tents and canopies. As of October 29, 1997, the Company's rental equipment included over 12,000 units (excluding party/special event equipment) and had an original purchase price of approximately $62.5 million and a weighted average age (based on original purchase price) of approximately four years. The Company estimates that (based on original purchase price) construction and industrial equipment represents approximately 83% of the Company's rental equipment, general tools and equipment represents approximately 16%, and party/special event equipment represents approximately 1%. The Company also estimates that four categories of construction and industrial equipment (aerial lifts, boom lifts, scissor lifts and high reach equipment) represent approximately 19% of the Company's rental equipment. The equipment mix varies at each of the Company's locations, with some locations offering a general mix and some specializing in specific equipment categories. The Company expects that as it integrates the Initial Acquired Companies it will further expand and modernize its rental equipment and expand and diversify the customer markets served by certain locations. RELATED OPERATIONS In addition to renting equipment, the Company is engaged in a variety of related or complementary activities. Sales of Used Equipment. The Company routinely sells used rental equipment to adjust the size, age and composition of its rental fleet. The Company sells such equipment through a variety of means including sales to the Company's existing rental customers and local customer base, sales to used equipment dealers, and sales through public auctions. The Company also participates in trade-in programs in connection with purchasing new equipment. Sales of New Equipment. The Company, at several locations, is a distributor for various tool and equipment manufacturers, including American Honda Motor Co. Inc. (generators and pumps), Edco Manufacturing (surfacing equipment), Genie Industries, Inc. (aerial lifts), Grove Worldwide (aerial platforms), 23 Multiquip, Inc. (compaction equipment and compressors), Milwaukee Electric Tool Corporation (power tools), Trak International (loaders and forklifts) and Stihl, Inc. (surface preparation equipment). Sales of Related Merchandise and Parts. The Company, at most locations, sells a variety of merchandise that may be used in conjunction with rental equipment (such as saw blades, fasteners, drill bits, hard hats, gloves and other safety equipment) and also sells parts. Other. The Company at certain locations offers equipment maintenance services to customers for equipment that is owned by the customer. This service is primarily provided with respect to equipment purchased from the Company. CUSTOMERS AND SALES AND MARKETING The Company on a pro forma basis rented equipment to over 31,000 customers in 1996 and over 29,000 customers in the first nine months of 1997. No single customer accounted for more than 5% of the Company's revenues in 1996 or more than 3% of its revenues in the first nine months of 1997, and the Company's top 10 customers accounted for less than 19% of the Company's revenues in 1996 and less than 16% of its revenues in the first nine months of 1997. The composition of the Company's customer base varies widely by location and is determined by several factors, including the equipment mix and marketing focus of the particular location and the business composition of the local economy. The Company's customer base consists of the following general categories: (i) construction industry participants (such as construction companies, contractors and subcontractors), (ii) industrial companies (such as manufacturers, chemical companies, paper mills and utilities), and (iii) homeowners and other individuals. The Company estimates that (a) sales to construction industry participants accounted for approximately 73% of the Company's revenues in 1996 and in the first nine months of 1997, (b) sales to industrial companies accounted for approximately 22% of the Company's revenues in 1996 and in the first nine months of 1997, and (c) sales to homeowners and others accounted for approximately 5% of the Company's revenues in 1996 and in the first nine months of 1997. The Company markets its products and services through a sales force consisting of approximately 30 store-based salespeople and 37 field-based salespeople. The Company supplements the activities of its sales force through participation in industry trade shows and conferences, direct mailings, and advertising in local industry publications and the yellow pages in the markets it serves. PURCHASING The Company is in the process of centralizing the purchase of certain equipment items, particularly large items with a significant cost and items that are purchased in volume. The Company believes that such centralization will give it greater purchasing power with its suppliers and enable it to obtain discounts. INFORMATION TECHNOLOGY SYSTEMS The Company will require integrated information technology systems in order to effectively integrate, manage and optimize its operations as it continues to execute its growth strategy. The Company is in the process of selecting and implementing the required systems and plans to complete the process following completion of the Offerings. The Company expects that these systems will be used for a variety of purposes, including controlling inventory, monitoring equipment utilization, tracking customer patterns and preferences, and managing receivables. Until these new systems are operational, each acquired business will continue using the systems that it had in place at the time it was acquired. 24 COMPETITION The equipment rental industry is highly fragmented and competitive. The Company's competitors include: public companies or divisions of public companies (such as Hertz Equipment Rental Corporation, Prime Service, Inc., U.S. Rentals, Inc. and Rental Service Corporation); regional competitors which operate in one or more states; small, independent businesses with one or two rental locations; and equipment vendors and dealers who both sell and rent equipment directly to customers. The Company believes that in general large companies enjoy significant competitive advantages compared to smaller operators, including greater purchasing power, a lower cost of capital, the ability to provide customers with a broader range of equipment and services and with newer and better maintained equipment, and greater flexibility to transfer equipment among locations in response to customer demand. Certain of the Company's competitors are larger and have greater financial resources than the Company. PROPERTIES The Company currently operates 12 rental locations. These locations generally include facilities for displaying equipment and, depending on the location, may include separate equipment service areas and storage areas. The Company leases the land and buildings comprising its rental locations under leases that provide for initial terms expiring in 1999 through 2007 and for renewal options of either five or ten years. These leases were entered into in connection with the acquisitions of the Initial Acquired Companies and most of the lessors are the former owners of these companies. The Company believes that its leases reflect market terms. The Company maintains a fleet of vehicles that is used for delivery, maintenance and sales functions. A portion of this fleet is owned and a portion leased and, as of October 28, 1997, this fleet included 167 vehicles. The Company's corporate headquarters are located in Greenwich, Connecticut, where it leases approximately 15,000 square feet under a lease that extends until 2001 (subject to extension rights). ENVIRONMENTAL REGULATION The Company uses hazardous materials, such as solvents, to clean and maintain its rental equipment and generates and disposes of wastes such as used motor oil, radiator fluid, solvents and batteries. In addition, the Company currently dispenses, or may in the future dispense, petroleum products from underground and above-ground storage tanks located at certain rental locations. These and other activities of the Company are subject to various federal, state and local laws and regulations governing 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, among other things, (i) 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, and (ii) environmental contamination at facilities where its waste is or has been disposed. 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. Although the Company investigates each business or property that it acquires or leases, there can be no assurance that acquired or leased locations have been operated in compliance with environmental laws and regulations, that historic or current operations have not resulted in conditions that will require investigation and/or remediation under environmental laws, or that future uses or conditions will not result in the imposition of environmental liability upon the Company or expose the Company to third-party actions such as tort suits. Furthermore, there can be no assurance that changes in environmental regulations in the future will not require the Company to make significant capital expenditures to change methods of disposal of hazardous materials or otherwise alter aspects of its operations. EMPLOYEES At October 27, 1997, the Company employed 402 persons, including 58 corporate and regional management employees, 277 operational employees and 67 sales people. Of these employees, 117 are salaried personnel and 25 285 are hourly personnel. None of the Company's workforce is represented by a union or a collective bargaining agreement. The Company considers its labor relations to be good. LEGAL PROCEEDINGS The Company and its subsidiaries are parties to various litigation matters, in most cases involving ordinary and routine claims incidental to the business of the Company. The ultimate legal and financial liability of the Company with respect to such pending litigation cannot be estimated with certainty but the Company believes, based on its examination of such matters, that such ultimate liability will not have a material adverse effect on the business or financial condition of the Company. 26 MANAGEMENT BACKGROUND The Company was founded in September 1997 by the following officers of the Company: Bradley Jacobs, John Milne, Michael Nolan, Robert Miner, Sandra Welwood, Joseph Kondrup, Jr., Kai Nyby and Richard Volonino. Each of these officers was formerly a senior executive of United Waste Systems, Inc. ("United Waste") or a senior member of United Waste's acquisition team. United Waste, a solid waste management company, was formed in 1989 and sold in August 1997 to USA Waste Services, Inc. for stock consideration valued at over $2.2 billion. United Waste executed a growth strategy that combined a disciplined acquisition program (including over 200 acquisitions completed from January 1995 through August 1997), the integration and optimization of acquired facilities, and internal growth. At the time it was sold, United Waste was the sixth largest provider of integrated, non-hazardous solid waste management services in the United States, as measured by 1996 revenues. OFFICERS, DIRECTORS AND KEY MANAGERS The following table identifies, and provides certain information concerning, the officers, directors and certain key managers of the Company:
NAME AGE POSITIONS(1)(2) ---- --- --------------- OFFICERS AND DIRECTORS Bradley S. Jacobs....... 41 Chairman, Chief Executive Officer and Director John N. Milne........... 38 Vice Chairman, Chief Acquisition Officer, Secretary and Director Michael J. Nolan........ 36 Chief Financial Officer Robert P. Miner......... 48 Vice President, Finance Sandra E. Welwood....... 42 Vice President, Corporate Controller Kurtis T. Barker........ 37 Regional Vice President, Operations Daniel E. Imig.......... 51 Regional Vice President, Operations Joseph J. Kondrup, Jr... 39 Vice President, Acquisitions Kai E. Nyby............. 44 Vice President, Acquisitions Richard A. Volonino..... 54 Vice President, Acquisitions Ronald M. DeFeo......... 44 Director Richard J. Heckmann..... 53 Director KEY MANAGERS Joseph E. Bloodworth.... 45 Regional Manager Joseph E. Doran......... 57 Regional Manager William M. Rigsbee...... 41 Regional Manager
- -------- (1) Each person named in the table has served in the position(s) indicated since either September 1997 (in the case of the eight founders) or October 1997 (in the case of all others). The Company's officers are elected by the Board of Directors and, subject to the employment agreements described below, serve at the discretion of the Board. (2) For information concerning the term served by directors, see "-- Classification of Board of Directors." Bradley S. Jacobs founded United Waste Systems, Inc. in 1989 and served as its Chairman and Chief Executive Officer from inception until the sale of the company in August 1997. From 1984 to July 1989, Mr. Jacobs was Chairman and Chief Operating Officer of Hamilton Resources Ltd., an international trading company, and from 1979 to 1983, he was Chief Executive Officer of Amerex Oil Associates, Inc., an oil brokerage firm that he co-founded. 27 John N. Milne was Vice Chairman and Chief Acquisition Officer of United Waste Systems, Inc. from 1993 until August 1997 and held other senior executive positions at United Waste from 1990 until 1993. Mr. Milne had primary responsibility for implementing United Waste's acquisition program. From September 1987 to March 1990, Mr. Milne was employed in the Corporate Finance Department of Drexel Burnham Lambert Incorporated. Michael J. Nolan served as the Chief Financial Officer of United Waste Systems, Inc. from February 1994 until August 1997. He served in other finance positions at United Waste from November 1991 until February 1994, including Vice President, Finance, from October 1992 to February 1994. From 1985 until November 1991, Mr. Nolan held various positions at the accounting firm of Ernst & Young, including senior audit manager, and is a Certified Public Accountant. Robert P. Miner was an executive officer of United Waste Systems, Inc. from November 1994 until August 1997, serving first as Vice President, Finance and then Vice President, Acquisitions. Prior to joining United Waste, he was a research analyst with PaineWebber Incorporated (November 1988 to October 1994) and Needham & Co. (January 1987 to October 1988) and held various managerial positions at General Electric Environmental Services, Inc., Stauffer Chemical Company, and OHM Corporation. Sandra E. Welwood served as Vice President, Controller of United Waste Systems, Inc. from March 1996 until August 1997. From October 1994 to February 1996, she was Assistant Controller of OSi Specialty, Inc., and from October 1993 to September 1994, was Director of Internal Audit of the Gartner Group, Inc. Prior to this, Ms. Welwood was a senior audit manager at Ernst & Young from September 1987 to September 1993, and held various positions (including senior audit manager) at KPMG Peat Marwick from January 1980 to August 1987, and is a Certified Public Accountant. Kurtis T. Barker served as Vice President-Operations-Great Lakes Region of United Waste Systems, Inc. from 1993 until August 1997. From 1991 to 1993, he was a landfill operations manager at Chambers Development Company, Inc. From 1990 to 1991, Mr. Barker was a project engineer at South Dakota Disposal Systems. From 1986 to 1990, he was a project engineer and then a general manager at Silver King Mines, Inc. Daniel E. Imig served as President-Mid-Central Region of Waste Management, Inc. from 1996 to August 1997. From 1978 to 1996, Mr. Imig served in a number of operating positions at Waste Management, Inc., including District Manager and Division President. Joseph J. Kondrup, Jr. was a senior member of United Waste's acquisition team from March 1996 until August 1997, with responsibility for the company's entry into and subsequent development of its Rocky Mountain Region. From July 1987 until March 1996, he was Division President of a subsidiary of Waste Management, Inc. Kai E. Nyby was a senior member of United Waste's acquisition team from 1995 until August 1997, with responsibility for acquisitions and business development in the company's Midwest Region. From 1981 to 1995, Mr. Nyby was the Regional Manager, Midwest Group for Waste Management, Inc. From 1973 to 1980, Mr. Nyby was General Manager, Operations for a subsidiary of Waste Management, Inc. Richard A. Volonino was a senior executive officer of United Waste from November 1991 until August 1997, serving as Chief Operating Officer from 1991 to 1992 and thereafter as Executive Vice President--Acquisitions. From May 1988 to October 1991, Mr. Volonino held various positions, including Vice President, Operations, with Chambers Development Company, Inc., and from 1986 to December 1987, was District Manager at Laidlaw, Inc. Ronald M. DeFeo is the Chief Executive Officer, President, Chief Operating Officer and a director of Terex Corporation, a leading global provider of equipment for the manufacturing, mining and construction industries. Mr. DeFeo joined Terex in 1992 as President of the Terex heavy equipment group and was appointed President and Chief Operating Officer in 1993 and Chief Executive Officer in 1995. From 1984 to 1992, Mr. DeFeo held various management positions at Tenneco, Inc., including Senior Vice President and Managing Director. 28 Richard J. Heckmann has served since 1990 as Chairman, President and Chief Executive Officer of United States Filter Corporation, a leading global provider of industrial and commercial water and wastewater treatment systems and services. Mr. Heckmann is also a director of USA Waste Services, Inc. and K2 Inc. Joseph E. Bloodworth founded J&J Rental Services, Inc. (and its predecessors) and served as Chief Executive Officer and President from 1975 until October 1997 when J&J Rental Services, Inc. was acquired by United Rentals. Joseph E. Doran served as President of A&A Tool Rentals and Sales, Inc. from 1972 until the acquisition of the company by United Rentals in October 1997. Mr. Doran served on the Board of Directors of the California Rental Association for 12 years and was its President from 1985 to 1986. William M. Rigsbee served as President of Mercer Equipment Company from 1990 until the acquisition of the company by United Rentals in October 1997. He has been employed in the equipment rental industry since 1978. Mr. Rigsbee is a former President of both the Carolina Rental Association and the North Carolina Associated Equipment Distributors. CAPITAL CONTRIBUTIONS BY OFFICERS AND DIRECTORS The officers and directors of the Company listed below have made capital contributions to the Company in the aggregate amount of $44.95 million. Such capital contributions were made in connection with the sale to such officers and directors of an aggregate of 12,805,714 shares of Common Stock and 6,342,858 warrants ("Warrants"). Each such Warrant entitles the holder to purchase one share of Common Stock at an exercise price of $10.00 per share at any time prior to September 12, 2007. Such shares and Warrants were sold at a price of $3.50 per unit consisting of one share of Common Stock and one-half of a Warrant (except that Mr. Barker purchased only Common Stock at a price of $3.50 per share and Mr. Heckmann purchased only Common Stock at a price of $10.00 per share). The table below indicates (i) the number of shares of Common Stock and the number of Warrants purchased by such officers and directors and (ii) the aggregate amount paid by such officers and directors for such securities:
SECURITIES PURCHASED(1) ------------------------- COMMON NAME STOCK WARRANTS PURCHASE PRICE ---- ------------ -------------------------- Bradley S. Jacobs.................. 10,000,000 5,000,000 $35,000,000 John N. Milne...................... 1,428,571 714,286 5,000,000 Michael J. Nolan................... 571,429 285,715 2,000,000 Robert P. Miner.................... 285,714 142,857 1,000,000 Sandra E. Welwood.................. 100,000 50,000 350,000 Kurtis T. Barker................... 100,000 -- 350,000 Joseph J. Kondrup, Jr. ............ 100,000 50,000 350,000 Kai E. Nyby........................ 100,000 50,000 350,000 Richard A. Volonino................ 100,000 50,000 350,000 Richard J. Heckmann................ 20,000 -- 200,000
- -------- (1) In certain cases includes securities owned by one or more entities controlled by the named holder. CLASSIFICATION OF BOARD OF DIRECTORS The Board of Directors is divided into three classes. The term of office of the first class (currently vacant) will expire at the annual meeting of stockholders following the date of this Prospectus, the term of office of the second class (currently comprised of Mr. DeFeo and Mr. Heckmann) will expire at the second annual meeting of stockholders following the date of this Prospectus, and the term of office of the third class (currently comprised of Mr. Jacobs and Mr. Milne) will expire at the third annual meeting of stockholders following the date of this Prospectus. At each annual meeting of stockholders, successors to directors of the class whose term expires at such meeting will be elected to serve for three-year terms and until their successors are elected and qualified. See "Certain Charter and By-Law Provisions--Classified Board of Directors." 29 COMMITTEES OF THE BOARD The Board of Directors will establish an Audit Committee and a Compensation Committee prior to the completion of the Offerings. A majority of the members of each committee will be directors who are not officers of the Company. The responsibilities of the Audit Committee include selecting the firm of independent accountants to be appointed to audit the Company's financial statements and reviewing the scope and results of the audit with the independent accountants. The responsibilities of the Compensation Committee include considering the compensation to be paid to officers, directors and key employees of the Company and administering the Company's Stock Option Plan. COMPENSATION OF DIRECTORS Directors do not currently receive any compensation for attendance at Board of Directors' meetings. After completion of the Offerings, each director of the Company will be paid up to $2,500 per day for each Board of Directors' meeting such director attends, together with an expense reimbursement. Messrs. Heckmann and DeFeo have each been granted options to purchase an aggregate of 20,000 shares of Common Stock at an exercise price of $15.00 per share. COMPENSATION OF CERTAIN OFFICERS The Company's executive officers are being compensated, and each has been compensated since joining the Company in September or October 1997, in accordance with the terms of the Employment Agreements described below. EMPLOYMENT AGREEMENTS The Company has entered into employment agreements with each of the current officers of the Company. Certain information with regard to the agreements with each of the executive officers of the Company is set forth below. The agreements provide for base salary to be paid at a rate per annum as follows: Mr. Jacobs ($290,000), Mr. Milne ($190,000), Mr. Nolan ($175,000), and Mr. Miner ($150,000). The base salary payable to Messrs. Jacobs and Milne is subject to possible upward annual adjustments based upon changes in a designated cost of living index. The agreements do not provide for mandatory bonuses. However, the agreements provide that in addition to the compensation specifically provided for, the Company may pay such salary increases, bonuses or incentive compensation as may be authorized by the Board of Directors. The agreements with Messrs. Jacobs and Milne provide for the executive to receive an automobile allowance of at least $700 per month. The employment agreements with the following executives provide that the term shall automatically renew so that at all times the balance of the terms will not be less than the period hereinafter specified with respect to such executive: Mr. Jacobs (five years), Mr. Milne (five years), Mr. Nolan (three years) and Mr. Miner (three years). Under each of the agreements, the Company or the employee may at any time terminate the agreement, with or without cause, provided that if the Company terminates the agreement, the Company is required to make severance payments to the extent described in the following paragraph. The employment agreements with Messrs. Jacobs and Milne provide that the executive is entitled to severance benefits in the event that (i) his employment agreement is terminated by the Company without cause (as defined in the employment agreement), (ii) the executive terminates his employment agreement for Good Reason (as defined in the employment agreement) or because of a breach by the Company of its obligations thereunder, (iii) his employment is terminated as a result of death or (iv) the Company or the executive terminates the employment agreement due to the disability of the executive. The severance benefits include (i) a lump sum payment equal to five times the sum of the executive's annual base salary at the time of termination plus the highest annual bonus paid to the executive in the preceding three years and (ii) the continuation of the executive's benefits for such specified period. The employment agreements with the other officers provide that the executive 30 is entitled to severance benefits, of up to three months' base salary, in the event that the executive's employment agreement is terminated without cause (as defined in the employment agreement). The employment agreements with Messrs. Jacobs and Milne provide that if any portion of the required severance payment to the executive constitutes an "excess parachute payment" (as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code")), the executive is entitled to receive a payment sufficient on an after-tax basis to offset any excise tax payable by the executive pursuant to Section 4999 of the Code. Any payment constituting an "excess parachute payment" would not be deductible by the Company. Each of the agreements provides that all options at any time to be granted to the executive will automatically vest upon a change of control of the Company (as defined in the agreement). COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION At the time the employment agreements with Messrs. Jacobs and Milne were approved by the Board of Directors, the sole members of the Board were Messrs. Jacobs and Milne. No compensation committee interlocks with other companies have existed. STOCK OPTION PLAN The Board of Directors has adopted the Company's 1997 Stock Option Plan (the "Stock Option Plan") which provides for the granting of options to purchase not more than an aggregate of 5,000,000 shares of Common Stock. Some or all of such options may be "incentive stock options" within the meaning of the Code. All officers, directors and employees of the Company and other persons who perform services on behalf of the Company are eligible to participate in the Stock Option Plan. Each option granted pursuant to the Stock Option Plan must provide for an exercise price per share that is at least equal to the fair market value per share of Common Stock on the date of grant. No options may be granted under the Stock Option Plan after August 31, 2007. The Company has heretofore granted under the Stock Option Plan options to purchase an aggregate of 219,000 shares of Common Stock. These options have a weighted average exercise price of $11.83 per share. The Stock Option Plan provides that it is to be administered by the Board of Directors (or by a committee appointed by the Board). The Board of Directors (or any such committee) has full power and authority to interpret the provisions, and supervise the administration, of the Stock Option Plan. The Board of Directors (or any such committee) determines, subject to the provisions of the Stock Option Plan, to whom options shall be granted, the number of shares of Common Stock subject to an option, whether an option shall be incentive or non-qualified, the exercise price of each option (which may not be less than the fair market value on the date of grant), the period during which each option may be exercised and the other terms and conditions of each option. 31 PRINCIPAL STOCKHOLDERS GENERAL The table below and the notes thereto set forth as of the date of this Prospectus certain information concerning the beneficial ownership (as defined in Rule 13d-3 of the Securities Exchanges Act of 1934) of the Company's Common Stock by (i) each director and executive officer of the Company and (ii) all executive officers and directors of the Company as a group. Except as indicated in the table, no stockholder is the beneficial owner of more than 5% of the outstanding Common Stock of the Company. For purposes of the table, each executive officer is deemed to be the beneficial owner of all shares of Common Stock that may be acquired upon the exercise of the Warrants held by such officer. The Warrants are currently exercisable at an exercise price of $10.00 per share (representing an aggregate exercise price of $61.4 million, assuming exercise of all the Warrants held by executive officers).
NUMBER OF SHARES OF COMMON STOCK PERCENT OF COMMON STOCK OWNED(2) BENEFICIALLY -------------------------------- NAME OWNED(1)(2) BEFORE OFFERINGS AFTER OFFERINGS - ---- ------------------- ---------------- --------------- Bradley S. Jacobs....... 15,000,000(3)(4) 70.5% John N. Milne........... 2,142,857(5) 12.6% Michael J. Nolan........ 857,144(6) 5.2% Robert P. Miner......... 428,571(7) 2.6% Ronald M. DeFeo......... 20,000(8) * Richard J. Heckmann..... 40,000(9) * All executive officers and directors as a group (6 persons)...... 18,488,572(10) 82.4%
- -------- *Less than 1%. (1) Unless otherwise indicated, each person has sole investment and voting power with respect to the shares indicated. For purposes of this table, a person or group of persons is deemed to have "beneficial ownership" of any shares as of a given date which such person has the right to acquire within 60 days after such date. For purposes of computing the percentage of outstanding shares held by each person or group of persons named above on a given date, any security which such person or persons has the right to acquire within 60 days after such date is deemed to be outstanding for the purpose of computing the percentage ownership of such person or persons, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. (2) In certain cases, includes securities owned by one or more entities controlled by the named holder. (3) Consists of 10,000,000 outstanding shares and 5,000,000 shares issuable upon the exercise of currently exercisable Warrants. (4) Mr. Jacobs has certain rights relating to the disposition of the shares and Warrants owned by each of the other officers of the Company (as described below under "--Certain Agreements Relating to Securities Held by Officers"). By virtue of such rights, Mr. Jacobs is deemed to share beneficial ownership (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of the shares owned by the other officers of the Company. The shares that the table indicates are owned by Mr. Jacobs do not include the shares with respect to which Mr. Jacobs is deemed to share beneficial ownership as aforesaid. Including such shares, Mr. Jacobs is deemed the beneficial owner of an aggregate of 19,178,572 shares of Common Stock (comprised of 12,785,714 outstanding shares and 6,342,858 shares issuable upon the exercise of outstanding Warrants). (5) Consists of 1,428,571 outstanding shares and 714,286 shares issuable upon the exercise of currently exercisable Warrants. (6) Consists of 571,429 outstanding shares and 285,715 shares issuable upon the exercise of currently exercisable Warrants. (7) Consists of 285,714 outstanding shares and 142,857 shares issuable upon the exercise of currently exercisable Warrants. 32 (8) Consists of shares issuable upon the exercise of currently exercisable options. (9) Consists of 20,000 outstanding shares and 20,000 shares issuable upon the exercise of currently exercisable options. (10) Consists of 12,305,714 outstanding shares, 6,142,858 shares issuable upon the exercise of currently exercisable Warrants (which Warrants provide for an exercise price of $10.00 per share, representing an aggregate exercise price of $61.4 million assuming exercise of all the Warrants held by executive officers), and 40,000 shares issuable upon the exercise of currently exercisable options. CERTAIN AGREEMENTS RELATING TO SECURITIES HELD BY OFFICERS Each officer of the Company who purchased securities of the Company prior to the date hereof (other than Mr. Jacobs) has entered into an agreement with the Company and Mr. Jacobs that provides that (i) if Mr. Jacobs sells any Common Stock or Warrants that he beneficially owns in a commercial, non-charitable transaction, then Mr. Jacobs is required to use his best efforts to sell (and has the right to sell subject to certain exceptions) on behalf of such officer a pro rata portion of such officer's Common Stock or Warrants at then prevailing prices, and (ii) except for sales that may be required to be made as aforesaid, the officer shall not (without the prior written consent of the Company) sell or otherwise dispose of the Common Stock or Warrants currently owned by such officer (subject to certain exceptions for charitable gifts). The foregoing provisions of the agreements terminate in September or October 2002. Each officer of the Company who purchased securities of the Company prior to the date hereof (other than Mr. Jacobs) has also agreed pursuant to such agreements that the Company, in its sole discretion, may (i) prior to September 1, 2005, repurchase the securities in the event that such officer breaches any agreement with the Company or acts adversely to the interest of the Company and (ii) repurchase such securities without any cause (provided that such repurchase right without cause will lapse with respect to one-third of the securities on the first, second and third anniversaries of the date of such agreements). The amount to be paid by the Company in the event of a repurchase will be equal to the amount originally paid by such officer for such securities plus an amount representing a 10% annual return on such amount. See "Management--Capital Contributions by Officers and Directors" for information concerning the amounts paid by such officers of the Company for the securities of the Company currently owned by them. 33 DESCRIPTION OF CAPITAL STOCK GENERAL The authorized capital stock of the Company consists of 75,000,000 shares of Common Stock, par value $0.01 per share, and 5,000,000 shares of Preferred Stock, par value $0.01 per share (the "Preferred Stock"). As of the date of this Prospectus, there are 16,266,156 shares of Common Stock outstanding. After giving effect to the Offerings, there will be shares of Common Stock outstanding ( if the Underwriters' over-allotment option is exercised in full). As of the date of this Prospectus, there are no shares of Preferred Stock outstanding or reserved for issuance. The following description of the Company's capital stock is a summary of the material terms of such stock. The following does not purport to be complete and is subject in all respects to applicable Delaware law and to the provision's of the Company's Certificate of Incorporation and By-laws. COMMON STOCK The holders of shares of Common Stock are entitled to one vote per share held on all matters submitted to a vote at a meeting of stockholders. Each stockholder may exercise such vote either in person or by proxy. Stockholders are not entitled to cumulate their votes for the election of directors, which means that, subject to such rights as may be granted to the holders of shares of Preferred Stock, if any, the holders of more than 50% of the outstanding shares of Common Stock are able to elect all of the directors to be elected by holders of shares of Common Stock and the holders of the remaining shares of Common Stock will not be able to elect any director. Subject to such preferences to which holders of shares of Preferred Stock, if any, may be entitled, the holders of outstanding shares of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available therefor. In the event of a liquidation, dissolution or winding up of the Company, the holders of outstanding shares of Common Stock are entitled to share ratably in all assets of the Company which are legally available for distribution to stockholders, subject to the prior rights on liquidation of creditors and to preferences, if any, to which holders of shares of Preferred Stock, if any, may be entitled. The holders of outstanding shares of Common Stock do not have any preemptive, subscription, redemption or sinking fund rights. The outstanding shares of Common Stock are, and the shares issued in the Offerings will upon issuance and sale as contemplated hereby be, duly authorized, validly issued, fully paid and nonassessable. PREFERRED STOCK The Company is authorized by its Certificate of Incorporation to issue a maximum of 5,000,000 shares of Preferred Stock, in one or more series and containing such rights, privileges and limitations, including dividend rights, voting rights, conversion privileges, redemption rights, liquidation rights and/or sinking fund rights, as may from time to time be determined by the Board of Directors of the Company. Preferred Stock may be issued in the future in connection with acquisitions, financings or such other matters as the Board of Directors deems to be appropriate. In the event that any such shares of Preferred Stock shall be issued, a Certificate of Designation, setting forth the series of such Preferred Stock and the relative rights, privileges and limitations with respect thereto, is required to be filed with the Secretary of State of the State of Delaware. The effect of having such Preferred Stock authorized is that the Company's Board of Directors alone, within the bounds and subject to the federal securities laws and the Delaware General Corporation Law (the "Delaware law"), may be able to authorize the issuance of Preferred Stock, which may adversely affect the voting and other rights of holders of Common Stock. The issuance of Preferred Stock may also have the effect of delaying or preventing a change in control of the Company. WARRANTS, OPTIONS AND CONVERTIBLE NOTES There are currently outstanding warrants to purchase an aggregate of 6,342,858 shares of Common Stock. Each such warrant provides for an exercise price of $10.00 per share and may be exercised at any time until September 12, 2007. 34 There are currently outstanding options to purchase an aggregate of 219,000 shares of Common Stock. These options provide for exercise prices ranging from $10.00 to $15.00 per share, with the weighted average exercise price being $11.83 per share. Of these options, options to purchase an aggregate of 40,000 shares of Common Stock are currently exercisable and options to purchase 179,000 shares of Common Stock will become exercisable in installments over specified periods. A portion of the consideration paid by the Company for one of the Initial Acquired Companies consisted of a $300,000 convertible note , which note is convertible into Common Stock following completion of the Offerings at a conversion price per share equal to 120% of the initial offering price per share in the Offerings. LISTING The Common Stock has been approved for listing on under the symbol " ", subject to official notice of issuance. TRANSFER AGENT AND REGISTRAR American Stock Transfer & Trust Company will serve as transfer agent and registrar for the Common Stock. CERTAIN CHARTER AND BY-LAW PROVISIONS The following brief description of certain provisions of the Company's Certificate of Incorporation (the "Certificate") and By-laws does not purport to be complete and is subject in all respects to the provisions of the Certificate and By-laws, copies of which have been filed as exhibits to the Registration Statement of which this Prospectus forms a part. CLASSIFIED BOARD OF DIRECTORS The Certificate provides that the Board shall be divided into three classes and that the number of directors in each class shall be as nearly equal as is possible based upon the number of directors constituting the entire Board. The Certificate effectively provides that the term of office of the first class will expire at the annual meeting of stockholders following the date of this Prospectus, the term of office of the second class will expire at the second annual meeting of stockholders following the date of this Prospectus, and the term of office of the third class will expire at the third annual meeting of stockholders following the date of this Prospectus. At each annual meeting of stockholders, successors to directors of the class whose term expires at such meeting will be elected to serve for three-year terms and until their successors are elected and qualified. The classification of directors has the effect of making it more difficult for stockholders to change the composition of the Board. At least two annual meetings of stockholders, instead of one, will generally be required to effect a change in a majority of the Board. Such a delay may help ensure that the Company's directors, if confronted by a third party attempting to force a proxy contest, a tender or exchange offer or other extraordinary corporate transaction, would have sufficient time to review the proposal as well as any available alternatives to the proposal and to act in what they believe to be the best interests of the stockholders. However, such classification provisions could also have the effect of discouraging a third party from initiating a proxy contest, making a tender offer or otherwise attempting to obtain control of the Company, even though such an attempt might be beneficial to the Company and its stockholders. The classification of the Board could thus increase the likelihood that incumbent directors will retain their positions. NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES The Certificate provides that, subject to any rights of holders of Preferred Stock to elect additional directors under specified circumstances, the number of directors comprising the entire Board will be fixed from time to time by action of not less than a majority of the directors then in office. If the number of directors is at any time fixed at three or greater, then thereafter in no event shall such number be less than three or more than nine, 35 unless approved by action of not less than two-thirds of the directors then in office. In addition, the Certificate provides that, subject to any rights of holders of Preferred Stock, newly created directorships resulting from an increase in the authorized number of directors or vacancies on the Board resulting from death, resignation, retirement, disqualification or removal of directors or any other cause may be filled only by the Board (and not by the stockholders unless there are no directors in office), provided that a quorum is then in office and present, or by a majority of the directors then in office, if less than a quorum is then in office, or by the sole remaining director. Accordingly, the Board could prevent any stockholder from enlarging the Board and filling the new directorships with such stockholder's own nominees. Under the Delaware law, unless otherwise provided in the certificate of incorporation, directors serving on a classified board may only be removed by the stockholders for cause. The Certificate provides that following the Offerings directors may be removed only for cause and only upon the affirmative vote of holders of at least 66 2/3% of the voting power of all the then outstanding shares of stock entitled to vote generally in the election of directors ("Voting Stock"), voting together as a single class. The provisions of the Certificate governing the number of directors, their removal and the filling of vacancies may have the effect of discouraging a third party from initiating a proxy contest, making a tender offer or otherwise attempting to gain control of the Company, or of attempting to change the composition or policies of the Board, even though such attempts might be beneficial to the Company or its stockholders. These provisions of the Certificate could thus increase the likelihood that incumbent directors retain their positions. LIMITATION ON SPECIAL MEETINGS; NO STOCKHOLDER ACTION BY WRITTEN CONSENT The Certificate and the By-laws provide that (subject to the rights, if any, of holders of any class or series of Preferred Stock then outstanding) (i) only a majority of the Board of Directors or the chief executive officer will be able to call a special meeting of stockholders; (ii) the business permitted to be conducted at a special meeting of stockholders shall be limited to matters properly brought before the meeting by or at the direction of the Board of Directors; and (iii) following the Offerings, stockholder action may be taken only at a duly called and convened annual or special meeting of stockholders and may not be taken by written consent. These provisions, taken together, prevent stockholders from forcing consideration by the stockholders of stockholder proposals over the opposition of the Board, except at an annual meeting. ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER PROPOSALS The By-laws establish an advance notice procedure for stockholders to make nominations of candidates for election as director, or to bring other business before an annual meeting of stockholders of the Company (the "Stockholder Notice Procedure"). The Stockholder Notice Procedure provides that, subject to the rights of any holders of Preferred Stock, only persons who are nominated by or at the direction of the Board, any committee appointed by the Board, or by a stockholder who has given timely written notice to the Secretary of the Company prior to the meeting at which directors are to be elected, will be eligible for election as directors of the Company. The Stockholder Notice Procedure provides that at an annual meeting only such business may be conducted as has been brought before the meeting by, or at the direction of, the Board, any committee appointed by the Board, or by a stockholder who has given timely written notice to the Secretary of the Company of such stockholder's intention to bring such business before such meeting. Under the Stockholder Notice Procedure, to be timely, notice of stockholder nominations or proposals to be made at an annual or special meeting must be received by the Company not less than 60 days nor more than 90 days prior to the scheduled date of the meeting (or, if less than 70 days' notice or prior public disclosure of the date of the meeting is given, then the 15th day following the earlier of (i) the day such notice was mailed or (ii) the day such public disclosure was made). Under the Stockholder Notice Procedure, a stockholder's notice to the Company proposing to nominate a person for election as director must contain certain information about the nominating stockholder and the 36 proposed nominee. Under the Stockholder Notice Procedure, a stockholder's notice relating to the conduct of business other than the nomination of directors must contain certain information about such business and about the proposing stockholder. If the Chairman or other officer presiding at a meeting determines that a person was not nominated, or other business was not brought before the meeting, in accordance with the Stockholder Notice Procedure, such person will not be eligible for election as a director, or such business will not be conducted at such meeting, as the case may be. By requiring advance notice of nominations by stockholders, the Stockholder Notice Procedure affords the Board an opportunity to consider the qualifications of the proposed nominees and, to the extent deemed necessary or desirable by the Board, to inform stockholders about such qualifications. By requiring advance notice of other proposed business, the Stockholder Notice Procedure also provides a more orderly procedure for conducting annual meetings of stockholders and, to the extent deemed necessary or desirable by the Board, provides the Board with an opportunity to inform stockholders, prior to such meetings, of any business proposed to be conducted at such meetings, together with any recommendations as to the Board's position regarding action to be taken with respect to such business, so that stockholders can better decide whether to attend such a meeting or to grant a proxy regarding the disposition of any such business. Although the By-laws do not give the Board any power to approve or disapprove stockholder nominations for the election of directors or proposals for action, the forgoing provisions may have the effect of precluding a contest for the election of directors or the consideration of stockholder proposals and of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of directors or to approve its own proposal, if the proper advance notice procedures are not followed, without regard to whether consideration of such nominees or proposals might be harmful or beneficial to the Company and its stockholders. CERTAIN PROVISIONS RELATING TO POTENTIAL CHANGE OF CONTROL The Certificate authorizes the Board and any committee of the Board to take such action as it may determine to be reasonably necessary or desirable to encourage any person or entity to enter into negotiations with the Board and management regarding any transaction which may result in a change of control of the Company, or to contest or oppose any such transaction which the Board determines to be unfair, abusive or otherwise undesirable to the Company, its business, assets, properties or stockholders. The Board or any such committee is specifically authorized to adopt plans or to issue securities of the Company including plans, rights, options, capital stock, notes, debentures or other debt securities, which securities may be exchangeable or convertible into cash or other securities on such terms and conditions as the Board or any such committee determines. In addition, the Board or such committee of the Board may provide that any holder or class of holders of such designated securities will be treated differently than all other security holders in respect of the terms, conditions, provisions and rights of such securities. The existence of this authority or the actions which may be taken by the Board pursuant thereto are intended to give the Board flexibility in order to act in the best interests of stockholders in the event of a potential change of control transaction. Such provisions may, however, deter potential acquirors from proposing unsolicited transactions not approved by the Board and might enable the Board to hinder or frustrate such a transaction if proposed. LIMITATION OF LIABILITY OF DIRECTORS The Certificate provides that a director will not be personally liable to the Company or its stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware law, which concerns unlawful payments of dividends, stock purchases or redemptions or (iv) for any transaction from which the director derived an improper personal benefit. If Delaware law is subsequently amended to permit further limitation of the personal liability of directors, the liability of a director of the Company will be eliminated or limited to the fullest extent permitted by the Delaware law as so amended. 37 AMENDMENT OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS The Certificate contains provisions requiring the affirmative vote of the holders of at least 66 2/3% of the voting power of the Voting Stock to amend certain provisions of the Certificate (including the provisions discussed above relating to the size and classification of the Board, replacement and/or removal of Board members, action by written consent, special stockholder meetings, the authorization for the Board to take steps to encourage or oppose, as the case may be, transactions which may result in a change of control of the Company, and limitation of the liability of directors) or to amend any provision of the By-laws by action of stockholders following the Offerings. These provisions make it more difficult for stockholders to make changes in the Certificate and the By-laws, including changes designed to facilitate the exercise of control over the Company. SHARES ELIGIBLE FOR FUTURE SALE No prediction can be made as to the effect, if any, that future sales of Common Stock, or the availability of Common Stock for future sale, will have on the market price of the Common Stock prevailing from time to time. Sales of substantial amounts of Common Stock (including shares issued upon exercise of warrants or options), or the perception that such sales could occur, may adversely affect prevailing market prices for the Common Stock. The number of outstanding shares of Common Stock available for sale in the public market will be limited by (i) agreements with the Underwriters pursuant to which the Company, each of its officers and directors and the holders of 318,712 shares issued as consideration for an acquisition, have agreed not to sell or otherwise dispose of any shares of Common Stock (including shares that may be acquired upon the exercise of currently exercisable warrants) for a period of 180 days after the date of this Prospectus without the prior written consent of Merrill Lynch & Co., on behalf of the Underwriters (except that the Company may issue shares as consideration for acquisitions, provided that the Company may not issue in excess of 500,000 shares for acquisitions unless the recipients of such excess shares agree to be subject to the foregoing lock-up agreement with respect to such excess shares); (ii) agreements with the Company (the "Stockholder Lock-up Agreements") pursuant to which each other holder of currently outstanding shares of Common Stock has agreed not to sell or otherwise transfer such shares without the prior written consent of the Company (such agreements to lapse with respect to one-third of such shares on the first, second and third anniversaries of the closing of the Offerings); and (iii) an agreement with the Underwriters pursuant to which the Company has agreed not to waive any Stockholder Lock-up Agreement for a period of 180 days after the date of this Prospectus without the prior written consent of Merrill Lynch & Co., on behalf of the Underwriters. See "Underwriting." Subject to the foregoing agreements, substantially all of the Company's outstanding shares of Common Stock and all shares that may hereafter be issued upon the exercise of outstanding warrants will be eligible for sale pursuant to a shelf registration statement that the Company intends to file prior to completion of the Offerings relating to the currently outstanding shares of the Company's Common Stock and the shares of Common Stock underlying currently outstanding warrants. The Company expects to have such shelf registration statement declared effective upon the completion of the Offerings. This registration statement will (subject to the above-mentioned agreements and restrictions) enable the holders of such shares to publicly dispose of such shares from time to time. 38 CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS The following is a general discussion of certain United States federal income and estate tax considerations with respect to the ownership and disposition of Common Stock applicable to Non-U.S. Holders who hold the Common Stock as a capital asset within the meaning of Section 1221 of the Code. The following is also a discussion of certain United States federal income tax considerations applicable to the Company. In general, a "Non-U.S. Holder" is any holder other than (i) a citizen or resident of the United States, (ii) a corporation created or organized in the United States or under the laws of the United States or of any state, (iii) an estate, the income of which is includable in gross income for United States federal income tax purposes regardless of its source, or (iv) a trust if (a) a court within the United States is able to exercise primary supervision over the administration of the trust and (b) one or more United States persons have the authority to control all substantial decisions of the trust. This discussion is based on current law, which is subject to change (possibly with retroactive effect), and is for general information only. This discussion does not address aspects of United States federal taxation other than income and estate taxation and does not address all aspects of income and estate taxation or any aspects of state, local or non-United States taxes, nor does it consider any specific facts or circumstances that may apply to a particular Non-U.S. Holder. In addition, persons that hold the Common Stock through "hybrid entities" may be subject to special rules and may not be entitled to the benefits of a U.S. income tax treaty. ACCORDINGLY, PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND NON-UNITED STATES INCOME AND OTHER TAX CONSIDERATIONS OF HOLDING AND DISPOSING OF SHARES OF COMMON STOCK. For purposes of the discussion below, dividends and gain on the sale, exchange or other disposition of Common Stock will be considered to be "U.S. trade or business income" if such income or gain is (i) effectively connected with the conduct of a U.S. trade or business or (ii) in the case of a treaty country resident, attributable to a permanent establishment (or, in the case of an individual, a fixed base) in the United States. DIVIDENDS In general, dividends paid to a Non-U.S. Holder will be subject to United States withholding tax at a 30% rate of the gross amount (or a lower rate prescribed by an applicable income tax treaty) unless the dividends are U.S. trade or business income. Dividends that are U.S. trade or business income generally will not be subject to United States withholding tax if the Non-U.S. Holder files certain forms, including Internal Revenue Service Form 4224, with the payor of the dividend, and generally will be subject to United States federal income tax on a net income basis, in the same manner as if the Non- U.S. Holder were a resident of the United States. A Non-U.S. Holder that is a corporation may be subject to an additional branch profits tax at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty). To determine the applicability of a tax treaty providing for a lower rate of withholding under the currently effective United States Treasury Department regulations (the "Current Regulations"), dividends paid to an address in a foreign country are presumed to be paid to a resident of that country absent knowledge to the contrary. Under United States Treasury Department regulations issued on October 6, 1997 (the "Final Regulations") generally effective for payments made after December 31, 1998, a Non-U.S. Holder (including in certain cases of Non-U.S. Holders that are fiscally transparent entities, the owner or owners of such entity) will be required to provide to the payor certain documentation that such Non-U.S. Holder (or the owner or owners of such fiscally transparent entities) is a foreign person in order to claim a reduced rate of withholding pursuant to an applicable income tax treaty. In addition, if the Common Stock ceases to be actively traded, then a Non-U.S. Holder claiming the benefits of a treaty may also be required to provide a U.S. taxpayer identification number, a certificate of residence in the foreign country (or other acceptable proof of such residence). Under the Final Regulations, persons claiming that dividends are U.S. trade or business income will generally be required to provide a Form W-8, including a taxpayer identification number, certifying that the income is U.S. trade or business income. GAIN ON SALE OR OTHER DISPOSITION OF COMMON STOCK In general, a Non-U.S. Holder will not be subject to United States federal income tax on any gain realized upon the sale or other disposition of such holder's shares of Common Stock unless (i) the gain is U.S. trade or 39 business income, if; (ii) the Non-U.S. Holder is an individual who holds shares of Common Stock as a capital asset and is present in the United States for 183 days or more in the taxable year of disposition, and certain other tests are met; (iii) the Non-U.S. Holder is subject to tax pursuant to the provisions of the U.S. tax law applicable to former citizens and residents of the United States; or (iv) the Company is or has been a United States real property holding corporation (a "USRPHC") for United States federal income tax purposes (which the Company does not believe that it is or is likely to become) at any time within the shorter of the five year period preceding such disposition or such Non-U.S. Holder's holding period. If the Company were or were to become a USRPHC at any time during this period, gains realized upon a disposition of Common Stock by a Non-U.S. Holder which did not directly or indirectly own more than 5% of the Common Stock during this period generally would not be subject to United States federal income tax, provided that the Common Stock is regularly traded on an established securities market. ESTATE TAX Common Stock owned or treated as owned by an individual who is not a citizen or resident (as defined for United States federal estate tax purposes) of the United States at the time of death will be includable in the individual's gross estate for United States federal estate tax purposes unless an applicable estate tax treaty provides otherwise, and therefore may be subject to United States federal estate tax. BACKUP WITHHOLDING, INFORMATION REPORTING AND OTHER REPORTING REQUIREMENTS The Company must report annually to the Internal Revenue Service and to each Non-U.S. Holder the amount of dividends paid to, and the tax withheld with respect to, each Non-U.S. Holder. These reporting requirements apply regardless of whether withholding was reduced or eliminated by an applicable tax treaty. Copies of this information also may be made available under the provisions of a specific treaty or agreement with the tax authorities in the country in which the Non-U.S. Holder resides or is established. Under the Current Regulations, United States backup withholding tax (which generally is imposed at the rate of 31% on certain payments to persons that fail to furnish the information required under the United States information reporting requirements) and information reporting requirements (other than those discussed above under "--Dividends") generally will not apply to dividends paid on Common Stock to a Non-U.S. Holder at an address outside the United States. Backup withholding and information reporting generally will apply, however, to dividends paid on shares of Common Stock to a Non-U.S. Holder at an address in the United States, if such holder fails to establish an exemption or to provide certain other information to the payor. Under the Current Regulations, the payment of proceeds from the disposition of Common Stock to or through a United States office of a broker will be subject to information reporting and backup withholding unless the beneficial owner, under penalties of perjury, certifies, among other things, its status as a Non-U.S. Holder or otherwise establishes an exemption. The payment of proceeds from the disposition of Common Stock to or through a non-U.S. office of a non-U.S. broker generally will not be subject to backup withholding and information reporting except as noted below. In the case of proceeds from a disposition of Common Stock paid to or through a non-U.S. office of a broker that is (i) a United States person, (ii) a "controlled foreign corporation" for United States federal income tax purposes, or (iii) a foreign person 50% or more of whose gross income from certain periods is effectively connected with a United States trade or business, information reporting (but not backup withholding) will apply unless the broker has documentary evidence in its files that the owner is a Non-U.S. Holder (and the broker has no actual knowledge to the contrary). Under the Final Regulations, the payment of dividends or the payment of proceeds from the disposition of Common Stock to a Non-U.S. Holder may be subject to information reporting and backup withholding unless such recipient provides to the payor certain documentation as to its status as a Non-U.S. Holder or otherwise establishes an exemption. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a Non-U.S. Holder will be refunded or credited against the Non-U.S. Holder's United States federal income tax liability, if any, provided that the required information is furnished to the Internal Revenue Service in a timely manner. 40 PERSONAL HOLDING COMPANY TAX If both (i) more than 50% of the Company's stock is owned directly, indirectly or by application of certain attribution rules, by five or fewer individuals (including certain tax-exempt corporations, certain trusts, and residents and citizens of the United States or another country) at any time during the last half of the Company's taxable year (the "PHC Ownership Test"), and (ii) at least 60% of the Company's adjusted ordinary gross income for the taxable year is "personal holding company income" (the "PHC Income Test"), then the Company will be subject to United States personal holding company tax, in addition to its regular income tax, at a current rate of 39.6% on its "undistributed personal holding company income" for the taxable year. Personal holding company income of a corporation is the portion of the corporation's adjusted ordinary gross income that consists of certain types of passive income, including certain dividends, interest, annuities, rents and royalties (in some circumstances, this is true even if the rents and royalties are derived from the active conduct of a trade or business). The undistributed personal holding company income of a corporation is based on its net taxable income (which excludes, for example, income exempt from regular federal income tax), adjusted to reflect (among other things) deductions for federal income taxes and dividends to shareholders paid by the Company. The Company expects to satisfy the PHC Ownership Test for the taxable year ending December 31, 1997 and, even after giving effect to the Offerings, for taxable years ending thereafter. The Company does not, however, believe that it will satisfy the PHC Income Test for the taxable year ending December 31, 1997 and intends to manage its affairs so that it will not satisfy the PHC Income Test for any taxable year ending thereafter. 40--1 UNDERWRITING Subject to the terms and conditions set forth in a U.S. purchase agreement (the "U.S. Purchase Agreement") among the Company and the underwriters named below (the "U.S. Underwriters") for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Donaldson, Lufkin & Jenrette Securities Corporation and Deutsche Morgan Grenfell Inc. are acting as representatives (the "U.S. Representatives") and concurrently with the sale of shares of Common Stock to the International Managers (as defined below), the Company has agreed to sell to the U.S. Underwriters, and each of the U.S. Underwriters severally has agreed to purchase from the Company, the number of shares of Common Stock set forth opposite its name below.
U.S. UNDERWRITER NUMBER OF SHARES ---------------- ---------------- Merrill Lynch, Pierce, Fenner & Smith Incorporated................................... Donaldson, Lufkin & Jenrette Securities Corporation..... Deutsche Morgan Grenfell Inc. .......................... ----- Total.............................................. =====
The Company has also entered into an international purchase agreement (the "International Purchase Agreement") with certain underwriters outside the United States and Canada (the "International Managers" and, together with the U.S. Underwriters, the "Underwriters") for whom Merrill Lynch International, Donaldson, Lufkin & Jenrette International and Deutsche Morgan Grenfell Inc. are acting as lead managers (the "Lead Managers"). Subject to the terms and conditions set forth in the International Purchase Agreement, and concurrently with the sale of shares of Common Stock to the U.S. Underwriters pursuant to the U.S. Purchase Agreement, the Company has agreed to sell to the International Managers, and the International Managers severally have agreed to purchase from the Company, an aggregate of shares of Common Stock. The initial offering price per share and the total underwriting discount per share of Common Stock are identical under the U.S. Purchase Agreement and the International Purchase Agreement. In the U.S. Purchase Agreement and the International Purchase Agreement, the several U.S. Underwriters and the several International Managers, respectively, have agreed, subject to the terms and conditions set forth therein, to purchase all of the shares of Common Stock being sold pursuant to each such agreement if any of the shares of Common Stock being sold pursuant to such agreement are purchased. The closings with respect to the sale of shares of Common Stock to be purchased by the U.S. Underwriters and the International Managers are conditioned upon one another. The U.S. Representatives have advised the Company that the U.S. Underwriters propose initially to offer the shares of Common Stock to the public at the initial public offering price set forth on the cover page of this Prospectus, and to certain dealers at such price less a concession not in excess of $ per share of Common Stock. The U.S. Underwriters may allow, and such dealers may reallow, a discount not in excess of $ per share of Common Stock on sales to certain other dealers. After the initial public offering, the public offering price, concession and discount may be changed. The Company has granted an option to the U.S. Underwriters exercisable for 30 days after the date of this Prospectus, to purchase up to an aggregate of additional shares of Common Stock at the initial public offering price set forth on the cover page of the Prospectus, less the underwriting discount. The U.S. Underwriters may exercise this option only to cover over-allotments, if any, made on the sale of the Common Stock offered hereby. To the extent that the U.S. Underwriters exercise this option, each U.S. Underwriter will be obligated, subject to certain conditions, to purchase a number of additional shares of Common Stock 41 proportionate to such U.S. Underwriter's initial amount reflected in the foregoing table. The Company also has granted an option to the International Managers, exercisable for 30 days after the date of this Prospectus to purchase up to an aggregate of additional shares of Common Stock to cover over-allotments, if any, on terms similar to those granted to the U.S. Underwriters. The Company, all executive officers and directors of the Company and the holders of an aggregate of 318,712 shares of Common Stock issued as consideration for an acquisition have agreed, subject to certain exceptions, not to directly or indirectly (a) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of or otherwise dispose of or transfer any shares of Common Stock or securities convertible into or exchangeable or exercisable for Common Stock, whether now owned or thereafter acquired by the person executing the agreement or with respect to which the person executing the agreement thereafter acquires the power of disposition, or file a registration statement under the Securities Act with respect to the foregoing or (b) enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of the Common Stock whether any such swap or transaction is to be settled by delivery of Common Stock or other securities, in cash or otherwise, without the prior written consent of Merrill Lynch on behalf of the Underwriters for a period of 180 days after the date of this Prospectus. The foregoing agreement will not limit a stockholder's ability to transfer shares in a private placement or to pledge shares, provided that the transferee or pledgee agrees to be bound by such agreement. The foregoing agreement also will not limit the Company's ability to (i) grant stock options under the 1997 Stock Option Plan, (ii) to issue shares as consideration for acquisitions (provided that the Company may not issue in excess of 500,000 shares for acquisitions unless the recipients of such excess shares agree to be subject to the foregoing lock-up with respect to such excess shares), (iii) file a shelf registration statement with respect to the possible resale of outstanding shares of Common Stock or shares of Common Stock that may be acquired upon exercise of outstanding warrants (provided that no sales may be made under such registration statement during the 180-day lockup period), (iv) file a registration statement with respect to Common Stock or other securities to be issued as consideration for an acquisition or with respect to the potential resale of shares issued as consideration for an acquisition (provided that no sales may be made pursuant to such registration statement except to the extent permitted by clause (ii) above) or (v) file a registration statement registering the shares that may be issued pursuant to options granted or to be granted under the 1997 Stock Option Plan. The Company has also agreed not to waive any lock-up agreement that was agreed to by certain stockholders of the Company in connection with the issuance to them of 3,028,873 shares of Common Stock in a private placement in September 1997, without the prior written consent of Merrill Lynch & Co. on behalf of the Underwriters, for a period of 180 days after the date of this Prospectus. This effectively prohibits such stockholders from selling or otherwise disposing of any such shares for a period of 180 days after the date of this Prospectus, without the prior written consent of Merrill Lynch & Co., on behalf of the Underwriters. The U.S. Underwriters and the International Managers have entered into an intersyndicate agreement (the "Intersyndicate Agreement") that provides for the coordination of their activities. Pursuant to the Intersyndicate Agreement, the U.S. Underwriters and the International Managers are permitted to sell shares of Common Stock to each other for purposes of resale at the initial public offering price, less an amount not greater than the selling concession. Under the terms of the Intersyndicate Agreement, the U.S. Underwriters and any dealer to whom they sell shares of Common Stock will not offer to sell or sell shares of Common Stock to persons who are non-U.S. or non-Canadian persons or to persons they believe intend to resell to persons who are non-U.S. or non-Canadian persons, and the International Managers and any dealer to whom they sell shares of Common Stock will not offer to sell or sell shares of Common Stock to U.S. persons or to Canadian persons or to persons they believe intend to resell to U.S. or Canadian persons, except in the case of transactions pursuant to the Intersyndicate Agreement. Prior to the Offerings, there has been no public market for the Common Stock of the Company. The initial public offering price will be determined through negotiations among the Company, the U.S. Representatives and the Lead Managers. The factors to be considered in determining the initial public offering price, in addition to prevailing market conditions, are the history of and the prospects for the Company and the industry in which it competes, an assessment of the Company's management, the past and present operations of the Company and 42 the Initial Acquired Companies and the trend of its pro forma revenues and earnings, the prospects for future earnings of the Company, the prices of similar securities of generally comparable companies and other relevant factors. There can be no assurance that an active trading market will develop for the Common Stock or that the Common Stock will trade in the public market subsequent to the Offerings at or above the initial public offering price. Application has been made to list the shares of Common Stock on the under the symbol " ," subject to official notice of issuance. In order to meet the requirements for listing of the Common Stock on that exchange, the U.S. Underwriters and the International Managers have undertaken to sell lots of or more shares to a minimum of beneficial owners. The Underwriters have reserved for sale, at the initial public offering price, up to shares of Common Stock for certain employees, directors, and business associates of, and certain other persons designated by, the Company who have expressed an interest in purchasing such shares of Common Stock. The number of shares available for sale to the general public in the Offerings will be reduced to the extent such persons purchase such reserved shares. Any reserved shares not so purchased will be offered to the general public on the same basis as other shares offered hereby. The Underwriters do not intend to confirm sales of the Common Stock offered hereby to any accounts over which they exercise discretionary authority. The Company has agreed to indemnify the U.S. Underwriters and the International Managers against certain liabilities, including certain liabilities under the Securities Act. Until the distribution of the Common Stock is completed, rules of the Commission may limit the ability of the Underwriters and certain selling group members to bid for and purchase the Common Stock. As an exception to these rules, the U.S. Representatives are permitted to engage in certain transactions that stabilize the price of the Common Stock. Such transactions consist of bids or purchases for the purposes of pegging, fixing or maintaining the price of the Common Stock. If the Underwriters create a short position in the Common Stock in connection with the Offerings, i.e., if they sell more shares of Common Stock than are set forth on the cover page of this Prospectus, the U.S. Representatives may reduce that short position by purchasing Common Stock in the open market. The U.S. Representatives may also elect to reduce any short position by exercising all or part of the over-allotment option described above. The U.S. Representatives may also impose a penalty bid on certain Underwriters and selling group members. This means that if the U.S. Representatives purchase shares of Common Stock in the open market to reduce the Underwriters' short position or to stabilize the price of the Common Stock, they may reclaim the amount of the selling concession from the Underwriters and selling group members who sold those shares as part of the Offerings. In general, purchases of a security for the purpose of stabilization or to reduce a short position could cause the price of the security to be higher than it might be in the absence of such purchases. The imposition of a penalty bid might also have an effect on the price of a security to the extent that it were to discourage resales of the security. Neither the Company nor any of the Underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Common Stock. In addition, neither the Company nor any of the Underwriters makes any representation that the U.S. Representatives will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice. 43 LEGAL MATTERS Certain legal matters in connection with the Offerings will be passed upon for the Company by Weil, Gotshal & Manges LLP, New York, New York, and Ehrenreich & Krause, New York, New York. Certain legal matters in connection with the Offerings will be passed upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York. EXPERTS The financial statements of United Rentals, Inc. at September 30, 1997 and for the period from August 14, 1997 (Inception) to September 30, 1997, and the financial statements of J&J Rental Services, Inc., and Bronco Hi-Lift, Inc. at December 31, 1995 and 1996 and for each of the three years in the period ended December 31, 1996, appearing in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein and in the Registration Statement, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. The financial statements of A&A Tool Rentals & Sales, Inc. and subsidiary as of October 31, 1996 and 1995, and for each of the years in the three-year period ended October 31, 1996, have been included in this Prospectus and in the Registration Statement of which this Prospectus is a part in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The financial statements of MERCER Equipment Company appearing in this Prospectus have been audited by Webster Duke & Co., independent auditors, as set forth in their reports thereon included elsewhere herein and in the Registration Statement of which this Prospectus is a part, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. The combined financial statements of Coran Enterprises, Inc. (dba A-1 Rents) and Monterey Bay Equipment Rental, Inc., appearing in this Prospectus and Registration Statement, have been audited by Grant Thornton LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein and in the Registration Statement, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") in Washington, D.C. a Registration Statement on Form S-1 (together with all amendments thereto, the "Registration Statement"), under the Securities Act with respect to the shares of Common Stock offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits and schedules filed therewith, certain portions of which have been omitted as permitted by the rules and regulations of the Commission. For further information with respect to the Company and the Common Stock offered hereby, reference is hereby made to the Registration Statement and to the exhibits and schedules filed therewith. Statements contained in this Prospectus regarding the contents of any contract or other document referred to are not necessarily complete and, in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being deemed to be qualified in its entirety by such reference. The Registration Statement, including all exhibits and schedules thereto, may be inspected without charge at the principal office of the Commission located at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Midwest Regional Office of the Commission located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at the Northeast Regional office of the Commission located at Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such material may be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Room 1204, Washington, D.C. 20549, at prescribed rates. 44 The Commission maintains an Internet web site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the Commission. The address of that site is http://www.sec.gov. Prior to filing the Registration Statement of which this Prospectus is a part, the Company was not subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Upon effectiveness of the Registration Statement, the Company will become subject to the informational and periodic reporting requirements of the Exchange Act, and in accordance therewith, will file periodic reports, proxy statements, and other information with the Commission. Such periodic reports, proxy statements, and other information will be available for inspection and copying at the public reference facilities and other regional offices referred to above. The Company intends to register the securities offered by the Registration Statement under the Exchange Act simultaneously with the effectiveness of the Registration Statement and to furnish its stockholders with annual reports containing audited financial statements and such other reports as may be required from time to time by law. 45 INDEX TO FINANCIAL STATEMENTS
PAGE ---- I. Pro Forma Consolidated Financial Statements of United Rentals, Inc. Introduction........................................................ Pro Forma Consolidated Balance Sheets--September 30, 1997 (unaudited)........................................................ Pro Forma Consolidated Statements of Operations for the Nine Months Ended September 30, 1997 (unaudited)............................... Pro Forma Consolidated Statements of Operations for the Year Ended December 31, 1996 (unaudited)...................................... Notes to Pro Forma Consolidated Financial Statements................ II. Financial Statements of United Rentals, Inc. Report of Independent Auditors...................................... Balance Sheet--September 30, 1997................................... Statement of Operations for the period from August 14, 1997 (Inception) to September 30, 1997.................................. Statement of Stockholders' Equity for the period from August 14, 1997 (Inception) to September 30, 1997............................. Statement of Cash Flows for the period from August 14, 1997 (Inception) to September 30, 1997.................................. Notes to Financial Statements....................................... III. Financial Statements of MERCER Equipment Company Independent Auditor's Report........................................ Balance Sheets--December 31, 1994, 1995 and 1996 and September 30, 1997 (unaudited)................................................... Statements of Income and Retained Earnings for the Years Ended December 31, 1994, 1995 and 1996 and for the Nine Months Ended September 30, 1996 and 1997 (unaudited)............................ Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996 and for the Nine Months Ended September 30, 1996 and 1997 (unaudited)........................................................ Notes to Financial Statements....................................... IV. Consolidated Financial Statements of A&A Tool Rentals & Sales, Inc. Independent Auditor's Report........................................ Consolidated Balance Sheets--October 31, 1995 and 1996 and July 31, 1997 (unaudited)................................................... Consolidated Statements of Operations for the Years Ended October 31, 1994, 1995 and 1996 and for the Nine Months Ended July 31, 1996 and 1997 (unaudited)............................................... Consolidated Statements of Stockholders' Equity for the Years Ended October 31, 1994, 1995 and 1996 and for the Nine Months Ended July 31, 1997 (unaudited)............................................... Consolidated Statements of Cash Flows for the Years Ended October 31, 1994, 1995, and 1996 and for the Nine Months Ended July 31, 1996 and 1997 (unaudited).......................................... Notes to Consolidated Financial Statements.......................... V. Financial Statements of J&J Rental Services, Inc. Report of Independent Auditors...................................... Balance Sheets--December 31, 1995 and 1996 and September 30, 1997 (unaudited) ....................................................... Statements of Income for the Years Ended December 31, 1994, 1995 and 1996, for the Six Months Ended June 30, 1996 and 1997 (unaudited) and for the Three Months Ended September 30, 1997 (unaudited)...... Statements of Stockholders' Equity and Partners' Capital for the Years Ended December 31, 1994, 1995 and 1996 and for the Nine Months Ended September 30, 1997 (unaudited)........................ Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996, for the Six Months Ended June 30, 1996 and 1997 (unaudited) and for the Three Months Ended September 30, 1997 (unaudited)........................................................ Notes to Financial Statements.......................................
F-1
PAGE ---- VI. Combined Financial Statements of Coran Enterprises, Inc. dba A-1 Rents and Monterey Bay Equipment Rental, Inc. Report of Independent Auditors....................................... Combined Balance Sheets--December 31, 1995 and 1996 and September 30, 1997 (unaudited).................................................... Combined Statements of Earnings for the Three Years Ended December 31, 1996 and for the Nine Months Ended September 30, 1996 and 1997 (unaudited) ........................................................ Combined Statements of Stockholders' Equity for the Three Years Ended December 31, 1996 and for the Nine Months Ended September 30, 1997 (unaudited) ........................................................ Combined Statements of Cash Flows for the Three Years Ended December 31, 1996 and for the Nine Months Ended September 30, 1996 and 1997 (unaudited) ........................................................ Notes to Combined Financial Statements............................... VII. Financial Statements of Bronco Hi-Lift, Inc. Report of Independent Auditors....................................... Balance Sheets--December 31, 1995 and 1996 and September 30, 1997 (unaudited) ........................................................ Statements of Income for the Three Years Ended December 31, 1996 and for the Nine Months Ended September 30, 1996 and 1997 (unaudited)... Statements of Stockholders' Equity for the Three Years Ended December 31, 1996 and for the Nine Months Ended September 30, 1997 (unaudited)......................................................... Statements of Cash Flows for the Three Years Ended December 31, 1996 and for the Nine Months Ended September 30, 1996 and 1997 (unaudited)......................................................... Notes to Financial Statements........................................
F-2 UNITED RENTALS, INC. PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The accompanying unaudited pro forma consolidated balance sheet of the Company as of September 30, 1997 gives effect to the acquisition of each of the Initial Acquired Companies, the financing of each such acquisition, and all issuances of Common Stock after September 30, 1997, as if all such transactions had occurred on such date. The accompanying unaudited pro forma consolidated statements of operations of the Company for the nine months ended September 30, 1997 and for the year ended December 31, 1996 gives effect to the acquisition of each of the Initial Acquired Companies, the financing of each such acquisition, and all issuances of Common Stock after the beginning of the period, as if all such transactions had occurred at the beginning of the period. The pro forma consolidated financial statements are based upon certain assumptions and estimates which are subject to change. These statements are not necessarily indicative of the actual results of operations that might have occurred, nor are they necessarily indicative of expected results in the future. The pro forma consolidated financial statements should be read in conjunction with the Company's historical Consolidated Financial Statements and related Notes included elsewhere in this Prospectus. F-3 UNITED RENTALS, INC. PRO FORMA CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1997 (UNAUDITED)
MERCER A&A TOOL J & J BRONCO UNITED EQUIPMENT RENTALS AND RENTAL CORAN HI-LIFT, RENT-IT RENTALS, INC. COMPANY SALES, INC. SERVICES, INC. ENTERPRISES, INC. INC. CENTER, INC. ------------- ----------- ----------- -------------- ----------------- ---------- ------------ ASSETS Cash and cash equivalents........ $54,637,568 $ 151,961 $ 187,082 $ 1,757,218 $ 933,705 $ 296,669 $1,246,620 Accounts receiv- able, net.......... 2,253,040 1,324,684 1,975,944 1,012,615 1,225,550 434,687 Inventory.......... 2,430,233 906,969 271,903 Rental equipment, net................ 11,304,919 3,133,863 10,504,415 2,948,586 2,321,275 925,290 Property and equip- ment, net.......... 99,706 594,621 306,415 492,603 65,137 335,374 205,673 Intangible assets, net................ 84,479 Prepaid expenses and other assets... 114,200 152,845 468,615 1,375 10,942 27,015 227,310 ----------- ----------- ---------- ----------- ---------- ---------- ---------- Total Assets.... $54,851,474 $16,887,619 $6,327,628 $14,816,034 $4,970,985 $4,477,786 $3,039,580 =========== =========== ========== =========== ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQ- UITY Accounts payable... $ 67,701 $ 3,218,334 $ 703,583 $ 588,548 $ 308,471 $ 323,489 $ 56,011 Debt............... 9,518,922 4,352,769 14,180,795 2,075,735 2,973,516 Accrued expenses and other liabilities........ 84,826 119,987 224,755 185,617 24,805 ----------- ----------- ---------- ----------- ---------- ---------- ---------- Total liabili- ties............ 152,527 12,857,243 5,281,107 14,954,960 2,384,206 3,297,005 80,816 ----------- ----------- ---------- ----------- ---------- ---------- ---------- Stockholders' eq- uity Common stock...... 157,146 500,001 465,058 1,000 275,000 10,000 (30,713) Additional paid- in capital........ 54,815,258 37,920 298,000 42,000 Retained earnings (deficit)......... (273,457) 3,530,375 581,463 (139,926) 2,273,859 872,781 2,947,477 ----------- ----------- ---------- ----------- ---------- ---------- ---------- Total stockhold- ers' equity..... 54,698,947 4,030,376 1,046,521 (138,926) 2,586,779 1,180,781 2,958,764 ----------- ----------- ---------- ----------- ---------- ---------- ---------- Total liabilities and stock-holders' equity.......... $54,851,474 $16,887,619 $6,327,628 $14,816,034 $4,970,985 $4,477,786 $3,039,580 =========== =========== ========== =========== ========== ========== ========== PRO FORMA PRO FORMA ADJUSTMENTS CONSOLIDATED ---------------- ------------- ASSETS Cash and cash equivalents........ $(60,110,823)(a) $ 50,000 950,000 (b) Accounts receiv- able, net.......... 8,226,520 Inventory.......... 371,717 (c) 3,980,822 Rental equipment, net................ 5,979,135 (d) 37,117,483 Property and equip- ment, net.......... (263,244)(d) 1,836,285 Intangible assets, net................ 40,809,439 (e) 40,893,918 Prepaid expenses and other assets... 1,002,302 ---------------- ------------- Total Assets.... $(12,263,776) $93,107,330 ================ ============= LIABILITIES AND STOCKHOLDERS' EQ- UITY Accounts payable... $ 5,266,137 Debt............... $(33,101,737)(f) 27,732,707 27,732,707 (g) Accrued expenses and other liabilities........ 639,990 ---------------- ------------- Total liabili- ties............ (5,369,030) 33,638,834 ---------------- ------------- Stockholders' eq- uity Common stock...... (1,220,346)(h) 162,662 3,187 (i) 2,329 (b) Additional paid- in capital........ (377,920)(h) 59,579,291 3,821,362 (i) 942,671 (b) Retained earnings (deficit)......... (10,066,029)(h) (273,457) ---------------- ------------- Total stockhold- ers' equity..... (6,894,746) 59,468,496 ---------------- ------------- Total liabilities and stock-holders' equity.......... $(12,263,776) $93,107,330 ================ =============
F-4 UNITED RENTALS, INC. PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
MERCER A&A TOOL UNITED EQUIPMENT RENTALS AND J & J RENTAL CORAN BRONCO RENT-IT RENTALS, INC. COMPANY SALES, INC. SERVICES, INC. ENTERPRISES, INC. HI-LIFT, INC. CENTER, INC. ------------- ----------- ----------- -------------- ----------------- ------------- ------------ Revenues Equipment rent- als............... $ 6,141,024 $4,501,537 $5,998,073 $5,808,564 $3,774,997 $1,706,959 Sales of equip- ment and merchan- dise and other revenue........... 7,423,559 4,101,586 636,398 899,829 984,496 117,838 ----------- ---------- ---------- ---------- ---------- ---------- Total revenues.. 13,564,583 8,603,123 6,634,471 6,708,393 4,759,493 1,824,797 Cost of revenues Cost of equipment rentals, excluding depreciation...... 1,933,995 2,097,280 2,564,825 3,704,188 363,418 782,284 Rental equipment depreciation...... 1,313,961 1,193,986 1,563,687 1,237,656 601,243 425,718 Cost of sales and other operating expenses.......... 5,857,100 3,346,797 378,545 224,762 634,240 ----------- ---------- ---------- ---------- ---------- ---------- Total cost of revenues........ 9,105,056 6,638,063 4,507,057 5,166,606 1,598,901 1,208,002 ----------- ---------- ---------- ---------- ---------- ---------- Gross profit....... 4,459,527 1,965,060 2,127,414 1,541,787 3,160,592 616,795 Selling, general and administrative expenses........... $ 348,055 2,931,627 1,696,104 1,140,756 958,764 1,562,694 534,074 Non-rental depreci- ation and amortization....... 96,600 95,171 110,203 13,868 79,608 42,554 --------- ----------- ---------- ---------- ---------- ---------- ---------- Operating income... (348,055) 1,431,300 173,785 876,455 569,155 1,518,290 40,167 Interest expense... 677,364 410,345 422,178 139,970 210,025 Other (income) ex- pense, net......... (74,598) (126,008) (140,367) (37,724) (67,555) (35,878) --------- ----------- ---------- ---------- ---------- ---------- ---------- Income (loss) before provision for income taxes... (273,457) 879,944 (96,193) 492,001 429,185 1,375,820 76,045 Provision for in- come taxes......... 6,000 98,000 5,583 --------- ----------- ---------- ---------- ---------- ---------- ---------- Net income (loss).. $(273,457) $ 879,944 $ (102,193) $ 394,001 $ 423,602 $1,375,820 $ 76,045 ========= =========== ========== ========== ========== ========== ========== Net loss per share.............. $ ========= PRO FORMA PRO FORMA ADJUSTMENTS CONSOLIDATED --------------- ------------- Revenues Equipment rent- als............... $27,931,154 Sales of equip- ment and merchan- dise and other revenue........... 14,163,706 ------------- Total revenues.. 42,094,860 Cost of revenues Cost of equipment rentals, excluding depreciation...... 11,445,990 Rental equipment depreciation...... $(1,277,912)(a) 5,058,339 Cost of sales and other operating expenses.......... (61,372)(b) 10,380,072 --------------- ------------- Total cost of revenues........ (1,339,284) 26,884,401 --------------- ------------- Gross profit....... 1,339,284 15,210,459 Selling, general and administrative expenses........... (816,000)(c) 8,634,186 278,112 (d) Non-rental depreci- ation and amortization....... 596,644 (e) 1,034,648 --------------- ------------- Operating income... 1,280,528 5,541,625 Interest expense... (1,822,158)(f) 1,327,417 1,289,693 (g) Other (income) ex- pense, net......... (482,130) --------------- ------------- Income (loss) before provision for income taxes... 1,812,993 4,696,338 Provision for in- come taxes......... 1,866,975 (h) 1,976,558 --------------- ------------- Net income (loss).. $ (53,982) $ 2,719,780 =============== ============= Net loss per share.............. $ 0.17 =============
The accompanying notes are an integral part of these pro forma consolidated financial statements F-5 UNITED RENTALS, INC. PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
MERCER A&A TOOL J & J UNITED EQUIPMENT RENTALS AND RENTAL CORAN BRONCO RENT-IT RENTALS, INC. COMPANY SALES, INC. SERVICES, INC. ENTERPRISES, INC. HI-LIFT, INC. CENTER, INC. ------------- ----------- ----------- -------------- ----------------- ------------- ------------ Revenues Equipment rentals.......... $ $ 7,380,137 $ 5,918,148 $7,769,716 $7,679,713 $4,313,855 $2,631,459 Sales of equipment and mer- chandise and other revenue.... 7,073,763 5,787,986 1,243,297 738,330 1,216,459 136,395 ----- ----------- ----------- ---------- ---------- ---------- ---------- Total revenues.. 14,453,900 11,706,134 9,013,013 8,418,043 5,530,314 2,767,854 Cost of revenues Cost of equipment rentals, excluding depreciation .... 2,097,805 2,464,200 3,544,040 4,254,243 699,455 1,046,785 Rental equipment depreciation..... 1,492,131 1,382,048 2,389,929 1,304,847 736,525 746,859 Cost of sales and other operating expenses......... 5,820,926 4,943,150 452,522 373,258 893,222 ----- ----------- ----------- ---------- ---------- ---------- ---------- Total cost of rev- enues............ 9,410,862 8,789,398 6,386,491 5,932,348 2,329,202 1,793,644 ----- ----------- ---------- ---------- ---------- ---------- Gross profit........ 5,043,038 2,916,736 2,626,522 2,485,695 3,201,112 974,210 Selling, general and administrative expenses........... 3,515,581 2,215,936 1,521,562 2,062,246 2,359,326 760,693 Non-rental depreciation and amortization....... 118,787 120,757 123,971 17,202 99,669 46,237 ----- ----------- ----------- ---------- ---------- ---------- ---------- Operating income.... 1,408,670 580,043 980,989 406,247 742,117 167,280 Interest expense.... 813,339 401,204 478,341 96,464 334,035 0 Other (income) expense, net....... (110,340) (76,078) (27,523) (46,175) (57,061) ----- ----------- ----------- ---------- ---------- ---------- ---------- Income before provision for income taxes....... 705,671 254,917 530,171 309,783 454,257 224,341 Provision for income taxes.............. 0 7,619 49,685 8,221 ----- ----------- ----------- ---------- ---------- ---------- ---------- Net income.......... $ -- $ 705,671 $ 247,298 $ 480,486 $ 301,562 $ 454,257 $ 224,341 ===== =========== =========== ========== ========== ========== ========== Earnings per share.. $ -- ===== PRO FORMA PRO FORMA ADJUSTMENTS CONSOLIDATED --------------- ------------- Revenues Equipment rentals.......... $35,693,028 Sales of equipment and mer- chandise and other revenue.... 16,196,230 --------------- ------------- Total revenues.. 51,889,258 Cost of revenues Cost of equipment rentals, excluding depreciation .... 14,106,528 Rental equipment depreciation..... $(2,140,161)(a) 5,912,178 Cost of sales and other operating expenses......... (57,068)(b) 12,426,010 --------------- ------------- Total cost of rev- enues............ (2,197,229) 32,444,716 --------------- ------------- Gross profit........ 2,197,229 19,444,542 Selling, general and administrative expenses........... (2,006,912)(c) 10,853,610 425,178 (d) Non-rental depreciation and amortization....... 809,179 (e) 1,335,802 --------------- ------------- Operating income.... 2,969,784 7,255,130 Interest expense.... (2,123,383)(f) 1,719,591 1,719,591 (g) Other (income) expense, net....... (317,177) --------------- ------------- Income before provision for income taxes....... 3,373,576 5,852,716 Provision for income taxes.............. 2,275,561 (h) 2,341,086 --------------- ------------- Net income.......... $ 1,098,015 $ 3,511,630 =============== ============= Earnings per share.. $ 0.22 =============
The accompanying notes are an integral part of these pro forma consolidated financial statements F-6 UNITED RENTALS, INC. NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS 1. BACKGROUND United Rentals, Inc. was incorporated in August 1997, was initially capitalized in September 1997, and commenced rental operations in October 1997 by acquiring the six Initial Acquired Companies. The Company rents a broad array of equipment to a diverse customer base that includes construction industry participants, industrial companies, homeowners and other individuals. The Company also engages in related activities such as selling used rental equipment, acting as a distributor for certain new equipment, and selling related merchandise and parts. 2. HISTORICAL FINANCIAL STATEMENTS The historical financial data presented in these pro forma consolidated financial statements represent the financial position and results of operations of the Company and each of the Initial Acquired Companies and were derived from the respective financial statements of such companies. All such financial statements are included elsewhere in this Prospectus (except for the financial statements of Rent-It Centers, Inc.). 3. ACQUISITION OF THE INITIAL ACQUIRED COMPANIES During October 1997, the Company completed the acquisition of each of the Initial Acquired Companies. Each of these acquisitions was accounted for using the purchase method of accounting. For purposes of these pro forma consolidated financial statements, the consideration paid by the Company for the acquired companies (the "Acquisition Consideration") is assumed to be an aggregate of $57.6 million of cash plus the Stock Consideration (see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Consideration Paid for Initial Acquired Companies") and a convertible note in the amount of $300,000, which represents the consideration that would have been paid based upon the indebtedness and working capital of the Initial Acquired Companies as of September 30, 1997. The actual consideration paid was $1.0 million lower due to the change in the indebtedness and working capital of the Initial Acquired Companies subsequent to September 30, 1997. Additionally, the Company repaid all of the outstanding indebtedness of the Initial Acquired Companies in the aggregate amount of $33.9 million ($33.1 million as of September 30, 1997, which is the amount assumed for purposes of these pro forma consolidated financial statements). Based upon management's preliminary estimates, it is estimated that the carrying value of the assets and liabilities of the Initial Acquired Companies approximates fair value, with the exception of rental equipment and other property and equipment and certain inventory. Of the total Acquisition Consideration, approximately $20.8 million was allocated to the assets acquired and liabilities assumed. 4. PRO FORMA ADJUSTMENTS Balance sheet adjustments: a. Records the portion of the Acquisition Consideration and debt repayment paid from available cash on hand. b. Records the sale of all Common Stock subsequent to September 30, 1997. c. Adjusts the carrying value of inventory to fair market value. d. Adjusts the carrying value of rental equipment and other property and equipment to fair market value. e. Records the excess of the Acquisition Consideration over the estimated fair value of net assets acquired. f. Records the repayment of all outstanding indebtedness of the Initial Acquired Companies. g. Records the portion of the Acquisition Consideration and debt repayment funded by borrowing under the Company's Credit Facility and through the issuance of a $300,000 convertible note. h. Records the elimination of the stockholders' equity of the Initial Acquired Companies. i. Records the portion of the Acquisition Consideration paid in the form of Common Stock. F-7 4. PRO FORMA ADJUSTMENTS--(CONTINUED) Statement of operations adjustments: a. Adjusts the depreciation of rental equipment and other property and equipment based upon adjusted carrying values utilizing the following lives (subject to a 10% salvage value with regards to rental equipment): Rental equipment.............................................. 4-6 years Other property and equipment.................................. 3-15 years
b. Adjusts the method of accounting for inventory at one of the Initial Acquired Companies from the LIFO method to the FIFO method. c. Adjusts the compensation to former owners and executives of the Initial Acquired Companies to current levels of compensation. d. Adjusts the lease expense for real estate utilized by the Initial Acquired Companies to current lease agreements. e. Records the amortization of the excess of cost over net assets acquired attributable to the acquisitions of the Initial Acquired Companies using an estimated life of 40 years. f. Eliminates interest expense related to outstanding indebtedness of the Initial Acquired Companies which was repaid by the Company. g. Records interest expense relating to the portion of the Acquisition Consideration funded through borrowing under the Company's Credit Facility using a rate per annum of 7.5%. h. Records a provision for income taxes at an estimated rate of 40%. 5. EARNINGS PER SHARE Earnings per share is calculated by dividing the net income by the weighted average outstanding during the period. The weighted average outstanding shares during the period is calculated as follows: Shares outstanding at September 30, 1997....................... 15,714,587 Shares sold subsequent to September 30, 1997................... 232,857 Shares issued for acquisitions................................. 318,712 ---------- 16,266,156 ==========
F-8 REPORT OF INDEPENDENT AUDITORS Board of Directors United Rentals, Inc. We have audited the accompanying balance sheet of United Rentals, Inc. as of September 30, 1997 and the related statements of operations, stockholders' equity and cash flows from August 14, 1997 (Inception) to September 30, 1997. These financial statements are the responsibility of the management of United Rentals, Inc. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of United Rentals, Inc. at September 30, 1997, and the results of its operations and its cash flows from August 14, 1997 (Inception) to September 30, 1997, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP MetroPark, New Jersey October 8, 1997, except for Note 7, as to which the date is October 28, 1997 F-9 UNITED RENTALS, INC. BALANCE SHEET SEPTEMBER 30, 1997 ASSETS Cash and cash equivalents......................................... $54,637,568 Prepaid expenses and other assets................................. 114,200 Property and equipment, net of accumulated depreciation of $1,542........................................................... 99,706 ----------- $54,851,474 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable.................................................. $ 67,701 Accrued expenses and other liabilities............................ 84,826 ----------- Total liabilities............................................. 152,527 Commitments and contingencies Stockholders' equity: Preferred stock--$.01 par value, 5,000,000 shares authorized, no shares issued and outstanding.................................. -- Common stock--$.01 par value, 75,000,000 shares authorized, 15,714,587 shares issued and outstanding....................... 157,146 Additional paid-in capital...................................... 54,815,258 Accumulated deficit............................................. (273,457) ----------- Total stockholders' equity.................................... 54,698,947 ----------- $54,851,474 ===========
See accompanying notes. F-10 UNITED RENTALS, INC. STATEMENT OF OPERATIONS AUGUST 14, 1997 (INCEPTION) TO SEPTEMBER 30, 1997 General and administrative expenses................................. $ 348,055 --------- Loss from operations.............................................. (348,055) Interest income..................................................... 74,598 --------- Loss before provision for income taxes............................ (273,457) Provision for income taxes.......................................... -- --------- Net loss.......................................................... $(273,457) ========= Net loss per share.................................................. $ =========
See accompanying notes. F-11 UNITED RENTALS, INC. STATEMENT OF STOCKHOLDERS' EQUITY AUGUST 14, 1997 (INCEPTION) TO SEPTEMBER 30, 1997
COMMON STOCK ------------------- ADDITIONAL NUMBER PAID-IN ACCUMULATED OF SHARES AMOUNT CAPITAL DEFICIT ---------- -------- ----------- ----------- Balance, August 14, 1997 (Incep- tion)............................. -- $ -- $ -- $ -- Issuance of common stock and war- rants........................... 15,714,587 157,146 54,815,258 Net loss......................... (273,457) ---------- -------- ----------- --------- Balance, September 30, 1997........ 15,714,587 $157,146 $54,815,258 $(273,457) ========== ======== =========== =========
See accompanying notes. F-12 UNITED RENTALS, INC. STATEMENT OF CASH FLOWS AUGUST 14, 1997 (INCEPTION) TO SEPTEMBER 30, 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net loss......................................................... $ (273,457) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation................................................... 1,542 Changes in operating assets and liabilities: Prepaid expenses and other assets............................ (114,200) Accounts payable and other liabilities....................... 152,527 ----------- Net cash used in operating activities...................... (233,588) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment.............................. (101,248) ----------- Net cash used in investing activities...................... (101,248) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stock and warrants, net of issuance costs.................................................. 54,972,404 ----------- Net cash provided by financing activities.................. 54,972,404 ----------- Net increase in cash and cash equivalents........................ 54,637,568 Cash and cash equivalents at beginning of period................. -- ----------- Cash and cash equivalents at end of period................. $54,637,568 ===========
See accompanying notes. F-13 UNITED RENTALS, INC. NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1997 1. ORGANIZATION AND BASIS OF PRESENTATION United Rentals, Inc. (the "Company"), a Delaware corporation, was incorporated in August 1997. Upon the completion of the acquisitions discussed further in Note 7, the Company primarily will operate as an equipment rental company. The Company will also engage in related activities such as selling used rental equipment, acting as a distributor for certain new equipment and selling related merchandise and parts. The nature of the Company's business will be such that short-term obligations are typically met by cash flow generated from long-term assets. Consequently, consistent with industry practice, the accompanying balance sheet is presented on an unclassified basis. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash Equivalents The Company considers all highly liquid instruments with a maturity of three months or less when purchased to be cash equivalents. Property and Equipment Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. The range of useful lives estimated by management for property and equipment is five to seven years. Income Taxes The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between financial statement and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Recognition of deferred tax assets is limited to amounts considered by management to be more likely than not of realization in future periods. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Concentrations of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash investments. The Company maintains cash and cash equivalents with high quality financial institutions. F-14 UNITED RENTALS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Impact of Recently Issued Accounting Standards In February 1997, the Financial Accounting Standards Board issued Statement 128, Earnings Per Share ("SFAS 128"), which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating earnings per share, basic earnings per share will exclude the dilutive effect of the Company's stock options and warrants. Implementation of SFAS 128 is expected to result in no change to the Company's net loss per share included herein. Stock-Based Compensation The Company accounts for its stock based compensation arrangements under the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees." Since stock options will be granted by the Company with exercise prices at or greater than the fair value of the shares at the date of grant, no compensation expense will be recognized. Computation of Net Loss Per Share Net loss per share is computed by dividing net loss by the weighted average number of shares of common stock and common stock equivalents outstanding during the period. Common Stock issued for consideration below the mid-point of the range of the estimated offering price per share (the "Assumed IPO price per share") and stock options and warrants granted with exercise prices below the Assumed IPO price per share during the twelve months preceding the date of the initial filing of the registration statement will be included in the calculation of common equivalent shares at the Assumed IPO price per share. The weighted average number of shares used in calculating net loss per share was for the period from August 14, 1997 to September 30, 1997. 3. PROPERTY AND EQUIPMENT A summary of property and equipment is as follows: Furniture, fixtures and office equipment........................... $101,248 Less accumulated depreciation...................................... 1,542 -------- Property and equipment, net........................................ $ 99,706 ========
4. INCOME TAXES A reconciliation of the provision for income taxes and the amount computed by applying the statutory federal income tax rate of 34% to loss before provision for income taxes is as follows: Computed tax benefit at statutory tax rate........................ $ 92,976 Increase in tax benefit: Tax-exempt interest income...................................... 9,409 Change in valuation allowance................................... (102,385) --------- $ -- =========
F-15 UNITED RENTALS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The components of deferred income tax assets are as follows: Net operating loss carryforward................................... $ 102,385 Valuation allowance............................................... (102,385) --------- $ -- =========
5. CAPITAL STOCK During September, the Company issued an aggregate of 12,686,514 shares of Common Stock and 6,342,858 warrants to certain officers of the Company for an aggregate amount of $44.4 million. In addition, the Company, in a private placement sold an aggregate of 3,028,873 shares of common stock for an aggregate amount of $10.6 million. At September 30, 1997 there are 6,342,858 shares of Common Stock reserved for the exercise of warrants and 5,000,000 shares of Common Stock reserved for the future issuance of options pursuant to the Company's 1997 Stock Option Plan. As of September 30, 1997 there are outstanding warrants to purchase an aggregate of 6,342,858 shares of Common Stock. Each warrant provides for an exercise price of $10.00 per share and may be exercised at any time until September 12, 2007. The Board of Directors has adopted the Company's 1997 Stock Option Plan (the "Stock Option Plan") which provides for the granting of options to purchase not more than an aggregate of 5,000,000 shares of Common Stock. All officers, employees and others who render services to the Company are eligible to participate in the Stock Option Plan. Each option granted pursuant to the Stock Option Plan must provide for an exercise price per share that is at least equal to the fair market value per share of Common Stock on the date of grant. No options may be granted under the Stock Option Plan after August 21, 2007. The exercise price of each option, the period during which each option may be exercised and the other terms and conditions of each option are determined by the Board of Directors (or by a committee appointed by the Board). No options to purchase shares of the Company's Common Stock were granted during the period from August 14, 1997 to September 30, 1997. 6. COMMITMENTS AND CONTINGENCIES Operating Leases The Company leases office space and certain office equipment under operating leases. The office lease requires the Company to pay maintenance, insurance, taxes and certain other expenses in addition to the stated rentals. Future minimum lease payments, by year and in the aggregate, for noncancellable operating leases with initial or remaining terms of one year or more are as follows at September 30, 1997: 1997 (after September 30, 1997).................................. $ 100,032 1998............................................................. 400,128 1999............................................................. 400,128 2000............................................................. 400,128 2001............................................................. 329,634 ---------- $1,630,050 ==========
F-16 UNITED RENTALS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 7. SUBSEQUENT EVENTS During October 1997, the Company entered into a credit agreement with Bank of America ("Credit Facility"). The Credit Facility provides for a $55 million, three year collateralized revolving credit facility due October 2000. Outstanding loans under the Credit Facility bear interest at a rate per annum equal to the Eurodollar Rate (Reserve Adjusted) (as defined in the credit agreement providing for the Credit Facility) applicable to each interest period plus 1.5% to 2.5% per annum or the Alternate Reference Rate (as defined in the credit agreement providing for the Credit Facility) from time to time in effect plus 0% to .25% per annum. The Credit Facility also allows the Company to obtain up to $10 million in letters of credit. The aggregate amount the Company is permitted to borrow under the Credit Facility is reduced by the aggregate face amount of all outstanding letters of credit issued thereunder. On October 28, 1997, the outstanding balance was $35 million. Subsequent to September 30, 1997, the Company completed the acquisition of six equipment rental companies (the "Acquisitions") and the aggregate consideration paid by the Company for the Acquisitions consisted of approximately $56.6 million in cash, 318,712 shares of Common Stock (which stock consideration is subject to an adjustment) and a $300,000 convertible note. In addition, the Company agreed to pay the former owners of one of the Initial Acquired Companies a percentage of such company's future revenues until an aggregate of $2.8 million has been paid. These acquisitions were accounted for as purchases. F-17 INDEPENDENT AUDITOR'S REPORT MERCER Equipment Company: We have audited the accompanying balance sheets of MERCER Equipment Company as of December 31, 1996 and 1995, and the related statements of income and retained earnings and of cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of MERCER Equipment Company as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ Webster, Duke & Co. PA Charlotte, North Carolina January 31, 1997 F-18 MERCER EQUIPMENT COMPANY BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30, ----------------------- ------------- 1995 1996 1997 ----------- ----------- ------------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash................................... $ 454,697 $ 276,639 $ 151,961 Accounts receivable (less allowance for doubtful accounts: 1995-$150,000, 1996-$182,425, 1997-$303,128)......... 1,420,681 1,819,581 2,253,040 Inventory (Notes 2, 5 and 8)........... 2,092,086 2,417,425 2,430,233 Miscellaneous receivables.............. 12,539 16,604 18,661 ----------- ----------- ----------- Total current assets................. 3,980,003 4,530,249 4,853,895 ----------- ----------- ----------- RENTAL EQUIPMENT (Notes 2, 5, 8, 9, 10 and 16): Rental equipment....................... 10,480,865 14,030,584 15,617,619 Less accumulated depreciation.......... 2,642,313 3,717,218 4,312,700 ----------- ----------- ----------- Rental equipment, net................ 7,838,552 10,313,366 11,304,919 ----------- ----------- ----------- OTHER PROPERTY (Notes 2, 8 and 11): Other property......................... 686,504 1,003,079 1,084,329 Less accumulated depreciation.......... 292,279 395,658 489,708 ----------- ----------- ----------- Other property, net.................. 394,225 607,421 594,621 ----------- ----------- ----------- OTHER ASSETS (Note 14): Other assets........................... 47,800 68,639 66,089 Notes receivable-officers.............. 45,872 69,980 68,095 Due from stockholders.................. 247,729 ----------- ----------- ----------- Total other assets................... 341,401 138,619 134,184 ----------- ----------- ----------- TOTAL................................ $12,554,181 $15,589,655 $16,887,619 =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Line of credit (Note 4)................ -- -- -- Note payable-Bank (Note 4)............. $ 465,200 $ 494,245 $ 454,245 Short-term equipment notes (Note 5).... 387,729 189,528 -- Notes payable-individuals (Notes 6 and 14)................................... 638,500 609,000 631,000 Current portion of long-term debt...... 1,541,716 2,253,562 2,903,457 Current portion of capital leases...... 153,189 167,445 82,081 Accounts payable....................... 1,602,437 2,161,340 3,218,334 Accrued expenses....................... 116,032 140,361 119,987 ----------- ----------- ----------- Total current liabilities............ 4,904,803 6,015,481 7,409,104 ----------- ----------- ----------- LONG-TERM DEBT (Non-current Portion): Revolving credit note (Note 7)......... 1,000,000 2,430,000 2,328,000 Notes payable to bank (Note 8)......... 2,230,000 1,513,000 735,250 Notes payable on rental equipment (Note 9).................................... 1,503,672 2,195,238 2,078,374 Capital leases on rental equipment (Note 10)............................. 283,718 119,183 194,857 Notes payable for fixed assets (Note 11)................................... 86,116 138,543 111,658 ----------- ----------- ----------- Total long-term debt................. 5,103,506 6,395,964 5,448,139 ----------- ----------- ----------- STOCKHOLDERS' EQUITY: Common stock (Notes 2 and 13).......... 500,001 500,001 500,001 Retained earnings (Note 8)............. 2,045,871 2,678,209 3,530,375 ----------- ----------- ----------- Total stockholders' equity........... 2,545,872 3,178,210 4,030,376 ----------- ----------- ----------- TOTAL................................ $12,554,181 $15,589,655 $16,887,619 =========== =========== ===========
See notes to financial statements. F-19 MERCER EQUIPMENT COMPANY STATEMENTS OF INCOME AND RETAINED EARNINGS
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ---------------------------------- ---------------------- 1994 1995 1996 1996 1997 ---------- ---------- ---------- ---------- ---------- (UNAUDITED) REVENUE: Sales of new equipment............ $1,559,244 $2,479,358 $3,415,523 $2,488,974 $3,384,882 Sales of supplies and parts................ 1,184,997 1,558,273 2,067,403 1,515,337 1,873,232 ---------- ---------- ---------- ---------- ---------- Total goods sold.... 2,744,241 4,037,631 5,482,926 4,004,311 5,258,114 Sales of rental equipment............ 662,029 872,621 1,102,621 853,921 1,718,513 Rental revenues....... 3,798,468 4,950,614 7,380,137 5,236,985 6,141,024 Service department revenues............. 327,693 357,039 488,216 365,170 446,932 ---------- ---------- ---------- ---------- ---------- Total revenues...... 7,532,431 10,217,905 14,453,900 10,460,387 13,564,583 ---------- ---------- ---------- ---------- ---------- DIRECT COSTS OF REVENUE: Cost of goods sold.... 2,290,853 3,171,168 4,469,790 3,261,212 4,227,967 Cost of rental equipment sold, net.. 386,191 530,102 702,254 497,767 1,009,277 Rental department expenses (including depreciation of $771,385; 1,035,352, $1,492,131, $1,129,746 and $1,313,961).......... 1,591,109 2,226,420 3,589,936 2,610,640 3,247,956 Service department expenses............. 417,370 460,382 648,882 453,499 619,856 ---------- ---------- ---------- ---------- ---------- Total direct costs of revenue......... 4,685,523 6,388,072 9,410,862 6,823,118 9,105,056 ---------- ---------- ---------- ---------- ---------- GROSS MARGIN............ 2,846,908 3,829,833 5,043,038 3,637,269 4,459,527 ---------- ---------- ---------- ---------- ---------- OPERATING EXPENSES: Sales expenses........ 515,600 752,722 1,386,812 915,554 1,196,596 Administrative and general expenses..... 1,284,011 1,930,124 2,247,556 1,541,180 1,831,631 ---------- ---------- ---------- ---------- ---------- Total operating expenses........... 1,799,611 2,682,846 3,634,368 2,456,734 3,028,227 ---------- ---------- ---------- ---------- ---------- MARGIN FROM OPERATIONS.. 1,047,297 1,146,987 1,408,670 1,180,535 1,431,300 ---------- ---------- ---------- ---------- ---------- OTHER INCOME (EXPENSE): Miscellaneous income.. 66,707 78,258 110,340 82,256 126,008 Interest expense...... (261,659) (486,976) (813,339) (610,316) (677,364) ---------- ---------- ---------- ---------- ---------- Total other income (expense).......... (194,952) (408,718) (702,999) (528,060) (551,356) ---------- ---------- ---------- ---------- ---------- NET INCOME.............. 852,345 738,269 705,671 652,475 879,944 BEGINNING RETAINED EARNINGS............... 865,258 1,450,936 2,045,871 2,045,871 2,678,209 ---------- ---------- ---------- ---------- ---------- Total............... 1,717,603 2,189,205 2,751,542 2,698,346 3,558,153 LESS DIVIDENDS PAID..... 266,667 143,334 73,333 73,333 27,778 ---------- ---------- ---------- ---------- ---------- ENDING RETAINED EARNINGS............... $1,450,936 $2,045,871 $2,678,209 $2,625,013 $3,530,375 ========== ========== ========== ========== ==========
See notes to financial statements. F-20 MERCER EQUIPMENT COMPANY STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------- ---------------------- 1994 1995 1996 1996 1997 ----------- ----------- ----------- ---------- ---------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income........... $ 852,345 $ 738,269 $ 705,671 $ 652,475 $ 879,944 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization...... 845,938 1,117,783 1,610,918 1,207,471 1,410,561 Cost of rental equipment sold, net............... 386,191 530,102 702,254 497,767 1,009,277 Cost of other property sold, net............... 14,800 Changes in assets and liabilities: Accounts receivable, net............. (206,728) (418,132) (398,900) (788,482) (433,459) Inventory........ (307,833) (900,532) (325,339) (353,624) (12,808) Miscellaneous receivables..... (1,563) (5,437) (4,065) 9,139 (2,057) Other assets..... (16,000) (24,239) 8,000 -- Accounts payable......... 511,659 651,668 558,903 191,904 1,056,994 Accrued expenses........ 50,841 29,098 24,329 (30,996) (20,374) ----------- ----------- ----------- ---------- ---------- Net cash provided by operating activities.... 2,130,850 1,726,819 2,864,332 1,393,654 3,888,078 ----------- ----------- ----------- ---------- ---------- CASH FLOWS (TO) INVESTING ACTIVITIES: Purchase of rental equipment........... (1,961,168) (2,466,039) (2,001,083) (1,319,580) (1,873,646) Purchase of other property............ (93,189) (131,695) (171,319) (128,347) (81,250) Increase in other asset............... (14,400) (1,650) ----------- ----------- ----------- ---------- ---------- Net cash (to) investing activities.... (2,068,757) (2,599,384) (2,172,402) (1,447,927) (1,954,896) ----------- ----------- ----------- ---------- ---------- CASH FLOWS FROM (TO) FINANCING ACTIVITIES: Repayments of notes receivable-- officers............ 1,864 2,264 3,019 3,019 1,885 Repayments by stockholders........ 220,602 187,881 Loans to stockholders........ (247,729) Repayments under line of credit........... (115,867) (125,000) (40,000) Borrowings under line of credit........... 175,000 -- Repayments of short- term equipment notes............... (130,301) (618,854) (488,708) (189,528) Repayments of notes payable-- individuals......... (52,500) (31,500) Repayments of long- term debt........... (591,016) (1,051,070) (1,950,688) (971,523) (1,901,668) Repayments of capital leases.............. (22,009) (150,279) (45,595) (132,771) Net borrowings under note payable--bank.. 465,200 29,045 -- -- Borrowings under revolving credit note................ 1,000,000 1,700,000 1,200,000 210,000 Proceeds from bank loans............... 800,000 1,120,588 Proceeds from notes payable individuals......... 53,000 305,000 23,000 22,000 Dividends paid....... (266,667) (143,334 ) (73,333) (73,333) (27,778) ----------- ----------- ----------- ---------- ---------- Net cash from (to) financing activities.... (118,686) 1,173,609 (869,988) (44,759) (2,057,860) ----------- ----------- ----------- ---------- ---------- NET INCREASE (DECREASE) IN CASH............... (56,593) 301,044 (178,058) (99,032) (124,678) BEGINNING CASH BALANCE............... 210,246 153,653 454,697 454,697 276,639 ----------- ----------- ----------- ---------- ---------- ENDING CASH BALANCE.... $ 153,653 $ 454,697 $ 276,639 $ 355,665 $ 151,961 =========== =========== =========== ========== ==========
See notes to financial statements F-21 MERCER EQUIPMENT COMPANY NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND BUSINESS Organization--MERCER Equipment Company (MERCER) is a North Carolina corporation. For income tax purposes, it has elected treatment under Subchapter S of the Internal Revenue Code of 1986. Business--MERCER sells, rents, and repairs construction equipment, primarily to contractors, industry, utilities, and municipalities. MERCER operates two branches in the Charlotte, North Carolina area and one branch in Greensboro, North Carolina. 2. ACCOUNTING PRINCIPLES Basis of Accounting--MERCER prepares its financial statements on the accrual basis of accounting. Interim Financial Statements--The accompanying balance sheet at September 30, 1997 and the statements of income and retained earnings and cash flows for the nine-month periods ended September 30, 1996 and 1997 are unaudited and have been prepared on the same basis as the audited financial statements included herein. In the opinion of management, such unaudited financial statements include all adjustments necessary to present fairly the information set forth therein, which consist solely of normal recurring adjustments. The results of operations for such interim periods are not necessarily indicative of results for the full year. Management has elected to omit substantially all of the disclosures related to the interim periods noted above. Use of Estimates--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Inventory--Inventory consists of new equipment and merchandise for resale and of parts for resale or repair of equipment. MERCER records inventory using the last-in, first-out (LIFO) cost assumptions. MERCER maintains separate LIFO pools for new equipment, merchandise, and parts; and uses government indices to determine the cost of LIFO layers. At December 31, 1995, and 1996, the difference between LIFO and first-in, first-out cost was $253,278 and $310,346, respectively. Rental Equipment--MERCER records rental equipment at cost and depreciates that cost using the straight-line method over 60 months (50 months for rental equipment purchased after December 31, 1995). MERCER estimates the salvage value on rental equipment to be 28% (50% for rental equipment purchased after December 31, 1995). (See Notes 16). Other Property--MERCER records other property at cost and depreciates that cost using the straight-line method over lives of 5 or 7 years. Notes Receivable--Officers--At December 31, 1996, the notes receivable from officers are due in monthly payments of $600, including principal and interest, for 15 years. At December 31, 1995, the notes receivable from officers were due in quarterly installments of $1,264, including principal and interest, for 14 years. Common Stock--MERCER has two classes of common stock: Class A common stock which has voting rights and Class B common stock which has no voting rights. The preferences, limitations, and relative rights of classes are the same except the nonvoting stock has not voting rights other than in those cases in which nonvoting stock is expressly granted voting rights under North Carolina law. F-22 MERCER EQUIPMENT COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) At December 31, 1995, and 1996, the number of shares authorized and outstanding of each class of stock was as follows:
AUTHORIZED OUTSTANDING ---------- ----------- Class A, voting....................................... 25,000 16,667 Class B, nonvoting.................................... 175,000 150,000
Rental Revenue--MERCER generally rents equipment under short-term agreements of one month or less and accounts for these agreements as operating leases. Lease Expense--MERCER leases its facilities and certain delivery vehicles under leases classified as operating leases. MERCER leases certain rental equipment and new equipment inventory under leases classified as capital leases. Income Taxes--MERCER has elected taxation under Subchapter S of the Internal Revenue Code of 1986 and its stockholders report the taxable income or loss of the company on their individual income tax returns. For income tax purposes, MERCER generally uses accelerated depreciation methods (without salvage value) and deducts bad debts as they are written off. Statement of Cash Flows--MERCER considers all instruments with a maturity of three months or less to be cash equivalents. During 1994, 1995, and 1996, MERCER paid interest expense and purchase various assets through incurrence of notes payable as follows:
1994 1995 1996 -------- ---------- ---------- Interest paid................................ $254,843 $ 464,090 $ 807,169 Debt incurred to purchase: Inventory.................................. 357,306 88,509 Rental equipment........................... 853,820 2,300,291 2,530,234 Fixed assets............................... 142,174 163,756
3. PURCHASE OF BUSINESS On September 29, 1995, MERCER acquired the branch retail operations of Builders Equipment & Tool Co., Inc. (BETCO) in a transaction accounted for as a purchase. The accompanying financial statements include the results of the Greensboro operation from that date. MERCER purchased substantially all of the resale and rental inventory and the fixed assets at the branch. The purchase price was $600,000 (see Note 9). There were no intangible assets purchased nor are there any contingent payments or commitments. 4. NOTE PAYABLE--BANK At December 31, 1995, MERCER had a note payable to a bank that was due May 31, 1996. The note provided for monthly payment of interest at the bank's prime rate plus 1/2%. The original amount of the note was $500,000. At December 31, 1996, MERCER had a note payable to a bank that is due May 31, 1997. The note provides for monthly payment of interest at the bank's prime rate plus 1/2%. The original amount of the note was $500,000. 5. SHORT-TERM EQUIPMENT NOTES MERCER has purchased rental equipment and inventory with short-term (less than 12 months) notes payable with a nominal interest charge. At December 31, 1996, rental equipment and inventory with a cost of $434,972 and $135,522, respectively, is pledged as collateral. F-23 MERCER EQUIPMENT COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 6. NOTES PAYABLE--INDIVIDUALS Notes payable--individuals provide for quarterly interest payments at the Wall Street prime rate plus one percent and allows MERCER to delay payment of principal for up to one year and a day after request. At December 31, 1995, and 1996, $181,300 and $178,000, respectively, of this amount was due stockholders. 7. REVOLVING CREDIT NOTES MERCER has a $3,000,000 revolving credit note with a bank. At December 31, 1996 MERCER had termed the revolver's outstanding balance and will repay the principal over 36 months beginning in June 1997. The repayment provides for monthly payment of $45,000 principal plus interest at the bank's prime rate plus 1/4%. The annual amount of principal payment due are 1997--$315,000; 1998--$540,000; and 1999--$1,845,000. At December 31, 1995 and during 1996, only interest payments were due on the note (see Note 9 for collateral). 8. NOTES PAYABLE TO BANK At December 31, 1995 and 1996, MERCER's note payable to bank consisted of the following:
1995 1996 ---------- ---------- Bank note--8.25%, principal of $49,750 plus interest paid monthly thru November 1998; balance of $635,750 due December 1998.................................... $2,377,000 $1,780,000 Bank note--interest at prime plus 1/2%, principal of $10,000 plus interest paid monthly thru August 1998; $250,000 due September 30, 1998...................... 570,000 450,000 ---------- ---------- Total............................................. 2,947,000 2,230,000 Less current portion.................................. 717,000 717,000 ---------- ---------- Noncurrent portion.................................... $2,230,000 $1,513,000 ========== ==========
All accounts receivable and inventory and rental equipment, unless otherwise encumbered, are given as security for the notes payable to bank. The annual amounts of principal due for the next five years are as follows: 1997-- $717,000 and 1998--$1,513,000. The loan agreement with the bank provides for maintenance of certain absolute and ratio amounts relating to working capital, net worth, cash flow coverage, and debt/equity and limits amounts that can be paid in dividends. At December 31, 1996, MERCER had obtained a waiver on the cash flow coverage ratio. 9. NOTES PAYABLE ON RENTAL EQUIPMENT MERCER finances purchases of rental equipment and inventory through various arrangements with vendors, their related finance entities, and other lenders. These notes provide for monthly payments of either a fixed principal plus interest or a level payment of principal and interest. These note have terms of 36 to 60 months and generally provide for accelerated repayment if the underlying equipment is sold. At December 31, 1995, and 1996, the weighted interest rates were 9.4%, 10.1% and 8.6%, respectively. At December 31, 1996, $480,801 of floor plan notes, which have not yet begun to require payments of principal or interest, are included in notes payable on rental equipment. The financial statements assume their conversion upon expiration of the floor plan period. At December 31, 1996, rental equipment and inventory of $4,637,033 and $88,509, respectively, were collateral for all of the above notes. F-24 MERCER EQUIPMENT COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The annual amounts of principal due for the next five years are as follows: 1997--$1,188,144; 1998--$968,559; 1999--$621,294; 2000--$432,223; and 2001-- $143,162. 10. CAPITAL LEASES MERCER leases certain rental equipment and inventory under leases accounted for as capital leases. The following is an analysis of the leased property at December 31, 1995 and 1996:
1995 1996 -------- -------- Inventory................................................. $221,783 -- ======== ======== Rental equipment.......................................... $233,116 $408,081 Less accumulated amortization............................. 24,425 78,561 -------- -------- Net..................................................... $208,691 $329,520 ======== ========
The following is a schedule by years of future lease payments under capital leases together with the present value of the net minimum lease payments as of December 31, 1996: Year ended December 31, 1997....................................... $185,580 1998............................................................. 59,517 1999............................................................. 56,291 2000............................................................. 26,717 -------- Net minimum lease payments......................................... 328,105 Less amount representing interest.................................. 41,477 -------- Present value of net minimus lease payments........................ 286,628 Less current portion............................................... 167,445 -------- Long-term portion.................................................. $119,183 ========
11. NOTES PAYABLE ON FIXED ASSETS The notes payable on fixed assets provide for monthly payment of principal and interest at rates from 9.0% to 10.8%. At December 31, 1996, related assets with a cost of $287,430 are collateral for the notes. The annual amounts of principal due for the next five years is as follows: 1997--$78,418; 1998--$67,163; 1999--$45,715; 2000--$19,826 and 2001--$5,840. 12. INCOME TAXES As of December 31, 1996 tax accumulated depreciation for rental equipment and other property exceeded book accumulated depreciation by $3,199,046. 13. COMMITMENTS AND CONTINGENCIES As of December 31, 1996, MERCER's cash balance had $100,000 of FDIC insurance and is at one bank. As of December 31, 1996, MERCER leased all of its facilities from a limited liability company (LLC) whose members own 72% of MERCER's outstanding stock. The leases provide for initial terms of five to seven years; two of the leases provide for annual cost of living increases and have renewal options of five years. MERCER is also responsible for the property taxes, insurance, and repairs (see Note 14). Minimum rentals due are as follows: 1997--$336,000; 1998--$336,000; 1999--$325,000; 2000--$204,000; and 2001-- $132,000. MERCER has also guaranteed debt of $2,260,316 that the LLC has borrowed against the buildings. F-25 MERCER EQUIPMENT COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) MERCER has a stock repurchase agreement with two stockholders, each owning 30,000 shares of the outstanding Class B common stock. Among other provisions, the stock repurchase agreement allows MERCER first refusal on a sale of such shares at no less than the book value per share of the stock. At December 31, 1996, the minimum purchase price under this plan was $1,121,950. MERCER has a salary continuation agreement with the same two stockholders. MERCER has agreed to pay these stockholders' beneficiaries an amount equal to twice the prior year's wages. This amount is payable over 24 months, and at December 31, 1996, the potential obligation under the salary continuation plan was $672,672. 14. RELATED PARTIES At December 31, 1995 and 1996, other assets includes rental deposits of $16,000 and $42,889, respectively, with the LLC described in Note 13. In 1994, 1995 and 1996, MERCER paid building rentals to the LLC of $96,000, $149,500, and $278,000, respectively. In 1994, 1995, and 1996, MERCER paid interest of $12,409, $17,808 and $15,672, respectively to stockholders on the notes payable--individuals. At December 31, 1995, the due from stockholders represented amounts paid to enable the stockholders to make estimated income tax payments. The amount in excess of the actual tax liability was repaid to MERCER. 15. PROFIT-SHARING PLAN MERCER has adopted a profit-sharing plan that covers substantially all employees and provides for discretionary employer and voluntary employee contributions. In 1994, 1995, and 1996, no profit-sharing contribution was made. In 1994, 1995, and 1996, MERCER made matching payments of $17,558, $21,969, and $14,777, respectively under Section 401(k) of the Internal Revenue Code of 1986. 16. CHANGE IN ACCOUNTING ESTIMATE In 1996 MERCER changed the depreciable life and estimated salvage value of its rental equipment purchased after December 31, 1995 from 60 months to 50 months and from 28% to 50%. The effect of these changes in estimated life and salvage value was to decrease depreciation on rental equipment by $58,859. F-26 REPORT OF INDEPENDENT AUDITORS The Board of Directors A&A Tool Rentals & Sales, Inc.: We have audited the accompanying consolidated balance sheets of A&A Tool Rentals & Sales, Inc. and subsidiary as of October 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three year period ended October 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of A&A Tool Rentals & Sales, Inc. and subsidiary as of October 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three year period ended October 31, 1996, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP Sacramento, California October 30, 1997 F-26--1 A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
OCTOBER 31, --------------------- JULY 31, 1995 1996 1997 ---------- ---------- ----------- (UNAUDITED) ASSETS Cash......................................... $ 336,304 $ 308,331 $ 187,082 Trade accounts receivable, less allowance for doubtful accounts of $85,000 in 1995, $80,000 in 1996, and $94,608 in 1997 (notes 2 and 3)............................. 1,360,476 1,416,142 1,324,684 Merchandise inventory........................ 750,556 847,035 906,969 Rental equipment, primarily machinery, at cost, net of accumulated depreciation and amortization of $5,388,046 in 1995, $5,909,751 in 1996, and $6,727,264 in 1997 (notes 2 and 3)............................. 2,136,948 3,190,093 3,133,863 Operating property and equipment, net of accumulated depreciation and amortization of $967,822 in 1995, $912,230 in 1996, and $975,498 in 1997 (notes 2 and 3)............ 356,336 384,759 306,415 Due from related party (note 5).............. 229,485 228,737 316,364 Prepaid expenses and other assets............ 183,681 234,976 152,251 ---------- ---------- ---------- Total assets............................. $5,353,786 $6,610,073 $6,327,628 ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Short-term debt (note 2)..................... $1,679,244 $ 90,400 $ 484,700 Accounts payable............................. 705,460 766,465 703,583 Accrued liabilities.......................... 235,258 244,938 221,763 Income tax payable........................... -- 6,019 2,992 Long-term debt and capital lease obligations (note 3).................................... 1,723,384 4,351,394 3,868,069 ---------- ---------- ---------- Total liabilities........................ 4,343,346 5,459,216 5,281,107 Commitments (notes 6 and 9).................. Stockholders' equity: Common stock, Class A--voting par value $.10. Authorized 2,000,000 shares; issued and outstanding 720,000 shares in 1995, 1996 and 1997............................. 72,000 72,000 72,000 Common stock, Class B--nonvoting. Authorized 5,000,000 shares; issued and outstanding 335,586 shares in 1995, 277,172 shares in 1996, and 275,242 shares in 1997................................... 457,813 395,201 393,058 Retained earnings............................ 480,627 683,656 581,463 ---------- ---------- ---------- Total stockholders' equity............... 1,010,440 1,150,857 1,046,521 ---------- ---------- ---------- Total liabilities and stockholders' equity.................................. $5,353,786 $6,610,073 $6,327,628 ========== ========== ==========
See accompanying notes to consolidated financial statements. F-27 A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS YEAR ENDED OCTOBER 31, ENDED JULY 31, ---------------------------------- ---------------------- 1994 1995 1996 1996 1997 ---------- ---------- ---------- ---------- ---------- (UNAUDITED) Revenues: Equipment rentals..... $4,029,388 $4,800,767 $5,918,148 $4,165,881 $4,501,537 New equipment sales... 3,694,880 4,283,294 4,463,117 3,310,409 3,228,472 Sales of parts, supplies and rental equipment..... 705,337 848,193 1,027,943 824,910 657,572 Other................. 207,769 237,205 296,926 198,144 215,542 ---------- ---------- ---------- ---------- ---------- Total revenues.......... 8,637,374 10,169,459 11,706,134 8,499,344 8,603,123 ---------- ---------- ---------- ---------- ---------- Costs of Revenues: Cost of equipment rentals, excluding equipment rental depreciation and amortization......... 1,746,608 2,049,172 2,464,200 1,976,183 2,097,280 Depreciation and amortization, equipment rentals.... 677,482 1,040,233 1,382,048 902,347 1,193,986 Cost of new equipment sales................ 3,400,474 4,054,467 4,325,802 3,234,457 3,016,957 Cost of sales of parts, supplies, and equipment............ 467,660 534,204 584,766 330,714 296,725 Other................. 32,474 38,358 32,582 24,337 33,115 ---------- ---------- ---------- ---------- ---------- Total costs of revenues............... 6,324,698 7,716,434 8,789,398 6,468,038 6,638,063 Gross Profit............ 2,312,676 2,453,025 2,916,736 2,031,306 1,965,060 ---------- ---------- ---------- ---------- ---------- Selling, general and administration....... 2,230,724 2,063,730 2,215,936 1,614,263 1,696,104 Non-rental depreciation and amortization......... 88,896 107,390 120,757 88,896 95,171 ---------- ---------- ---------- ---------- ---------- Operating income (loss)................. (6,944) 281,905 580,043 328,147 173,785 Other income (expense)............ 223,210 (14,251) 21,085 61,119 93,814 ---------- ---------- ---------- ---------- ---------- Income before interest and taxes.............. 216,266 267,654 601,128 389,266 267,599 Interest income....... 41,822 56,053 54,993 51,898 46,553 Interest expense...... (164,829) (324,957) (401,204) (264,613) (410,345) ---------- ---------- ---------- ---------- ---------- Net interest expense............ (123,007) (268,904) (346,211) (212,715) (363,792) ---------- ---------- ---------- ---------- ---------- Income (loss) before income taxes........... 93,259 (1,250) 254,917 176,551 (96,193) Income tax expense (note 4)............. (200) (1,600) (7,619) (1,600) (6,000) ---------- ---------- ---------- ---------- ---------- Income (loss) from continuing operations.. 93,059 (2,850) 247,298 174,951 (102,193) Loss from operation of discontinued subsidiary........... (242,713) (55,929) -- -- -- Loss from disposal of discontinued subsidiary........... -- -- (44,269) (16,318) -- ---------- ---------- ---------- ---------- ---------- Income (loss) before cumulative effect of accounting change...... (149,654) (58,779) 203,029 158,633 (102,193) Cumulative effect of accounting change (note 4)............. 54,395 -- -- -- -- ---------- ---------- ---------- ---------- ---------- Net income (loss)....... $ (95,259) $ (58,779) $ 203,029 $ 158,633 $ (102,193) ========== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements. F-28 A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON COMMON STOCK STOCK CLASS A CLASS B --------------- ----------------- RETAINED SHARES AMOUNT SHARES AMOUNT EARNINGS TOTAL ------- ------- ------- -------- -------- ---------- Balances at October 31, 1993................... 720,000 $72,000 368,635 $494,059 $634,665 $1,200,724 Purchase of Class B common stock from ESOP.............. -- -- (5,202) (6,450) -- (6,450) Net loss................ -- -- -- -- (95,259) (95,259) ------- ------- ------- -------- -------- ---------- Balances at October 31, 1994................... 720,000 72,000 363,433 487,609 539,406 1,099,015 Purchase Class B common stock from ESOP........ -- -- (27,847) (29,796) -- (29,796) Net loss................ -- -- -- -- (58,779) (58,779) ------- ------- ------- -------- -------- ---------- Balances at October 31, 1995................... 720,000 72,000 335,586 457,813 480,627 1,010,440 Purchase Class B common stock from ESOP........ -- -- (58,414) (62,612) -- (62,612) Net income.............. -- -- -- -- 203,029 203,029 ------- ------- ------- -------- -------- ---------- Balances at October 31, 1996................... 720,000 72,000 277,172 395,201 683,656 1,150,857 Purchase Class B common stock from ESOP (unaudited)............ -- -- (1,930) (2,143) -- (2,143) Net loss (unaudited).... -- -- -- -- (102,193) (102,193) ------- ------- ------- -------- -------- ---------- Balances at July 31, 1997 (Unaudited)....... 720,000 $72,000 275,242 $393,058 $581,463 $1,046,521 ======= ======= ======= ======== ======== ==========
See accompanying notes to consolidated financial statements. F-29 A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED OCTOBER 31, NINE MONTHS ENDED JULY 31, ------------------------------------- ---------------------------- 1994 1995 1996 1996 1997 ----------- ----------- ----------- ----------- ---------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)...... $ (95,259) $ (58,779) $ 203,029 $ 158,633 $ (102,193) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization.......... 790,379 1,162,980 1,502,805 969,379 1,190,261 Provision for bad debts................. 77,985 71,600 96,216 52,515 59,985 Provision for write- down of inventory..... -- 31,709 -- -- 35,403 Gain on sale of equipment............. (129,822) (213,049) (364,504) (196,325) (167,944) Decrease in deferred income taxes.......... (54,395) -- -- -- -- Changes in operating assets: (Increase) decrease in trade accounts receivable........... (147,724) (282,115) (151,882) (190,069) 31,473 (Increase) decrease in related party receivables.......... (39,520) -- 748 (30,385) (87,627) (Increase) decrease in merchandise inventory............ (199,166) 38,955 (96,479) (348,187) (95,337) (Increase) decrease in prepaid expenses and other assets..... (7,689) (29,102) (10,934) (42,445) (50,309) Increase (decrease) in accounts payable, trade................ (70,042) 18,196 61,005 114,982 (62,882) Increase (decrease) in accrued liabilities.......... (40,034) 52,801 9,680 (39,228) (23,175) Decrease in deferred revenue.............. (45,460) (4,440) -- -- -- Increase (decrease) in income tax payable.............. -- -- 6,019 -- (3,027) ----------- ----------- ----------- ----------- ---------- Net cash provided by operating activities.......... 39,253 734,015 1,277,571 448,870 724,628 ----------- ----------- ----------- ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from the sale of rental equipment and operating property and equipment......... 199,817 277,390 469,489 245,232 213,013 Purchases of rental equipment and operating property and equipment......... (1,652,800) (1,635,368) (2,689,358) (2,020,219) (1,100,756) Proceeds from sale of marketable securities............ 4,955 4,954 2,514 2,514 -- ----------- ----------- ----------- ----------- ---------- Net cash used in investing activities.......... (1,448,028) (1,353,024) (2,217,355) (1,772,473) (887,743) ----------- ----------- ----------- ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on long-term debt.................. 944,440 788,967 3,062,482 3,224,342 1,716,314 Payments on long-term debt.................. (415,114) (574,595) (1,121,435) (572,655) (2,199,639) Net borrowings (payments) on short- term debt............. 849,953 513,771 (901,881) (1,553,999) (394,300) Premiums paid for officers' life insurance............. (63,026) (60,042) (64,743) (50,799) (66,966) Drawings on cash surrender value of officers' life insurance............. 140,000 -- -- -- 200,000 Purchase of Class B common stock.......... (6,450) (29,796) (62,612) (59,590) (2,143) ----------- ----------- ----------- ----------- ---------- Net cash provided by financing activities.......... 1,449,803 638,305 911,811 987,299 41,866 ----------- ----------- ----------- ----------- ---------- Net increase (decrease) in cash.. 41,028 19,296 (27,973) (336,304) (121,249) Cash at beginning of period................. 275,980 317,008 336,304 336,304 308,331 ----------- ----------- ----------- ----------- ---------- Cash at end of period... $ 317,008 $ 336,304 $ 308,331 $ -- $ 187,082 =========== =========== =========== =========== ========== SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest............... $ 164,863 $ 324,957 $ 401,204 $ 264,613 $ 410,345 =========== =========== =========== =========== ========== Income taxes........... $ 200 $ 1,600 $ 1,600 $ 1,600 $ 10,627 =========== =========== =========== =========== ========== NONCASH INVESTING AND FINANCING ACTIVITIES: Sale of property and equipment for promissory note....... $ -- $ 10,000 $ -- $ -- $ -- Conversion of short- term debt to long-term debt.................. $ -- $ -- $ 686,963 $ -- $ --
See accompanying notes to consolidated financial statements. F-30 A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1995 AND 1996 (THE INFORMATION AS OF JULY 31, 1997 AND FOR THE NINE MONTHS ENDED JULY 31, 1997 AND 1996 IS UNAUDITED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Organization and Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary Operations Management Systems, Inc. (OMS). The Company rents and sells construction and industrial supplies and power equipment in Northern California. OMS marketed and sold computer hardware and software to construction related businesses. All significant intercompany accounts and transactions were eliminated in consolidation. The nature of the Company's business is such that short-term obligations are typically met by cash flow generated from long-term assets. Consequently, consistent with industry practice, the accompanying consolidated balance sheets are presented on an unclassified basis. As of October 31, 1995, the Company decided to discontinue the operations of its subsidiary, OMS. Certain assets of OMS were sold as of October 31, 1995. The Company disposed of the remaining assets and liabilities of OMS, which included cash, accounts receivable, inventory, property and equipment, accounts payable and accrued liabilities, during fiscal year 1996. The Company recognized a loss on disposal of the remaining assets. The loss from the disposal of OMS assets was $44,269 for the year ended October 31, 1996 and $16,318 for the nine months ended July 31, 1996. The loss from the operations of OMS was $242,713 and $55,929 for the years ending October 31, 1994 and 1995, respectively. (b) Interim Financial Statements The accompanying consolidated balance sheet at July 31, 1997 and the consolidated statements of operations, shareholders' equity and cash flows for the nine month periods ended July 31, 1996 and 1997 are unaudited and have been prepared on the same basis as the audited consolidated financial statements included herein. In the opinion of management, such unaudited consolidated financial statements include all adjustments necessary to present fairly the information set forth therein, which consist solely of normal recurring adjustments. The results of operations for such interim periods are not necessarily indicative of results for the full year. (c) Merchandise Inventory Merchandise inventory is stated at the lower of cost or market. Cost is determined using the weighted-average method. (d) Revenue Recognition Revenue related to the sale of construction and industrial supplies and power equipment is recognized at the point of sale. Revenue related to the rental of construction and industrial power equipment is recognized at the time of return for rentals of twenty-eight days or less, and ratably over the contract term for rentals in excess of twenty-eight days. (e) Property and Equipment Property and equipment are stated at cost and consist of rental equipment and operating property and equipment. Property and equipment under capital leases are stated at the present value of minimum lease payments. Depreciation on property and equipment is calculated using an accelerated method. F-31 A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Depreciation for property and equipment is taken over the asset's useful life of 5 years, except for leasehold improvements which are amortized over 10 to 20 years. (f) Other Assets Other assets consist primarily of the cash surrender value of officers' life insurance net of loans against the cash surrender value of the policies. The loans outstanding were $410,000 at October 31, 1995 and 1996, and $610,000 at July 31, 1997. The Company is named beneficiary under the life insurance policy. (g) Income Taxes The Company accounts for income taxes in accordance with the Financial Accounting Standards Board Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Effective November 1, 1993, the Company adopted SFAS No. 109 and has reported the cumulative effect of that change in the method of accounting for income taxes in the 1994 consolidated statement of operations. (h) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (i) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on November 1, 1996. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of this statement did not have a material impact on the Company's financial position, results of operations, or liquidity. F-32 A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (2) SHORT-TERM DEBT As of October 31, 1995 and 1996, the Company had borrowed $255,525 and $90,400, respectively, on a credit facility that allows the Company to borrow up to $500,000 at the bank's prime rate (9.25% and 8.25% at October 31, 1995 and 1996, respectively) plus 2%. Borrowings under this facility are collateralized by trade accounts receivable. As of October 31, 1995, the Company had also borrowed $1,303,719 on three additional credit facilities that allowed borrowing up to $1,800,000 bearing interest at the bank's prime rate (9.25% at October 31, 1995) plus 2%. Borrowings under these facilities were collateralized by equipment. In addition, as of October 31, 1995, the Company had borrowed $120,000 on an additional credit facility that allowed borrowings of up to $200,000 bearing interest at the bank's prime rate (9.25% at October 31, 1995) plus 2%. Borrowings under this facility were unsecured. As of July 31, 1997, the Company had borrowed $484,700 on a credit facility that allows the Company to borrow up to $500,000 at the bank's prime rate (8.5%) plus 2%. (3) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS Long-term debt and capital lease obligations consist of the following:
OCTOBER 31, --------------------- JULY 31, 1995 1996 1997 ---------- ---------- ----------- (UNAUDITED) CURRENT PAYOR AND TERMS Union Safe Deposit Bank--Various notes with combined monthly payments of $54,592 including interest at prime plus 2%, due from 1996 through 1999. Collateralized by equipment and accounts receivable.............................. $ 62,547 $1,382,482 $ 989,334 American Equipment Leasing--Various leases with combined monthly payments of $20,962 including interest ranging from 11.5% to 12%, due from 1997 through 1998. Collateralized by equipment....... 351,766 510,567 381,122 Atlas Copco, Inc.--Various notes with a combined monthly payment of $17,619 including interest ranging from 8.5% to 8.75%, due from 1996 through 1998. Collateralized by equipment............. 190,310 352,446 323,727 Clark Equipment Credit Co.--Various notes with a combined monthly payment of $10,577 including interest ranging from 8.7% to 12.39%, due from 1996 through 1999. Collateralized by equipment....... 236,363 105,889 45,433 Ingersoll-Rand--One note with a monthly payment of $3,254 including interest at 9.75%, due in 1999. Collateralized by equipment............................... -- 91,121 61,832 Prospect Leasing--Two leases with a combined monthly payment of $1,873 including interest at 10%, due in 1998. Collateralized by equipment............. -- 36,364 24,106 Miller Electric Finance--One note with a monthly payment of $2,425 including interest at 10.25%, due in 1999. Collateralized by equipment............. -- 72,746 101,704 The Associates--Various notes and leases with a combined monthly payment of $32,455 including interest ranging from 6% to 11.75%, due from 1996 through 2000. Collateralized by equipment....... 609,507 924,064 1,175,627
F-33 A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, --------------------- JULY 31, 1995 1996 1997 ---------- ---------- ----------- (UNAUDITED) CURRENT PAYOR AND TERMS--(CONTINUED) JI Case Credit Corporation--Three notes with combined monthly payments of $14,428 including interest ranging from 6.9% to 7.9%, due from 1997 through 2000. Collateralized by equipment....... 268,365 515,184 346,540 Orix Credit--One note with a monthly payment of $1,835 including interest at 9.5%, due in 1996. Collateralized by equipment............................... 14,681 -- -- John Deere--One note with a monthly payment of $885 including interest at 8.75%, due in 1998. Collateralized by equipment............................... 24,779 14,159 6,195 Caterpillar Financial Services--Various notes with a combined monthly payment of $11,476 including interest ranging from 9% to 10.75%, due from 1998 through 2001. Collateralized by equipment....... 65,842 546,420 493,833 Colonial Pacific Leasing--One lease with a monthly payment of $1,323 including interest at 10%, due in 1997. Collateralized by equipment............. 21,171 5,293 -- Newcourt Financial--Two notes with a combined monthly payment of $4,207 including interest ranging from 9.5% to 11%, due in 1998 and 2001. Collateralized by equipment............. 50,638 196,194 158,329 Other.................................... 30,730 80,773 105,030 ---------- ---------- ---------- Total long-term debt..................... 1,926,699 4,833,702 4,212,812 Less amounts representing interest....... 203,315 482,308 344,743 ---------- ---------- ---------- Long-term debt, net of interest.......... $1,723,384 $4,351,394 $3,868,069 ========== ========== ==========
The aggregate maturities of long-term debt and capital leases as of October 31, 1996 are as follows:
YEAR ENDING OCTOBER 31, ----------------------- 1997............................................................ $1,629,177 1998............................................................ 1,489,629 1999............................................................ 897,912 2000............................................................ 258,709 2001............................................................ 75,967 ---------- $4,351,394 ==========
Subsequent to July 31, 1997, the Company has paid the amounts outstanding under the long-term debt agreements. F-34 A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (4) INCOME TAXES As discussed in note 1, the Company adopted SFAS No. 109 as of November 1, 1993. The cumulative effect of this change in accounting for income taxes of $54,395 was determined as of November 1, 1993 and is reported separately in the consolidated statement of operations for the year ended October 31, 1994. Income tax expense consists of the following:
NINE MONTHS YEAR ENDED OCTOBER 31, ENDED JULY 31, ---------------------- --------------- 1994 1995 1996 1996 1997 -------------- ------- ------- ------- (UNAUDITED) Current............................... $ 200 1,600 7,619 1,600 6,000 Deferred.............................. -- -- -- -- -- ------ ------- ------- ------- ------- $ 200 1,600 7,619 1,600 6,000 ====== ======= ======= ======= =======
Deferred tax assets and deferred tax liabilities are comprised of the following:
OCTOBER 31, ------------------ JULY 31, 1995 1996 1997 -------- -------- ----------- (UNAUDITED) Current deferred tax assets: Allowance for bad debts................... $ 36,800 34,600 41,000 Inventory reserve......................... 13,800 -- -- Noncurrent deferred tax assets: Depreciation and amortization expense..... 12,700 12,000 11,300 Net operating loss........................ 285,400 188,300 198,800 Alternative minimum taxes................. 12,300 25,500 29,900 -------- -------- -------- Total deferred tax assets................. 361,000 260,400 281,000 Less: Valuation allowance................. (361,000) (260,400) (281,000) -------- -------- -------- Total deferred tax assets................. -- -- -- Total deferred tax liabilities............ -- -- -- -------- -------- -------- Net deferred tax asset/liability........ $ -- -- -- ======== ======== ========
The effective rate for income tax expense differs from the statutory tax rate of 34% when applied to income (loss) from continuing operations before income taxes as a result of the following:
OCTOBER 31, ------------ JULY 31, 1995 1996 1997 ----- ----- ----------- (UNAUDITED) Expected U.S. Federal income tax................... (34%) 34% (34%) State franchise tax, net........................... 128% 1% 1% Net operating loss carryforward.................... -- (34%) -- Effect of valuation allowance...................... 34% -- 34% Alternative minimum tax............................ -- 2% 3% ----- ----- ---- Total.......................................... 128% 3% 4% ===== ===== ====
F-35 A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The net change in the total valuation allowance for the year ended October 31, 1994, 1995 and 1996 was an increase of $83,000, $8,000, and a decrease of $100,600, respectively. (5) RELATED PARTY TRANSACTIONS Building The Company leased its Stockton, California premises from officers and stockholders of the Company. The Company executed a new five year lease on June 1, 1993. The monthly rent is $21,500. In addition, the Company as lessee is to pay all taxes and insurance relating to the property. At October 31, 1996, the remaining commitment under this lease is $387,000 plus property taxes and insurance. Due From Related Party Due from related party comprise the following:
OCTOBER 31, ----------------- JULY 31, DUE FROM 1995 1996 1997 -------- -------- -------- ----------- (UNAUDITED) President and shareholder...................... $206,296 $228,737 $316,364 Vice president and shareholder................. 23,189 -- -- -------- -------- -------- $229,485 $228,737 $316,364 ======== ======== ========
The receivable from the president bears an interest rate of 10%. F-35--1 A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (6) OPERATING LEASES The Company leases vehicles from various unrelated companies through 1998. The vehicle leases, as well as the lease for the Company's business premises, are classified as operating leases. Future minimum lease payments under the operating leases as of October 31, 1996 are:
YEAR ENDING OCTOBER 31 ---------------------- 1997.............................................................. $468,778 1998.............................................................. 256,037 1999.............................................................. 25,193 -------- $750,008 ========
Operating lease expense aggregated $369,857, $520,210 and $533,619 in 1994, 1995 and 1996, respectively, and $167,032 and $359,378 for the nine months ended July 31, 1996 and 1997, respectively. (7) EMPLOYEE STOCK OWNERSHIP PLAN Effective October 31, 1972, the Company established an Employee Stock Ownership Plan (ESOP) for the benefit of its eligible employees. The ESOP is designed to invest primarily in the stock of the Company. Contributions to the ESOP are determined annually by the Board of Directors, however, in no case may the contribution exceed the lesser of (a) fifteen percent (15%) of the compensation of eligible employees, or (b) $30,000 for each participant. No contributions were made in the years ended October 31, 1994, 1995 and 1996, or the nine months ended July 31, 1996 and 1997. The ESOP measures compensation for Plan purposes as the Company's contribution to the Plan. No compensation cost was recognized by the Plan for the years ended October 31, 1994, 1995 and 1996, or the nine months ended July 31, 1996 and 1997. The ESOP held 335,586, 277,172 and 275,242 allocated shares at October 31, 1995 and 1996, and July 31, 1997, respectively. No committed-to-be released or suspense shares were held by the ESOP at October 31, 1995 or 1996 or at July 31, 1997. Following termination of employment, participants receive a distribution of their vested ESOP account balance in the form of cash or Company shares in accordance with the provisions of the ESOP. If shares are distributed to the participant, the participant has the right to sell the shares back to the Company, for a limited period of time, at the fair market value of the shares. (8) PROFIT SHARING PLAN In August 1995, the Company established a Profit Sharing/401(k) Savings Plan (Plan) under Section 401 and 501 of the Internal Revenue Code. Substantially all employees are eligible for the Plan. Yearly employer contributions to the Plan are discretionary. Employees may also elect to contribute to the Plan. For the years ended October 31, 1995 and 1996, and the nine months ended July 31, 1996 and 1997, the Company contributed $8,245, $27,422, $19,780 and $19,779, respectively to the Plan. (9) COMMITMENTS Litigation, contingent liabilities, and claims, all arising in the ordinary course of business, are not expected to involve any amounts that could be material to the Company's financial position or results of operations. (10) SUBSEQUENT EVENT On October 17, 1997, the Company entered into a stock purchase agreement with United Rentals, Inc. (United). The transaction closed on October 20, 1997 and under the terms of the stock purchase agreement, United purchased all of the issued and outstanding common stock of the Company. F-36 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders J & J Rental Services, Inc. We have audited the balance sheets of the predecessor companies to J & J Rental Services, Inc. (see Note 1) as of December 31, 1995 and 1996 and the related statements of income, stockholders' equity and partners' capital and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the predecessor companies to J & J Rental Services, 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. /s/ Ernst & Young llp _____________________________________ MetroPark, New Jersey October 29, 1997 F-37 J & J RENTAL SERVICES, INC. BALANCE SHEETS (NOTE 1)
PREDECESSORS COMPANY --------------------- ----------------- DECEMBER 31, --------------------- SEPTEMBER 30, 1995 1996 1997 ---------- ---------- ------------- (UNAUDITED) ASSETS Cash.................................. $ 561,443 $ 666,153 $ 1,757,218 Accounts receivable, net of allowance for doubtful accounts of $433,444, $428,270, and $69,573 for 1995, 1996 and 1997, respectively............... 1,486,515 1,502,119 1,975,944 Trade notes receivable, net of allowance for doubtful accounts of $145,844 and $93,337 for 1995 and 1996, respectively................... 24,493 37,081 Rental equipment, net................. 6,284,122 6,669,365 10,504,415 Property and equipment, net........... 463,603 467,460 492,603 Investments in marketable equity securities........................... 52,750 81,175 Due from Predecessor Stockholder...... 120,000 120,000 Prepaid expenses and other assets..... 41,303 126,221 1,375 Organization costs, net............... 36,979 Covenant not to compete, net.......... 47,500 ---------- ---------- ----------- Total assets.................... $9,034,229 $9,669,574 $14,816,034 ========== ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL Liabilities: Accounts payable.................... $ 669,304 $ 628,252 $ 588,548 Accrued expenses.................... 334,965 336,884 185,617 Income tax payable.................. 7,613 24,814 Deferred tax liability.............. 418,000 430,000 Debt................................ 5,424,992 5,766,651 14,180,795 Due to Predecessor Stockholder...... 410,222 336,498 ---------- ---------- ----------- Total liabilities............... 7,265,096 7,523,099 14,954,960 Commitments and contingencies Stockholders' equity and partners' capital: Stockholder's equity--J & J Equipment, Inc. Common stock, $1.00 par value, 50,000 shares authorized, issued and outstanding.................. 50,000 50,000 Unrealized gain on marketable equity securities................ 2,750 1,165 Retained earnings................. 871,858 981,955 ---------- ---------- 924,608 1,033,120 Stockholders' equity--J & J Rental Services, Inc. Common stock, no par value, 1,000,000 shares authorized, 77,500 shares issued and outstanding...................... 1,000 Accumulated deficit............... (139,926) ----------- (138,926) Partners' capital--Tri-Star Rentals, Ltd................................ 844,525 1,113,355 ---------- ---------- Total stockholders' equity and partners' capital................ 1,769,133 2,146,475 ---------- ---------- ----------- Total liabilities and stockholders' equity and partners' capital................ $9,034,229 $9,669,574 $14,816,034 ========== ========== ===========
See accompanying notes. F-38 J & J RENTAL SERVICES, INC. STATEMENTS OF INCOME (NOTE 1)
PREDECESSORS COMPANY ---------------------------------------------------------- ------------- SIX MONTHS ENDED THREE MONTHS YEAR ENDED DECEMBER 31, JUNE 30, ENDED ---------------------------------- ---------------------- SEPTEMBER 30, 1994 1995 1996 1996 1997 1997 ---------- ---------- ---------- ---------- ---------- ------------- (UNAUDITED) (UNAUDITED) Revenues: Equipment rentals................................... $6,419,892 $7,573,784 $7,769,716 $4,053,397 $3,823,790 $2,174,283 Sales of equipment and parts........................ 1,797,142 1,810,400 1,243,297 624,375 573,450 62,948 ---------- ---------- ---------- ---------- ---------- ---------- Total revenues.................................... 8,217,034 9,384,184 9,013,013 4,677,772 4,397,240 2,237,231 Cost of revenues: Cost of revenues, excluding equipment rental depreciation....................................... 3,173,760 3,906,336 3,544,040 1,860,016 1,629,299 935,526 Depreciation, equipment rentals..................... 1,708,936 2,048,619 2,389,929 1,101,571 1,171,685 392,002 Cost of revenues of equipment and parts............. 835,327 898,190 452,522 307,328 326,847 51,698 ---------- ---------- ---------- ---------- ---------- ---------- Total cost of revenues............................ 5,718,023 6,853,145 6,386,491 3,268,915 3,127,831 1,379,226 ---------- ---------- ---------- ---------- ---------- ---------- Gross profit.......................................... 2,499,011 2,531,039 2,626,522 1,408,857 1,269,409 858,005 Selling, general and administrative expenses.......... 1,561,951 1,840,973 1,521,562 749,625 713,488 427,268 Non-rental depreciation............................... 101,606 125,004 123,971 83,848 78,643 31,560 ---------- ---------- ---------- ---------- ---------- ---------- Operating income.................................. 835,454 565,062 980,989 575,384 477,278 399,177 Interest expense...................................... 262,253 411,731 478,341 251,708 180,769 241,409 Other (income), net................................... (3,375) (45,103) (27,523) (29,609) (11,418) (26,306) ---------- ---------- ---------- ---------- ---------- ---------- Income before provision for income taxes.......... 576,576 198,434 530,171 353,285 307,927 184,074 Provision for income taxes............................ 112,601 35,678 49,685 56,000 98,000 -- ---------- ---------- ---------- ---------- ---------- ---------- Net income........................................ $ 463,975 $ 162,756 $ 480,486 $ 297,285 $ 209,927 $ 184,074 - -------------------------------------------------- ========== ========== ========== ========== ========== ==========
See accompanying notes. F-39 J & J RENTAL SERVICES, INC. STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL (NOTE 1)
UNREALIZED (LOSS) GAIN ON COMMON STOCK MARKETABLE RETAINED PARTNERS' SHARES AMOUNT SECURITIES EARNINGS CAPITAL ------ ------- -------------- ---------- --------- Predecessors: Balance at January 1, 1994................... 50,000 $50,000 $606,799 $827,938 Net income.............. 189,297 274,678 Distributions paid to partners............... (175,344) Unrealized loss on marketable securities.. $(6,500) ------ ------- ------- ---------- --------- Balance at December 31, 1994................... 50,000 50,000 (6,500) 796,096 927,272 Net income.............. 75,762 86,994 Distributions paid to partners............... (169,741) Unrealized gain on marketable securities.. 9,250 ------ ------- ------- ---------- --------- Balance at December 31, 1995................... 50,000 50,000 2,750 871,858 844,525 Net income.............. 110,097 370,389 Distributions paid to partners............... (101,559) Unrealized loss on marketable securities.. (1,585) ------ ------- ------- ---------- --------- Balance at December 31, 1996................... 50,000 50,000 1,165 981,955 1,113,355 Net income (loss) from January 1, 1997 to June 30, 1997 (unaudited)... 311,262 (101,335) Distributions paid to partners (unaudited)... (50,500) ------ ------- ------- ---------- --------- Balance at June 30, 1997 (unaudited)............ 50,000 $50,000 $ 1,165 $1,293,217 $ 961,520 ====== ======= ======= ========== ========= Company: Issuance of common stock (unaudited)............ 77,500 $ 1,000 Net income from July 1, 1997 to September 30, 1997 (unaudited)....... $ 184,074 Basis adjustment (unaudited)............ (324,000) ------ ------- ------- ---------- --------- Balance at September 30, 1997 (unaudited)....... 77,500 $ 1,000 $ (139,926) ====== ======= ======= ========== =========
See accompanying notes. F-40 J & J RENTAL SERVICES, INC. STATEMENTS OF CASH FLOWS (NOTE 1)
PREDECESSORS COMPANY ------------------------------------------------------------- ------------- SIX MONTHS ENDED THREE MONTHS YEAR ENDED DECEMBER 31, JUNE 30, ENDED ------------------------------------- ---------------------- SEPTEMBER 30, 1994 1995 1996 1996 1997 1997 ----------- ----------- ----------- ---------- ---------- ------------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income................................... $ 463,975 $ 162,756 $ 480,486 $ 297,285 $ 209,927 $ 184,074 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation................................. 1,810,542 2,173,623 2,513,900 1,185,419 1,250,328 428,009 Bad debt expense (recovery).................. 121,196 128,092 (57,621) (8,793) 7,214 69,573 Gain on sale of rental equipment............. (574,043) (396,704) (369,379) (293,981) (210,390) (11,250) Gain on sale of property and equipment....... (5,110) (2,809) (6,591) -- -- -- Deferred taxes............................... 109,703 23,000 12,000 -- -- -- Changes in assets and liabilities: Increase in accounts receivable............. (529,657) (64,895) (10,430) (120,785) (512,942) (2,045,517) (Increase) decrease in trade notes receivable................................. 80,639 (170,337) 39,859 (194,354) 37,081 -- (Increase) decrease in prepaid expenses and other assets............................... 23,694 (31,561) (84,918) 143,283 (26,028) (1,375) Increase (decrease) in accounts payable..... 233,814 46,476 (41,052) (10,000) 372,230 588,548 Increase in accrued expenses................ 98,864 53,632 1,919 17,153 123,765 185,617 Increase in income tax payable.............. -- 7,613 17,201 48,387 73,186 -- Increase in other assets.................... -- -- -- -- -- (86,719) ----------- ----------- ----------- ---------- ---------- ------------ Cash provided by (used in) operating activities................................ 1,833,617 1,928,886 2,495,374 1,063,614 1,324,371 (689,040) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property and equipment........ (174,473) (270,369) (195,823) (146,148) (614,414) (11,797,486) Proceeds from sale of rental equipment....... 1,014,501 930,860 755,122 624,372 1,227,501 62,948 Proceeds from sale of property and equipment................................... 39,119 24,634 74,585 -- -- -- Unrealized gain/(loss) on marketable securities.................................. (6,500) 9,250 (1,585) -- -- -- Purchase of marketable securities............ (43,500) (9,250) (28,425) -- -- -- Payments on loans to Predecessor Stockholder................................. (110,033) (21,573) (73,724) (94,857) (79,254) -- Proceeds received on Predecessor Stockholder loans....................................... -- 94,857 -- 49,358 6,884 -- Loan to Predecessor Stockholder.............. -- (120,000) -- -- -- -- ----------- ----------- ----------- ---------- ---------- ------------ Cash provided by (used in) investing activities................................ 719,114 638,409 530,150 432,725 540,717 (11,734,538) CASH FLOWS FROM FINANCING ACTIVITIES Borrowing under credit facilities............ 600,664 871,496 351,958 -- -- 14,511,343 Principal payments on debt................... (2,882,889) (3,117,926) (3,171,213) (1,451,558) (1,920,472) (330,547) Distributions paid........................... (175,344) (169,741) (101,559) (48,559) (50,500) -- ----------- ----------- ----------- ---------- ---------- ------------ Cash provided by (used in) financing activities................................ (2,457,569) (2,416,171) (2,920,814) (1,500,117) (1,970,972) 14,180,796 ----------- ----------- ----------- ---------- ---------- ------------ Increase (decrease) in cash .................. 95,162 151,124 104,710 (3,778) (105,884) 1,757,218 Cash at beginning of year..................... 315,157 410,319 561,443 561,443 666,153 -- ----------- ----------- ----------- ---------- ---------- ------------ Cash at end of year........................ $ 410,319 $ 561,443 $ 666,153 $ 557,665 $ 560,269 $ 1,757,218 - -------------------------------------------------- =========== =========== =========== ========== ========== ============
See accompanying notes. F-41 J & J RENTAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1994, 1995 AND 1996 (THE INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation J & J Rental Services, Inc. (the "Company") was formed in May 1997, and pursuant to the terms of an Asset Purchase Agreement (the "Agreement"), on June 30, 1997 acquired all of the rental equipment and property and equipment from J & J Equipment, Inc. ("J & J"), and Tri-Star Rentals, Ltd. ("Tri-Star") (collectively, the "Predecessors") and assumed all operations of the Predecessors (the "Acquisition"). The purchase price of $10,700,000 consisted of cash of $7,200,000 and a promissory note payable for $3,500,000. The sole stockholder and partner of J & J and Tri-Star, respectively, (the "Predecessor Stockholder") has, on a fully-diluted basis, a 9% ownership interest in the outstanding common stock of the Company, and has continued in a management role as chief operating officer. The accompanying financial statements as of December 31, 1995 and 1996 and for the years ended December 31, 1994, 1995 and 1996, and for the six month periods ended June 30, 1996 and 1997 present the accounts and results of operations of the Predecessors on a combined, historical cost basis. Although the financial statements of the Predecessors have been combined, the balance sheets and statements of income and cash flows do not represent those of a single legal entity. All significant intercompany accounts and transactions have been eliminated in combination. The financial statements as of September 30, 1997 and for the three month period ended September 30, 1997 present the accounts and results of operations of the Company since the Acquisition. The Acquisition has been accounted for as a purchase effective July 1, 1997 and, accordingly, at such date the Company recorded the assets acquired at their estimated fair values, adjusted for the impact of the Predecessor Stockholder's continuing residual interest as described below. The assets acquired have been reduced by $324,000 representing the Predecessor Stockholder's continuing residual interest in the Company with a corresponding charge against the Company's retained earnings. The adjusted purchase price and the preliminary allocation of the adjusted purchase price to the historical assets of the Company as of July 1, 1997 are as follows: Purchase price................................................. $10,700,000 Adjustment necessary to value Predecessor Stockholder's continuing residual interest at Predecessor's basis........... 324,000 ----------- Adjusted purchase price........................................ $10,376,000 =========== Allocation of adjusted purchase price: Net assets acquired, at fair values.......................... $10,326,000 Covenant not to compete...................................... 50,000 ----------- Total adjusted purchase price allocation................... $10,376,000 ===========
Business Activity The Company rents and sells light weight and heavy off-road construction equipment for use by construction and maintenance companies, and has ancillary sales of parts and supplies. The rentals are on a daily, weekly or monthly basis. The Company has two locations in Houston, Texas and its principal market area is the F-42 J & J RENTAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) state of Texas. The nature of the Company's business is such that short-term obligations are typically met by cash flow generated from long-term assets. Consequently, consistent with industry practice, the balance sheets are presented on an unclassified basis. Interim Financial Statements The accompanying balance sheet at September 30, 1997 and the statements of income, stockholders' equity and cash flows for the six-month periods ended June 30, 1996 and 1997 and three-month period ended September 30, 1997, are unaudited and have been prepared on the same basis as the audited financial statements included herein. In the opinion of management, such unaudited financial statements include all adjustments necessary to present fairly the information set forth therein, which consist solely of normal recurring adjustments. The results of operations for such interim periods are not necessarily indicative of results for the full year. Rental Equipment Rental equipment is recorded at cost. Depreciation for rental equipment is computed using the straight-line method over estimated useful lives of three to five years with no salvage value. Rental equipment costing less than $500 is immediately expensed at the date of purchase. Equipment rental revenue is recorded as earned under the operating method. Equipment rental revenue in the statements of operations includes revenues earned on equipment rentals, and related fuel sales and rental equipment delivery fees. 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 in the statements of operations. Ordinary maintenance and repair costs are charged to operations as incurred. Property and Equipment Property and equipment is stated at cost. Depreciation of property and equipment is computed on the straight-line method over estimated useful lives of 5 to 10 years. The cost of assets sold, retired, or otherwise disposed of, and the related accumulated depreciation is eliminated from the accounts and any resulting gain or loss is included in operations. Ordinary maintenance and repair costs are charged to operations as incurred. Advertising Costs The Company advertises primarily through trade journals, phone directories and the distribution of promotional items. All advertising costs are expensed as incurred. Advertising expenses amounted to approximately $44,333, $40,095, and $52,483 in the years ended December 31, 1994, 1995 and 1996, respectively, $13,251 and $1,297 in the six months ended June 30, 1996 and 1997, respectively, and $9,433 in the three months ended September 30, 1997. Income Taxes J & J applied an asset and liability approach to accounting for income taxes. Deferred income tax assets and liabilities arise from differences between the tax basis of an asset or liability and its reported amount in the financial statements. Deferred tax balances are determined by using tax rates expected to be in effect when the taxes will actually be paid or refunds received. Under federal and state income tax law, Tri-Star, a partnership, is not a taxable entity and, therefore, incurs no income tax liability. Any profits and losses of Tri-Star flow through to the individual partners. F-43 J & J RENTAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Investments The Company's investments consist of marketable equity securities and are classified as available for sale. Any unrealized gains or losses are excluded from income and are presented as a component of stockholders' equity. Covenant Not to Compete The covenant not to compete reflects an agreement made regarding confidentiality and restricting competitive activity and is being amortized by the straight-line method over the period of the agreement, which is 5 years. Amortization expense was $2,500 for the three month period ended September 30, 1997. Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 2. CONCENTRATIONS OF CREDIT RISK The Company maintains cash balances with a quality financial institution and, accordingly, management believes this mitigates the amount of credit risk. Concentrations of credit risk with respect to customer receivables are limited due to the large number of customers comprising the Company's customer base and its credit policy. 3. RENTAL EQUIPMENT Rental equipment and related accumulated depreciation consisted of the following:
DECEMBER 31, ----------------------- SEPTEMBER 30, 1995 1996 1997 ----------- ----------- ------------- (UNAUDITED) Rental equipment....................... $12,003,618 $12,520,482 $10,896,417 Less accumulated depreciation.......... 5,719,496 5,851,117 392,002 ----------- ----------- ----------- Rental equipment, net.................. $ 6,284,122 $ 6,669,365 $10,504,415 =========== =========== ===========
4. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, -------------------- SEPTEMBER 30, 1995 1996 1997 --------- --------- ------------- (UNAUDITED) Transportation equipment............... $ 776,494 $ 763,402 $419,159 Furniture, fixtures and office equip- ment.................................. 80,851 92,082 59,760 Shop equipment......................... 39,356 39,356 Leasehold improvements................. 38,386 Construction in progress............... 45,244 --------- --------- -------- 896,701 933,226 524,163 Less accumulated depreciation.......... (433,098) (465,766) (31,560) --------- --------- -------- Total.................................. $ 463,603 $ 467,460 $492,603 ========= ========= ========
F-44 J & J RENTAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 5. DEBT Debt consists of the following:
DECEMBER 31 ---------------------- SEPTEMBER 30, 1995 1996 1997 ---------- ----------- ------------- (UNAUDITED) CIT Group--Various notes dated from September 21, 1995 through August 5, 1997, with annual interest rates ranging from 8% to 9.4% due in monthly payments ranging from $867 to $43,987. .......... $1,694,640 $ 1,246,231 $648,955 The Associates--Note dated April 1, 1996, with annual interest of 8.8% due in monthly payments of $3,609. ............ 110,450 Case Power & Equipment--Various notes dated from January 1, 1992 through December 30, 1996, with annual interest rates ranging from 5.5% to 7.9% due in monthly payments ranging from $408 to $7,747. ................................ 493,789 795,344 Sterling Bank--Various notes dated from January 26, 1994 through December 20, 1996, with annual interest rates ranging from 8% to 11% due in monthly payments ranging from $582 to $2,084. ........... 108,230 306,708 KDC Financial--Various notes dated from June 14, 1993 through December 31, 1996, with annual interest rates ranging from 4.5% to 9.5% due in monthly payments ranging from $840 to $4,691. ........... 1,280,585 1,443,971 John Deere Financial--Notes dated December 31, 1995 and September 10, 1996, with annual interest rates of 7.9% and 6.9% due in monthly payments of $807 and $1,083. ............................ 33,130 69,247 Frost National Bank--Various notes dated from January 25, 1995 through August 15, 1995, with annual interest rates ranging from 8.75% to 9.5% due in monthly principal payments ranging from $582 to $8,492. ................................ 190,868 101,771 Citicorp--Note dated June 15, 1993, with an annual interest rate of 5.9% due in monthly payments of $921. .............. 15,831 5,433 First Prosperity Bank--Various notes dated from September 8, 1994 through December 13, 1996, with annual interest ranging from 7.25% through 9.9% due in monthly payments ranging from $354 to $1,039. ................................ 89,031 55,139 CAT Financial--Notes dated June 2, 1995 and December 31, 1994, with annual interest rates of 9.69% and 9.5% due in monthly payments of $4,227 and $3,036. ................................ 221,132 152,293 CAT Financial--Notes dated October 11, 1996 and November 25, 1996, non-interest bearing, with monthly payments of $1,205 and $3,522. ............................ 161,102
F-45 J & J RENTAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31 --------------------- SEPTEMBER 30, 1995 1996 1997 ---------- ---------- ------------- (UNAUDITED) Chase/Clark Credit--Various notes dated from March 17, 1994 through September 28, 1994, with annual interest rates ranging from 9.75% to 12.765% due in monthly installments ranging from $194 to $1,430. ................................. 47,010 30,232 First Prosperity--Various notes dated from August 16, 1993 through December 13, 1996, with annual interest rates ranging from 6.4% to 11% due in monthly installments ranging from $423 to $4,205................................... 64,270 171,518 Associates Commercial Credit Corp.-- Various notes dated from May 16, 1994 through July 8, 1996, with annual interest rates ranging from 7.75% to 11.25% due in monthly installments ranging from $912 to $6,656.............. 283,555 246,570 Ingersoll-Rand Company--Various notes dated from June 30, 1992 through September 8, 1996 with annual interest rates ranging from 7% to 9.5% due in monthly installments ranging from $301 to $7,794................................... 50,417 316,003 Wacker Corporation--Various notes dated from January 7, 1994 through May 25, 1996, with annual interest rates ranging from 6.25% to 10.25% due in monthly installments ranging from $854 to $2,889................................... 71,171 99,666 AEL Leasing Co., Inc.--Various notes dated from April 21, 1994 through May 20, 1996, with annual interest rates ranging from 8.72% to 12.93% due in monthly installments ranging from $371 to $4,883................................... 349,554 261,043 AEL Leasing Co., Inc.--Various non- interest bearing notes dated from April 21, 1994 through February 26, 1996, due in 12 principal installments ranging from $8,022 to $18,249........................ 36,498 Shandee--Note dated August 31, 1995, with an annual interest rate of 11.25% due in monthly installments of $2,803........... 50,909 21,510 Sterling Bank--Note dated January 2, 1996, with an annual interest rate of 9.5% due in 24 principal installments of $4,118... 53,538 Miller Financing--Various notes dated from February 15, 1996 through June 1, 1996, with annual interest rates ranging from 9.25 % to 10.25% due in monthly installments ranging from $375 to $2,922................................... 82,384 Toyota Motor Credit Corp.--Notes dated May 8 and August 8, 1997, with annual interest rates of 5.4% and 10.3%, respectively, due in monthly installments of $543 and $ 561, respectively.......... 48,005
F-46 J & J RENTAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31 --------------------- SEPTEMBER 30, 1995 1996 1997 ---------- ---------- ------------- (UNAUDITED) Case Credit--Various notes dated June 30, 1997 with an annual interest rate of 7.9% due in monthly installments ranging from $1,685 to $2,254.......................... 294,444 Case Credit--Term note dated June 30, 1997, with interest due monthly at prime plus .75% (9.25% at September 30, 1997). Principal is due June 30, 2002. This note is secured by all of the Company's rental assets and property, plant and equipment, and is personally guaranteed by the majority owners of the Company............ 7,689,391 J & J and Tri-Star--Promissory note dated June 30, 1997 with an annual interest rate of 7.5%. Principal payments of $175,000 are due quarterly beginning October 1, 2000...................................... 3,500,000 Equus II Incorporated--Senior subordinated note dated June 30, 1997, with interest to be paid monthly on the unpaid principal balance at a variable rate not to exceed 10% (10% at September 30, 1997). Principal is to be paid in four annual installments of $500,000 beginning June 30, 2001....... 2,000,000 Various notes fully repaid during 1996..... 380,870 ---------- ---------- ----------- $5,424,992 $5,766,651 $14,180,795 ========== ========== ===========
Substantially all rental equipment collateralize the above notes. The aggregate annual maturities of debt as of December 31, 1996 are as follows: 1997.............................................................. $2,227,398 1998.............................................................. 1,904,226 1999.............................................................. 1,087,718 2000.............................................................. 531,780 2001.............................................................. 15,529 ---------- $5,766,651 ==========
6. INCOME TAXES The provision for income taxes relates to the operating results of J & J before July 1, 1997 and consists of the following:
SIX MONTHS YEAR ENDED DECEMBER 31, ENDED JUNE 30, ------------------------ --------------- 1994 1995 1996 1996 1997 -------- ------- ------- ------- ------- (UNAUDITED) Current: Federal.............................. $ -- $ 7,216 $32,054 $49,500 $86,500 State................................ 2,898 5,462 5,631 6,500 11,500 -------- ------- ------- ------- ------- 2,898 12,678 37,685 56,000 98,000 Deferred: Federal.............................. 96,878 20,300 10,600 -- -- State................................ 12,825 2,700 1,400 -- -- -------- ------- ------- ------- ------- 109,703 23,000 12,000 -- -- -------- ------- ------- ------- ------- Total.............................. $112,601 $35,678 $49,685 $56,000 $98,000 ======== ======= ======= ======= =======
F-47 J & J RENTAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Tri-Star is a pass-through entity and, therefore incurs no tax liability. Significant components of J & J's deferred tax liability at December 31, 1995 and 1996 are as follows:
DECEMBER 31, ----------------- 1995 1996 -------- -------- Difference in basis of accounting..................... $216,000 $221,000 Cumulative tax depreciation in excess of book......... 202,000 209,000 -------- -------- Deferred tax liability $418,000 $430,000 ======== ========
Effective July 1, 1997, the Company and its shareholders have elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code for federal tax purposes. Under those provisions the Company does not pay federal income taxes; instead, the shareholders are liable for individual income taxes on the Company's profit. Therefore, no provision for federal income taxes is included in the Company's financial statements for the three months ended September 30, 1997. 7. COMMITMENTS The Company has an employment agreement with an officer for minimum annual compensation of $60,000 for the six month period ended December 31, 1997, and approximately $540,000 to be paid over the remaining term of the contract which expires in June 2002. 8. SUPPLEMENTAL CASH FLOW INFORMATION For the years ended December 31, 1994, 1995 and 1996; the six months ended June 30, 1996 and 1997; and the three months ended September 30, 1997, total interest paid was $277,811, $411,731 and $478,341; $251,708 and $180,769; and $126,430, respectively. For the years ended December 31, 1994, 1995 and 1996; the six months ended June 30, 1996 and 1997; and the three months ended September 30, 1997, total income taxes paid was $ --, $ -- and $ --; $11,233 and $24,814; and $ --, respectively. During the years ended December 31, 1994, 1995 and 1996, and the six months ended June 30, 1996 and 1997, the Company purchased $3,659,811, $3,738,807, and $3,160,914; and $1,311,652 and $1,172,917, respectively, of equipment which was financed. 9. EMPLOYEE BENEFIT PLAN The Predecessor sponsored a defined contribution 401(k) retirement plan, which was implemented during 1995 and covers substantially all full time employees. The Predecessor matched a portion of the participants' contributions. Predecessor contributions to the plan were $9,272, $6,395, $--, and $-- for the years ended December 31, 1995, and 1996 and for the six month periods ended June 30, 1996 and 1997, respectively. 10. RELATED PARTY TRANSACTIONS On November 27, 1995, Tri-Star loaned $120,000 to the Predecessor Stockholder. This non-interest bearing note is unsecured, and is due on demand. The outstanding balance on this note receivable at December 31, 1995 and 1996 was $120,000. On November 30, 1995, Tri-Star issued a $100,000 note payable to the Predecessor Stockholder, which bears interest at 11.4% per annum, requires monthly principal and interest payments of $6,097, and is unsecured. The outstanding balance on this note at December 31, 1995 and 1996 was $94,857 and $79,254, respectively. F-48 J & J RENTAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) J & J has a note payable outstanding to the Predecessor Stockholder, which required interest to be paid quarterly at 6.5% per annum, and is due on January 1, 1998. The outstanding balance on this note payable at December 31, 1995 and 1996 was $315,365 and $257,244, respectively. The Company leases its operating facilities from the Predecessor Stockholder, and pays monthly rent of $8,600. These leases are month-to-month and can be canceled by either party. 11. SUBSEQUENT EVENT On October 23, 1997, the Company entered into a stock purchase agreement with United Rentals, Inc. ("United"). Under the terms of the stock purchase agreement, United purchased all of the issued and outstanding capital stock of the Company. F-49 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Coran Enterprises, Inc. and Monterey Bay Equipment Rental, Inc. We have audited the accompanying combined balance sheets of Coran Enterprises, Inc. dba A-1 Rents, and Monterey Bay Equipment Rental, Inc. as of December 31, 1995 and 1996, and the related combined statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of Coran Enterprises, Inc. dba A-1 Rents, and Monterey Bay Equipment Rental, Inc. as of December 31, 1995 and 1996, and the combined results of their operations and their combined cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Grant Thornton llp San Jose, California October 24, 1997 (except for Note F as to which the date is October 28, 1997) F-50 CORAN ENTERPRISE, INC. DBA A-1 RENTS AND MONTEREY BAY EQUIPMENT RENTAL, INC. COMBINED BALANCE SHEETS
DECEMBER 31, --------------------- SEPTEMBER 30, 1995 1996 1997 ---------- ---------- ------------- (UNAUDITED) ASSETS Assets Cash..................................... $ 965,187 $ 140,146 $ 933,705 Accounts receivable, net of allowance for doubtful accounts of $160,000 in 1995, $135,000 in 1996 and $90,000 in 1997.... 1,147,524 1,087,278 1,012,615 Rental equipment, principally machinery and equipment, at cost, net of accumulated depreciation of $11,375,263 in 1995, $12,362,378 in 1996 and $12,690,816 in 1997..................... 1,290,084 3,961,297 2,948,586 Operating property and equipment, at cost, net of accumulated depreciation of $232,919 in 1995, $250,122 in 1996 and $263,990 in 1997........................ 51,963 34,760 65,137 Other assets............................. 74,402 77,510 10,942 ---------- ---------- ---------- Total assets........................... $3,529,160 $5,300,991 $4,970,985 ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued liabilities... $ 142,581 $ 174,936 $ 308,471 Equipment loans............................ 241,750 1,179,677 1,045,551 Notes payable--stockholders................ 158,960 1,408,947 1,030,184 ---------- ---------- ---------- Total liabilities...................... 543,291 2,763,560 2,384,206 Stockholders' equity: Common stock--authorized 100,000 shares of no par value and 75,000 share of $1 par value; issued and outstanding, 10,000 shares of no par value and 75,000 shares of $1 par value.................. 275,000 275,000 275,000 Capital in excess of par value........... 37,920 37,920 37,920 Retained earnings........................ 2,672,949 2,224,511 2,273,859 ---------- ---------- ---------- Total stockholders' equity............. 2,985,869 2,537,431 2,586,779 ---------- ---------- ---------- Total liabilities and stockholders' equity................................ $3,529,160 $5,300,991 $4,970,985 ========== ========== ==========
The accompanying notes are an integral part of these statements. F-51 CORAN ENTERPRISES, INC. DBA A-1 RENTS AND MONTEREY BAY EQUIPMENT RENTAL, INC. COMBINED STATEMENTS OF EARNINGS
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, -------------------------------- ----------------------- 1994 1995 1996 1996 1997 ---------- ---------- ---------- ----------- ----------- (UNAUDITED) (UNAUDITED) Revenues: Equipment rentals..... $6,068,553 $6,962,130 $7,679,713 $5,435,958 $5,808,564 Sales of parts, sup- plies and rental equipment............ 663,293 565,586 738,330 593,383 899,829 ---------- ---------- ---------- ---------- ---------- Total revenues...... 6,731,846 7,527,716 8,418,043 6,029,341 6,708,393 Costs Cost of equipment rentals.............. 3,861,538 3,835,982 4,254,243 3,520,941 3,704,188 Rental equipment de- preciation........... 531,320 611,577 1,304,847 897,776 1,237,656 Cost of sales of sup- plies................ 199,684 200,746 257,500 204,319 186,327 Other................. 45,325 49,523 115,758 61,482 38,435 ---------- ---------- ---------- ---------- ---------- Total costs......... 4,637,867 4,697,828 5,932,348 4,684,518 5,166,606 ---------- ---------- ---------- ---------- ---------- Gross margin........ 2,093,979 2,829,888 2,485,695 1,344,823 1,541,787 Selling, general and ad- ministrative........... 1,997,056 1,786,650 2,062,246 752,484 958,764 Non-rental deprecia- tion................... 22,682 28,435 17,202 12,944 13,868 ---------- ---------- ---------- ---------- ---------- Operating Income.... 74,241 1,014,803 406,247 579,395 569,155 Interest expense........ 13,408 21,120 96,464 50,137 139,970 ---------- ---------- ---------- ---------- ---------- Earnings before in- come taxes......... 60,833 993,683 309,783 529,258 429,185 Provision for income taxes.................. 4,015 12,275 8,221 -- 5,583 ---------- ---------- ---------- ---------- ---------- Net earnings.......... $ 56,818 $ 981,408 $ 301,562 $ 529,258 $ 423,602 ========== ========== ========== ========== ==========
The accompanying notes are an integral part of these statements. F-52 CORAN ENTERPRISES, INC. DBA A-1 RENTS AND MONTEREY BAY EQUIPMENT RENTAL, INC. COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
SHARES ISSUED ADDITIONAL ------------- COMMON PAID-IN RETAINED CEI MBERI STOCK CAPITAL EARNINGS TOTAL ------ ------ -------- ---------- ---------- ---------- Balance at January 1, 1994................... 75,000 10,000 $275,000 $37,920 $1,634,723 $1,947,643 Net earnings.......... -- -- -- -- 56,818 56,818 ------ ------ -------- ------- ---------- ---------- Balance at January 1, 1995................... 75,000 10,000 275,000 37,920 1,691,541 2,004,461 Net earnings.......... -- -- -- -- 981,408 981,408 ------ ------ -------- ------- ---------- ---------- Balance at December 31, 1995................... 75,000 10,000 275,000 37,920 2,672,949 2,985,869 Net earnings.......... -- -- -- -- 301,562 301,562 Dividends paid to stockholders......... -- -- -- -- (750,000) (750,000) ------ ------ -------- ------- ---------- ---------- Balance at December 31, 1996................... 75,000 10,000 275,000 37,920 2,224,511 2,537,431 Net earnings (unau- dited)............... -- -- -- -- 423,602 423,602 Dividends paid to stockholders (unau- dited)............... -- -- -- -- (374,254) (374,254) ------ ------ -------- ------- ---------- ---------- Balance at September 30, 1997 (unaudited)....... 75,000 10,000 $275,000 $37,920 $2,273,859 $2,586,779 ====== ====== ======== ======= ========== ==========
The accompanying notes are an integral part of this statement. F-53 CORAN ENTERPRISES, INC. DBA A-1 RENTS AND MONTEREY BAY EQUIPMENT RENTAL, INC. COMBINED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, --------------------------------- ------------------------ 1994 1995 1996 1996 1997 --------- --------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) Cash flows from operat- ing activities: Net earnings........... $ 56,818 $ 981,408 $ 301,562 $ 529,258 $ 423,602 Adjustments to recon- cile net earnings to net cash provided by operating activities: Depreciation and amor- tization.............. 554,002 640,012 1,322,049 910,720 1,251,524 Gain on sale of equip- ment.................. (215,699) (85,747) (163,753) (152,324) (443,124) Change in assets and liabilities: Accounts receivable... 154 (210,091) 60,246 (42,349) 74,663 Other assets.......... 5,630 5,220 (3,108) (18,817) 66,568 Accounts payable and accrued liabili- ties................. (20,567) 36,638 32,355 219,519 133,535 --------- --------- ----------- ----------- ---------- Net cash provided by operating activi- ties................ 380,338 1,367,440 1,549,351 1,446,007 1,506,768 Cash flows from invest- ing activities: Purchases of rental equipment............. (896,851) (633,519) (4,017,946) (2,609,849) (271,098) Purchases of operating equipment............. (75,630) -- -- -- (44,246) Proceeds from sale of equipment............. 258,025 110,273 205,639 -- 489,278 --------- --------- ----------- ----------- ---------- Net cash provided by (used in) investing activities.......... (714,456) (523,246) (3,812,307) (2,609,849) 173,934 Cash flows from financ- ing activities: Change in bank over- draft................. 15,760 (15,760) -- -- -- Borrowings on equipment loans................. 65,309 244,235 1,096,820 892,710 99,352 Payments on equipment loans................. (20,943) (46,853) (158,893) -- (233,478) Payment on dividends... -- -- (750,000) (750,000) (374,254) Borrowings on notes payable--stockhold- ers................... 300,000 -- 1,249,988 259,999 -- Payments on notes pay- able--stockholders.... (95,151) (95,888) -- -- (378,763) --------- --------- ----------- ----------- ---------- Net cash provided by (used in) financing activities.......... 264,975 85, 734 1,437,915 402,709 (887,143) --------- --------- ----------- ----------- ---------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.... (69,143) 929,928 (825,041) (761,133) 793,559 Cash and cash equiva- lents--beginning of pe- riod................... 104,402 35,259 965,187 965,187 140,146 --------- --------- ----------- ----------- ---------- Cash and cash equiva- lents--end of period... $ 35,259 $ 965,187 $ 140,146 $ 204,054 $ 933,705 ========= ========= =========== =========== ========== Supplementary disclo- sures of cash flow in- formation: Cash paid during the period for: Interest............... $ 13,408 $ 21,120 $ 95,958 $ 50,137 $ 140,496 ========= ========= =========== =========== ========== Income taxes........... $ 4,815 $ 1,600 $ 23,047 $ 10,627 $ 5,583 ========= ========= =========== =========== ==========
The accompanying notes are an integral part of these statements. F-54 CORAN ENTERPRISES, INC. DBA A-1 RENTS ANDMONTEREY BAY EQUIPMENT RENTAL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1996 (THE INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) NOTE A--SUMMARY OF ACCOUNTING POLICIES 1. Nature of Business and Basis of Presentation The combined financial statements include the accounts of Coran Enterprises, Inc. and Monterey Bay Equipment Rental, Inc. (collectively the "Company"). Coran Enterprises, Inc. ("CEI") and Monterey Bay Equipment Rental, Inc. ("MBERI") are combined due to common ownership and operations which are complimentary. All significant intercompany balances and transactions have been eliminated in combination. The Company leases equipment for home and contractors' use under short-term rental agreements principally in the Northern California area. The nature of the Company's business is such that short-term obligations are typically met by cash flow generated from long-term assets. Consequently, consistent with industry practice, the accompanying balance sheets are presented on an unclassified basis. 2. Interim Financial Statements The accompanying combined balance sheet at September 30, 1997 and the combined statements of earnings, stockholders' equity and cash flows for the nine month periods ended September 30, 1996 and 1997 are unaudited and have been prepared on the same basis as the audited combined financial statements included herein. In the opinion of management, such unaudited combined financial statements include all adjustments, which consist solely of normal recurring adjustments, necessary to present fairly the information set forth therein. The results of operations for such interim period are not necessarily indicative of results for the full year. 3. Property and Equipment The Company provides for depreciation in amounts sufficient to relate the costs of depreciable assets to operations over their estimated service lives using the double-declining balance method. Leasehold improvements are amortized on a straight-line basis over the lives of the improvements or the term of the lease, whichever is shorter. Maintenance and repairs costs are expensed as incurred. Supplies and replacement parts are expensed when purchased. 4. Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. 5. Use of estimates In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE B--COMMITMENTS CEI leases facilities from its stockholders on a month-to-month basis. Total rent expense on the facilities was $663,067, $662,880 and $667,638 for the years ended December 31, 1994, 1995 and 1996, respectively. Total rent expense for the nine months ended September 30, 1996 and 1997 was $463,500 for each period. F-55 CORAN ENTERPRISES, INC. DBA A-1 RENTS AND MONTEREY BAY EQUIPMENT RENTAL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 AND 1996 (THE INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) NOTE C--INCOME TAXES The stockholders of Coran Enterprises, Inc. and Monterey Bay Equipment Rental, Inc, have elected "S" Corporation status for income tax purposes. Therefore, income or loss for federal and California state income tax purposes is reported on the shareholders' individual income tax return. Although the "S" Corporation tax treatment is recognized by the State of California, the net corporate income is subject to a 1.5% corporate surtax. NOTE D -- EQUIPMENT LOANS Equipment loans consist of notes payable, collateralized by equipment, due in monthly installments ranging from $1,095 to $5,375 with interest rates from 5.75% to 8.75%. Maturities of equipment loans as of December 31, 1996 are as follows:
YEAR ENDING DECEMBER 31, ------------------------ 1997............................................................ $ 276,911 1998............................................................ 276,605 1999............................................................ 279,527 2000............................................................ 240,309 2001............................................................ 106,325 ---------- $1,179,677 ==========
NOTE E--NOTES PAYABLE--STOCKHOLDERS Notes payable to stockholders are uncollateralized and bear interest at rates from 8% to 9%. These notes are due in 1997. Interest expense on the notes was $11,254, $17,755 and $44,064 for the years ended December 31, 1994, 1995, and 1996, respectively. Interest expense on the notes was $33,048 and $60,098 for the nine months ended September 30, 1996 and 1997, respectively. NOTE F--SUBSEQUENT EVENT Effective October 28, 1997, the stockholders of CEI and MBERI sold 100% of the outstanding shares of each company to United Rentals, Inc. F-56 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders Bronco Hi-Lift, Inc. We have audited the balance sheets of Bronco Hi-Lift, Inc. as of December 31, 1995 and 1996 and the related statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bronco Hi-Lift, Inc. at December 31, 1995 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP MetroPark, New Jersey October 21, 1997, except for Note 10, as to which the date is October 24, 1997 F-57 BRONCO HI-LIFT, INC. BALANCE SHEETS
DECEMBER 31 ---------------------- SEPTEMBER 30, 1995 1996 1997 ---------- ---------- ------------- (UNAUDITED) ASSETS Cash..................................... $ 228,772 $ 305,506 $ 296,669 Accounts receivable, net................. 591,194 826,849 1,087,790 Unbilled receivables..................... 68,354 40,722 137,760 Inventory................................ 157,470 67,825 271,903 Rental equipment, net.................... 1,782,926 1,972,910 2,321,275 Property and equipment, net.............. 244,817 234,914 335,374 Due from related party................... 412,113 -- -- Prepaid expenses and other assets........ 33,701 13,530 27,015 ---------- ---------- ---------- Total assets......................... $3,519,347 $3,462,256 $4,477,786 ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Liabilities: Accounts payable, accrued expenses and other liabilities..................... $ 104,961 $ 90,584 $ 323,489 Debt................................... 3,748,682 3,051,711 2,973,516 ---------- ---------- ---------- Total liabilities.................... 3,853,643 3,142,295 3,297,005 Commitments and contingencies Stockholders' equity (deficit): Common stock, $.01 par value and $1.00 stated value, 100,000 shares authorized, 10,000 issued and outstanding at December 31, 1995 and 1996, and September 30, 1997.......... 10,000 10,000 10,000 Additional paid-in capital............. 598,000 598,000 598,000 Notes receivable from stockholders..... (500,000) (300,000) (300,000) Retained earnings (deficit)............ (442,296) 11,961 872,781 ---------- ---------- ---------- Total stockholders' equity (deficit)........................... (334,296) 319,961 1,180,781 ---------- ---------- ---------- Total liabilities and stockholders' equity (deficit).................... $3,519,347 $3,462,256 $4,477,786 ========== ========== ==========
See accompanying notes. F-58 BRONCO HI-LIFT, INC. STATEMENTS OF INCOME
NINE MONTHS ENDED YEAR ENDED DECEMBER 31 SEPTEMBER 30 ---------------------------------- ---------------------- 1994 1995 1996 1996 1997 ---------- ---------- ---------- ---------- ---------- (UNAUDITED) Revenues: Equipment rentals..... $3,199,643 $3,427,596 $4,313,855 $2,923,030 $3,774,997 New equipment sales... 499,392 266,308 611,033 317,956 526,570 Sales of parts, supplies and rental equipment............ 659,628 155,331 410,957 367,560 311,556 Other................. 193,321 147,214 194,469 136,761 146,370 ---------- ---------- ---------- ---------- ---------- Total revenues...... 4,551,984 3,996,449 5,530,314 3,745,307 4,759,493 Cost of revenues: Cost of equipment rentals, excluding equipment rental depreciation......... 363,876 335,028 699,455 558,088 363,418 Depreciation, equipment rentals.... 656,848 637,766 736,525 483,369 601,243 Cost of new equipment sales................ 415,168 206,268 479,920 236,297 407,988 Cost of sales of parts, supplies and equipment............ 376,667 107,989 293,987 176,803 132,474 Other................. 82,295 32,418 119,315 83,411 93,778 ---------- ---------- ---------- ---------- ---------- Total cost of revenues........... 1,894,854 1,319,469 2,329,202 1,537,968 1,598,901 ---------- ---------- ---------- ---------- ---------- Gross profit............ 2,657,130 2,676,980 3,201,112 2,207,339 3,160,592 Selling, general and administrative expenses............... 1,674,216 2,540,699 2,359,326 1,334,593 1,562,694 Non-rental depreciation........... 61,897 84,463 99,669 72,928 79,608 ---------- ---------- ---------- ---------- ---------- Operating income.... 921,017 51,818 742,117 799,818 1,518,290 Interest expense........ 143,471 171,305 334,035 261,106 210,025 Other (income), net..... (32,641) (26,575) (46,175) (22,024) (67,555) ---------- ---------- ---------- ---------- ---------- Net income (loss)... $ 810,187 $ (92,912) $ 454,257 $ 560,736 $1,375,820 ========== ========== ========== ========== ==========
See accompanying notes. F-59 BRONCO HI-LIFT, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK NOTES RECEIVABLE RETAINED ----------------- PAID-IN FROM EARNINGS SHARES AMOUNT CAPITAL STOCKHOLDERS (DEFICIT) ------- -------- --------- ---------------- ----------- Balance at January 1, 1994................... 20,000 $ 20,000 $ 345,020 $ -- $ 638,409 Net income............ 810,187 Dividends paid........ (755,000) ------- -------- --------- --------- ----------- Balance at December 31, 1994................... 20,000 20,000 345,020 -- 693,596 Purchase and retirement of common stock................ (12,000) (12,000) (345,020) (1,042,980) Issuance of common stock................ 2,000 2,000 598,000 (500,000) Net loss.............. (92,912) ------- -------- --------- --------- ----------- Balance at December 31, 1995................... 10,000 10,000 598,000 (500,000) (442,296) Payment on notes receivable from stockholders......... 200,000 Net income............ 454,257 ------- -------- --------- --------- ----------- Balance at December 31, 1996................... 10,000 10,000 598,000 (300,000) 11,961 Net income (unaudited).......... 1,375,820 Dividends paid (unaudited).......... (515,000) ------- -------- --------- --------- ----------- Balance at September 30, 1997 (unaudited)....... 10,000 $ 10,000 $ 598,000 $(300,000) $ 872,781 ======= ======== ========= ========= ===========
See accompanying notes. F-60 BRONCO HI-LIFT, INC. STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED YEAR ENDED DECEMBER 31 SEPTEMBER 30 ----------------------------------- ------------------------ 1994 1995 1996 1996 1997 ----------- --------- ----------- ----------- ----------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)...... $ 810,187 $ (92,912) $ 454,257 $ 560,736 $ 1,375,820 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........... 718,745 722,229 836,194 556,297 680,851 Gain on equipment sales................. (379,644) (317,871) (302,777) (276,330) (559,384) Interest expense not requiring cash........ 17,500 Changes in assets and liabilities: Decrease (increase) in accounts receivable........... 57,832 (132,976) (235,655) (150,715) (260,941) (Decrease) increase in unbilled receivables.......... 46,303 5,646 27,632 (97,038) (Increase) decrease in inventory......... (8,878) (102,542) 89,645 76,465 (204,078) (Decrease) increase in prepaid expenses and other assets..... (32,965) 30,774 20,171 16,676 (13,485) (Decrease) increase in accounts payable, accrued expenses and other liabilities.... (367,989) (60,113) (14,377) 129,262 232,905 ----------- --------- ----------- ----------- ----------- Total adjustments.... 33,404 145,147 438,333 351,655 (221,170) ----------- --------- ----------- ----------- ----------- Cash provided by operating activities.......... 843,591 52,235 892,590 912,391 1,154,650 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of rental equipment............. (200,201) (92,727) (1,368,253) (1,113,613) (1,522,041) Proceeds from sale of rental equipment...... 825,203 350,739 745,687 528,176 1,131,142 Purchases of property and equipment, net.... (43,865) (101,985) (90,932) (83,965) (209,392) ----------- --------- ----------- ----------- ----------- Cash provided by (used in) investing activities.......... 581,137 156,027 (713,498) (669,402) (600,291) CASH FLOWS FROM FINANCING ACTIVITIES Cash dividends paid.... (755,000) (485,000) Issuance of stock...... 100,000 Re-payments on notes due from stockholders.......... 200,000 Principal payments on debt.................. (645,935) (742,891) (802,358) (796,351) (278,196) Principal payments on capital lease obligations........... (9,008) (32,711) Advances to related party................. (412,113) Borrowings under credit facility.............. 900,000 500,000 500,000 200,000 ----------- --------- ----------- ----------- ----------- Cash used in financing activities.......... (1,409,943) (187,715) (102,358) (296,351) (563,196) ----------- --------- ----------- ----------- ----------- Increase (decrease) in cash.................. 14,785 20,547 76,734 (53,362) (8,837) Cash balance at beginning of year... 193,440 208,225 228,772 228,772 305,506 ----------- --------- ----------- ----------- ----------- Cash balance at end of year............. $ 208,225 $ 228,772 $ 305,506 $ 175,410 $ 296,669 =========== ========= =========== =========== ===========
See accompanying notes. F-61 BRONCO HI-LIFT, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1994, 1995 AND 1996 (THE INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Activity Bronco Hi-Lift, Inc. (the "Company") rents, sells and repairs aerial lift equipment for use by construction companies and maintenance and media crews. The rentals are on a daily, weekly or monthly basis. The Company is located in Denver, Colorado and its principal market area is the state of Colorado. The nature of the Company's business is such that short-term obligations are typically met by cash flow generated from long-term assets. Consequently, consistent with industry practice, the balance sheets are presented on an unclassified basis. Interim Financial Statements The accompanying balance sheet at September 30, 1997 and the statements of income, stockholders' equity and cash flows for the nine-month periods ended September 30, 1996 and 1997 are unaudited and have been prepared on the same basis as the audited financial statements included herein. In the opinion of management, such unaudited financial statements include all adjustments necessary to present fairly the information set forth therein, which consist solely of normal recurring adjustments. The results of operations for such interim period are not necessarily indicative of results for the full year. Inventory Inventories consists primarily of general replacement parts and fuel for the equipment and are stated at the lower of cost, determined under the first-in, first-out method, or market. Rental Equipment Rental equipment is recorded at cost. Depreciation for rental equipment is computed using the straight-line method over an estimated five-year useful life with no salvage value. Ordinary maintenance and repair costs are charged to operations as incurred. 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 sales of equipment and cost of sales of equipment, respectively, in the statements of operations. Property and Equipment Property and equipment is stated at cost. Depreciation of property and equipment is computed on the straight-line method over estimated useful lives of 5 to 10 years. Ordinary maintenance and repair costs are charged to operations as incurred. The cost of assets sold, retired, or otherwise disposed of, and the related accumulated depreciation is eliminated from the accounts and any resulting gain or loss is included in operations. Rental Revenue Rental revenue is recorded as earned under the operating method. Advertising Costs The Company advertises primarily through trade journals, trade associations and phone directories. All advertising costs are expensed as incurred. Advertising expenses amounted to approximately $51,500, $74,400 F-62 BRONCO HI-LIFT, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) and $43,000 in the years ended December 31, 1994, 1995 and 1996, respectively, and $30,435 and $43,237 in the nine months ended September 30, 1996 and 1997, respectively. Income Taxes The Company has elected, by unanimous consent of its shareholders, to be taxed under the provisions of Subchapter S of the Internal Revenue Code for both federal and state purposes. Under those provisions the Company does not pay federal or state income taxes; instead, the shareholders are liable for individual income taxes on the Company's profits. Therefore, no provision for federal or state income taxes is included in the accompanying financial statements. Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 2. CONCENTRATIONS OF CREDIT RISK The Company maintains cash balances with a quality financial institution and, accordingly, management believes this mitigates the amount of credit risk. Concentrations of credit risk with respect to customer receivables are limited due to the large number of customers comprising the Company's customer base and its credit policy. 3. RENTAL EQUIPMENT Rental equipment and related accumulated depreciation consisted of the following:
DECEMBER 31 --------------------- SEPTEMBER 30, 1995 1996 1997 ---------- ---------- ------------- (UNAUDITED) Rental equipment......................... $4,614,801 $5,176,658 $5,564,163 Less accumulated depreciation............ 2,831,875 3,203,748 3,242,888 ---------- ---------- ---------- Rental equipment, net.................... $1,782,926 $1,972,910 $2,321,275 ========== ========== ==========
F-63 BRONCO HI-LIFT, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 4. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31 ----------------- SEPTEMBER 30, 1995 1996 1997 -------- -------- ------------- (UNAUDITED) Furniture and fixtures....................... $ 59,078 $ 59,572 $163,562 Transportation equipment..................... 463,640 520,356 579,456 Shop equipment............................... 34,855 37,591 37,591 -------- -------- -------- 557,573 617,519 780,609 Less accumulated depreciation................ 312,756 382,605 445,235 -------- -------- -------- Total...................................... $244,817 $234,914 $335,374 ======== ======== ========
5. DEBT Debt consists of the following:
DECEMBER 31 --------------------- SEPTEMBER 30, 1995 1996 1997 ---------- ---------- ------------- (UNAUDITED) Citicorp Dealer Finance Agreement...... $2,250,299 $1,585,000 $1,635,000 GMAC note dated October 27, 1994 with an annual interest rate of 11.52% due in monthly payments of $588 through November 1999......................... 22,396 17,564 Kenworth/Trial-EZE dated July 11, 1994 with annual interest of 10.6% due in monthly payments of $2,788 through July 1998............................. 75,987 49,147 Notes payable to a former shareholder for $900,000 and $500,000 at an annual interest rate of 9%. The $900,000 note requires monthly interest payments through January 31, 1998 at which time the note is due in full. The $500,000 note requires monthly interest payments through January 31, 1997. Beginning February 1, 1997, the note is payable in 60 monthly installments of principal and interest of $10,379 through December 31, 2001. The above $500,000 note is subordinated to the Citicorp Dealer Finance Agreement..... $1,400,000 $1,400,000 $1,338,516 ---------- ---------- ---------- $3,748,682 $3,051,711 $2,973,516 ========== ========== ==========
The Citicorp Dealer Finance Agreement (the "Agreement") was entered into on February 5, 1990. Under the terms of the original Agreement the Company would be allowed to borrow funds to purchase equipment based on certain financial formulas. Each draw down under the Agreement would be specifically collateralized by the equipment purchased. On January 24, 1996, the Agreement was amended to provide the Company with available financing of up to $3,500,000 for the purchase of equipment. During 1997, the available financing increased to $3,900,000. Under the amended Agreement the Company's borrowings and repayments of debt are F-64 BRONCO HI-LIFT, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) determined by a formula based upon eligible accounts receivable and eligible rental equipment value. The Agreement was again amended December 27, 1996 principally to extend the renewal date to January 1, 1998. The related note has an adjustable interest rate of 1.75% per annum above the base rate as determined and publicly announced by Citibank, N.A. (8.00% and 8.25% at December 31, 1996 and September 30, 1997, respectively). Interest is payable monthly. Under the original and amended agreement, collateral consists of all new and used (rental equipment) inventory now owned or hereafter acquired by the Company including industrial lift trucks, industrial tractors, loaders, aerial lifts, boom lifts and commercial or industrial equipment and other goods or products, all chattel paper, leases, contract rights, accounts and general intangibles and all cash and insurance proceeds. All stockholders have guaranteed the balance due under this agreement. The aggregate annual maturities of debt as of December 31, 1996 are as follows: 1997......................................................... $ 950,000 1998......................................................... 1,761,314 1999......................................................... 104,595 2000......................................................... 107,699 2001......................................................... 128,103 Thereafter................................................... -- ---------- $3,051,711 ==========
6. OPERATING LEASES During 1994, the Company leased 7,000 square feet of office and shop space on a twelve month lease, renewable annually. For the period from January 1, 1995 to April 30, 1995, the Company leased approximately 7,000 square feet of office and shop space under a new month to month lease. Effective May 1, 1995, the Company moved to a new location and entered into a lease agreement with a related party, Coyote Investments, LLC ("Coyote") (see Note 9). The facility consists of 17,000 square feet of office and shop area located on 1.8 acres. The 15 year lease expires April 30, 2010. The Company is responsible for all operating expenses of the facility including property taxes, assessments, insurance, repairs and maintenance. Rent expense under these leases totaled $37,232, $52,000 and $78,000 for the years ended December 31, 1994, 1995 and 1996 and $58,500 and $58,500 for the nine months ended September 30, 1996 and 1997, respectively. Under the lease agreement with Coyote, rent is payable in monthly installments of $6,500 for the first two years of the lease. Thereafter the rent shall be increased annually to reflect the then current fair market rent for the premises, provided that each annual increase shall not exceed 10% of the previous year's rental rate. Future minimum rent commitments are $78,000 each for years ended December 31, 1997 to December 31, 2009 and $26,000 for January 1, 2010 to April 30, 2010, provided there is no increase in fair market rent for the premises. 7. COMMITMENTS The Company has employment agreements, which expire in 1998, with three officers which grant certain severance pay rights to these officers provided that certain conditions of employment are met. Under terms of the employment agreements, the officers received approximately $253,000, $703,000, $527,000 and $486,000 for the years ended December 31, 1995 and 1996 and for the nine months ended September 30, 1996 and 1997, respectively. Additional compensation to be paid to the officers, until the agreements expire, amounts to approximately $135,000 for the three months ended December 31, 1997 and $270,000 during 1998. The Company guarantees Coyote's debt on the building leased by the Company (see Note 9). F-65 BRONCO HI-LIFT, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 8. SUPPLEMENTAL CASH FLOW INFORMATION For the years ended December 31, 1994, 1995 and 1996 and the nine months ended September 30, 1996 and 1997, total interest paid was $150,077, $171,305 and $335,686 and $262,774 and $224,016, respectively. During 1994 and 1995, the Company purchased $609,780 and $726,355, respectively, of equipment which was financed. There were no purchases in 1996. On December 20, 1995, the Company purchased and retired 12,000 shares of its stock for two notes totaling $1,400,000. On December 21, 1995, the Company issued 2,000 shares of its stock to two officers of the Company in exchange for $100,000 cash and $500,000 of notes receivable from these officers. During 1996, the officers repaid $200,000 in accordance with the note agreements. In October of 1997, the notes were repaid in full. During 1997, the Company paid dividends of $515,000, of which $30,000 represented a non-cash transfer of a fixed asset. 9. RELATED PARTY TRANSACTIONS Coyote is owned by the shareholders of the Company. The Company leases its office and shop facility from Coyote (see Note 6). All stockholders and the Company have guaranteed Coyote's debt on the facility. The amount of debt principal on the facility was $555,080 at December 31, 1996 and $540,600 at September 30, 1997. Advances to Coyote were $412,113 at December 31, 1995. Coyote paid $3,434 of interest to the Company during 1996. As part of the Citicorp Amendment No. 1 Refinancing Agreement, the Company owed Coyote $152,187, which it paid with interest of $7,990 during August 1996. These obligations were fulfilled with a non-cash transaction in connection with the above mentioned amended agreement. On December 21, 1995 the Company issued 2,000 shares to two officers of the Company in exchange for $100,000 cash and two notes for $250,000 each. The notes bear interest at 9% per annum and are payable bi-annually. Principal on each note is payable $100,000 in 1996, $100,000 in 1997 and $50,000 in 1998. Interest paid to the Company during 1996 by these stockholders was $42,400. In October of 1997, the notes were repaid in full. 10. SUBSEQUENT EVENT On October 24, 1997, the Company entered into a stock purchase agreement with United Rentals, Inc. ("United"). Under the terms of the stock purchase agreement, United purchased all of the issued and outstanding capital stock of the Company. F-66 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERINGS COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU- THORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTI- TUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH 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 IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. ---------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary....................................................... 3 Summary Historical and Pro Forma Consolidated Financial Information...... 6 Risk Factors............................................................. 7 Use of Proceeds.......................................................... 12 Dividend Policy.......................................................... 12 Dilution................................................................. 13 Capitalization........................................................... 14 Selected Historical and Pro Forma Consolidated Financial Information..... 15 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 16 Business................................................................. 20 Management............................................................... 27 Principal Stockholders................................................... 32 Description of Capital Stock............................................. 34 Certain Charter and By-Law Provisions.................................... 35 Shares Eligible for Future Sale.......................................... 38 Certain United States Federal Tax Consequences to Non-United States Holders................................................................. 39 Underwriting............................................................. 41 Legal Matters............................................................ 44 Experts.................................................................. 44 Available Information.................................................... 44
---------------- UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SHARES [LOGO] UNITED RENTALS, INC. COMMON STOCK ---------------- PROSPECTUS ---------------- MERRILL LYNCH & CO. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION DEUTSCHE MORGAN GRENFELL , 1997 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS, DATED , 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 SHARES [LOGO] UNITED RENTALS, INC. COMMON STOCK ---------- All of the shares of Common Stock, $.01 par value (the "Common Stock"), offered hereby are being offered by United Rentals, Inc., a Delaware corporation (the "Company"). Of the Common Stock offered hereby, shares are being offered initially in the United States and Canada by the U.S. Underwriters (the "U.S. Offering"), and shares are being offered initially in a concurrent international offering outside the United States and Canada by the International Managers (the "International Offering", and together with the U.S. Offering, the "Offerings"). The initial public offering price and the underwriting discount per share are identical for each of the Offerings. See "Underwriting." Prior to the Offerings, there has been no public market for the Common Stock. It is currently estimated that the initial public offering price will be between $ and $ per share. For information relating to factors to be considered in determining the initial public offering price, see "Underwriting." Shares of Common Stock are being offered for sale to certain employees, directors and business associates, of, and certain other persons designated by, the Company at the initial public offering price. Such employees, directors and other persons are expected to purchase, in the aggregate, not more than % of the Common Stock offered in the Offerings. Application will be made to list the Common Stock on the stock exchange under the symbol " ", subject to official notice of issuance. SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. ---------- 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. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO PRICE TO PUBLIC DISCOUNT(1) THE COMPANY(2) - -------------------------------------------------------------------------------------------- Per Share...................................... $ $ $ - -------------------------------------------------------------------------------------------- Total(3)....................................... $ $ $
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) The Company has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (2) Before deducting expenses of the Offerings payable by the Company estimated at $ . (3) The Company has granted the U.S. Underwriters and the International Managers options to purchase up to an additional shares and shares of Common Stock, respectively, in each case exercisable within 30 days of the date hereof, solely to cover over-allotments, if any. If such options are exercised in full, the total Price to Public, Underwriting Discount 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 issued to and accepted by them, subject to the approval of certain legal matters by counsel for the Underwriters and to certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the shares of Common Stock will be made in New York, New York, on or about , 1997. ---------- MERRILL LYNCH INTERNATIONAL DONALDSON, LUFKIN & JENRETTE INTERNATIONAL DEUTSCHE MORGAN GRENFELL ---------- The date of this Prospectus is , 1997 ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS UNDERWRITING Subject to the terms and conditions set forth in an international purchase agreement (the "International Purchase Agreement") among the Company and the International Managers named below (the "International Managers") for whom Merrill Lynch International, Donaldson, Lufkin & Jenrette International and Deutsche Morgan Grenfell Inc. are acting as representatives (the "Lead Managers") and concurrently with the sale of shares of Common Stock to the U.S. Underwriters (as defined below), the Company has agreed to sell to the International Managers, and each of the International Managers severally has agreed to purchase from the Company, the number of shares of Common Stock set forth opposite its name below.
INTERNATIONAL MANAGER NUMBER OF SHARES --------------------- ---------------- Merrill Lynch International............................. Donaldson, Lufkin & Jenrette International.............. Deutsche Morgan Grenfell Inc. .......................... ----- Total................................................. =====
The Company has also entered into a U.S. purchase agreement (the "U.S. Purchase Agreement") with certain underwriters in the United States and Canada (the "U.S. Underwriters" and, together with the International Managers, the "Underwriters") for whom Merrill Lynch, Pierce, Fenner & Smith ("Merrill Lynch"), Donaldson, Lufkin & Jenrette Securities Corporation and Deutsche Morgan Grenfell Inc. are acting as representatives (the "U.S. Representatives"). Subject to the terms and conditions set forth in the U.S. Purchase Agreement, and concurrently with the sale of shares of Common Stock to the International Managers pursuant to the International Purchase Agreement, the Company has agreed to sell to the U.S. Underwriters, and the U.S. Underwriters severally have agreed to purchase from the Company, an aggregate of shares of Common Stock. The initial offering price per share and the total underwriting discount per share of Common Stock are identical under the U.S. Purchase Agreement and the International Purchase Agreement. In the U.S. Purchase Agreement and the International Purchase Agreement, the several U.S. Underwriters and the several International Managers, respectively, have agreed, subject to the terms and conditions set forth therein, to purchase all of the shares of Common Stock being sold pursuant to each such agreement if any of the shares of Common Stock being sold pursuant to such agreement are purchased. The closings with respect to the sale of shares of Common Stock to be purchased by the U.S. Underwriters and the International Managers are conditioned upon one another. The Lead Managers have advised the Company that the International Managers propose initially to offer the shares of Common Stock to the public at the initial public offering price set forth on the cover page of this Prospectus, and to certain dealers at such price less a concession not in excess of $ per share of Common Stock. The International Managers may allow, and such dealers may reallow, a discount not in excess of $ per share of Common Stock on sales to certain other dealers. After the initial public offering, the public offering price, concession and discount may be changed. The Company has granted an option to the International Managers exercisable for 30 days after the date of this Prospectus, to purchase up to an aggregate of additional shares of Common Stock at the initial public offering price set forth on the cover page of the Prospectus, less the underwriting discount. The International Managers may exercise this option only to cover over- allotments, if any, made on the sale of the Common Stock offered hereby. To the extent that the International Managers exercise this option, each International Manager will be obligated, subject to certain conditions, to purchase a number of additional shares of Common Stock 41 ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS proportionate to such International Manager's initial amount reflected in the foregoing table. The Company also has granted an option to the U.S. Underwriters, exercisable for 30 days after the date of this Prospectus to purchase up to an aggregate of additional shares of Common Stock to cover over-allotments, if any, on terms similar to those granted to the International Manager. The Company, all executive officers and directors of the Company and the holders of an aggregate of 318,712 shares of Common Stock issued as consideration for an acquisition have agreed, subject to certain exceptions, not to directly or indirectly (a) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of or otherwise dispose of or transfer any shares of Common Stock or securities convertible into or exchangeable or exercisable for Common Stock, whether now owned or thereafter acquired by the person executing the agreement or with respect to which the person executing the agreement thereafter acquires the power of disposition, or file a registration statement under the Securities Act with respect to the foregoing or (b) enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of the Common Stock whether any such swap or transaction is to be settled by delivery of Common Stock or other securities, in cash or otherwise, without the prior written consent of Merrill Lynch on behalf of the Underwriters for a period of 180 days after the date of this Prospectus. The foregoing agreement will not limit a stockholder's ability to transfer shares in a private placement or to pledge shares, provided that the transferee or pledgee agrees to be bound by such agreement. The foregoing agreement also will not limit the Company's ability to (i) grant stock options under the 1997 Stock Option Plan, (ii) to issue shares as consideration for acquisitions (provided that the Company may not issue in excess of 500,000 shares for acquisitions unless the recipients of such excess shares agree to be subject to the foregoing lock-up with respect to such excess shares), (iii) file a shelf registration statement with respect to the possible resale of outstanding shares of Common Stock or shares of Common Stock that may be acquired upon exercise of outstanding warrants (provided that no sales may be made under such registration statement during the 180-day lockup period), (iv) file a registration statement with respect to Common Stock or other securities to be issued as consideration for an acquisition or with respect to the potential resale of shares issued as consideration for an acquisition (provided that no sales may be made pursuant to such registration statement except to the extent permitted by clause (ii) above) or (v) file a registration statement registering the shares that may be issued pursuant to options granted or to be granted under the 1997 Stock Option Plan. The Company has also agreed not to waive any lock-up agreement that was agreed to by certain stockholders of the Company in connection with the issuance to them of 3,028,873 shares of Common Stock in a private placement in October 1997, without the prior written consent of Merrill Lynch & Co. on behalf of the Underwriters, for a period of 180 days after the date of this Prospectus. This effectively prohibits such stockholders from selling or otherwise disposing of any such shares for a period of 180 days after the date of this Prospectus, without the prior written consent of Merrill Lynch & Co., on behalf of the Underwriters. The U.S. Underwriters and the International Managers have entered into an intersyndicate agreement (the "Intersyndicate Agreement") that provides for the coordination of their activities. Pursuant to the Intersyndicate Agreement, the U.S. Underwriters and the International Managers are permitted to sell shares of Common Stock to each other for purposes of resale at the initial public offering price, less an amount not greater than the selling concession. Under the terms of the Intersyndicate Agreement, the U.S. Underwriters and any dealer to whom they sell shares of Common Stock will not offer to sell or sell shares of Common Stock to persons who are non-U.S. or non-Canadian persons or to persons they believe intend to resell to persons who are non-U.S. or non-Canadian persons, and the International Managers and any dealer to whom they sell shares of Common Stock will not offer to sell or sell shares of Common Stock to U.S. persons or to Canadian persons or to persons they believe intend to resell to U.S. or Canadian persons, except in the case of transactions pursuant to the Intersyndicate Agreement. Prior to the Offerings, there has been no public market for the Common Stock of the Company. The initial public offering price will be determined through negotiations among the Company, the U.S. Representatives and the Lead Managers. The factors to be considered in determining the initial public offering price, in addition to prevailing market conditions, are the history of and the prospects for the Company and the industry in which it 42 ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS competes, an assessment of the Company's management, the past and present operations of the Company and the Initial Acquired Companies and the trend of its pro forma revenues and earnings, the prospects for future earnings of the Company, the prices of similar securities of generally comparable companies and other relevant factors. There can be no assurance that an active trading market will develop for the Common Stock or that the Common Stock will trade in the public market subsequent to the Offerings at or above the initial public offering price. Application has been made to list the shares of Common Stock on the under the symbol " ," subject to official notice of issuance. In order to meet the requirements for listing of the Common Stock on that exchange, the U.S. Underwriters and the International Managers have undertaken to sell lots of or more shares to a minimum of beneficial owners. The Underwriters have reserved for sale, at the initial public offering price, up to shares of Common Stock for certain employees, directors, and business associates of, and certain other persons designated by, the Company who have expressed an interest in purchasing such shares of Common Stock. The number of shares available for sale to the general public in the Offerings will be reduced to the extent such persons purchase such reserved shares. Any reserved shares not so purchased will be offered to the general public on the same basis as other shares offered hereby. The Underwriters do not intend to confirm sales of the Common Stock offered hereby to any accounts over which they exercise discretionary authority. The Company has agreed to indemnify the U.S. Underwriters and the International Managers against certain liabilities, including certain liabilities under the Securities Act. Until the distribution of the Common Stock is completed, rules of the Commission may limit the ability of the Underwriters and certain selling group members to bid for and purchase the Common Stock. As an exception to these rules, the U.S. Representatives are permitted to engage in certain transactions that stabilize the price of the Common Stock. Such transactions consist of bids or purchases for the purposes of pegging, fixing or maintaining the price of the Common Stock. If the Underwriters create a short position in the Common Stock in connection with the Offerings, i.e., if they sell more shares of Common Stock than are set forth on the cover page of this Prospectus, the U.S. Representatives may reduce that short position by purchasing Common Stock in the open market. The U.S. Representatives may also elect to reduce any short position by exercising all or part of the over-allotment option described above. The U.S. Representatives may also impose a penalty bid on certain Underwriters and selling group members. This means that if the U.S. Representatives purchase shares of Common Stock in the open market to reduce the Underwriters' short position or to stabilize the price of the Common Stock, they may reclaim the amount of the selling concession from the Underwriters and selling group members who sold those shares as part of the Offerings. In general, purchases of a security for the purpose of stabilization or to reduce a short position could cause the price of the security to be higher than it might be in the absence of such purchases. The imposition of a penalty bid might also have an effect on the price of a security to the extent that it were to discourage resales of the security. Neither the Company nor any of the Underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Common Stock. In addition, neither the Company nor any of the Underwriters makes any representation that the U.S. Representatives will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice. Each International Manager has agreed that (i) it has not offered or sold and, prior to the expiration of the period of six months from the Closing Date, 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 43 ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS 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 within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Common Stock in, from or otherwise involving the United Kingdom; and 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 issuance of Common Stock to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be issued or passed on. No action has been or will be taken in any jurisdiction (except in the United States) that would permit a public offering of the shares of Common Stock, or the possession, circulation or distribution of this Prospectus or any other material relating to the Company or shares of Common Stock in any jurisdiction where acting for that purpose is required. Accordingly, the shares of Common Stock may not be offered or sold, directly or indirectly, and neither this Prospectus nor any other offering material or advertisements in connection with the shares of Common Stock may be distributed or published, in or from any country or jurisdiction except in compliance with any applicable rules and regulations of any such country or jurisdiction. Purchasers of the shares offered hereby may be required to pay stamp taxes and other charges in accordance with the laws and practices of the country of purchase in addition to the offering price set forth on the cover page hereof. 44 ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN- FORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CON- NECTION WITH THE OFFERINGS COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO- RIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH 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 IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. IN THE PROSPECTUS, REFERENCES TO "DOLLARS" AND "$" ARE TO UNITED STATES DOLLARS. --------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary....................................................... 3 Summary Historical and Pro Forma Consolidated Financial Information...... 6 Risk Factors............................................................. 7 Use of Proceeds.......................................................... 12 Dividend Policy.......................................................... 12 Dilution................................................................. 13 Capitalization........................................................... 14 Selected Historical and Pro Forma Consolidated Financial Information..... 15 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 16 Business................................................................. 20 Management............................................................... 27 Principal Stockholders................................................... 32 Description of Capital Stock............................................. 34 Certain Charter and By-Law Provisions.................................... 35 Shares Eligible for Future Sale.......................................... 38 Certain United States Federal Tax Consequences to Non-United States Holders................................................................. 39 Underwriting............................................................. 41
--------------- UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SHARES [LOGO] UNITED RENTALS, INC. COMMON STOCK --------------- PROSPECTUS --------------- MERRILL LYNCH INTERNATIONAL DONALDSON, LUFKIN & JENRETTE INTERNATIONAL DEUTSCHE MORGAN GRENFELL , 1997 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. SEC Registration Fee.......................................... $ 24,243 Listing Fee*.................................................. $ 172,000 NASD Filing Fee............................................... $ 8,500 Accounting Fees and Expenses*................................. $ 400,000 Printing and Engraving Expenses*.............................. $ 200,000 Legal Fees and Expenses (other than blue sky)*................ $ 400,000 Blue Sky Fees and Expenses*................................... $ 5,000 Transfer Agent and Registrar Fees*............................ $ 5,000 Miscellaneous Expenses*....................................... $ 275,000 ---------- Total*........................................................ $1,489,743 ==========
- -------- * Estimated. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Certificate of Incorporation (the "Certificate") of the Company provides that a director will not be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law (the "Delaware Law"), which concerns unlawful payments of dividends, stock purchases or redemptions, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware Law is subsequently amended to permit further limitation of the personal liability of directors, the liability of a director of the Company will be eliminated or limited to the fullest extent permitted by the Delaware Law as amended. The Registrant, as a Delaware corporation, is empowered by Section 145 of the Delaware Law, subject to the procedures and limitation stated therein, to indemnify any person against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with any threatened, pending or completed action, suit or proceeding in which such person is made a party by reason of his being or having been a director, officer, employee or agent of the Registrant. The statute provides that indemnification pursuant to its provisions is not exclusive of other rights of indemnification to which a person may be entitled under any by-law, agreement, vote of stockholders or disinterested directors, or otherwise. The Company has entered into indemnification agreements with each of its directors and officers. In general, these agreements require the Company to indemnify each of such persons against expenses, judgments, fines, settlements and other liabilities incurred in connection with any proceeding (including a derivative action) to which such person may be made a party by reason of the fact that such person is or was a director, officer or employee of the Company or guaranteed any obligations of the Company, provided that the right of an indemnitee to receive indemnification is subject to the following limitations: (i) an indemnitee is not entitled to indemnification unless he acted in good faith and in a manner that he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such conduct was unlawful and (ii) in the case of a derivative action, an indemnitee is not entitled to indemnification in the event that he is judged in a final non-appealable decision of a court of competent jurisdiction to be liable to the Company due to willful misconduct in the performance of his duties to the Company (unless and only to the extent that the court determines that the indemnitee is fairly and reasonably entitled to indemnification). Pursuant to Section 145 of the Delaware Law, the Registrant has purchased insurance on behalf of its present and former directors and officers against any liability asserted against or incurred by them in such capacity or arising out of their status as such. II-1 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Set forth below is a listing of all sales by the Company of unregistered securities since the Company was incorporated on August 14, 1997. All such sales were exempt from registration under the Securities Act of 1933, as amended (the "Act"), pursuant to Section 4(2) of the Act (and, in the case of the private placement described in paragraph 3 below, Regulation D thereunder), as they were transactions not involving a public offering. The Company believes that each of the issuances made pursuant to Section 4(2) was made to a sophisticated investor, who had the financial resources to bear the risk of the investment and who had the means and opportunity to obtain information concerning the Company. The consideration paid to the Company in respect of each issuance was cash, unless otherwise indicated. All sales described below were made by the Company without the assistance of any underwriters. 1. In September and October 1997, the Company issued an aggregate of 12,805,714 shares of Common Stock and 6,342,858 warrants to certain officers of the Company (including, in certain cases, one or more entities controlled by the officer) for an aggregate amount of $45.95 million as described under "Management--Capital Contributions by Officers and Directors" in the prospectus which is a part of this Registration Statement. 2. In October 1997, the Company sold an aggregate of 112,857 shares of Common Stock to four employees of the company and one consultant at a price of $3.50 per share. 3. In September 1997, the Company in a private placement sold an aggregate of 3,028,873 shares of Common Stock, at a price of $3.50 per share, to 51 accredited investors. Such sale was made in accordance with Regulation D promulgated under the Act. 4. In October 1997, the Company issued 318,712 shares of Common Stock as part of the consideration for the acquisition by the Company of one of the Initial Acquired Companies. The number of such shares is subject to adjustment as described under "Management's Discussion and Analysis of Financial Condition and Results of Operations--Consideration for Initial Acquired Companies." 5. In October 1997, the Company issued a convertible note in the principal amount of $300,000 as part of the consideration for the acquisition of one of the Initial Acquired Companies. 6. In October 1997, options with respect to 219,000 shares of Common Stock were granted to employees of the Company. Such options have exercise prices ranging from $10.00 per share to $15.00 per share and a weighted average exercise price of $11.83 per share. ITEM 16. EXHIBITS.
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------- ----------------------- 1(a)* Form of United States Purchase Agreement 1(b)* Form of International Purchase Agreement 3(a) Amended and Restated Certificate of Incorporation of the Company, in effect as of the date hereof 3(b) By-laws of the Company, in effect as of the date hereof 4* Form of Common Stock Certificate 5* Opinion of Ehrenreich & Krause 10(a) $55 Million Revolving Credit Facility, dated as of October 8, 1997, between the Company, various financial institutions, and Bank of America National Trust and Savings Association, as agent, together with the First Amendment thereto dated October 17, 1997 and the Second Amendment thereto dated October 24, 1997 10(b) 1997 Stock Option Plan 10(c) Form of Warrant Agreement(1) 10(d) Form of Private Placement Purchase Agreement entered into by certain officers of the Company in connection with purchasing shares and warrants from the Company(2) 10(e) Form of Subscription Agreement for September 1997 Private Placement(3) 10(f) Form of Indemnification Agreement for Officers and Directors of the Company 10(g)* Employment Agreement between the Company and Bradley S. Jacobs, dated as of , 1997 10(h)* Employment Agreement between the Company and John N. Milne, dated as of , 1997 10(i) Employment Agreement between the Company and Michael J. Nolan, dated as of October 14, 1997
II-2
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------- ----------------------- 10(j) Employment Agreement between the Company and Robert P. Miner, dated as of October 10, 1997 10(k) Stock Purchase Agreement, dated as of October 24, 1997, among the Company and the shareholders of Mercer Equipment Company+ 10(l) Stock Purchase Agreement, dated as of October 24, 1997, among the Company and the shareholders of Bronco Hi-Lift Inc.+ 10(m) Stock Purchase Agreement, dated as of October 24, 1997, among the Company and Coran Enterprises, Inc., Monterey Bay Equipment Rentals, Inc., James M. Shade, Carol A. Shade, James M. Shade and Carol Anne Shade, Trustees under the James M. Shade and Carol A. Shade Trust Agreement dated September 14, 1982, Randall Shade and Corey Shade.+ 10(n) Stock Purchase Agreement, dated as of October 24, 1997, among the Company and the shareholders of Rent-It Center, Inc.+ 10(o) Stock Purchase Agreement, dated as of October 20, 1997, among the Company and A&A Tool Rentals & Sales, Inc., Joseph E. Doran, Patrick J. Doran, and A&A Tool Rentals & Sales, Inc. Employee Stock Ownership Plan.+ 10(p)* Agreement and Plan of Merger, dated as of October 23, 1997, among the Company, UR Acquisition Subsidiary, Inc. and J&J Rental Services, Inc. 11* Statement re: Computation of per share earnings 21 Subsidiaries of the Registrant 23(a)* Consent of Ehrenreich & Krause (included in opinion filed as Exhibit 5(a)) 23(b)* Consent of Weil, Gotshal & Manges LLP 23(c) Consent of Ernst & Young LLP 23(d) Consent of Ernst & Young LLP 23(e) Consent of Ernst & Young LLP 23(f) Consent of KPMG Peat Marwick 23(g) Consent of Webster Duke & Co. PA 23(h) Consent of Grant Thornton LLP 24 Power of Attorney (included in Part II of the Registration Statement under the caption "Signatures") 27 Financial Data Schedule
- -------- * To be filed by amendment. + Filed without exhibits and schedules (to be provided supplementally upon request of the Commission). (1) The Company issued a warrant in this form to the following officers of the Company (or in certain cases to an entity controlled by such officer) for the number of shares indicated: Bradley S. Jacobs (5,000,000); John N. Milne (714,286); Michael J. Nolan (285,715); Robert P. Miner (142,857); Sandra E. Welwood (50,000); Joseph J. Kondrup, Jr. (50,000); Kai E. Nyby (50,000); and Richard A. Volonino (50,000). (2) Each officer of the Company who purchased securities prior to the date hereof, other than Bradley Jacobs, entered into a Private Placement Purchase Agreement in this form (modified, in the case of Kurtis T. Barker, to reflect the fact that Mr. Barker did not purchase Warrants) with respect to the shares of Common Stock and Warrants purchased by such officer from the Company as described under "Management--Capital Contributions by Officers and Directors." (3) Each purchaser of shares in the Company's September 1997 private placement of 3,028,873 shares of Common Stock entered into a Subscription Agreement in this form with respect to the shares purchased. ITEM 17. UNDERTAKINGS. The undersigned Registrant undertakes to provide to the Underwriter at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. II-3 Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW YORK, ON OCTOBER 30, 1997. United Rentals, Inc. /s/ Bradley S. Jacobs By: __________________________________ BRADLEY S. JACOBSCHAIRMAN, CHIEF EXECUTIVE OFFICERAND DIRECTOR PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THEIR RESPECTIVE CAPACITIES AND ON THE RESPECTIVE DATES SET FORTH OPPOSITE THEIR NAMES. EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY AUTHORIZES EACH OF BRADLEY S. JACOBS, JOHN N. MILNE AND MICHAEL J. NOLAN AND EACH WITH FULL POWER OF SUBSTITUTION, TO EXECUTE IN THE NAME AND ON BEHALF OF SUCH PERSON ANY AMENDMENT OR ANY POST-EFFECTIVE AMENDMENT TO THIS REGISTRATION STATEMENT, AND ANY REGISTRATION STATEMENT RELATING TO ANY OFFERING MADE IN CONNECTION WITH THE OFFERING COVERED BY THIS REGISTRATION STATEMENT THAT IS TO BE EFFECTIVE UPON FILING PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND TO FILE THE SAME, WITH EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, MAKING SUCH CHANGES IN THIS REGISTRATION STATEMENT AS THE REGISTRANT DEEMS APPROPRIATE, AND APPOINTS EACH OF BRADLEY S. JACOBS, JOHN N. MILNE AND MICHAEL J. NOLAN, EACH WITH FULL POWER OF SUBSTITUTION, ATTORNEY-IN-FACT TO SIGN ANY AMENDMENT AND ANY POST-EFFECTIVE AMENDMENT TO THIS REGISTRATION STATEMENT AND TO FILE THE SAME, WITH EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH. SIGNATURE TITLE DATE /s/ Bradley S. Jacobs Chairman, Chief October 30, - ------------------------------------ Executive Officer 1997 BRADLEY S. JACOBS and Director (Principal Executive Officer) /s/ John N. Milne Director October 30, - ------------------------------------ 1997 JOHN N. MILNE Director October 30, - ------------------------------------ 1997 RONALD M. DEFEO /s/ Richard J. Heckmann Director October 30, - ------------------------------------ 1997 RICHARD J. HECKMANN /s/ Michael J. Nolan Chief Financial October 30, - ------------------------------------ Officer (Principal 1997 MICHAEL J. NOLAN Financial Officer) /s/ Sandra E. Welwood Vice President, October 30, ____________________________________ Corporate 1997 SANDRA E. WELWOOD Controller (Principal Accounting Officer) II-5 EXHIBIT INDEX
EXHIBIT PAGE NUMBER DESCRIPTION OF EXHIBITS NUMBER ------- ----------------------- ------ 1(a)* Form of U.S. Purchase Agreement 1(b)* Form of International Purchase Agreement 3(a) Amended and Restated Certificate of Incorporation of the Company, in effect as of the date hereof 3(b) By-laws of the Company, in effect as of the date hereof 4* Form of Common Stock Certificate 5* Opinion of Ehrenreich & Krause 10(a) $55 Million Revolving Credit Facility, dated as of October 8, 1997, between the Company, various financial institutions, and Bank of America National Trust and Savings Association, as agent, together with the First Amendment thereto dated October 17, 1997 and the Second Amendment thereto dated October 24, 1997 10(b) 1997 Stock Option Plan 10(c) Form of Warrant Agreement(1) 10(d) Form of Private Placement Purchase Agreement entered into by certain officers of the Company in connection with purchasing shares and warrants from the Company(2) 10(e) Form of Subscription Agreement for September 1997 Private Placement(3) 10(f) Form of Indemnification Agreement for Officers and Directors of the Company 10(g)* Employment Agreement between the Company and Bradley S. Jacobs, dated as of , 1997 10(h)* Employment Agreement between the Company and John N. Milne, dated as of , 1997 10(i) Employment Agreement between the Company and Michael J. Nolan, dated as of October 14, 1997 10(j) Employment Agreement between the Company and Robert P. Miner, dated as of October 10, 1997 10(k) Stock Purchase Agreement, dated as of October 24, 1997, among the Company and the shareholders of Mercer Equipment Company+ 10(l) Stock Purchase Agreement, dated as of October 24, 1997, among the Company and the shareholders of Bronco Hi-Lift Inc.+ 10(m) Stock Purchase Agreement, dated as of October 24, 1997, among the Company and Coran Enterprises, Inc., Monterey Bay Equipment Rentals, Inc., James M. Shade, Carol A. Shade, James M. Shade and Carol Anne Shade, Trustees under the James M. Shade and Carol A. Shade Trust Agreement dated September 14, 1982, Randall Shade and Corey Shade.+ 10(n) Stock Purchase Agreement, dated as of October 24, 1997, among the Company and the shareholders of Rent-It Center, Inc.+ 10(o) Stock Purchase Agreement, dated as of October 20, 1997, among the Company and A&A Tool Rentals & Sales, Inc., Joseph E. Doran, Patrick J. Doran, and A&A Tool Rentals & Sales, Inc. Employee Stock Ownership Plan.+ 10(p) Agreement and Plan of Merger, dated as of October 23, 1997, among the Company, UR Acquisition Subsidiary, Inc. and J&J Rental Services, Inc.+
EXHIBIT PAGE NUMBER DESCRIPTION OF EXHIBITS NUMBER ------- ----------------------- ------ 11* Statement re: Computation of per share earnings 21 Subsidiaries of the Company 23(a)* Consent of Ehrenreich & Krause (included in opinion filed as Exhibit 5(a)) 23(b)* Consent of Weil, Gotshal & Manges LLP 23(c) Consent of Ernst & Young LLP 23(d) Consent of Ernst & Young LLP 23(e) Consent of Ernst & Young LLP 23(f) Consent of KPMG Peat Marwick 23(g) Consent of Webster Duke & Co. PA 23(h) Consent of Grant Thornton LLP 24 Power of Attorney (included in Part II of the Registration Statement under the caption "Signatures") 27 Financial Data Schedule
- -------- * To be filed by amendment. + Filed without exhibits and schedules (to be provided supplementally upon request of the Commission). (1) The Company issued a warrant in this form to the following officers of the Company (or in certain cases to an entity controlled by such officer) for the number of shares indicated: Bradley S. Jacobs (5,000,000); John N. Milne (714,286); Michael J. Nolan (285,715); Robert P. Miner (142,857); Sandra E. Welwood (50,000); Joseph J. Kondrup, Jr. (50,000); Kai E. Nyby (50,000); and Richard A. Volonino (50,000). (2) Each officer of the Company who purchased securities prior to the date hereof, other than Bradley Jacobs, entered into a Private Placement Purchase Agreement in this form (modified, in the case of Kurtis T. Barker, to reflect the fact that Mr. Barker did not purchase Warrants) with respect to the shares of Common Stock and Warrants purchased by such officer from the Company as described under "Management--Capital Contributions by Officers and Directors." (3) Each purchaser of shares in the Company's September 1997 private placement of 3,028,873 shares of Common Stock entered into a Subscription Agreement in this form with respect to the shares purchased. EX-3.(A) 2 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION EXHIBIT 3(a) AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF UNITED SYSTEM, INC. United System, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: 1. The name of the Corporation is United System, Inc., to be renamed as United Rentals, Inc., and the original Certificate of Incorporation (the "Original Certificate") of the Corporation was filed with the Secretary of State of the State of Delaware on August 14, 1997. 2. Pursuant to Sections 242 and 245 of the Delaware General Corporation Law, this Amended and Restated Certificate of Incorporation restates and integrates and further amends the provisions of the Corporation's Certificate of Incorporation. 3. The terms and provisions of this Amended and Restated Certificate of Incorporation have been duly adopted pursuant to the provisions of Sections 242 and 245 of the Delaware General Corporation Law. 4. The text of the Original Certificate is hereby restated and further amended to read in its entirety as follows: ARTICLE I The name of the Corporation is United Rentals, Inc. ARTICLE II The address of the Corporation's registered office in the State of Delaware is United Corporate Services, Inc., 15 East North Street, Dover, Delaware 19901, County of Kent. The name of its registered agent at such address is United Corporate Services, Inc. ARTICLE III A. The Corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock". The amount of the total authorized capital stock of the Corporation is 80,000,000 shares, divided into (a) 75,000,000 shares of Common Stock having a par value of $0.01 per share, and (b) 5,000,000 shares of Preferred Stock having a par value of $0.01 per share. B. The Preferred Stock may be issued from time to time in one or more series. Subject to the restrictions prescribed by law, the Board of Directors is authorized to fix by resolution or resolutions the number of shares of any series of Preferred Stock and to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series of Preferred Stock, to increase (but not above the total number of authorized shares of Preferred Stock) or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series. The authority of the Board of Directors with respect to each series of Preferred Stock shall include, but not be limited to, determination of the following: (a) the number of shares constituting that series and the distinctive designation of that series; (b) the dividend rate on the shares of that series, whether dividends shall be cumulative, and if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series; (c) whether that series shall have voting rights in addition to the voting rights provided by law, and if so, the terms of such voting rights; (d) whether that series shall have conversion privileges, and if so, the terms and conditions of such privileges, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (e) whether or not the shares of that series shall be redeemable, and if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (f) whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and if so, the terms and the amount of such sinking funds; (g) the rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series; and (h) any other relative rights, preferences and limitations of that series. ARTICLE IV The purpose of the Corporation is to engage in any lawful act or activity for which corporations may now or hereafter be organized under the Delaware General Corporation Law. ARTICLE V A. By-Laws. In furtherance and not in limitation of the powers ------- conferred by statute, the Board of Directors is expressly authorized to make, adopt, alter, amend or repeal the By-Laws of the Corporation. Any By-Laws made by the directors under the powers conferred hereby may be amended or repealed by the directors or by the stockholders. Notwithstanding the foregoing and anything contained in this Amended and Restated Certificate of Incorporation to the contrary, the By-Laws shall not be amended or repealed by the stockholders, and no provision inconsistent therewith shall be adopted by the stockholders, without the affirmative vote of the holders of at least 66-2/3% of the voting power of all shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class. B. Amendment of Certificate of Incorporation. Notwithstanding any other ----------------------------------------- provision contained in this Amended and Restated Certificate of Incorporation and notwithstanding that a lesser 2 percentage may be specified by law, the By-Laws or otherwise, this Article V and Articles VI, VI, VIII and IX of this Amended and Restated Certificate of Incorporation shall not be amended or repealed, and no provision inconsistent therewith or providing for cumulative voting in the election of directors shall be adopted, unless such adoption, amendment or repeal is approved by the affirmative vote of holders of at least 66-2/3% of the voting power of all shares of capital stock of the Corporation entitled to vote generally for the election of directors; provided, however, that the provisions of this paragraph -------- ------- B shall not apply unless and until the Corporation shall have completed an underwritten public offering of Common Stock that is registered under the Securities Act of 1933 (an "IPO"). ARTICLE VI The business and affairs of the Corporation shall be managed by and under the direction of the Board of Directors (the "Board"). The Board may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by statute or this Amended and Restated Certificate of Incorporation directed or required to be exercised or done by the stockholders. A. Number of Directors. The number of directors comprising the entire ------------------- Board shall, at the time of filing of this Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware (the "Effective Time"), be the number of directors then in office and shall thereafter, subject to the right, if any, of holders of Preferred Stock to elect directors under specified circumstances, be such number as may be fixed from time to time exclusively by the Board by action of a majority of the directors then in office. If the number of directors at any time is fixed at three or greater, then thereafter in no event shall such number be fewer than three or greater than nine, unless approved by action of not less than two- thirds of the directors then in office. No director need be a stockholder. B. Classes and Terms of Directors. The directors shall be divided into ------------------------------ three classes (I, II and III). The number of directors comprising each class (assuming no vacancy in any class) shall be as nearly equal in number as possible based upon the number of directors comprising the entire Board. The Board shall, at or before the first meeting of the Board following the Effective Time, designate the class to which each director then serving shall be a member. The initial term of the directors in Class I shall extend until the first annual meeting of stockholders following the Effective Time; the initial term of the directors in Class II shall extend until the second annual meeting of stockholders following the Effective Time; and the initial term of the directors in Class III shall extend until the third annual meeting of stockholders following the Effective Time. At each annual meeting of stockholders, successors to directors of the class whose term expires at such meeting will be elected to serve for three-year terms and until their successors are elected and qualified. C. Newly-Created Directorships and Vacancies. Subject to the rights of ----------------------------------------- the holders of any class or series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors or any vacancies in the Board resulting from death, resignation, retirement, disqualification, removal from office or any other cause may be filled by the 3 Board (and not by the stockholders unless there are no directors then in office), provided that a quorum is then in office and present, or by a majority of the directors then in office, if less than a quorum is then in office, or by the sole remaining director. A directors elected to fill a newly created directorship or other vacancy shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor has been elected and qualified. D. Removal of Directors. Subject to the rights of the holders of any -------------------- class or series of Preferred Stock then outstanding, the directors or any director may be removed from office any time, but only for cause, at a meeting called for that purpose, and only by the affirmative vote of the holders of at least 66-2/3% of the voting power of all shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class; provided, however, that the directors or any director may be removed with or - -------- ------- without cause, by the affirmative vote of the holders of at least a majority of such voting power, at any time prior to the completion of an IPO. E. Rights of Holders of Preferred Stock. Notwithstanding the foregoing ------------------------------------ provisions of this Article VI, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the rights and preferences of such Preferred Stock, and such directors so elected shall not be divided into classes pursuant to this Article VI unless expressly provided by such rights and preferences. F. Written Ballot Not Required. The election of directors need not be --------------------------- by written ballot unless the By-Laws of the Corporation shall so provide. ARTICLE VII The By-Laws of the Corporation may provide, without limitation, requirements relating to the notice and conduct of annual meetings, special meetings, and the nomination and election of directors of the Corporation. ARTICLE VIII In furtherance and not in limitation of the powers conferred by law or in this Amended and Restated Certificate of Incorporation, the Board (and any committee of the Board) is expressly authorized, to the extent permitted by law, to take such action or actions as the Board or such committee may determine to be reasonable necessary or desirable to (a) encourage any person to enter into negotiations with the Board and management of the Corporation with respect to any transaction which may result in a change in control of the Corporation which is proposed or initiated by such person or (b) contest or oppose any such transaction which the Board or such committee determines to be unfair, abusive or otherwise undesirable with respect to the Corporation and its business, assets or properties or the stockholders of the Corporation, including, without limitation, 4 the adoption of plans or the issuance of rights, options, capital stock, notes, debentures or other evidences of indebtedness or other securities of the Corporation, which rights, options, capital stock, notes, evidences of indebtedness and other securities (i) may be exchangeable for or convertible into cash or other securities on such terms and conditions as may be determined by the Board or such committee and (ii) may provide that any holder or class of holders thereof designated by the Board or any such committee will be treated differently than all other holders in respect of the terms, conditions, provisions and rights of such securities. ARTICLE IX Subject to the rights, if any, of holders of any class or series of Preferred Stock then outstanding, (i) stockholders are not permitted to call a special meeting of stockholders or to require the Board or officers of the Corporation to call such a special meeting, (ii) a special meeting of stockholders may only be called by a majority of the Board or by the chief executive officer, (iii) the business permitted to be conducted at a special meeting of stockholders shall be limited to matters properly brought before the meeting by or at the direction of the Board, and (iv) any action required or permitted to be taken by the stockholders must be taken at a duly called and convened annual meeting or special meeting of stockholders and cannot be taken by consent in writing; provided, however, that the provisions of the foregoing -------- ------- clause (iv) shall not apply prior to the completion of an IPO. Meetings of stockholders may be held within or without the State of Delaware, as the By-Laws may provide. The books of the Corporation may be kept (subject to any provision contained in the statute) outside the State of Delaware at such place or places as may be designated from time to time by the Board or in the By-Laws of the Corporation. ARTICLE X A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law 5 is amended after approval by the stockholders of this Article to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate of Incorporation to be duly executed this 11th day of September, 1997. UNITED SYSTEM, INC. By: /s/ Bradley Jacobs ----------------------------------------- Bradley Jacobs, Chief Executive Officer 6 EX-3.(B) 3 BY-LAWS OF THE COMPANY EXHIBIT (3)(b) BY-LAWS -OF- UNITED RENTALS, INC. (a Delaware corporation hereinafter called the "Corporation") Effective as of September 11, 1997 ARTICLE I Offices ------- SECTION 1.01. Offices. The Corporation may have offices both within and ------- without the State of Delaware as the Board of Directors may from time to time determine. ARTICLE II Meetings of Stockholders ------------------------ SECTION 2.01. Place of Meetings. Meetings of stockholders may be held at ----------------- any place, either within or without the State of Delaware, designated by the Board of Directors. SECTION 2.02. Annual Meeting. The annual meeting of stockholders for -------------- election of directors shall be held on such date and at such time as shall be designated by the Board of Directors. Any other proper business may be transacted at the annual meeting. SECTION 2.03. Special Meetings. Stockholders are not permitted to call a ---------------- special meeting of stockholders or to require the Board of Directors or officers of the Corporation to call such a special meeting. A special meeting of stockholders may only be called by a majority of the Board of Directors or by the chief executive officer. The business permitted to be conducted at a special meeting of stockholders shall be limited to matters properly brought before the meeting by or at the direction of the Board of Directors. Any action required or permitted to be taken by the stockholders must be taken at a duly called and convened annual meeting or special meeting of stockholders and cannot be taken by consent in writing; provided, however, that the foregoing shall not -------- ------- apply prior to the completion by the Corporation of an IPO (as defined in the certificate of incorporation). SECTION 2.04. Quorum. The holders of a majority of the shares entitled to ------ vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. SECTION 2.05. Organization. Meetings of stockholders shall be presided ------------ over by the Chairman, if any, or in his absence (or election not to preside) by the Vice Chairman, if any, or in his absence (or election not to preside) by the President, or in his absence (or election not to preside) by a Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence (or election not to so act) the chairman of the meeting may appoint any person to act as secretary of the meeting. SECTION 2.06. Conduct of Meetings. The Board of Directors may adopt such ------------------- rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. SECTION 2.07. Nomination of Directors. Only persons who are nominated in ----------------------- accordance with the following procedures shall be eligible for election as directors; provided, however, that the following procedures shall not apply to -------- ------- the nomination of persons for election as directors by vote of any class or series of preferred stock of the Corporation. Nominations of persons for election to the Board of Directors of the Corporation at the annual meeting may be made at such meeting by or at the direction of the Board of Directors, by any committee appointed by the Board of Directors or by any common 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 2.07. Such nominations, other than those made by or at the direction of the Board of Directors or by any committee appointed by the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event -------- ------- that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the fifteenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. Such stockholder's notice to the Secretary shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class, series and number of shares of capital stock of the Corporation which are beneficially owned by the person and (v) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to the Rules and Regulations of the Securities and Exchange Commission under Section 14 of the Securities 2 Exchange Act of 1934, as amended; and (b) as to the stockholder giving the notice (i) the name and record address of the stockholder, (ii) the class, series and number of shares of capital stock of the Corporation which are beneficially owned by the stockholder and (iii) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder. Such notice shall be accompanied by the executed consent of each nominee to serve as a director if so elected. 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 a director of the Corporation. No person shall be eligible for election as a director of the Corporation by the holders of Common Stock of the Corporation unless nominated in accordance with the procedures set forth herein. The officer of the Corporation presiding at an annual meeting shall, if the facts warrant, determine that a nomination was not made in accordance with the foregoing procedure and, if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. SECTION 2.08. Advance Notification of Business to be Transacted at ---------------------------------------------------- Stockholder Meetings. To be properly brought before the annual or any special - -------------------- meeting of stockholders, business must be either (a) specified in the notice of meeting (or any supplement or amendment thereto) given by or at the direction of the Board of Directors or any committee appointed by the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before an annual meeting by a stockholder. In addition to any other applicable requirements, for business to be properly brought before any annual meeting of stockholders by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior - -------- ------- public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the fifteenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. Such stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the meeting (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class, series and number of shares of capital stock of the Corporation which are beneficially owned by the stockholder and (iv) any material interest of the stockholder in such business. No business shall be conducted at the annual or any special meeting of stockholders unless it is properly brought before the meeting in accordance with the procedures set forth in this Section 2.08, provided, however, that nothing -------- ------- in this Section 2.08 shall be deemed to preclude discussion by any stockholder of any business properly brought before the meeting in accordance with the procedures set forth in this Section 2.08. The officer of the Corporation presiding at the meeting shall, if the facts warrant, determine that business was not properly brought before the 3 meeting in accordance with the provisions of this Section 2.08 and, if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. SECTION 2.09. Compliance with Securities and Exchange Act of 1934. --------------------------------------------------- Notwithstanding any other provision of these By-laws, the Corporation shall be under no obligation to include any stockholder proposal in its proxy statement materials or otherwise present any such proposal to stockholders at a special or annual meeting of stockholders if the Board of Directors reasonably believes that the proponents thereof have not complied with Sections 13 and 14 of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, and the Corporation shall not be required to include in its proxy statement material to stockholders any stockholder proposal not required to be included in its proxy material to stockholders in accordance with such Act, rules, or regulations ARTICLE III Directors --------- SECTION 3.01. Number of Directors. The number of directors which shall ------------------- constitute the entire Board of Directors shall be as set by the Board of Directors from time to time, and shall initially be one. No reduction in the number of directors constituting the entire Board of Directors shall have the effect of removing any director before that director's term of office expires. SECTION 3.02. Term of Office. Subject to the provisions of the -------------- certificate of incorporation, each director, including a director elected to fill a vacancy, shall hold office until such director's successor is elected and qualified or the earlier resignation or removal of such director. SECTION 3.03. Meetings. The Board of Directors of the Corporation may -------- hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman, the Vice Chairman, the Chief Executive Officer, the President or the Secretary or by resolution of the Board of Directors. Unless waived, notice of the time and place of special meetings shall be delivered to each director either (i) personally (either orally or in writing), (ii) by telephone, (iii) by telex, telecopy or other facsimile transmission, or (iv) by first-class mail, postage prepaid, addressed to a director at that director's address as it is shown on the records of the Corporation. If the notice is mailed, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting (ten days in the case of a director whose address as shown on the records of the Corporation is outside of the United State of America). If the notice to a director is delivered in any other manner it shall be delivered (which shall for this purpose mean received by the director) at least 24 hours before the time of the holding of the meeting. SECTION 3.04. Quorum. At all meetings of the Board of Directors, a ------ majority of the entire 4 Board shall be necessary and sufficient to constitute a quorum for the transaction of business. SECTION 3.04. Organization. Meetings of the Board of Directors shall be ------------ presided over by the Chairman, if any, or in his absence by the Vice Chairman, if any, or in the absence of the foregoing persons by a chairman chosen at the meeting. SECTION 3.05. Meetings by Conference Telephone or Similar Device. Members -------------------------------------------------- of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. SECTION 3.06. Board Action by Written Consent Without a Meeting. Any ------------------------------------------------- action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of 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. Written consents representing actions taken by the board or committee may be executed by telex, telecopy or other facsimile transmission, and such facsimile shall be valid and binding to the same extent as if it were an original. ARTICLE IV Officers -------- SECTION 4.01. General. The officers of the Corporation shall be ------- chosen by the Board of Directors and shall be a Chairman, a Vice Chairman, a Chief Executive Officer, a President, a Chief Financial Officer, and a Secretary. The Board of Directors, in its discretion, may also choose one or more Vice Presidents, Assistant Secretaries, and other officers. Each such officer shall hold office until his resignation or removal. The Board of Directors may remove any officer with or without cause at any time, but such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation. SECTION 4.02. Powers and Duties of Officers. The chief executive ----------------------------- officer of the Corporation shall have such powers in the management of the Corporation as may be prescribed in a resolution by the Board of Directors and, to the extent not so provided, as generally pertain to such office. The chief executive officer shall see that all orders and resolutions of the Board of Directors are carried into effect. The other officers of the Corporation shall have such powers and duties in the management of the Corporation as may be prescribed in a resolution by the Board of Directors or delegated to them by the chief executive officer and, to the extent not so provided or delegated, as generally pertain to their respective offices, subject to the control of the Board of Directors and the chief executive officer. Without limiting the foregoing, the Secretary shall have the duty to record the proceedings of the meetings of the stockholders and directors in a book to be kept for that purpose. 5 ARTICLE V Miscellaneous ------------- SECTION 5.1. Waivers of Notice. Whenever any notice is required by ----------------- law, the Certificate of Incorporation or these By-laws, to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, and, in the case of a waiver of notice of a meeting, whether or not the business to be transacted at or the purposes of such meeting is set forth in such waiver, shall be deemed equivalent thereto. The attendance of any person at any meeting, in person or, in the case of the meeting of stockholders, by proxy, shall constitute a waiver of notice of such meeting except where such person attends such meeting for the express purpose of objecting at the beginning of such meeting to the transaction of any business on the grounds that such meeting is not duly called or convened. SECTION 5.2. Fiscal Year. The fiscal year of the Corporation shall be ----------- fixed from time to time by the Board of Directors. SECTION 5.3. Seal. The corporate seal shall have inscribed thereon ---- the name of the Corporation and shall be in such form as may be approved from time to time by the Board of Directors. SECTION 5.4. Entire Board. As used in these By-laws, "entire Board ------------ of Directors" means the total number of directors which the Corporation would have if there were no vacancies in the Board of Directors. 6 EX-10.(A) 4 CREDIT AGREEMENT - UNITED RENTALS AND BOFA EXHIBIT 10(a) ================================================================================ CREDIT AGREEMENT dated as of October 8, 1997 among UNITED RENTALS, INC., VARIOUS FINANCIAL INSTITUTIONS and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent ================================================================================ Arranged by BANCAMERICA ROBERTSON STEPHENS || TABLE OF CONTENTS Page SECTION 1 DEFINITIONS.......................................................1 1.1 Definitions........................................................1 SECTION 2 COMMITMENTS OF THE BANKS; LETTER OF CREDIT, BORROWING AND CONVERSION PROCEDURES..............................12 2.1 Commitments.......................................................12 2.1.1 Loan Commitment............................................12 2.1.2 L/C Commitment.............................................12 2.2 Loan Procedures...................................................13 2.2.1 Various Types of Loans.....................................13 2.2.2 Borrowing Procedures.......................................13 2.2.3 Procedures for Conversion of Type of Loan..................13 2.3 Letter of Credit Procedures.......................................14 2.3.1 L/C Applications...........................................14 2.3.2 Participation in Letters of Credit.........................14 2.3.3 Reimbursement Obligations..................................15 2.3.4 Limitation on BofA's Obligations...........................15 2.3.5 Funding by Banks to BofA...................................15 2.4 Commitments Several...............................................16 2.5 Certain Conditions................................................16 SECTION 3 NOTES EVIDENCING LOANS...........................................16 3.1 Notes.............................................................16 3.2 Recordkeeping.....................................................16 SECTION 4 INTEREST.........................................................17 4.1 Interest Rates....................................................17 4.2 Interest Payment Dates............................................17 4.3 Interest Periods..................................................17 4.4 Setting and Notice of Eurodollar Rates............................18 4.5 Computation of Interest...........................................18 SECTION 5 FEES.............................................................18 5.1 Non-Use Fee.......................................................18 5.2 Letter of Credit Fees.............................................19 5.3 Arrangement and Agent's Fees......................................19 5.4 Closing Fees......................................................19 -i- SECTION 6 REDUCTION AND TERMINATION OF THE COMMITMENTS; PREPAYMENTS......................................................19 6.1 Reduction or Termination of the Commitments.......................19 6.2 Voluntary Prepayments.............................................20 SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES..................20 7.1 Making of Payments................................................20 7.2 Application of Certain Payments...................................20 7.3 Due Date Extension................................................21 7.4 Setoff............................................................21 7.5 Proration of Payments.............................................21 7.6 Taxes.............................................................21 SECTION 8 INCREASED COSTS; SPECIAL PROVISIONS FOR EURODOLLAR LOANS.................................................23 8.1 Increased Costs...................................................23 8.2 Basis for Determining Interest Rate Inadequate or Unfair.........................................................24 8.3 Changes in Law Rendering Eurodollar Loans Unlawful................25 8.4 Funding Losses....................................................25 8.5 Right of Banks to Fund through Other Offices......................26 8.6 Discretion of Banks as to Manner of Funding.......................26 8.7 Mitigation of Circumstances; Replacement of Affected Bank.....................................................26 8.8 Conclusiveness of Statements; Survival of Provisions..............27 SECTION 9 WARRANTIES.......................................................27 9.1 Organization, etc.................................................27 9.2 Authorization; No Conflict........................................27 9.3 Validity and Binding Nature.......................................28 9.4 Information.......................................................28 9.5 No Material Adverse Change........................................28 9.6 Litigation and Contingent Liabilities.............................28 9.7 Ownership of Properties; Liens....................................29 9.8 Subsidiaries......................................................29 9.9 Pension and Welfare Plans.........................................29 9.10 Investment Company Act............................................30 9.11 Public Utility Holding Company Act................................30 9.12 Regulation U......................................................30 9.13 Taxes.............................................................30 9.14 Solvency, etc.....................................................30 9.15 Environmental Matters.............................................30 9.16 Year 2000 Problem.................................................30 -ii- SECTION 10 COVENANTS.......................................................31 10.1 Reports, Certificates and Other Information.......................31 10.1.1 Audit Report..............................................31 10.1.2 Quarterly Reports.........................................31 10.1.3 Monthly Reports...........................................32 10.1.4 Compliance Certificates...................................32 10.1.5 Reports to SEC and to Shareholders........................32 10.1.6 Notice of Default, Litigation and ERISA Matters...........32 10.1.7 Subsidiaries..............................................33 10.1.8 Management Reports........................................33 10.1.9 Projections...............................................34 10.1.10 Other Information........................................34 10.2 Books, Records and Inspections....................................34 10.3 Insurance.........................................................34 10.4 Compliance with Laws; Payment of Taxes and Liabilities............34 10.5 Maintenance of Existence, etc.....................................35 10.6 Financial Covenants...............................................35 10.6.1 Minimum Net Worth.........................................35 10.6.2 Maximum Leverage..........................................35 10.6.3 Minimum Interest Coverage.................................35 10.6.4 Funded Debt to Cash Flow Ratio.............................36 10.6.5 Senior Debt to Tangible Assets.............................36 10.7 Limitations on Debt...............................................36 10.8 Liens.............................................................37 10.9 Operating Leases..................................................38 10.10 Restricted Payments...............................................38 10.11 Mergers, Consolidations, Sales....................................38 10.12 Modification of Organizational Documents..........................39 10.13 Use of Proceeds...................................................39 10.14 Further Assurances................................................40 10.15 Transactions with Affiliates......................................40 10.16 Employee Benefit Plans............................................40 10.17 Environmental Laws................................................40 10.18 Unconditional Purchase Obligations................................40 10.19 Inconsistent Agreements...........................................40 10.20 Business Activities...............................................41 10.21 Advances and Other Investments....................................41 SECTION 11 EFFECTIVENESS; CONDITIONS OF LENDING, ETC.......................42 11.1 Initial Loan......................................................42 11.1.1 Notes.....................................................42 11.1.2 Resolutions...............................................42 11.1.3 Consents, etc.............................................42 11.1.4 Incumbency and Signature Certificates.....................42 11.1.5 Intercompany Guaranty.....................................43 11.1.6 Security Agreement........................................43 11.1.7 Pledge Agreements.........................................43 11.1.8 Opinions of Counsel for the Company and the Guarantors................................................43 -iii- 11.1.9 Other.....................................................43 11.2 Conditions........................................................43 11.2.1 Compliance with Warranties, No Default, etc...............43 11.2.2 Confirmatory Certificate..................................44 SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT..............................44 12.1 Events of Default.................................................44 12.1.1 Non-Payment of the Loans, etc.............................44 12.1.2 Non-Payment of Other Debt.................................45 12.1.3 Other Material Obligations................................45 12.1.4 Bankruptcy, Insolvency, etc...............................45 12.1.5 Non-Compliance with Provisions of This Agreement.................................................46 12.1.6 Warranties................................................46 12.1.7 Pension Plans.............................................46 12.1.8 Judgments.................................................46 12.1.9 Invalidity of Intercompany Guaranty, etc..................46 12.1.10 Invalidity of Collateral Documents, etc...................47 12.1.11 Change in Control.........................................47 12.2 Effect of Event of Default........................................47 SECTION 13 THE AGENT.......................................................48 13.1 Appointment and Authorization.....................................48 13.2 Delegation of Duties..............................................48 13.3 Liability of Agent................................................49 13.4 Reliance by Agent.................................................49 13.5 Notice of Default.................................................49 13.6 Credit Decision...................................................50 13.7 Indemnification...................................................50 13.8 Agent in Individual Capacity......................................52 13.9 Successor Agent; Assignment of Agency.............................52 13.10 Withholding Tax...................................................52 13.11 Collateral Matters................................................54 SECTION 14 GENERAL.........................................................55 14.1 Waiver; Amendments................................................55 14.2 Confirmations.....................................................55 14.3 Notices...........................................................55 14.4 Computations......................................................56 14.5 Regulation U......................................................56 14.6 Costs, Expenses and Taxes.........................................56 14.7 Subsidiary References.............................................57 14.8 Captions..........................................................57 14.9 Assignments; Participations.......................................57 14.9.1 Assignments...............................................57 14.9.2 Participations............................................58 14.10 Governing Law.....................................................59 14.11 Counterparts......................................................59 -iv- 14.12 Successors and Assigns............................................60 14.13 Indemnification by the Company....................................60 14.14 Forum Selection and Consent to Jurisdiction.......................61 14.15 Waiver of Jury Trial..............................................61 -v- ANNEX I SCHEDULE I Pricing Schedule SCHEDULE 9.6(a) Litigation and Contingent Liabilities SCHEDULE 9.6(b) Contingent Payments SCHEDULE 9.7 Properties SCHEDULE 9.8 Subsidiaries SCHEDULE 10.7(c) Existing Equipment Debt SCHEDULE 10.7(g) Other Existing Debt SCHEDULE 10.8 Existing Liens SCHEDULE 12.1.11 Key Executives SCHEDULE 14.2 Addresses for Notices EXHIBIT A Form of Note (Section 3.1) EXHIBIT B Form of Compliance Certificate (Section 10.1.3) EXHIBIT C Form of Intercompany Guaranty (Section 1) EXHIBIT D Form of Security Agreement (Section 1) EXHIBIT E Form of Company Pledge Agreement (Section 1) EXHIBIT F Form of Subsidiary Pledge Agreement (Section 11.1.7) EXHIBIT G Form of Subordination Language (Section 1) EXHIBIT H Form of Assignment Agreement (Section 14.9) || -vi- CREDIT AGREEMENT ---------------- This CREDIT AGREEMENT, dated as of October 8, 1997 (as amended or otherwise modified from time to time, this "Agreement"), is entered into among UNITED --------- RENTALS, INC., a Delaware corporation (the "Company"), the financial ------- institutions that are or may from time to time become parties hereto (together with their respective successors and assigns, the "Banks") and BANK OF AMERICA ----- NATIONAL TRUST AND SAVINGS ASSOCIATION (in its individual capacity, "BofA"), as ---- agent for the Banks. In consideration of the premises and the mutual agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1 DEFINITIONS. 1.1 Definitions. When used herein the following terms shall have the ----------- following meanings (such definitions to be applicable to both the singular and plural forms of such terms): Affected Bank means any Bank that has given notice to the Company (which ------------- has not been rescinded) of (i) any obligation by the Company to pay any amount pursuant to Section 7.6 or 8.1 or (ii) the occurrence of any circumstances of ----------- --- the nature described in Section 8.2 or 8.3. ----------- --- Affiliate of any Person means (i) any other Person which, directly or --------- indirectly, controls or is controlled by or is under common control with such Person and (ii) any officer or director of such Person. Agent means BofA in its capacity as agent for the Banks hereunder and any ----- successor thereto in such capacity. Agent-Related Persons means BofA and any successor agent arising under --------------------- Section 13.9, together with their respective Affiliates (including, in the case - ------------ of BofA, the Arranger), and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates. Agreement - see the Preamble. --------- -------- Alternate Reference Rate means at any time the greater of (a) the Federal ------------------------ Funds Rate plus 0.5% and (b) the Reference Rate. Arranger means BancAmerica ROBERTSON STEPHENS, a Delaware corporation. -------- Assignment Agreement - see Section 14.9.1. -------------------- -------------- Bank - see the Preamble. ---- -------- BofA - see the Preamble. ---- -------- Business Day means any day on which BofA is open for commercial banking ------------ business in Chicago, New York and San Francisco and, in the case of a Business Day which relates to a Eurodollar Loan, on which dealings are carried on in the interbank eurodollar market. Capital Lease means, with respect to any Person, any lease of (or other ------------- agreement conveying the right to use) any real or personal property by such Person that, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of such Person. Cash Equivalent Investment means, at any time, (a) any evidence of Debt, -------------------------- maturing not more than one year after such time, issued or guaranteed by the United States Government or any agency thereof, (b) commercial paper, maturing not more than one year from the date of issue, or corporate demand notes, in each case (unless issued by a Bank or its holding company) rated at least A-l by Standard & Poor's Ratings Group or P-l by Moody's Investors Service, Inc., (c) any certificate of deposit (or time deposits represented by such certificates of deposit) or bankers acceptance, maturing not more than one year after such time, or overnight Federal Funds transactions that are issued or sold by a commercial banking institution that is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $500,000,000, (d) any repurchase agreement entered into with any Bank (or other commercial banking institution of the stature referred to in clause (c)) which ---------- (i) is secured by a fully perfected security interest in any obligation of the type described in any of clauses (a) through (c) and (ii) has a market value at ----------- --- the time such repurchase agreement is entered into of not less than 100% of the repurchase obligation of such Bank (or other commercial banking institution) thereunder and (e) investments in short-term asset management accounts offered by any Bank for the purpose of investing in loans to any corporation (other than the Company or an Affiliate of the Company), state or municipality, in each case organized under the laws of any state of the United States or of the District of Columbia. Code means the Internal Revenue Code of 1986, as amended from time to time. ---- Collateral Documents means the Company Pledge Agreement, each Subsidiary -------------------- Pledge Agreement, the Security Agreement and any -2- other agreement pursuant to which the Company or any Guarantor grants collateral to the Agent for the benefit of the Banks. Commitment Amount - see Section 2.1.1. ----------------- ------------- Commitments means the Loan Commitment and the L/C Commitment. ----------- Company - see the Preamble. ------- -------- Company Pledge Agreement means a pledge agreement between the Company and ------------------------ the Agent, in the form of Exhibit E, as amended or otherwise modified from time --------- to time. Computation Period means each of the following periods: (i) the Fiscal ------------------ Quarter ending March 31, 1998; (ii) the period of two Fiscal Quarters ending June 30, 1998; (iii) the period of three Fiscal Quarters ending September 30, 1998; and (iv) each period of four Fiscal Quarters ending on the last day of a Fiscal Quarter on or after December 31, 1998. Consolidated Net Income means, with respect to the Company and its ----------------------- Subsidiaries for any period, the net income (or loss) of the Company and its Subsidiaries for such period, excluding any extraordinary gains during such --------- period. Contingent Payment means any payment that has been (or is required to be) ------------------ made under any of the following circumstances: (a) such payment is required to be made by the Company or any Subsidiary in connection with the purchase of any asset or business, where the obligation of the Company or the applicable Subsidiary to make such payment (or the amount thereof) is contingent upon the financial or other performance of such asset or business on an ongoing basis (e.g., based on revenues or similar measures of performance); (b) such payment is required to be made by the Company or any Subsidiary in connection with the achievement of any particular business goal (excluding employee compensation and bonuses in the ordinary course of business); (c) such payment is required to be made by the Company or any Subsidiary under circumstances similar to those described in clause (a) or ---------- (b) or provides substantially the same economic incentive as would a --- payment described in clause (a) or (b); or ---------- --- (d) such payment is required to be made by the Company or any Subsidiary in connection with the purchase of any -3- real estate, where the obligation to make such payment is contingent on any event or condition (other than customary closing conditions for a purchase of real estate). Controlled Group means all members of a controlled group of corporations ---------------- and all members of a controlled group of trades or businesses (whether or not incorporated) under common control which, together with the Company, are treated as a single employer under Section 414 of the Code or Section 4001 of ERISA. Debt of any Person means, without duplication, (a) all indebtedness of such ---- Person for borrowed money, whether or not evidenced by bonds, debentures, notes or similar instruments, (b) all obligations of such Person as lessee under Capital Leases which have been or should be recorded as liabilities on a balance sheet of such Person, (c) all obligations of such Person to pay the deferred purchase price of property or services (including Contingent Payments and Holdbacks but excluding trade accounts payable in the ordinary course of business), (d) all indebtedness secured by a Lien on the property of such Person, whether or not such indebtedness shall have been assumed by such Person (it being understood that if such Person has not assumed or otherwise become personally liable for any such indebtedness, the amount of the Debt of such Person in connection therewith shall be limited to the lesser of the face amount of such indebtedness or the fair market value of all property of such Person securing such indebtedness), (e) all obligations, contingent or otherwise, with respect to the face amount of all letters of credit (whether or not drawn) and banker's acceptances issued for the account of such Person (including the Letters of Credit), (f) net liabilities of such Person under all Hedging Obligations and (g) all Guaranties of such Person. Disposal - see the definition of "Release". -------- ------- Dollar and the sign "$" mean lawful money of the United States of America. ------ - Effective Date - see Section 11.1. -------------- ------------ Environmental Claims means all claims, however asserted, by any -------------------- governmental, regulatory or judicial authority or other Person alleging potential liability or responsibility for violation of any Environmental Law, or for release or injury to the environment. Environmental Laws means all federal, state or local laws, statutes, common ------------------ law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements -4- with, any governmental authority, in each case relating to environmental, health, safety and land use matters. ERISA means the Employee Retirement Income Security Act of 1974, as ----- amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA also refer to any successor sections. Eurocurrency Reserve Percentage means, with respect to any Eurodollar Loan ------------------------------- for any Interest Period, a percentage (expressed as a decimal) equal to the daily average during such Interest Period of the percentage in effect on each day of such Interest Period, as prescribed by the Board of Governors of the Federal Reserve System (or any successor), for determining the aggregate maximum reserve requirements applicable to "Eurocurrency Liabilities" pursuant to Regulation D or any other then applicable regulation of such Board of Governors which prescribes reserve requirements applicable to "Eurocurrency Liabilities" as presently defined in Regulation D. Eurodollar Loan means any Loan which bears interest at a rate determined by --------------- reference to the Eurodollar Rate (Reserve Adjusted). Eurodollar Margin - see Schedule I. ----------------- ---------- Eurodollar Office means with respect to any Bank the office or offices of ----------------- such Bank which shall be making or maintaining the Eurodollar Loans of such Bank hereunder or such other office or offices through which such Bank determines its Eurodollar Rate. A Eurodollar Office of any Bank may be, at the option of such Bank, either a domestic or foreign office. Eurodollar Rate means, with respect to any Eurodollar Loan for any Interest --------------- Period, the rate per annum at which Dollar deposits in immediately available funds are offered to the Eurodollar Office of BofA two Business Days prior to the beginning of such Interest Period by major banks in the interbank eurodollar market as at or about 10:00 A.M., Chicago time, for delivery on the first day of such Interest Period, for the number of days comprised therein and in an amount equal or comparable to the amount of the Eurodollar Loan of BofA for such Interest Period. Eurodollar Rate (Reserve Adjusted) means, with respect to any Eurodollar ---------------------------------- Loan for any Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined pursuant to the following formula: Eurodollar Rate = Eurodollar Rate --------------- -5- (Reserve Adjusted) 1-Eurocurrency Reserve Percentage Event of Default means any of the events described in Section 12.1. ---------------- ------------ Federal Funds Rate means, for any day, the rate set forth in the weekly ------------------ statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Bank of New York (including any such successor publication, "H.15(519)") on the preceding Business Day opposite the caption "Federal Funds (Effective)"; or, if for any relevant day such rate is not so published on any such preceding Business Day, the rate for such day will be the arithmetic mean as determined by the Agent of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Agent. Financial Letter of Credit means any Letter of Credit determined by BofA to -------------------------- be a "financial guaranty-type Standby Letter of Credit" as defined in footnote 13 to Appendix A to the Risk Based Capital Guidelines issued by the Comptroller of the Currency (or in any successor regulation, guideline or ruling by any applicable banking regulatory authority). Fiscal Quarter means a fiscal quarter of a Fiscal Year. -------------- Fiscal Year means the fiscal year of the Company and its Subsidiaries, ----------- which period shall be the 12-month period ending on December 31 of each year. References to a Fiscal Year with a number corresponding to any calendar year (e.g., "Fiscal Year 1997") refer to the Fiscal Year ending on December 31 of such calendar year. Floating Rate Loan means any Loan which bears interest at or by reference ------------------ to the Alternate Reference Rate. Floating Rate Margin - see Schedule I. -------------------- ---------- Funded Debt means all Debt of the Company and its Subsidiaries, excluding ----------- (i) contingent obligations in respect of undrawn letters of credit and Guaranties (except, in each case, to the extent constituting Guaranties in respect of Funded Debt of a Person other than the Company or any Subsidiary), (ii) Hedging Obligations and (iii) Debt of the Company to Subsidiaries and Debt of Subsidiaries to the Company or to other Subsidiaries. Funded Debt to Cash Flow Ratio means, as of the last day of any Fiscal ------------------------------ Quarter, the ratio of (i) Funded Debt as of the last day of such Fiscal Quarter to (ii) Consolidated Net Income for -6- the period of four Fiscal Quarters ending on the last day of such Fiscal Quarter plus, to the extent deducted in determining such Consolidated Net Income, - ---- Interest Expense, income tax expense, depreciation and amortization for such period. For purposes of calculating the Funded Debt to Cash Flow Ratio, clause ------ (ii) of the preceding sentence shall be calculated on a pro forma basis in - ---- --- ----- accordance with Article 11 of Regulation S-X of the SEC. GAAP means generally accepted accounting principles set forth from time to ---- time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination. Group - see Section 2.2.1. ----- ------------- Guarantor means, on any day, each Subsidiary that has executed a --------- counterpart of the Intercompany Guaranty on or prior to that day (or is required to execute a counterpart of the Intercompany Guaranty on that date). Guaranty means any agreement, undertaking or arrangement by which any -------- Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to or otherwise to invest in a debtor, or otherwise to assure a creditor against loss) any indebtedness, obligation or other liability of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. The amount of any Person's obligation under any Guaranty shall (subject to any limitation set forth therein) be deemed to be the principal amount of the debt, obligation or other liability supported thereby. Hedging Obligations means, with respect to any Person, all liabilities of ------------------- such Person under interest rate, currency and commodity swap agreements, cap agreements and collar agreements, and all other agreements or arrangements designed to protect such Person against fluctuations in interest rates, currency exchange rates or commodity prices. Holdback means an unsecured, non-interest-bearing obligation of the Company -------- or any Subsidiary to pay a portion of the purchase price for any purchase or other acquisition permitted hereunder which matures within nine months of the date of such purchase or other acquisition. -7- Immaterial Law means any provision of any Environmental Law the violation -------------- of which will not (a) violate any judgment, decree or order which is binding upon the Company or any Subsidiary, (b) result in or threaten any injury to public health or the environment or any material damage to the property of any Person or (c) result in any liability or expense (other than any de minimis -- ------- liability or expense) for the Company or any Subsidiary; provided that no provision of any Environmental Law shall be an Immaterial Law if the Agent has notified the Company that the Required Banks have determined in good faith that such provision is material. Including means including without limiting the generality of any --------- description preceding such term, and other forms of the verb "to include" have ---------- correlative meanings. Intercompany Guaranty means a guaranty in the form of Exhibit C, as amended --------------------- --------- or otherwise modified from time to time. Interest Coverage Ratio means the ratio of (a) Consolidated Net Income ----------------------- before deducting Interest Expense and income tax expense for any Computation Period to (b) Interest Expense for such Computation Period. Interest Expense means for any period the consolidated interest expense of ---------------- the Company and its Subsidiaries for such period (including all imputed interest on Capital Leases and before giving effect to any capitalization of interest but excluding amortization of deferred financing costs). Interest Period - see Section 4.3. --------------- ----------- Investment means, relative to any Person, (a) any loan or advance made by ---------- such Person to any other Person (excluding any commission, travel or similar advances made to directors, officers and employees of the Company or any of its Subsidiaries), (b) any Guaranty of such Person, (c) any ownership or similar interest held by such Person in any other Person and (d) deposits and the like relating to prospective acquisitions of businesses (excluding deposits placed in escrow pursuant to bona fide arrangements that provide for the return of such deposits to the Company in the event that the related transaction is not consummated for any reason by a date certain). L/C Application means, with respect to any request for the issuance of a --------------- Letter of Credit, a letter of credit application in the form being used by BofA at the time of such request for the type of letter of credit requested. -8- L/C Commitment means the commitment of BofA to issue, and of each Bank to -------------- participate in, Letters of Credit pursuant to Section 2.1.2. ------------- Letter of Credit - see Section 2.1.2. ---------------- ------------- Lien means, with respect to any Person, any interest granted by such Person ---- in any real or personal property, asset or other right owned or being purchased or acquired by such Person which secures payment or performance of any obligation and shall include any mortgage, lien, encumbrance, charge or other security interest of any kind, whether arising by contract, as a matter of law, by judicial process or otherwise. Loan Commitment means the commitment of the Banks to make Loans pursuant to --------------- Section 2.1.1. - ------------- Loan Documents means this Agreement, the Notes, the Intercompany Guaranty, -------------- the L/C Applications and the Collateral Documents. Loans - see Section 2.1.1. ----- ------------- Margin Stock means any "margin stock" as defined in Regulation U of the ------------ Board of Governors of the Federal Reserve System. Material Adverse Effect means (a) a material adverse change in, or a ----------------------- material adverse effect upon, the financial condition, operations, assets, business, properties or prospects of the Company and its Subsidiaries taken as a whole, or (b) a material adverse effect upon any substantial portion of the collateral under the Collateral Documents or upon the legality, validity, binding effect or enforceability against the Company or any Guarantor of any Loan Document. Multiemployer Pension Plan means a multiemployer plan, as such term is -------------------------- defined in Section 4001(a)(3) of ERISA, and to which the Company or any member of the Controlled Group may have any liability. Net Worth means the Company's consolidated stockholders' equity (including --------- preferred stock accounts). Non-Financial Letter of Credit means any Letter of Credit other than a ------------------------------ Financial Letter of Credit. Note - see Section 3.1. ---- ----------- Operating Lease means any lease of (or other agreement conveying the right --------------- to use) any real or personal property by the -9- Company or any Subsidiary, as lessee, other than (i) any Capital Lease or (ii) any lease with a remaining term of six months or less which is not renewable solely at the option of the lessee. PBGC means the Pension Benefit Guaranty Corporation and any entity ---- succeeding to any or all of its functions under ERISA. Pension Plan means a "pension plan", as such term is defined in Section ------------ 3(2) of ERISA, which is subject to Title IV of ERISA (other than a Multiemployer Pension Plan), and to which the Company or any member of the Controlled Group may have any liability, including any liability by reason of having been a substantial employer within the meaning of Section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under Section 4069 of ERISA. Percentage means, with respect to any Bank, the percentage specified ---------- opposite such Bank's name on Annex I hereto, reduced (or increased) by ------- subsequent assignments pursuant to Section 14.9.1. -------------- Person means any natural person, corporation, partnership, trust, limited ------ liability company, association, governmental authority or unit, or any other entity, whether acting in an individual, fiduciary or other capacity. Reference Rate means, for any day, the rate of interest in effect for such -------------- day as publicly announced from time to time by BofA in Chicago, Illinois, as its "reference rate." (The "reference rate" is a rate set by BofA based upon various factors, including BofA's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate.) Any change in the reference rate announced by BofA shall take effect at the opening of business on the day specified in the public announcement of such change. Required Banks means Banks having Percentages aggregating 66-2/3% or more. -------------- SEC means the Securities and Exchange Commission. --- Security Agreement means a Security Agreement in the form of Exhibit D, as ------------------ --------- amended or otherwise modified from time to time. Seller Subordinated Debt means unsecured indebtedness of the Company that: ------------------------ (a) is subordinated, substantially upon the terms set forth in Exhibit G or other terms that are more favorable to --------- -10- the Agent and the Banks, in right of payment to the payment in full in cash of the Loans and all other amounts owed under the Loan Documents (whether or not matured or due and payable), including amounts required to provide cash collateral for the Letters of Credit; and (b) represents all or part of the purchase price payable by the Company in connection with a transaction described in Section 10.11(c). ---------------- Senior Debt means all Funded Debt of the Company and its Subsidiaries other ----------- than Subordinated Debt. Stated Amount means, with respect to any Letter of Credit at any date of ------------- determination, the maximum aggregate amount available for drawing thereunder at any time during the then ensuing term of such Letter of Credit under any and all circumstances, plus the aggregate amount of all unreimbursed payments and disbursements under such Letter of Credit. Subordinated Debt means (i) Seller Subordinated Debt and (ii) any other ----------------- unsecured indebtedness of the Company which (x) is owed to Persons other than officers, employees, directors or Affiliates of the Company, (y) has no amortization prior to December 31, 2001 and (z) has subordination terms and covenants approved by the Required Banks, the approval of which shall not be unreasonably withheld. Subsidiary means, with respect to any Person, a corporation of which such ---------- Person and/or its other Subsidiaries own, directly or indirectly, such number of outstanding shares as have more than 50% of the ordinary voting power for the election of directors. Unless the context otherwise requires, each reference to Subsidiaries herein shall be a reference to Subsidiaries of the Company. Subsidiary Pledge Agreement means each pledge agreement substantially in --------------------------- the form of Exhibit F issued by any Subsidiary, whether pursuant to Section --------- ------- 11.1.7 or Section 10.14, as each may be amended or otherwise modified from time - ------ ------------- to time. Tangible Assets means at any time all assets of the Company and its --------------- Subsidiaries excluding all Intangible Assets. For purposes of the foregoing, --------- "Intangible Assets" means goodwill, patents, trade names, trademarks, - ------------------ copyrights, franchises, experimental expense, organization expense and any other assets that are properly classified as intangible assets in accordance with GAAP. Termination Date means the earlier to occur of (a) October 8, 2000, or such ---------------- later date to which the Termination -11- Date may be extended at the request of the Company and with the consent of each Bank or (b) such other date on which the Commitments shall terminate pursuant to Section 6 or 12. - --------- -- Type of Loan or Borrowing - see Section 2.2.1. The types of Loans or ------------------------- ------------- borrowings under this Agreement are as follows: Floating Rate Loans or borrowings and Eurodollar Loans or borrowings. Unmatured Event of Default means any event that, if it continues uncured, -------------------------- will, with lapse of time or notice or both, constitute an Event of Default. Welfare Plan means a "welfare plan", as such term is defined in Section ------------ 3(1) of ERISA. SECTION 2 COMMITMENTS OF THE BANKS; LETTER OF CREDIT, BORROWING AND CONVERSION PROCEDURES. 2.1 Commitments. On and subject to the terms and conditions of this ----------- Agreement, each of the Banks, severally and for itself alone, agrees to make loans to, and to issue or participate in the issuance of letters of credit for the account of, the Company as follows: 2.1.1 Loan Commitment. Each Bank will make loans on a revolving basis --------------- ("Loans") from time to time before the Termination Date in such Bank's - ------- Percentage of such aggregate amounts as the Company may from time to time request from all Banks; provided that the aggregate principal amount of all -------- Loans which all Banks shall be committed to have outstanding at any one time shall not exceed the excess, if any, of (a) $30,000,000, as such amount may be reduced from time to time pursuant to Section 6.1 (as so reduced, the ----------- "Commitment Amount"), over (b) the Stated Amount of all outstanding Letters of - ------------------ Credit. 2.1.2 L/C Commitment. (a) BofA will issue standby letters of credit, in -------------- each case containing such terms and conditions as are permitted by this Agreement and are reasonably satisfactory to BofA (each, a "Letter of Credit"), ---------------- at the request of and for the account of the Company or any Subsidiary from time to time before the Termination Date and (b) as more fully set forth in Section ------- 2.3.5, each Bank agrees to purchase a participation in each such Letter of - ----- Credit; provided that the aggregate Stated Amount of all Letters of Credit shall -------- not at any time exceed the lesser of (i) $10,000,000 and (ii) the excess, if any, of the Commitment Amount over the aggregate principal amount of all outstanding Loans. -12- 2.2 Loan Procedures. --------------- 2.2.1 Various Types of Loans. Each Loan shall be either a Floating Rate ---------------------- Loan or a Eurodollar Loan (each a "type" of Loan), as the Company shall specify ---- in the related notice of borrowing or conversion pursuant to Section 2.2.2 or ------------- 2.2.3. Eurodollar Loans having the same Interest Period are sometimes called a - ----- "Group" or collectively "Groups". Floating Rate Loans and Eurodollar Loans may ----- ------ be outstanding at the same time, provided that (i) not more than eight different -------- Groups of Loans shall be outstanding at any one time and (ii) the aggregate principal amount of each Group of Eurodollar Loans shall at all times be at least $1,000,000 and an integral multiple of $500,000. All borrowings, conversions and repayments of Loans shall be effected so that each Bank will have a pro rata share (according to its Percentage) of all types and Groups of Loans. 2.2.2 Borrowing Procedures. The Company shall give written notice or -------------------- telephonic notice (followed immediately by written confirmation thereof) to the Agent of each proposed borrowing not later than (a) in the case of a Floating Rate borrowing, 9:00 A.M., Chicago time, on the proposed date of such borrowing, and (b) in the case of a Eurodollar borrowing, 10:00 A.M., Chicago time, at least two Business Days prior to the proposed date of such borrowing. Each such notice shall be effective upon receipt by the Agent, shall be irrevocable, and shall specify the date, amount and type of borrowing and, in the case of a Eurodollar borrowing, the initial Interest Period therefor. Promptly upon receipt of such notice, the Agent shall advise each Bank thereof. Not later than 1:00 p.m., Chicago time, on the date of a proposed borrowing, each Bank shall provide the Agent at the office specified by the Agent with immediately available funds covering such Bank's Percentage of such borrowing and, so long as the Agent has not received written notice that the conditions precedent set forth in Section 11 with respect to such borrowing have not been satisfied (and ---------- does not have knowledge of any default in the payment of any principal, interest or fees to be paid to the Agent for the account of the Banks), the Agent shall pay over the requested amount to the Company on the requested borrowing date. Each borrowing shall be on a Business Day. Each Floating Rate borrowing shall be in an aggregate amount of at least $300,000 and an integral multiple of $100,000. 2.2.3 Procedures for Conversion of Type of Loan. Subject to the ----------------------------------------- provisions of Section 2.2.1, the Company may convert all or any part of any ------------- outstanding Loan into a Loan of a different type by giving written notice or telephonic notice (followed immediately by written confirmation thereof) to the Agent not later than (a) in the case of conversion into a Floating Rate Loan, 10:00 A.M., Chicago time, on the proposed date of such conversion, and (b) in the case of a conversion into a Eurodollar -13- Loan, 9:00 A.M., Chicago time, at least two Business Days prior to the proposed date of such conversion. Each such notice shall be effective upon receipt by the Agent, shall be irrevocable, and shall specify the date and amount of such conversion, the Loan to be so converted, the type of Loan to be converted into and, in the case of a conversion into a Eurodollar Loan, the initial Interest Period therefor. Promptly upon receipt of such notice, the Agent shall advise each Bank thereof. Subject to Section 2.5, such Loan shall be so converted on ----------- the requested date of conversion. Each conversion shall be on a Business Day. Each conversion of a Eurodollar Loan on a day other than the last day of an Interest Period therefor shall be subject to the provisions of Section 8.4. ----------- 2.3 Letter of Credit Procedures. --------------------------- 2.3.1 L/C Applications. The Company shall give notice to the Agent ---------------- (which shall promptly inform BofA) of the proposed issuance of each Letter of Credit on a Business Day which is at least three Business Days (or such lesser number of days as the Agent and BofA shall agree in any particular instance) prior to the proposed date of issuance of such Letter of Credit. Each such notice shall be accompanied by an L/C Application, duly executed by the Company (together with any Subsidiary for the account of which the related Letter of Credit is to be issued) and in all respects satisfactory to the Agent and BofA, together with such other documentation as the Agent or BofA may request in support thereof, it being understood that each L/C Application shall specify, among other things, the date on which the proposed Letter of Credit is to be issued, the expiration date of such Letter of Credit (which shall not be later than the Termination Date) and whether such Letter of Credit is to be transferable in whole or in part. So long as BofA has not received written notice that the conditions precedent set forth in Section 11 with respect to the ---------- issuance of such Letter of Credit have not been satisfied (and does not have knowledge of any default in the payment of any principal, interest or fees to be paid to the Agent for the account of the Banks), BofA shall issue such Letter of Credit on the requested issuance date. 2.3.2 Participation in Letters of Credit. Concurrently with the issuance ---------------------------------- of each Letter of Credit, BofA shall be deemed to have sold and transferred to each other Bank, and each other Bank shall be deemed irrevocably and unconditionally to have purchased and received from BofA, without recourse or warranty, an undivided interest and participation, to the extent of such other Bank's Percentage, in such Letter of Credit and the Company's reimbursement obligations with respect thereto. For the purposes of this Agreement, the unparticipated portion of each Letter of Credit shall be deemed to be BofA's "participation" therein. BofA hereby agrees, upon request of any -14- Bank, to deliver to such Bank a list of all outstanding Letters of Credit, together with such information related thereto as such Bank may reasonably request. 2.3.3 Reimbursement Obligations. The Company hereby unconditionally and ------------------------- irrevocably agrees to reimburse BofA for each payment or disbursement made by BofA under any Letter of Credit honoring any demand for payment made by the beneficiary thereunder, in each case on the date that such payment or disbursement is made. Any amount not reimbursed on the date of such payment or distribution shall bear interest from and including the date of such payment or disbursement to but not including the date that BofA is reimbursed by the Company therefor, payable on demand, at a rate per annum equal to the Alternate Reference Rate from time to time in effect plus the Floating Rate Margin ---- (determined as set forth in Schedule I) from time to time in effect plus 2%. ---------- ---- BofA shall notify the Company whenever any demand for payment is made under any Letter of Credit by the beneficiary thereunder; provided, however, that the -------- ------- failure of BofA to so notify the Company shall not affect the rights of BofA or the Banks in any manner whatsoever. 2.3.4 Limitation on BofA's Obligations. In determining whether to pay -------------------------------- under any Letter of Credit, BofA shall have no obligation to the Company or any Bank other than to confirm that any documents required to be delivered under such Letter of Credit appear to have been delivered and appear to comply on their face with the requirements of such Letter of Credit. Any action taken or omitted to be taken by BofA under or in connection with any Letter of Credit, if taken or omitted in the absence of gross negligence and willful misconduct, shall not impose upon BofA any liability to the Company or any Bank and shall not reduce or impair the Company's reimbursement obligations set forth in Section 2.3.3 or the obligations of the Banks pursuant to Section 2.3.5. - ------------- ------------- 2.3.5 Funding by Banks to BofA. If BofA makes any payment or ------------------------ disbursement under any Letter of Credit and the Company has not reimbursed BofA in full for such payment or disbursement by 11:00 A.M., Chicago time, on the date of such payment or disbursement, or if any reimbursement received by BofA from the Company is or must be returned or rescinded upon or during any bankruptcy or reorganization of the Company or otherwise, each other Bank shall be obligated to pay to BofA, in full or partial payment of the purchase price of its participation in such Letter of Credit, its pro rata share (according to its Percentage) of such payment or disbursement (but no such payment shall diminish the obligations of the Company under Section 2.3.3), and the Agent shall ------------- promptly notify each other Bank thereof. Each other Bank irrevocably and unconditionally agrees to so pay to the Agent in immediately available funds for BofA's account the -15- amount of such other Bank's Percentage of such payment or disbursement. If and to the extent any Bank shall not have made such amount available to the Agent by 2:00 P.M., Chicago time, on the Business Day on which such Bank receives notice from the Agent of such payment or disbursement (it being understood that any such notice received after noon, Chicago time, on any Business Day shall be deemed to have been received on the next following Business Day), such Bank agrees to pay interest on such amount to the Agent for BofA's account forthwith on demand for each day from and including the date such amount was to have been delivered to the Agent to but excluding the date such amount is paid, at a rate per annum equal to (a) for the first three days after demand, the Federal Funds Rate from time to time in effect and (b) thereafter, the Alternate Reference Rate from time to time in effect. Any Bank's failure to make available to the Agent its Percentage of any such payment or disbursement shall not relieve any other Bank of its obligation hereunder to make available to the Agent such other Bank's Percentage of such payment, but no Bank shall be responsible for the failure of any other Bank to make available to the Agent such other Bank's Percentage of any such payment or disbursement. 2.4 Commitments Several. The failure of any Bank to make a requested ------------------- Loan on any date shall not relieve any other Bank of its obligation to make a Loan on such date, but no Bank shall be responsible for the failure of any other Bank to make any Loan to be made by such other Bank. 2.5 Certain Conditions. Notwithstanding any other provision of this ------------------ Agreement, no Bank shall have an obligation to make any Loan, or to permit the continuation of or any conversion into any Eurodollar Loan, and BofA shall have no obligation to issue any Letter of Credit, if an Event of Default or Unmatured Event of Default exists. SECTION 3 NOTES EVIDENCING LOANS. 3.1 Notes. The Loans of each Bank shall be evidenced by a promissory ----- note (as amended, supplemented, replaced or otherwise modified from time to time, each a "Note") substantially in the form set forth in Exhibit A, with ---- --------- appropriate insertions, payable to the order of such Bank in an amount equal to such Bank's Percentage of the Loan Commitment (or, if less, in the aggregate unpaid principal amount of such Bank's Loans). 3.2 Recordkeeping. Each Bank shall record in its records, or at its ------------- option on the schedule attached to its Note, the date and amount of each Loan made by such Bank, each repayment or conversion thereof and, in the case of each Eurodollar Loan, the dates on which each Interest Period for such Loan shall begin and end. The aggregate unpaid principal amount so recorded shall be -16- rebuttable presumptive evidence of the principal amount owing and unpaid on such Note. The failure to so record any such amount or any error in so recording any such amount shall not, however, limit or otherwise affect the obligations of the Company hereunder or under any Note to repay the principal amount of the Loans evidenced by such Note together with all interest accruing thereon. SECTION 4 INTEREST. 4.1 Interest Rates. The Company promises to pay interest on the unpaid -------------- principal amount of each Loan for the period commencing on the date of such Loan until such Loan is paid in full as follows: (a) at all times while such Loan is a Floating Rate Loan, at a rate per annum equal to the sum of the Alternate Reference Rate from time to time in effect plus the Floating Rate Margin (determined as set forth in Schedule I) from time to time in effect; and ---------- (b) at all times while such Loan is a Eurodollar Loan, at a rate per annum equal to the sum of the Eurodollar Rate (Reserve Adjusted) applicable to each Interest Period for such Loan plus the Eurodollar Margin (determined as set forth in Schedule I) from time to time in effect; ---------- provided, however, that at any time an Event of Default exists, the interest - -------- ------- rate applicable to each Loan shall be increased by 2%. 4.2 Interest Payment Dates. Accrued interest on each Floating Rate Loan ---------------------- shall be payable in arrears on the last day of each calendar month and at maturity. Accrued interest on each Eurodollar Loan shall be payable on the last day of each Interest Period relating to such Loan (and, in the case of a Eurodollar Loan with a six-month Interest Period, on the three-month anniversary of the first day of such Interest Period) and at maturity. After maturity, accrued interest on all Loans shall be payable on demand. 4.3 Interest Periods. Each "Interest Period" for a Eurodollar Loan shall ---------------- commence on the date such Eurodollar Loan is made or converted from a Floating Rate Loan, or on the expiration of the immediately preceding Interest Period for such Eurodollar Loan, and shall end on the date which is one, two, three or six months thereafter, as the Company may specify: (a) in the case of an Interest Period which commences on the date a Eurodollar Loan is made or converted from a -17- Floating Rate Loan, in the related notice of borrowing or conversion pursuant to Section 2.2.2 or 2.2.3, or ------------- ----- (b) in the case of a succeeding Interest Period with respect to any Eurodollar Loan, by written notice or telephonic notice (followed immediately by written confirmation thereof) to the Agent not later than 10:00 A.M., Chicago time, at least three Business Days prior to the first day of such succeeding Interest Period, it being understood that (i) each such notice shall be effective upon receipt by the Agent and (ii) if the Company fails to give such notice, such Loan shall automatically become a Floating Rate Loan at the end of its then-current Interest Period. Each Interest Period that begins on the last day of a calendar month (or on a day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month. Each Interest Period which would otherwise end on a day which is not a Business Day shall end on the immediately succeeding Business Day (unless such immediately succeeding Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the immediately preceding Business Day). The Company may not select any Interest Period for a Loan which would end after the scheduled Termination Date. 4.4 Setting and Notice of Eurodollar Rates. The applicable Eurodollar -------------------------------------- Rate for each Interest Period shall be determined by the Agent, and notice thereof shall be given by the Agent promptly to the Company and each Bank. Each determination of the applicable Eurodollar Rate by the Agent shall be conclusive and binding upon the parties hereto, in the absence of demonstrable error. The Agent shall, upon written request of the Company or any Bank, deliver to the Company or such Bank a statement showing the computations used by the Agent in determining any applicable Eurodollar Rate hereunder. 4.5 Computation of Interest. Interest shall be computed for the actual ----------------------- number of days elapsed on the basis of a year of 360 days. The applicable interest rate for each Floating Rate Loan shall change simultaneously with each change in the Alternate Reference Rate. SECTION 5 FEES. 5.1 Non-Use Fee. The Company agrees to pay to the Agent for the account ----------- of each Bank a non-use fee, for the period from and including the Effective Date to but excluding the Termination Date, at the rate per annum in effect from time to time pursuant to Schedule I of the daily average of the unused amount of such ---------- -18- Bank's Percentage of the Commitment Amount. For purposes of calculating usage under this Section, the Commitment Amount shall be deemed used to the extent of the aggregate principal amount of all outstanding Loans plus the undrawn amount of all Letters of Credit. Such non-use fee shall be payable in arrears on the last day of each calendar quarter and on the Termination Date for any period then ending for which such non-use fee shall not have theretofore been paid. The non-use fee shall be computed for the actual number of days elapsed on the basis of a year of 360 days. 5.2 Letter of Credit Fees. (a) The Company agrees to pay to the Agent --------------------- for the account of the Banks pro rata according to their respective Percentages a letter of credit fee for each Letter of Credit in an amount equal to the rate per annum in effect from time to time pursuant to Schedule I of the undrawn ---------- amount of such Letter of Credit (computed for the actual number of days elapsed on the basis of a year of 360 days); provided that the rate applicable to each -------- Letter of Credit shall be increased by 2% at any time that an Event of Default exists. Such letter of credit fee shall be payable in arrears on the last day of each calendar quarter and on the Termination Date for the period from and including the date of the issuance of each Letter of Credit to but excluding the date such payment is due or, if earlier, the date on which such Letter of Credit expired or was terminated. (b) In addition, with respect to each Letter of Credit, the Company agrees to pay to BofA, for its own account, (i) such fees and expenses as BofA customarily requires in connection with the issuance, negotiation, processing and/or administration of letters of credit in similar situations and (ii) a letter of credit fee in the amount separately agreed to by the Company and BofA. 5.3 Arrangement and Agent's Fees. The Company agrees to pay to the ---------------------------- Arranger and the Agent such arrangement and agent's fees as are mutually agreed to from time to time by the Company and the Agent. 5.4 Closing Fees. On the Effective Date, the Company shall pay to the ------------ Agent for the account of each Bank a closing fee in an amount equal to 0.25% of such Bank's Percentage of the Commitment Amount. SECTION 6 REDUCTION AND TERMINATION OF THE COMMITMENTS; PREPAYMENTS. 6.1 Reduction or Termination of the Commitments. The Company may from ------------------------------------------- time to time on at least five Business Days' prior written notice received by the Agent (which shall promptly advise each Bank thereof) permanently reduce the Commitment -19- Amount to an amount not less than the sum of the aggregate unpaid principal amount of the Loans and the aggregate Stated Amount of all Letters of Credit. Any such reduction shall be in an amount not less than $5,000,000 or a higher integral multiple of $1,000,000. The Company may at any time on like notice terminate the Commitments upon payment in full of all Loans and all other obligations of the Company hereunder and cash collateralization in full, pursuant to documentation in form and substance reasonably satisfactory to the Banks, of all obligations arising with respect to the Letters of Credit. All reductions of the Commitment Amount shall reduce the Commitments pro rata among the Banks according to their respective Percentages. 6.2 Voluntary Prepayments. The Company may from time to time prepay the --------------------- Loans in whole or in part, provided that (a) the Company shall give the Agent -------- (which shall promptly advise each Bank) notice thereof not later than 10:00 A.M. (Chicago time) on the day of such prepayment, specifying the Loans to be prepaid and the date and amount of prepayment, (b) each partial prepayment shall be in a principal amount of at least $100,000 and an integral multiple of $100,000 and (c) any prepayment of a Eurodollar Loan on a day other than the last day of an Interest Period therefor shall be subject to Section 8.4. ----------- SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES. 7.1 Making of Payments. All payments of principal of or interest on the ------------------ Notes, and of all non-use fees and Letter of Credit fees, shall be made by the Company to the Agent in immediately available funds at the office specified by the Agent not later than noon, Chicago time, on the date due; and funds received after that hour shall be deemed to have been received by the Agent on the next following Business Day. The Company hereby authorizes and instructs the Agent to charge any demand deposit account of the Company maintained with BofA for the amount of any such payment on the due date therefor, and (subject to there being a sufficient balance in such account for such purpose) the Agent agrees to do so, provided that the Agent's failure to so charge such account shall in no way -------- affect the obligation of the Company to make any such payment. The Agent shall promptly remit to each Bank or other holder of a Note its share of all such payments received in collected funds by the Agent for the account of such Bank or holder. All payments under Section 8.1 shall be made by the Company directly to the ----------- Bank entitled thereto. 7.2 Application of Certain Payments. Each payment of principal shall be ------------------------------- applied to such Loans as the Company shall direct by notice to be received by the Agent on or before the date of such payment or, in the absence of such notice, as the -20- Agent shall determine in its discretion. Concurrently with each remittance to any Bank of its share of any such payment, the Agent shall advise such Bank as to the application of such payment. 7.3 Due Date Extension. If any payment of principal or interest with ------------------ respect to any of the Notes, or of non-use fees or Letter of Credit fees, falls due on a day which is not a Business Day, then such due date shall be extended to the immediately following Business Day (unless, in the case of a Eurodollar Loan, such immediately following Business Day is the first Business Day of a calendar month, in which case such date shall be the immediately preceding Business Day) and, in the case of principal, additional interest shall accrue and be payable for the period of any such extension. 7.4 Setoff. The Company agrees that the Agent, each Bank and each other ------ holder of a Note have all rights of set-off and bankers' lien provided by applicable law, and in addition thereto, the Company agrees that at any time (a) any payment or other amount owing by the Company under this Agreement is then due to the Agent, any Bank or any such holder or (b) any Unmatured Event of Default under Section 12.1.4 with respect to the Company or any Event of Default -------------- exists, the Agent, each Bank and each such holder may apply to the payment of such payment or other amount (or, in the case of clause (b), to any obligations ---------- of the Company hereunder, whether or not then due) any and all balances, credits, deposits, accounts or moneys of the Company then or thereafter with the Agent, such Bank or such holder. 7.5 Proration of Payments. If any Bank shall obtain any payment or other --------------------- recovery (whether voluntary, involuntary, by application of offset or otherwise) on account of principal of or interest on any Note (or on account of its participation in any Letter of Credit) in excess of its pro rata share of payments and other recoveries obtained by all Banks on account of principal of and interest on Notes (or such participation) then held by them, such Bank shall purchase from the other Banks such participation in the Notes (or sub- participation in Letters of Credit) held by them as shall be necessary to cause such purchasing Bank to share the excess payment or other recovery ratably with each of them; provided, however, that if all or any portion of the excess -------- ------- payment or other recovery is thereafter recovered from such purchasing Bank, the purchase shall be rescinded and the purchase price restored to the extent of such recovery. 7.6 Taxes. All payments of principal of, and interest on, the Loans and ----- all other amounts payable hereunder shall be made free and clear of and without deduction for any present or future income, excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or other charges of any nature whatsoever -21- imposed by any taxing authority, but excluding franchise taxes and taxes imposed on or measured by any Bank's net income or receipts (all non-excluded items being called "Taxes"). If any withholding or deduction from any payment to be ----- made by the Company hereunder is required in respect of any Taxes pursuant to any applicable law, rule or regulation, then the Company will: (a) pay directly to the relevant authority the full amount required to be so withheld or deducted; (b) promptly forward to the Agent an official receipt or other documentation satisfactory to the Agent evidencing such payment to such authority; and (c) pay to the Agent for the account of the Banks such additional amount or amounts as is necessary to ensure that the net amount actually received by each Bank will equal the full amount such Bank would have received had no such withholding or deduction been required. Moreover, if any Taxes are directly asserted against the Agent or any Bank with respect to any payment received by the Agent or such Bank hereunder, the Agent or such Bank may pay such Taxes and the Company will promptly pay such additional amounts (including any penalty, interest and expense) as is necessary in order that the net amount received by such Person after the payment of such Taxes (including any Taxes on such additional amount) shall equal the amount such Person would have received had such Taxes not been asserted. If the Company fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Agent, for the account of the respective Banks, the required receipts or other required documentary evidence, the Company shall indemnify the Banks for any incremental Taxes, interest or penalties that may become payable by any Bank as a result of any such failure. For purposes of this Section 7.6, a distribution hereunder by the Agent or any Bank to or for ----------- the account of any Bank shall be deemed a payment by the Company. Upon the request from time to time of the Company or the Agent, each Bank that is organized under the laws of a jurisdiction other than the United States of America shall execute and deliver to the Company and the Agent one or more (as the Company or the Agent may reasonably request) United States Internal Revenue Service Forms 4224 or Forms 1001 or such other forms or documents, appropriately completed, as may be applicable to establish the extent, if any, to which a payment to such Bank is exempt from withholding or deduction of Taxes. -22- The obligations of the Company under this Section 7.6 are subject to the ----------- limitation set out in Section 14.9.1. -------------- SECTION 8 INCREASED COSTS; SPECIAL PROVISIONS FOR EURODOLLAR LOANS. 8.1 Increased Costs. (a) If, after the date hereof, the adoption of any --------------- applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or any Eurodollar Office of such Bank) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency (A) shall subject any Bank (or any Eurodollar Office of such Bank) to any tax, duty or other charge with respect to its Eurodollar Loans, its Note or its obligation to make Eurodollar Loans, or shall change the basis of taxation of payments to any Bank of the principal of or interest on its Eurodollar Loans or any other amounts due under this Agreement in respect of its Eurodollar Loans or its obligation to make Eurodollar Loans (except for changes in the rate of tax on the overall net income of such Bank or its Eurodollar Office imposed by the jurisdiction in which such Bank's principal executive office or Eurodollar Office is located); or (B) shall impose, modify or deem applicable any reserve (including any reserve imposed by the Board of Governors of the Federal Reserve System, but excluding any reserve included in the determination of interest rates pursuant to Section 4), special deposit or similar requirement against --------- assets of, deposits with or for the account of, or credit extended by any Bank (or any Eurodollar Office of such Bank); or (C) shall impose on any Bank (or its Eurodollar Office) any other condition affecting its Eurodollar Loans, its Note or its obligation to make Eurodollar Loans; and the result of any of the foregoing is to increase the cost to (or in the case of Regulation D of the Board of Governors of the Federal Reserve System, to impose a cost on) such Bank (or any Eurodollar Office of such Bank) of making or maintaining any Eurodollar Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Eurodollar Office) under this Agreement or under its Note with respect thereto, then within 10 days after demand by such Bank (which demand shall be accompanied by a statement setting forth the basis for such demand, a copy of which shall be furnished to the Agent), the Company shall pay -23- directly to such Bank such additional amount as will compensate such Bank for such increased cost or such reduction. (b) If any Bank shall reasonably determine that the adoption or phase-in of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank or any Person controlling such Bank with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Bank's or such controlling Person's capital as a consequence of such Bank's obligations hereunder (including such Bank's obligations under the Loan Commitment or the L/C Commitment) or under any Letter of Credit to a level below that which such Bank or such controlling Person could have achieved but for such adoption, change or compliance (taking into consideration such Bank's or such controlling Person's policies with respect to capital adequacy) by an amount deemed by such Bank or such controlling Person to be material, then from time to time, within 10 days after demand by such Bank (which demand shall be accompanied by a statement setting forth the basis for such demand, a copy of which shall be furnished to the Agent), the Company shall pay to such Bank such additional amount or amounts as will compensate such Bank or such controlling Person for such reduction. 8.2 Basis for Determining Interest Rate Inadequate or Unfair. If with -------------------------------------------------------- respect to any Interest Period: (a) deposits in Dollars (in the applicable amounts) are not being offered to the Agent in the interbank eurodollar market for such Interest Period, or the Agent otherwise reasonably determines (which determination shall be binding and conclusive on the Company) that by reason of circumstances affecting the interbank eurodollar market adequate and reasonable means do not exist for ascertaining the applicable Eurodollar Rate; or (b) Banks having an aggregate Percentage of 30% or more advise the Agent that the Eurodollar Rate (Reserve Adjusted) as determined by the Agent will not adequately and fairly reflect the cost to such Banks of maintaining or funding such Loans for such Interest Period (taking into account any amount to which such Banks may be entitled under Section 8.1) ----------- or that the making or funding of Eurodollar Loans has become impracticable as a result of an event occurring after the date of this Agreement which in the opinion of such Banks materially affects such Loans; -24- then the Agent shall promptly notify the other parties thereof and, so long as - ---- such circumstances shall continue, (i) no Bank shall be under any obligation to make or convert into Eurodollar Loans and (ii) on the last day of the current Interest Period for each Eurodollar Loan, such Loan shall, unless then repaid in full, automatically convert to a Floating Rate Loan. 8.3 Changes in Law Rendering Eurodollar Loans Unlawful. In the event -------------------------------------------------- that any change in (including the adoption of any new) applicable laws or regulations, or any change in the interpretation of applicable laws or regulations by any governmental or other regulatory body charged with the administration thereof, should make it (or in the good faith judgment of any Bank cause a substantial question as to whether it is) unlawful for any Bank to make, maintain or fund Eurodollar Loans, then such Bank shall promptly notify each of the other parties hereto and, so long as such circumstances shall continue, (a) such Bank shall have no obligation to make or convert into Eurodollar Loans (but shall make Floating Rate Loans concurrently with the making of or conversion into Eurodollar Loans by the Banks which are not so affected, in each case in an amount equal to such Bank's pro rata share of all Eurodollar Loans which would be made or converted into at such time in the absence of such circumstances) and (b) on the last day of the current Interest Period for each Eurodollar Loan of such Bank (or, in any event, on such earlier date as may be required by the relevant law, regulation or interpretation), such Eurodollar Loan shall, unless then repaid in full, automatically convert to a Floating Rate Loan. Each Floating Rate Loan made by a Bank which, but for the circumstances described in the foregoing sentence, would be a Eurodollar Loan (an "Affected Loan") shall remain outstanding for the same period as the Group of Eurodollar Loans of which such Affected Loan would be a part absent such circumstances. 8.4 Funding Losses. The Company hereby agrees that upon demand by any -------------- Bank (which demand shall be accompanied by a statement setting forth the basis for the amount being claimed, a copy of which shall be furnished to the Agent), the Company will indemnify such Bank against any net loss or expense which such Bank may sustain or incur (including any net loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Bank to fund or maintain any Eurodollar Loan), as reasonably determined by such Bank, as a result of (a) any payment, prepayment or conversion of any Eurodollar Loan of such Bank on a date other than the last day of an Interest Period for such Loan (including any conversion pursuant to Section 8.3) or (b) any failure ----------- of the Company to borrow or convert any Loan on a date specified therefor in a notice of borrowing or conversion pursuant to this Agreement. For this purpose, all notices to the Agent pursuant to this Agreement shall be deemed to be irrevocable. -25- 8.5 Right of Banks to Fund through Other Offices. Each Bank may, if it -------------------------------------------- so elects, fulfill its commitment as to any Eurodollar Loan by causing a foreign branch or affiliate of such Bank to make such Loan, provided that in such event -------- for the purposes of this Agreement such Loan shall be deemed to have been made by such Bank and the obligation of the Company to repay such Loan shall nevertheless be to such Bank and shall be deemed held by it, to the extent of such Loan, for the account of such branch or affiliate. 8.6 Discretion of Banks as to Manner of Funding. Notwithstanding any ------------------------------------------- provision of this Agreement to the contrary, each Bank shall be entitled to fund and maintain its funding of all or any part of its Loans in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations hereunder shall be made as if such Bank had actually funded and maintained each Eurodollar Loan during each Interest Period for such Loan through the purchase of deposits having a maturity corresponding to such Interest Period and bearing an interest rate equal to the Eurodollar Rate for such Interest Period. 8.7 Mitigation of Circumstances; Replacement of Affected Bank. (a) Each --------------------------------------------------------- Bank shall promptly notify the Company and the Agent of any event of which it has knowledge which will result in, and will use reasonable commercial efforts available to it (and not, in such Bank's good faith judgment, otherwise disadvantageous to such Bank) to mitigate or avoid, (i) any obligation by the Company to pay any amount pursuant to Section 7.6 or 8.1 or (ii) the occurrence ----------- --- of any circumstances of the nature described in Section 8.2 or 8.3 (and, if any ----------- --- Bank has given notice of any such event described in clause (i) or (ii) above ---------- ---- and thereafter such event ceases to exist, such Bank shall promptly so notify the Company and the Agent). Without limiting the foregoing, each Bank will designate a different funding office if such designation will avoid (or reduce the cost to the Company of) any event described in clause (i) or (ii) of the ---------- ---- preceding sentence and such designation will not, in such Bank's sole judgment, be otherwise disadvantageous to such Bank. (b) At any time any Bank is an Affected Bank, the Company may replace such Affected Bank as a party to this Agreement with one or more other bank(s) or financial institution(s) reasonably satisfactory to the Agent (and upon notice from the Company such Affected Bank shall assign pursuant to an Assignment Agreement, and without recourse or warranty, its Commitment, its Loans, its Note, its participation in Letters of Credit, and all of its other rights and obligations hereunder to such replacement bank(s) or other financial institution(s) for a purchase price equal to the sum of the principal amount of the Loans so assigned, all accrued and unpaid interest thereon, its ratable -26- share of all accrued and unpaid non-use fees and Letter of Credit fees, any amounts payable under Section 8.4 as a result of such Bank receiving payment of ----------- any Eurodollar Loan prior to the end of an Interest Period therefor and all other obligations owed to such Affected Bank hereunder). 8.8 Conclusiveness of Statements; Survival of Provisions. Determinations ---------------------------------------------------- and statements of any Bank pursuant to Section 8.1, 8.2, 8.3 or 8.4 shall be ----------- --- --- --- conclusive absent demonstrable error. Banks may use reasonable averaging and attribution methods in determining compensation under Sections 8.1 and 8.4, and ------------ --- the provisions of such Sections shall survive repayment of the Loans, cancellation of the Notes, cancellation or expiration of the Letters of Credit and any termination of this Agreement. SECTION 9 WARRANTIES. To induce BofA to issue Letters of Credit and to induce the Agent and the Banks to enter into this Agreement and to induce the Banks to make Loans and purchase participation in Letters of Credit hereunder, the Company warrants to the Agent and the Banks that: 9.1 Organization, etc. The Company is a corporation duly organized, ------------------ validly existing and in good standing under the laws of the State of Delaware; each Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation; and the Company and each Subsidiary is duly qualified to do business in each jurisdiction where the nature of its business makes such qualification necessary (except in those instances in which the failure to be qualified or in good standing does not have a Material Adverse Effect) and has full power and authority to own its property and conduct its business as presently conducted by it. 9.2 Authorization; No Conflict. The execution and delivery by the -------------------------- Company of this Agreement and each other Loan Document to which it is a party, the borrowings hereunder, the execution and delivery by each Guarantor of each Loan Document to which it is a party and the performance by each of the Company and each Guarantor of its obligations under each Loan Document to which it is a party are within the corporate powers of the Company and each Guarantor, have been duly authorized by all necessary corporate action on the part of the Company and each Guarantor (including any necessary shareholder action), have received all necessary governmental approval (if any shall be required), and do not and will not (a) violate any provision of law or any order, decree or judgment of any court or other government agency which is binding on the Company or any Guarantor, (b) contravene or conflict with, or result in a breach of, any provision of the Certificate of Incorporation, By-Laws or other organizational -27- documents of the Company or any Guarantor or of any agreement, indenture, instrument or other document which is binding on the Company, any Guarantor or any other Subsidiary or (c) result in, or require, the creation or imposition of any Lien on any property of the Company, any Guarantor or any other Subsidiary (other than Liens arising under the Loan Documents). 9.3 Validity and Binding Nature. Each of this Agreement and each other --------------------------- Loan Document to which the Company is a party is the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms; and each Loan Document to which any Guarantor is a party is, or upon the execution and delivery thereof by such Guarantor will be, the legal, valid and binding obligation of such Guarantor, enforceable against such Guarantor in accordance with its terms. 9.4 Information. All information heretofore or contemporaneously ----------- herewith furnished in writing by the Company or any Subsidiary to any Bank for purposes of or in connection with this Agreement and the transactions contemplated hereby is, and all written information hereafter furnished by or on behalf of the Company or any Subsidiary to any Bank pursuant hereto or in connection herewith will be, true and accurate in every material respect on the date as of which such information is dated or certified, and none of such information is or will be incomplete by omitting to state any material fact necessary to make such information not misleading in light of the circumstances under which made (it being recognized by the Agent and the Banks that any projections and forecasts provided by the Company are based on good faith estimates and assumptions believed by the Company to be reasonable as of the date of the applicable projections or assumptions and that actual results during the period or periods covered by any such projections and forecasts may differ from projected or forecasted results). 9.5 No Material Adverse Change. Since October 1, 1997, there has been no -------------------------- material adverse change in the financial condition, operations, assets, business, properties or prospects of the Company and its Subsidiaries taken as a whole. 9.6 Litigation and Contingent Liabilities. (a) No litigation ------------------------------------- (including derivative actions), arbitration proceeding, labor controversy or governmental investigation or proceeding is pending or, to the Company's knowledge, threatened against the Company or any Subsidiary which might reasonably be expected to have a Material Adverse Effect, except as set forth in Schedule 9.6(a). Other than any liability incident to such litigation or - --------------- proceedings, neither the Company nor any Subsidiary has any material contingent liabilities not listed in such Schedule 9.6(a) or 9.6(b). --------------- ------ -28- (b) Schedule 9.6(b) sets out descriptions of all arrangements existing on --------------- the Effective Date pursuant to which the Company or any Subsidiary may be required to pay any Contingent Payment. 9.7 Ownership of Properties; Liens. Except as set forth on Schedule 9.7, ------------------------------ ------------ each of the Company and each Subsidiary owns good and marketable title to all of its properties and assets, real and personal, tangible and intangible, of any nature whatsoever (including patents, trademarks, trade names, service marks and copyrights), free and clear of all Liens, charges and material claims (including material infringement claims with respect to patents, trademarks, copyrights and the like) except as permitted pursuant to Section 10.8. ------------ 9.8 Subsidiaries. The Company has no Subsidiaries except those listed in ------------ Schedule 9.8. - ------------ 9.9 Pension and Welfare Plans. (a) During the twelve-consecutive-month ------------------------- period prior to the date of the execution and delivery of this Agreement or the making of any Loan hereunder, (i) no steps have been taken to terminate any Pension Plan and (ii) no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a lien under Section 302(f) of ERISA. No condition exists or event or transaction has occurred with respect to any Pension Plan which could result in the incurrence by the Company of any material liability, fine or penalty. The Company has no contingent liability with respect to any post-retirement benefit under a Welfare Plan, other than liability for continuation coverage described in Part 6 of Subtitle B of Title I of ERISA. (b) All contributions (if any) have been made to any Multiemployer Pension Plan that are required to be made by the Company or any other member of the Controlled Group under the terms of the plan or of any collective bargaining agreement or by applicable law; neither the Company nor any member of the Controlled Group has withdrawn or partially withdrawn from any Multiemployer Pension Plan, incurred any withdrawal liability with respect to any such plan, received notice of any claim or demand for withdrawal liability or partial withdrawal liability from any such plan, and no condition has occurred which, if continued, might result in a withdrawal or partial withdrawal from any such plan; and neither the Company nor any member of the Controlled Group has received any notice that any Multiemployer Pension Plan is in reorganization, that increased contributions may be required to avoid a reduction in plan benefits or the imposition of any excise tax, that any such plan is or has been funded at a rate less than that required under Section 412 of the Code, that any such plan is or may be terminated, or that any such plan is or may become insolvent. -29- 9.10 Investment Company Act. Neither the Company nor any Subsidiary is ---------------------- an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 9.11 Public Utility Holding Company Act. Neither the Company nor any ---------------------------------- Subsidiary is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 9.12 Regulation U. The Company is not engaged principally, or as one of ------------ its important activities, in the business of extending credit for the purpose of purchasing or carrying Margin Stock. 9.13 Taxes. Each of the Company and each Subsidiary has filed all tax ----- returns and reports required by law to have been filed by it and has paid all taxes and governmental charges thereby shown to be owing, except any such taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. 9.14 Solvency, etc. On the Effective Date (or, in the case of any Person -------------- which becomes a Guarantor after the Effective Date, on the date such Person becomes a Guarantor), and immediately prior to and after giving effect to the issuance of each Letter of Credit and each borrowing hereunder and the use of the proceeds thereof, (a) each of the Company's and each Guarantor's assets will exceed its liabilities and (b) each of the Company and each Guarantor will be solvent, will be able to pay its debts as they mature, will own property with fair saleable value greater than the amount required to pay its debts and will have capital sufficient to carry on its business as then constituted. 9.15 Environmental Matters. The Company conducts in the ordinary course --------------------- of business a review of the effect of existing Environmental Laws and existing Environmental Claims on its business, operations and properties, and as a result thereof the Company has reasonably concluded that, except as specifically disclosed in Schedule 9.15, such Environmental Laws and Environmental Claims ------------- could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 9.16 Year 2000 Problem. The Company and its Subsidiaries have reviewed ----------------- the areas within their business and operations which could be adversely affected by, and have developed or are developing a program to address on a timely basis, the "Year 2000 Problem" (that is, the risk that computer applications used by -30- the Company and its Subsidiaries may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999). Based on such review and program, the Company reasonably believes that the "Year 2000 Problem" will not have a Material Adverse Effect. SECTION 10 COVENANTS. Until the expiration or termination of the Commitments and thereafter until all obligations of the Company hereunder and under the other Loan Documents are paid in full and all Letters of Credit have been terminated, the Company agrees that, unless at any time the Required Banks shall otherwise expressly consent in writing, it will: 10.1 Reports, Certificates and Other Information. Furnish to the Agent ------------------------------------------- and each Bank: 10.1.1 Audit Report. Promptly when available and in any event within 90 ------------ days after the close of each Fiscal Year: (a) a copy of the annual audit report of the Company and its Subsidiaries for such Fiscal Year, including therein consolidated balance sheets of the Company and its Subsidiaries as of the end of such Fiscal Year and consolidated statements of earnings and cash flow of the Company and its Subsidiaries for such Fiscal Year certified without qualification by Ernst & Young or other independent auditors of recognized standing selected by the Company and reasonably acceptable to the Required Banks, together with a written statement from such accountants to the effect that in making the examination necessary for the signing of such annual audit report by such accountants, they have not become aware of any Event of Default or Unmatured Event of Default that has occurred and is continuing or, if they have become aware of any such event, describing it in reasonable detail; (b) consolidating balance sheets of the Company and its Subsidiaries as of the end of such Fiscal Year and consolidating statements of earnings and cash flows for the Company and its Subsidiaries for such Fiscal Year, certified by the Chief Financial Officer or the Vice President, Finance of the Company; and (c) commencing with the Fiscal Year ending December 31, 1998, a copy of an annual agreed-upon procedures report on the equipment fleet of the Company and its Subsidiaries for such Fiscal Year as performed by the Company's independent auditors. 10.1.2 Quarterly Reports. Promptly when available and in any event ----------------- within 45 days after the end of each Fiscal Quarter (except the last Fiscal Quarter) of each Fiscal Year, consolidated and consolidating balance sheets of the Company and its Subsidiaries as of the end of such Fiscal Quarter, together with consolidated and consolidating statements of earnings and consolidated statements of cash flow for such Fiscal Quarter and for the period beginning with -31- the first day of such Fiscal Year and ending on the last day of such Fiscal Quarter, certified by the Chief Financial Officer or the Vice President, Finance of the Company. 10.1.3 Monthly Reports. Promptly when available and in any event within --------------- 30 days after the end of each of the first two months of each Fiscal Quarter, consolidated balance sheets of the Company and its Subsidiaries as of the end of such month, together with consolidated statements of earnings for such month and for the period beginning with the first day of the Fiscal Year and ending on the last day of such month, certified by the Chief Financial Officer or the Vice President, Finance of the Company. 10.1.4 Compliance Certificates. Contemporaneously with the furnishing of ----------------------- a copy of each annual audit report pursuant to Section 10.1.1 and of each set of -------------- quarterly statements pursuant to Section 10.1.2, a duly completed compliance -------------- certificate in the form of Exhibit B, with appropriate insertions, dated the --------- date of such annual report or such quarterly statements and signed by the Chief Financial Officer or the Vice President, Finance of the Company, containing a computation of each of the financial ratios and restrictions set forth in Section 10.6 and to the effect that such officer has not become aware of any - ------------ Event of Default or Unmatured Event of Default that has occurred and is continuing or, if there is any such event, describing it and the steps, if any, being taken to cure it. 10.1.5 Reports to SEC and to Shareholders. Promptly upon the filing or ---------------------------------- sending thereof, copies of all regular, periodic or special reports of the Company or any Subsidiary filed with the SEC (excluding exhibits thereto, provided that the Company shall promptly deliver any such exhibit to the Agent or any Bank upon request therefor); copies of all registration statements of the Company or any Subsidiary filed with the SEC (other than on Form S-8); and copies of all proxy statements or other communications made to security holders generally concerning material developments in the business of the Company or any Subsidiary. 10.1.6 Notice of Default, Litigation and ERISA Matters. Immediately upon ----------------------------------------------- becoming aware of any of the following, written notice describing the same and the steps being taken by the Company or the Subsidiary affected thereby with respect thereto: (a) the occurrence of an Event of Default or an Unmatured Event of Default; (b) any litigation, arbitration or governmental investigation or proceeding not previously disclosed by the Company to the Banks which has been instituted or, to the knowledge of the Company, is threatened against the Company -32- or any Subsidiary or to which any of the properties of any thereof is subject which, if adversely determined, might reasonably be expected to have a Material Adverse Effect; (c) the institution of any steps by any member of the Controlled Group or any other Person to terminate any Pension Plan, or the failure of any member of the Controlled Group to make a required contribution to any Pension Plan (if such failure is sufficient to give rise to a lien under Section 302(f) of ERISA) or to any Multiemployer Pension Plan, or the taking of any action with respect to a Pension Plan which could result in the requirement that the Company furnish a bond or other security to the PBGC or such Pension Plan, or the occurrence of any event with respect to any Pension Plan or Multiemployer Pension Plan which could result in the incurrence by any member of the Controlled Group of any material liability, fine or penalty (including any claim or demand for withdrawal liability or partial withdrawal from any Multiemployer Pension Plan), or any material increase in the contingent liability of the Company with respect to any post-retirement Welfare Plan benefit, or any notice that any Multiemployer Pension Plan is in reorganization, that increased contributions may be required to avoid a reduction in plan benefits or the imposition of an excise tax, that any such plan is or has been funded at a rate less than that required under Section 412 of the Code, that any such plan is or may be terminated, or that any such plan is or may become insolvent; (d) any cancellation or material change in any insurance maintained by the Company or any Subsidiary; (e) any event (including any violation of any Environmental Law or the assertion of any Environmental Claim) which might reasonably be expected to have a Material Adverse Effect; or (f) any setoff, claims (including, with respect to the environmental claims) withholdings or other defenses to which any of the Collateral, or the Banks' rights with respect to the Collateral, are subject. 10.1.7 Subsidiaries. Promptly upon any change in the list of its ------------ Subsidiaries, a written report of such change. 10.1.8 Management Reports. Promptly upon the request of the Agent or any ------------------ Bank, copies of all detailed financial and management reports submitted to the Company by independent auditors in connection with each annual or interim audit made by such auditors of the books of the Company. -33- 10.1.9 Projections. As soon as practicable and in any event within 60 ----------- days after the commencement of each Fiscal Year, financial projections for the Company and its Subsidiaries for such Fiscal Year prepared in a manner consistent with those projections delivered by the Company to the Banks prior to the Effective Date or otherwise in a manner satisfactory to the Agent. 10.1.10 Other Information. From time to time such other information ----------------- concerning the Company and its Subsidiaries as any Bank or the Agent may reasonably request. 10.2 Books, Records and Inspections. Keep, and cause each Subsidiary to ------------------------------ keep, its books and records in accordance with sound business practices sufficient to allow the preparation of financial statements in accordance with GAAP; permit, and cause each Subsidiary to permit, any Bank or the Agent or any representative thereof to inspect the properties and operations of the Company and of such Subsidiary; and permit, and cause each Subsidiary to permit, at any reasonable time and with reasonable notice (or at any time without notice if an Event of Default exists), any Bank or the Agent or any representative thereof to visit any or all of its offices, to discuss its financial matters with its officers and its independent auditors (and the Company hereby authorizes such independent auditors to discuss such financial matters with any Bank or the Agent or any representative thereof whether or not any representative of the Company or any Subsidiary is present), and to examine (and, at the expense of the Company or the applicable Subsidiary, photocopy extracts from) any of its books or other corporate records. 10.3 Insurance. Maintain, and cause each Subsidiary to maintain, with --------- responsible insurance companies, such insurance as may be required by any law or governmental regulation or court decree or order applicable to it and such other insurance, to such extent and against such hazards and liabilities, as is customarily maintained by companies similarly situated; and, upon request of the Agent or any Bank, furnish to the Agent or such Bank a certificate setting forth in reasonable detail the nature and extent of all insurance maintained by the Company and its Subsidiaries. 10.4 Compliance with Laws; Payment of Taxes and Liabilities. (a) Comply, ------------------------------------------------------ and cause each Subsidiary to comply, in all material respects with all applicable laws (including Environmental Laws), rules, regulations, decrees, orders, judgments, licenses and permits; and (b) pay, and cause each Subsidiary to pay, prior to delinquency, all taxes and other governmental charges against it or any of its property, as well as claims of any kind which, if unpaid, might become a Lien on -34- any of its property; provided, however, that the foregoing shall not require the -------- ------- Company or any Subsidiary to pay any such tax or charge so long as it shall contest the validity thereof in good faith by appropriate proceedings and shall set aside on its books adequate reserves with respect thereto in accordance with GAAP. 10.5 Maintenance of Existence, etc. Maintain and preserve, and (subject ------------------------------ to Section 10.11) cause each Subsidiary to maintain and preserve, (a) its ------------- existence and good standing in the jurisdiction of its incorporation and (b) its qualification and good standing as a foreign corporation in each jurisdiction where the nature of its business makes such qualification necessary (except in those instances in which the failure to be qualified or in good standing does not have a Material Adverse Effect). 10.6 Financial Covenants. ------------------- 10.6.1 Minimum Net Worth. Not permit its Net Worth at the end of any ----------------- month to be less than the sum of (a) $45,000,000 plus (b) 75% of the sum of ---- Consolidated Net Income plus any extraordinary gains during the period beginning on October 1, 1997 and ending on the last day of the most recently-ended Fiscal Quarter (provided that, if the sum of Consolidated Net Income plus any -------- extraordinary gains is less than zero for any Fiscal Quarter, for purposes of this Section 10.6.1 such sum will be deemed to have been zero for such quarter) -------------- plus (c) 100% of the net proceeds of any equity issued by the Company or any of - ---- its Subsidiaries (on a consolidated basis) after October 1, 1997. 10.6.2 Maximum Leverage. Not permit (a) the ratio of (i) Funded Debt to ---------------- (ii) Funded Debt plus Net Worth to exceed 0.60 to 1.0 at any time; and (b) the ---- ratio of (i) Senior Debt to (ii) Funded Debt plus Net Worth to exceed the ---- applicable ratio set forth below during any period set forth below: FISCAL SENIOR DEBT TO FUNDED DEBT ------ -------------------------- QUARTER ENDING: PLUS NET WORTH RATIO --------------- --------------------- Effective Date through 12/31/98 0.55 to 1.0 1/1/99 through 12/31/99 0.50 to 1.0 1/1/2000 and thereafter 0.45 to 1.0 10.6.3 Minimum Interest Coverage. Not permit the Interest Coverage Ratio ------------------------- for any Computation Period to be less than the applicable ratio set forth below: COMPUTATION INTEREST PERIOD ENDING: COVERAGE RATIO -------------- -------------- 3/31/98 through 12/31/98 1.5 to 1.0 3/31/99 through 12/31/99 2.0 to 1.0 -35- 3/31/2000 and thereafter 2.25 to 1.0. 10.6.4 Funded Debt to Cash Flow Ratio. Not permit the Funded Debt to Cash ------------------------------ Flow Ratio as of the last day of any Fiscal Quarter to exceed the applicable ratio set forth below: FISCAL FUNDED DEBT TO QUARTER ENDING: CASH FLOW RATIO -------------- --------------- 12/31/97 through 12/31/98 3.50 to 1.0 3/31/99 through 12/31/99 3.25 to 1.0 3/31/2000 and thereafter 3.00 to 1.0. 10.6.5 Senior Debt to Tangible Assets. Not permit the ratio of (i) Senior ------------------------------ Debt to (ii) Tangible Assets to exceed the applicable ratio set forth below during any period set forth below: SENIOR DEBT TO PERIOD: TANGIBLE ASSETS RATIO: ------ --------------------- Effective Date through 12/31/98 1.25 to 1.0 1/1/99 and thereafter 1.00 to 1.0. 10.7 Limitations on Debt. Not, and not permit any Subsidiary to, create, ------------------- incur, assume or suffer to exist any Debt, except: (a) obligations in respect of the Loans, the L/C Applications and the Letters of Credit; (b) unsecured Debt of the Company (excluding Contingent Payments and Seller Subordinated Debt); provided that the aggregate principal amount of all -------- such unsecured Debt (other than Holdbacks) shall not at any time exceed $3,000,000; (c) Debt in respect of Capital Leases or arising in connection with the acquisition of equipment that, in each case, either is identified in Schedule 10.7(c) or is incurred, or assumed in connection with an asset ---------------- purchase permitted by Section 10.11, after the date hereof (it being ------------- understood that for purposes of this Section 10.7 Debt of any Person which ------------ becomes a Subsidiary after the date hereof shall be deemed to be incurred, and equipment of such Person shall be deemed to be acquired, on the date such Person becomes a Subsidiary so long as such Debt is not incurred in contemplation of such Person becoming a Subsidiary), and refinancings of any such Debt so long as the terms applicable to such refinanced Debt are no less favorable to the Company or the applicable Subsidiary than the terms in effect immediately prior to such refinancing, provided that -------- -36- the aggregate amount of all such Debt at any time outstanding shall not exceed $3,000,000; (d) Debt of Subsidiaries owed to the Company; (e) unsecured Debt of the Company to Subsidiaries; (f) Subordinated Debt; provided that the aggregate principal amount of all -------- Seller Subordinated Debt at any time outstanding shall not exceed $7,500,000; (g) other Debt, not of a type described in clause (c), outstanding on the ---------- date hereof and listed in Schedule 10.7(g); and ---------------- (h) Contingent Payments, provided that the Company shall not, and shall not -------- permit any Subsidiary to, incur any obligation to make Contingent Payments the maximum possible amount of which exceeds $6,250,000 in the aggregate for all Contingent Payments at any time outstanding. For purposes of the foregoing, a Contingent Payment shall be deemed to be "outstanding" from the time that the Company or any Subsidiary enters into the agreement containing the obligation to make such Contingent Payment until such time as either such Contingent Payment has been made in full or it has become certain that such Contingent Payment will never have to be made. 10.8 Liens. Not, and not permit any Subsidiary to, create or permit to ----- exist any Lien on any of its real or personal properties, assets or rights of whatsoever nature (whether now owned or hereafter acquired), except: (a) Liens for taxes or other governmental charges not at the time delinquent or thereafter payable without penalty or being contested in good faith by appropriate proceedings and, in each case, for which it maintains adequate reserves; (b) Liens arising in the ordinary course of business (such as (i) Liens of carriers, warehousemen, mechanics and materialmen and other similar Liens imposed by law and (ii) Liens incurred in connection with worker's compensation, unemployment compensation and other types of social security (excluding Liens arising under ERISA) or in connection with surety bonds, bids, performance bonds and similar obligations) for sums not overdue or being contested in good faith by appropriate proceedings and not involving any deposits or advances or borrowed money or the deferred purchase price of property or services, and, in each case, for which it maintains adequate reserves; -37- (c) Liens identified in Schedule 10.8; ------------- (d) Liens securing Debt permitted by clause (c) of Section 10.7 (and ---------- ------------ attaching only to the property being leased (in the case of Capital Leases) or the purchase price for which was or is being financed by such Debt (in the case of other Debt)); (e) attachments, appeal bonds, judgments and other similar Liens, for sums not exceeding $250,000 arising in connection with court proceedings, provided the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith and by appropriate proceedings; (f) easements, rights of way, restrictions, minor defects or irregularities in title and other similar Liens not interfering in any material respect with the ordinary conduct of the business of the Company or any Subsidiary; and (g) Liens in favor of the Agent arising under the Loan Documents. 10.9 Operating Leases. Not, and not permit any Subsidiary to, be party ---------------- to Operating Leases requiring rental payments in excess of $2,000,000 in the aggregate (excluding intercompany leases) in any Fiscal Year for the Company and its Subsidiaries taken as a whole. 10.10 Restricted Payments. Not, and not permit any Subsidiary to, (a) ------------------- declare or pay any dividends on any of its capital stock (other than stock dividends), (b) purchase or redeem any such stock or any warrants, units, options or other rights in respect of such stock, (c) make any other distribution to shareholders, (d) prepay, purchase, defease or redeem any Subordinated Debt or (e) set aside funds for any of the foregoing; provided that -------- (i) any Subsidiary may declare and pay dividends to the Company or to any other wholly-owned Subsidiary; and (ii) so long as (x) no Event of Default or Unmatured Event of Default exists or would result therefrom and (y) the aggregate amount of all purchases of stock, warrants or units since October 1, 1997 does not exceed $12,000,000, the Company may purchase its common stock or warrants, or units issued in respect thereof, from time to time on terms consistent with those set forth under the heading "Certain Agreements Relating to the Outstanding Securities" in the Company's Private Placement Memorandum dated September 12, 1997. 10.11 Mergers, Consolidations, Sales. Not, and not permit any Subsidiary ------------------------------ to, be a party to any merger or consolidation, or -38- purchase or otherwise acquire all or substantially all of the assets or any stock of any class of, or any partnership or joint venture interest in, any other Person, or, except in the ordinary course of its business (including sales of equipment consistent with industry practice), sell, transfer, convey or lease all or any substantial part of its assets, or sell or assign with or without recourse any receivables, except for (a) any such merger or consolidation, sale, transfer, conveyance, lease or assignment of or by any wholly-owned Subsidiary into the Company or into, with or to any other wholly-owned Subsidiary; (b) any such purchase or other acquisition by the Company or any wholly-owned Subsidiary of the assets or stock of any wholly-owned Subsidiary; (c) any such purchase or other acquisition by the Company or any wholly-owned Subsidiary of the assets or stock of any other Person where (1) such assets (in the case of an asset purchase) are for use, or such Person (in the case of a stock purchase) is engaged, solely in the equipment rental and related businesses; (2) immediately before or after giving effect to such purchase or acquisition, no Event of Default or Unmatured Event of Default shall have occurred and be continuing; and (3) either (i) the aggregate consideration to be paid by the Company and its Subsidiaries (including any Debt assumed or issued in connection therewith, the amount thereof to be calculated in accordance with GAAP) in connection with such purchase or other acquisition (or any series of related acquisitions) is less than $10,000,000 or (ii) (x) the Company is in pro forma compliance with all the financial ratios and restrictions set forth in Section 10.6 and (y) unless after ------------ giving effect to such purchase or acquisition the pro forma Funded Debt to Cash --- ----- Flow Ratio will be less than 1.25 to 1.0, the Required Lenders have consented to such purchase or acquisition; and (d) sales and dispositions of assets (including the stock of Subsidiaries) so long as the net book value of all assets sold or otherwise disposed of in any Fiscal Year does not exceed 5% of the net book value of the consolidated assets of the Company and its Subsidiaries as of the last day of the preceding Fiscal Year. 10.12 Modification of Organizational Documents. Not permit the ---------------------------------------- Certificate of Incorporation, By-Laws or other organizational documents of the Company or any Subsidiary to be amended or modified in any way which might reasonably be expected to materially adversely affect the interests of the Banks. 10.13 Use of Proceeds. Use the proceeds of the Loans solely to finance --------------- the Company's working capital, for acquisitions permitted by Section 10.11, for ------------- capital expenditures and for other general corporate purposes; and not use or permit any proceeds of any Loan to be used, either directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of "purchasing or carrying" any Margin Stock. -39- 10.14 Further Assurances. Take, and cause each Subsidiary to take, such ------------------ actions as the Agent or the Required Banks may reasonably request from time to time (including the execution and delivery of guaranties, security agreements, pledge agreements, financing statements and other documents, the filing or recording of any of the foregoing, and the delivery of stock certificates and other collateral with respect to which perfection is obtained by possession) to ensure that (i) the obligations of the Company hereunder and under the other Loan Documents are secured by substantially all of the assets (other than real property) of the Company and guaranteed by all of the Subsidiaries (including, promptly upon the acquisition or creation thereof, any Subsidiary acquired or created after the date hereof) by execution of a counterpart of the Intercompany Guaranty and (ii) the obligations of each Guarantor under the Intercompany Guaranty are secured by substantially all of the assets (other than real property) of such Guarantor. 10.15 Transactions with Affiliates. Not, and not permit any Subsidiary ---------------------------- to, enter into, or cause, suffer or permit to exist any transaction, arrangement or contract with any of its other Affiliates (other than the Company and its Subsidiaries) which is on terms which are less favorable than are obtainable from any Person which is not one of its Affiliates. 10.16 Employee Benefit Plans. Maintain, and cause each Subsidiary to ---------------------- maintain, each Pension Plan in substantial compliance with all applicable requirements of law and regulations. 10.17 Environmental Laws. The Company shall, and shall cause each ------------------ Subsidiary to, conduct its operations and keep and maintain its property in compliance with all Environmental Laws (other than Immaterial Laws). 10.18 Unconditional Purchase Obligations. Not, and not permit any ---------------------------------- Subsidiary to, enter into or be a party to any contract for the purchase of materials, supplies or other property or services, if such contract requires that payment be made by it regardless of whether or not delivery is ever made of such materials, supplies or other property or services; provided that the foregoing shall not prohibit the Company or any Subsidiary from entering into options for the purchase of particular assets or businesses. 10.19 Inconsistent Agreements. Not, and not permit any Subsidiary to, ----------------------- enter into any agreement containing any provision which (a) would be violated or breached by any borrowing by the Company hereunder or by the performance by the Company or any Subsidiary of any of its obligations hereunder or under any other Loan Document or (b) would prohibit the Company or any Subsidiary -40- from granting to the Agent, for the benefit of the Banks, a Lien on any of its assets. 10.20 Business Activities. Not, and not permit any Subsidiary to, engage ------------------- in any line of business other than the equipment rental business and businesses reasonably related thereto. 10.21 Advances and Other Investments. Not, and not permit any Subsidiary ------------------------------ to, make, incur, assume or suffer to exist any Investment in any other Person, except (without duplication) the following: (a) equity Investments existing on the Effective Date in wholly-owned Subsidiaries identified in Schedule 9.8; ------------ (b) equity Investments in Subsidiaries acquired after the Effective Date in transactions permitted as acquisitions of stock or assets pursuant to Section 10.11; ------------- (c) in the ordinary course of business, contributions by the Company to the capital of any of its Subsidiaries, or by any such Subsidiary to the capital of any of its Subsidiaries; (d) in the ordinary course of business, Investments by the Company in any Subsidiary or by any of the Subsidiaries in the Company, by way of intercompany loans, advances or guaranties, all to the extent permitted by Section 10.7; ------------ (e) Guaranties permitted by Section 10.7; ------------ (f) good faith deposits made in connection with prospective acquisitions of stock or assets permitted by Section 10.11; ------------- (g) loans to officers and employees not exceeding (i) $100,000 in the aggregate to any single individual or (ii) $300,000 in the aggregate for all such individuals; and (h) Cash Equivalent Investments; provided, however, that (x) any Investment which when made complies with the - -------- ------- requirements of the definition of the term "Cash Equivalents" may continue to be ---------------- held notwithstanding that such Investment if made thereafter would not comply with such requirements; and (y) no Investment otherwise permitted by clause (b), ---------- (c), (d), (e), (f) or (g) shall be permitted to be made if, immediately before - --- --- --- --- --- or after giving effect thereto, any Event of Default or Unmatured Event of Default shall have occurred and be continuing. -41- SECTION 11 EFFECTIVENESS; CONDITIONS OF LENDING, ETC. The obligation of each Bank to make its Loans and of BofA to issue Letters of Credit is subject to the following conditions precedent: 11.1 Initial Loan. The obligation of each Bank to make its initial Loan ------------ and of BofA to issue any Letter of Credit, whichever first occurs, is, in addition to the conditions precedent specified in Section 11.2, subject to the ------------ conditions precedent (and the date on which all such conditions precedent have been satisfied or waived in writing by the Banks is called the "Effective Date") -------------- that the Agent shall have received (a) all amounts which are then due and payable pursuant to Section 5 and (to the extent billed) Section 14.6, (b) --------- ------------ evidence, reasonably satisfactory to the Agent, that the Company has received cash proceeds of not less than $52,000,000 from the issuance of equity and (c) all of the following, each duly executed and dated the Effective Date (or such earlier date as shall be satisfactory to the Agent), in form and substance satisfactory to the Agent, and each (except for the Notes, of which only the originals shall be signed) in sufficient number of signed counterparts to provide one for each Bank: 11.1.1 Notes. The Notes. ----- 11.1.2 Resolutions. Certified copies of resolutions of the Board of ----------- Directors of the Company authorizing or ratifying the execution, delivery and performance by the Company of this Agreement, the Notes and the other Loan Documents to which the Company is a party; and certified copies of resolutions of the Board of Directors of each Subsidiary (if any) which is to execute and deliver any document pursuant to Section 11.1.5, 11.1.6 or 11.1.7 authorizing or -------------- ------ ------ ratifying the execution, delivery and performance by such Subsidiary of each Loan Document to which such Subsidiary is a party. 11.1.3 Consents, etc. Certified copies of all documents evidencing any -------------- necessary corporate action, consents and governmental approvals (if any) required for the execution, delivery and performance by the Company and each Subsidiary of the documents referred to in this Section 11. ---------- 11.1.4 Incumbency and Signature Certificates. A certificate of the ------------------------------------- Secretary or an Assistant Secretary of the Company and each Subsidiary of the Company as of the Effective Date certifying the names of the officer or officers of such entity authorized to sign the Loan Documents to which such entity is a party, together with a sample of the true signature of each such officer (it being understood that the Agent and each Bank -42- may conclusively rely on each such certificate until formally advised by a like certificate of any changes therein). 11.1.5 Intercompany Guaranty. The Intercompany Guaranty executed by each --------------------- Subsidiary (if any) as of the Effective Date. 11.1.6 Security Agreement. The Security Agreement executed by the Company ------------------ and each Subsidiary (if any) as of the Effective Date, together with evidence, satisfactory to the Agent, that all filings necessary to perfect the Agent's Lien on any collateral granted under the Security Agreement have been duly made and are in full force and effect. 11.1.7 Pledge Agreements. The Company Pledge Agreement and pledge ----------------- agreements, substantially in the form of Exhibit F, issued by each Subsidiary --------- (if any) as of the Effective Date that in turn has one or more Subsidiaries, in each case together with all collateral and other items required to be delivered in connection therewith. 11.1.8 Opinions of Counsel for the Company and the Guarantors. The ------------------------------------------------------ opinions of (a) Weil, Gotshal & Manges LLP, special counsel to the Company, and (b) Oscar D. Folger, counsel to the Company. 11.1.9 Other. Such other documents as the Agent or any Bank may ----- reasonably request. 11.2 Conditions. The obligation (a) of each Bank to make each Loan and ---------- (b) of BofA to issue each Letter of Credit is subject to the following further conditions precedent that: 11.2.1 Compliance with Warranties, No Default, etc. Both before and -------------------------------------------- after giving effect to any borrowing and the issuance of any Letter of Credit (but, if any Event of Default of the nature referred to in Section 12.1.2 shall -------------- have occurred with respect to any other Debt, without giving effect to the application, directly or indirectly, of the proceeds thereof) the following statements shall be true and correct: (a) the representations and warranties of the Company and the Guarantors set forth in this Agreement (excluding Sections 9.6 and 9.8) and ------------ --- the other Loan Documents shall be true and correct in all material respects with the same effect as if then made (except to the extent stated to relate to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date); (b) except as disclosed by the Company to the Agent and the Banks pursuant to Section 9.6, ----------- -43- (i) no litigation (including derivative actions), arbitration proceeding, labor controversy or governmental investigation or proceeding shall be pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries which might reasonably be expected to have a Material Adverse Effect or which purports to affect the legality, validity or enforceability of this Agreement, the Notes or any other Loan Document; and (ii) no development shall have occurred in any litigation (including derivative actions), arbitration proceeding, labor controversy or governmental investigation or proceeding disclosed pursuant to Section 9.6 which might reasonably be expected to have a ----------- Material Adverse Effect; and (c) no Event of Default or Unmatured Event of Default shall have then occurred and be continuing, and neither the Company nor any of its Subsidiaries shall be in violation of any law or governmental regulation or court order or decree where such violation or violations singly or in the aggregate might reasonably be expected to have a Material Adverse Effect. 11.2.2 Confirmatory Certificate. If requested by the Agent or any Bank, ------------------------ the Agent shall have received (in sufficient counterparts to provide one to each Bank) a certificate dated the date of such requested Loan or Letter of Credit and signed by a duly authorized representative of the Company as to the matters set out in Section 11.2.1 (it being understood that each request by the Company -------------- for the making of a Loan or the issuance of a Letter of Credit shall be deemed to constitute a warranty by the Company that the conditions precedent set forth in Section 11.2.1 will be satisfied at the time of the making of such Loan or -------------- the issuance of such Letter of Credit), together with such other documents as the Agent or any Bank may reasonably request in support thereof. SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT. 12.1 Events of Default. Each of the following shall constitute an Event ----------------- of Default under this Agreement: 12.1.1 Non-Payment of the Loans, etc. Default in the payment when due of ------------------------------ the principal of any Loan; or default, and continuance thereof for five days, in the payment when due of any interest, fee, reimbursement obligation with respect to any Letter of Credit or other amount payable by the Company hereunder or under any other Loan Document. -44- 12.1.2 Non-Payment of Other Debt. Any default shall occur under the ------------------------- terms applicable to any Debt of the Company or any Subsidiary (excluding Holdbacks) in an aggregate amount (for all such Debt so affected) exceeding $375,000 and such default shall (a) consist of the failure to pay such Debt when due (subject to any applicable grace period), whether by acceleration or otherwise, or (b) accelerate the maturity of such Debt or permit the holder or holders thereof, or any trustee or agent for such holder or holders, to cause such Debt to become due and payable prior to its expressed maturity; or any default of the type referred to in clause (a) or (b) above shall occur under the ---------- --- terms of any Holdback owed by the Company or any Subsidiary in an aggregate amount (for all Holdbacks so affected) exceeding $3,000,000, provided that no -------- amount payable in respect of any Holdback shall be deemed to be in default to the extent that the obligation to pay such amount is being contested by the Company or the applicable Subsidiary in good faith and by appropriate proceedings and appropriate reserves have been set aside in respect of such amount. 12.1.3 Other Material Obligations. Default in the payment when due, or -------------------------- in the performance or observance of, any material obligation of, or condition agreed to by, the Company or any Subsidiary with respect to any material purchase or lease of goods or services where such default, singly or in the aggregate with other such defaults might reasonably be expected to have a Material Adverse Effect (except only to the extent that the existence of any such default is being contested by the Company or such Subsidiary in good faith and by appropriate proceedings and appropriate reserves have been made in respect of such default). 12.1.4 Bankruptcy, Insolvency, etc. The Company or any Subsidiary ---------------------------- becomes insolvent or generally fails to pay, or admits in writing its inability or refusal to pay, debts as they become due; or the Company or any Subsidiary applies for, consents to, or acquiesces in the appointment of a trustee, receiver or other custodian for the Company or such Subsidiary or any property thereof, or makes a general assignment for the benefit of creditors; or, in the absence of such application, consent or acquiescence, a trustee, receiver or other custodian is appointed for the Company or any Subsidiary or for a substantial part of the property of any thereof and is not discharged within 60 days; or any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding (except the voluntary dissolution, not under any bankruptcy or insolvency law, of a Subsidiary), is commenced in respect of the Company or any Subsidiary, and if such case or proceeding is not commenced by the Company or such Subsidiary, it is consented to or acquiesced in by the Company or such Subsidiary, or remains for 60 days -45- undismissed; or the Company or any Subsidiary takes any corporate action to authorize, or in furtherance of, any of the foregoing. 12.1.5 Non-Compliance with Provisions of This Agreement. (a) Failure by ------------------------------------------------ the Company to comply with or to perform any covenant set forth in Sections 10.5 ------------- through 10.13, 10.15 or 10.16; or (b) failure by the Company to comply with or ----- ----- ----- to perform any other provision of this Agreement (and not constituting an Event of Default under any of the other provisions of this Section 12) and continuance ---------- of such failure described in this clause (b) for 30 days (or, in the case of ---------- Section 10.14, five Business Days) after notice thereof to the Company from the - ------------- Agent, any Bank or the holder of any Note. 12.1.6 Warranties. Any warranty made by the Company herein is breached ---------- or is false or misleading in any material respect, or any schedule, certificate, financial statement, report, notice or other writing furnished by the Company to the Agent or any Bank in connection herewith is false or misleading in any material respect on the date as of which the facts therein set forth are stated or certified. 12.1.7 Pension Plans. (i) Institution of any steps by the Company or any ------------- other Person to terminate a Pension Plan if as a result of such termination the Company could be required to make a contribution to such Pension Plan, or could incur a liability or obligation to such Pension Plan, in excess of $375,000; (ii) a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a Lien under section 302(f) of ERISA; or (iii) there shall occur any withdrawal or partial withdrawal from a Multiemployer Pension Plan and the withdrawal liability (without unaccrued interest) to Multiemployer Pension Plans as a result of such withdrawal (including any outstanding withdrawal liability that the Company and the Controlled Group have incurred on the date of such withdrawal) exceeds $375,000. 12.1.8 Judgments. Final judgments which exceed an aggregate of $375,000 --------- shall be rendered against the Company, or any Subsidiary and shall not have been paid, discharged or vacated or had execution thereof stayed pending appeal within 30 days after entry or filing of such judgments. 12.1.9 Invalidity of Intercompany Guaranty, etc. The Intercompany ----------------------------------------- Guaranty shall cease to be in full force and effect with respect to any Guarantor, any Guarantor shall fail (subject to any applicable grace period) to comply with or to perform any applicable provision of the Intercompany Guaranty, or any Guarantor (or any Person by, through or on behalf of such Guarantor) shall contest in any manner the validity, binding nature or enforceability of the Intercompany Guaranty with respect to such Guarantor. -46- 12.1.10 Invalidity of Collateral Documents, etc. Any Collateral Document ---------------------------------------- shall cease to be in full force and effect with respect to the Company or any Guarantor, the Company or any Guarantor shall fail (subject to any applicable grace period) to comply with or to perform any applicable provision of any Collateral Document to which such entity is a party, or the Company or any Guarantor (or any Person by, through or on behalf of the Company or such Guarantor) shall contest in any manner the validity, binding nature or enforceability of any Collateral Document. 12.1.11 Change in Control. (a) Any Person or group of Persons (within ----------------- the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended, but excluding the executive managers of the Company as of the Effective Date) shall acquire beneficial ownership (within the meaning of Rule 13d-3 promulgated under such Act) of 25% or more of the outstanding shares of common stock of the Company; (b) during any 24-month period, individuals who at the beginning of such period constituted the Company's Board of Directors (together with any new directors whose election by the Company's Board of Directors or whose nomination for election by the Company's shareholders was approved by a vote of at least two-thirds of the directors who either were directors at beginning of such period or whose election or nomination was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company; or (c) a period of 30 consecutive days shall have elapsed during which any two of the individuals named in Schedule 12.1.11 shall ---------------- have ceased to hold executive offices with the Company at least equal in seniority to their present offices, as set out in such Schedule 12.1.11, ---------------- excluding any such individual who has been replaced by another individual or - --------- individuals reasonably satisfactory to the Required Banks (it being understood that any such replacement individual shall be deemed added to Schedule 12.1.11 ---------------- on the date of approval thereof by the Required Banks). 12.2 Effect of Event of Default. If any Event of Default described in -------------------------- Section 12.1.4 shall occur, the Commitments (if they have not theretofore - -------------- terminated) shall immediately terminate and the Notes and all other obligations hereunder shall become immediately due and payable and the Company shall become immediately obligated to deliver to the Agent cash collateral in an amount equal to the outstanding face amount of all Letters of Credit, all without presentment, demand, protest or notice of any kind; and, if any other Event of Default shall occur and be continuing, the Agent (upon written request of the Required Banks) shall declare the Commitments (if they have not theretofore terminated) to be terminated and/or declare all Notes and all other obligations hereunder to be due and payable and/or demand that the Company immediately deliver to the Agent cash -47- collateral in amount equal to the outstanding face amount of all Letters of Credit, whereupon the Commitments (if they have not theretofore terminated) shall immediately terminate and/or all Notes and all other obligations hereunder shall become immediately due and payable and/or the Company shall immediately become obligated to deliver to the Agent cash collateral in an amount equal to the face amount of all Letters of Credit, all without presentment, demand, protest or notice of any kind. The Agent shall promptly advise the Company of any such declaration, but failure to do so shall not impair the effect of such declaration. Notwithstanding the foregoing, the effect as an Event of Default of any event described in Section 12.1.1 or Section 12.1.4 may be waived by the -------------- -------------- written concurrence of all of the Banks, and the effect as an Event of Default of any other event described in this Section 12 may be waived by the written ---------- concurrence of the Required Banks. Any cash collateral delivered hereunder shall be held by the Agent (without liability for interest thereon) and applied to obligations arising in connection with any drawing under a Letter of Credit. After the expiration or termination of all Letters of Credit, such cash collateral shall be applied by the Agent to any remaining obligations hereunder and any excess shall be delivered to the Company or as a court of competent jurisdiction may elect. SECTION 13 THE AGENT. 13.1 Appointment and Authorization. Each Bank hereby irrevocably ----------------------------- (subject to Section 13.9) appoints, designates and authorizes the Agent to take ------------ such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Agent shall not have any duties or responsibilities except those expressly set forth herein, nor shall the Agent have or be deemed to have any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent. 13.2 Delegation of Duties. The Agent may execute any of its duties under -------------------- this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care. -48- 13.3 Liability of Agent. None of the Agent-Related Persons shall (i) be ------------------ liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Banks for any recital, statement, representation or warranty made by the Company or any Subsidiary or Affiliate of the Company, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of the Company or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent- Related Person shall be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Company or any of the Company's Subsidiaries or Affiliates. 13.4 Reliance by Agent. The Agent shall be entitled to rely, and shall ----------------- be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by 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 (including counsel to the Company), independent accountants and other experts selected by the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Banks as it deems appropriate and, if it so requests, confirmation from the Banks of their obligation to indemnify the Agent against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Required Banks and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Banks. 13.5 Notice of Default. The Agent shall not be deemed to have knowledge ----------------- or notice of the occurrence of any Event of Default or Unmatured Event of Default except with respect to defaults in the payment of principal, interest and fees required to be paid to the Agent for the account of the Banks, unless the -49- Agent shall have received written notice from a Bank or the Company referring to this Agreement, describing such Event of Default or Unmatured Event of Default and stating that such notice is a "notice of default". The Agent will notify the Banks of its receipt of any such notice. The Agent shall take such action with respect to such Event of Default or Unmatured Event of Default as may be requested by the Required Banks in accordance with Section 12; provided, ---------- -------- however, that unless and until the Agent has received any such request, the - ------- 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 Unmatured Event of Default as it shall deem advisable or in the best interest of the Banks. 13.6 Credit Decision. Each Bank acknowledges that none of the Agent- --------------- Related Persons has made any representation or warranty to it, and that no act by the Agent hereafter taken, including any review of the affairs of the Company and its Subsidiaries, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Bank. Each Bank represents to the Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Company and its Subsidiaries, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Company hereunder. Each Bank also represents that it will, independently and without reliance upon any Agent- Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Company. Except for notices, reports and other documents expressly herein required to be furnished to the Banks by the Agent, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, prospects, operations, property, financial or other condition or creditworthiness of the Company which may come into the possession of any of the Agent-Related Persons. 13.7 Indemnification. Whether or not the transactions contemplated --------------- hereby are consummated, the Banks shall indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of the Company and without limiting the obligation of the Company to do so), pro rata, from and against any and all Indemnified Liabilities; provided, however, -------- ------- -50- that no Bank shall be liable for any payment to the Agent-Related Person of any portion of the Indemnified Liabilities resulting solely from such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Bank shall reimburse the Agent upon demand for its ratable share of any costs or out- of-pocket expenses (including reasonable fees of attorneys for the Agent (including the allocable costs of internal legal services and all disbursements of internal counsel)) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that the Agent is not reimbursed for such expenses by or on behalf of the Company. The undertaking in this Section shall survive repayment of the Loans, cancellation of the Notes, any foreclosure under, or any modification, release or discharge of, any or all of the Collateral Documents, any termination of this Agreement and the resignation or replacement of the Agent. For the purposes of this Section 13.7, "Indemnified Liabilities" shall ------------ ----------------------- mean: any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including reasonable fees of attorneys for the Agent (including the allocable costs of internal legal services and all disbursements of internal counsel)) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Loan and the termination, resignation or replacement of the Agent or the replacement of any Bank) be imposed on, incurred by or asserted against any Agent-Related Person in any way relating to or arising out of this Agreement or any document contemplated by or referred to herein, or the transactions contemplated hereby, or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to any investigation, litigation or proceeding (including (a) any case, action or proceeding before any court or other governmental authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors; undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code, and including any appellate proceeding) related to or arising out of this Agreement or the Commitments or the use of the proceeds thereof, whether or not any Agent-Related Person, any Bank or any of their respective officers, directors, employees, counsel, agents or attorneys- in-fact is a party thereto. -51- 13.8 Agent in Individual Capacity. BofA and its Affiliates may make ---------------------------- loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with the Company and its Subsidiaries and Affiliates as though BofA were not the Agent hereunder and without notice to or consent of the Banks. The Banks acknowledge that, pursuant to such activities, BofA or its Affiliates may receive information regarding the Company or its Affiliates (including information that may be subject to confidentiality obligations in favor of the Company or such Subsidiary) and acknowledge that the Agent shall be under no obligation to provide such information to them. With respect to their Loans, BofA and its Affiliates shall have the same rights and powers under this Agreement as any other Bank and may exercise the same as though BofA were not the Agent, and the terms "Bank" and "Banks" include BofA and its Affiliates, to the extent applicable, in their individual capacities. 13.9 Successor Agent; Assignment of Agency. The Agent may, and at the ------------------------------------- request of the Required Banks shall, resign as Agent upon 30 days' notice to the Banks. If the Agent resigns under this Agreement, the Required Banks shall, with (so long as no Event of Default exists) the consent of the Company (which shall not be unreasonably withheld or delayed), appoint from among the Banks a successor agent for the Banks. If no successor agent is appointed prior to the effective date of the resignation of the Agent, the Agent may appoint, after consulting with the Banks and the Company, a successor agent from among the Banks. Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Agent and the term "Agent" shall mean such successor agent, and the retiring Agent's appointment, powers and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 13 and Sections 14.6 and 14.13 shall inure to its benefit as to any ---------- ------------- ----- actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon become effective and the Banks shall perform all of the duties of the Agent hereunder until such time, if any, as the Required Banks appoint a successor agent as provided for above. 13.10 Withholding Tax. --------------- (a) If any Bank is a "foreign corporation, partnership or trust" within the meaning of the Code and such Bank claims exemption from, or a reduction of, U.S. withholding -52- tax under Sections 1441 or 1442 of the Code, such Bank agrees to deliver to the Agent: (i) if such Bank claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, properly completed Internal Revenue Service ("IRS") Forms 1001 and W-8 before the payment --- of any interest in the first calendar year and before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; (ii) if such Bank claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Bank, two properly completed and executed copies of IRS Form 4224 before the payment of any interest is due in the first taxable year of such Bank and in each succeeding taxable year of such Bank during which interest may be paid under this Agreement, and IRS Form W-9; and (iii) such other form or forms as may be required under the Code or other laws of the United States as a condition to exemption from, or reduction of, United States withholding tax. Such Bank agrees to promptly notify the Agent of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Bank claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form 1001 and such Bank sells, assigns, grants a participation in, or otherwise transfers all or part of the obligations of the Company to such Bank, such Bank agrees to notify the Agent of the percentage amount in which it is no longer the beneficial owner of such obligations of the Company hereunder. To the extent of such percentage amount, the Agent will treat such Bank's IRS Form 1001 as no longer valid. (c) If any Bank claiming exemption from United States withholding tax by filing IRS Form 4224 with the Agent sells, assigns, grants a participation in, or otherwise transfers all or part of the obligations of the Company to such Bank hereunder, such Bank agrees to undertake sole responsibility for complying with the -53- withholding tax requirements imposed by Sections 1441 and 1442 of the Code. (d) If any Bank is entitled to a reduction in the applicable withholding tax, the Agent may withhold from any interest payment to such Bank an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other documentation required by subsection (a) of this Section are not delivered to the Agent, then the -------------- Agent may withhold from any interest payment to such Bank not providing such forms or other documentation an amount equivalent to the applicable withholding tax. (e) If the IRS or any other governmental authority of the United States or any other jurisdiction asserts a claim that the Agent did not properly withhold tax from amounts paid to or for the account of any Bank (because the appropriate form was not delivered or was not properly executed, or because such Bank failed to notify the Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Bank shall indemnify the Agent fully for all amounts paid, directly or indirectly, by the Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to the Agent under this Section, together with all costs and expenses (including reasonable fees of attorneys for the Agent (including the allocable costs of internal legal services and all disbursements of internal counsel)). The obligation of the Banks under this subsection shall survive the repayment of the Loans, cancellation of the Notes, any termination of this Agreement and the resignation or replacement of the Agent. 13.11 Collateral Matters. The Banks irrevocably authorize the Agent, at ------------------ its option and in its discretion, to release any Lien granted to or held by the Agent under any Collateral Document (i) upon termination of the Commitments and payment in full of all Loans and all other obligations of the Company hereunder and the expiration or termination of all Letters of Credit; (ii) constituting property sold or to be sold or disposed of as part of or in connection with any disposition permitted hereunder; or (iii) subject to Section 14.1, if approved, ------------ authorized or ratified in writing by the Required Banks. Upon request by the Agent at any time, the Banks will confirm in writing the Agent's authority to release particular types or items of collateral pursuant to this Section 13.11. ------------- -54- SECTION 14 GENERAL. 14.1 Waiver; Amendments. No delay on the part of the Agent, any Bank or ------------------ any other holder of a Note in the exercise of any right, power or remedy shall operate as a waiver thereof, nor shall any single or partial exercise by any of them of any right, power or remedy preclude other or further exercise thereof, or the exercise of any other right, power or remedy. No amendment, modification or waiver of, or consent with respect to, any provision of this Agreement or the Notes shall in any event be effective unless the same shall be in writing and signed and delivered by Banks having an aggregate Percentage of not less than the aggregate Percentage expressly designated herein with respect thereto or, in the absence of such designation as to any provision of this Agreement or the Notes, by the Required Banks, and then any such amendment, modification, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No amendment, modification, waiver or consent shall change the Percentage of any Bank without the consent of such Bank. No amendment, modification, waiver or consent shall (i) extend or increase the amount of the Commitments, (ii) extend the date for payment of any principal of or interest on the Loans or any fees payable hereunder, (iii) reduce the principal amount of any Loan, the rate of interest thereon or any fees payable hereunder, (iv) release the Intercompany Guaranty (other than with respect to a Guarantor which ceases to be a Subsidiary as a result of a transaction permitted hereunder) or all or substantially all of the collateral granted under the Collateral Document or (v) reduce the aggregate Percentage required to effect an amendment, modification, waiver or consent without, in each case, the consent of all Banks. No provisions of Section 13 or other provision of this Agreement ---------- affecting the Agent in its capacity as such shall be amended, modified or waived without the consent of the Agent. 14.2 Confirmations. The Company and each holder of a Note agree from ------------- time to time, upon written request received by it from the other, to confirm to the other in writing (with a copy of each such confirmation to the Agent) the aggregate unpaid principal amount of the Loans then outstanding under such Note. 14.3 Notices. Except as otherwise provided in Section 2.2, all notices ------- ----------- hereunder shall be in writing (including facsimile transmission) and shall be sent to the applicable party at its address shown on Schedule 14.2 or at such ------------- other address as such party may, by written notice received by the other parties, have designated as its address for such purpose. Notices sent by facsimile transmission shall be deemed to have been given when sent; notices sent by mail shall be deemed to have been given three Business Days after the date when sent by registered or -55- certified mail, postage prepaid; and notices sent by hand delivery or overnight courier service shall be deemed to have been given when received. For purposes of Section 2.2, the Agent shall be entitled to rely on telephonic instructions ----------- from any person that the Agent in good faith believes is an authorized officer or employee of the Company, and the Company shall hold the Agent and each Bank harmless from any loss, cost or expense resulting from any such reliance. 14.4 Computations. Where the character or amount of any asset or ------------ liability or item of income or expense is required to be determined, or any consolidation or other accounting computation is required to be made, for the purpose of this Agreement, such determination or calculation shall, to the extent applicable and except as otherwise specified in this Agreement, be made in accordance with GAAP, consistently applied; provided that if the Company -------- notifies the Agent that the Company wishes to amend any covenant in Section 10 ---------- to eliminate or to take into account the effect of any change in GAAP on the operation of such covenant (or if the Agent notifies the Company that the Required Banks wish to amend Section 10 for such purpose), then the Company's ---------- compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Company and the Required Banks. 14.5 Regulation U. Each Bank represents that it in good faith is not ------------ relying, either directly or indirectly, upon any Margin Stock as collateral security for the extension or maintenance by it of any credit provided for in this Agreement. 14.6 Costs, Expenses and Taxes. The Company agrees to pay on demand all ------------------------- reasonable out-of-pocket costs and expenses of the Agent (including the reasonable fees and charges of counsel for the Agent and of local counsel, if any, who may be retained by said counsel) in connection with the preparation, execution, delivery and administration of this Agreement, the other Loan Documents and all other documents provided for herein or delivered or to be delivered hereunder or in connection herewith (including any amendments, supplements or waivers to any Loan Documents), and all reasonable out-of-pocket costs and expenses (including reasonable attorneys' fees, court costs and other legal expenses and allocated costs of staff counsel) incurred by the Agent and each Bank after an Event of Default in connection with the enforcement of this Agreement, the other Loan Documents or any such other documents. Each Bank agrees to reimburse the Agent for such Bank's pro rata share (based on its respective Percentage) of any such costs and expenses of the Agent not paid by the Company. In addition, the Company agrees to pay, and to save the Agent and the Banks harmless from all liability for, (a) -56- any stamp or other taxes (excluding income taxes and franchise taxes based on net income) which may be payable in connection with the execution and delivery of this Agreement, the borrowings hereunder, the issuance of the Notes or the execution and delivery of any other Loan Document or any other document provided for herein or delivered or to be delivered hereunder or in connection herewith and (b) any fees of the Company's auditors in connection with any reasonable exercise by the Agent and the Banks of their rights pursuant to Section 10.2. ------------ All obligations provided for in this Section 14.6 shall survive repayment of the ------------ Loans, cancellation of the Notes and any termination of this Agreement. 14.7 Subsidiary References. The provisions of this Agreement relating to --------------------- Subsidiaries shall apply only during such times as the Company has one or more Subsidiaries. 14.8 Captions. Section captions used in this Agreement are for -------- convenience only and shall not affect the construction of this Agreement. 14.9 Assignments; Participations. --------------------------- 14.9.1 Assignments. Any Bank may, with the prior written consents of the ----------- Company and the Agent (which consents shall not be unreasonably delayed or withheld), at any time assign and delegate to one or more commercial banks or other Persons (any Person to whom such an assignment and delegation is to be made being herein called an "Assignee"), all or any fraction of such Bank's -------- Loans and Commitments (which assignment and delegation shall be of a constant, and not a varying, percentage of all the assigning Bank's Loans and Commitments) in a minimum aggregate amount equal to the lesser of (i) the assigning Bank's remaining aggregate Commitments and (ii) $5,000,000; provided, however, that (a) -------- ------- no assignment and delegation may be made to any Person if, at the time of such assignment and delegation, the Company would be obligated to pay any greater amount under Section 7.6 or Section 8 to the Assignee than the Company is then ----------- --------- obligated to pay to the assigning Bank under such Sections (and if any assignment is made in violation of the foregoing, the Company will not be required to pay the incremental amounts) and (b) the Company and the Agent shall be entitled to continue to deal solely and directly with such Bank in connection with the interests so assigned and delegated to an Assignee until the date when all of the following conditions shall have been met: (x) five Business Days (or such lesser period of time as the Agent and the assigning Bank shall agree) shall have passed after written notice of such assignment and delegation, together with payment instructions, addresses and related information with respect to such Assignee, shall -57- have been given to the Company and the Agent by such assigning Bank and the Assignee, (y) the assigning Bank and the Assignee shall have executed and delivered to the Company and the Agent an assignment agreement substantially in the form of Exhibit G (an "Assignment Agreement"), --------- -------------------- together with any documents required to be delivered thereunder, which Assignment Agreement shall have been accepted by the Agent, and (z) the assigning Bank or the Assignee shall have paid the Agent a processing fee of $3,500. From and after the date on which the conditions described above have been met, (x) such Assignee shall be deemed automatically to have become a party hereto and, to the extent that rights and obligations hereunder have been assigned and delegated to such Assignee pursuant to such Assignment Agreement, shall have the rights and obligations of a Bank hereunder, and (y) the assigning Bank, to the extent that rights and obligations hereunder have been assigned and delegated by it pursuant to such Assignment Agreement, shall be released from its obligations hereunder. Within five Business Days after effectiveness of any assignment and delegation, the Company shall execute and deliver to the Agent (for delivery to the Assignee and the Assignor, as applicable) a new Note in the principal amount of the Assignee's Loan Commitment and, if the assigning Bank has retained a Loan Commitment hereunder, a replacement Note in the principal amount of the Loan Commitment retained by the assigning Bank (such Note to be in exchange for, but not in payment of, the predecessor Note held by such assigning Bank). Each such Note shall be dated the effective date of such assignment. The assigning Bank shall mark the predecessor Note "exchanged" and deliver it to the Company. Accrued interest on that part of the predecessor Note being assigned shall be paid as provided in the Assignment Agreement. Accrued interest and fees on that part of the predecessor Note not being assigned shall be paid to the assigning Bank. Accrued interest and accrued fees shall be paid at the same time or times provided in the predecessor Note and in this Agreement. Any attempted assignment and delegation not made in accordance with this Section 14.9.1 shall -------------- be null and void. Notwithstanding the foregoing provisions of this Section 14.9.1 or any -------------- other provision of this Agreement, any Bank may at any time assign all or any portion of its Loans and its Note to a Federal Reserve Bank (but no such assignment shall release any Bank from any of its obligations hereunder). 14.9.2 Participations. Any Bank may at any time sell to one or more -------------- commercial banks or other Persons participating interests in any Loan owing to such Bank, the Note held by such -58- Bank, the Commitments of such Bank, the direct or participation interest of such Bank in any Letter of Credit or any other interest of such Bank hereunder (any Person purchasing any such participating interest being herein called a "Participant"). In the event of a sale by a Bank of a participating interest to - ------------ a Participant, (x) such Bank shall remain the holder of its Note for all purposes of this Agreement, (y) the Company and the Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations hereunder and (z) all amounts payable by the Company shall be determined as if such Bank had not sold such participation and shall be paid directly to such Bank. No Participant shall have any direct or indirect voting rights hereunder except with respect to any of the events (excluding the events described in clause (v) thereof) described in the penultimate sentence of ---------- Section 14.1. Each Bank agrees to incorporate the requirements of the preceding - ------------ sentence into each participation agreement which such Bank enters into with any Participant. The Company agrees that if amounts outstanding under this Agreement and the Notes are due and payable (as a result of acceleration or otherwise), each Participant shall be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement, any Note and with respect to any Letter of Credit to the same extent as if the amount of its participating interest were owing directly to it as a Bank under this Agreement or such Note; provided that such right of setoff shall be subject -------- to the obligation of each Participant to share with the Banks, and the Banks agree to share with each Participant, as provided in Section 7.5. The Company ----------- also agrees that each Participant shall be entitled to the benefits of Section ------- 7.6 and Section 8 as if it were a Bank (provided that no Participant shall - --- --------- receive any greater compensation pursuant to Section 7.6 or Section 8 than would ----------- --------- have been paid to the participating Bank if no participation had been sold). 14.10 Governing Law. This Agreement and each Note shall be a contract ------------- made under and governed by the internal laws of the State of Illinois. Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. All obligations of the Company and rights of the Agent, the Banks and any other holder of a Note expressed herein or in any other Loan Document shall be in addition to and not in limitation of those provided by applicable law. 14.11 Counterparts. This Agreement may be executed in any number of ------------ counterparts and by the different parties hereto on -59- separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Agreement. When counterparts executed by all of the parties hereto shall have been lodged with the Agent (or, in the case of any Bank as to which an executed counterpart shall not have been so lodged, the Agent shall have received confirmation from such Bank of execution of a counterpart hereof by such Bank), this Agreement shall become effective as of the date hereof, and at such time the Agent shall notify the Company and each Bank. 14.12 Successors and Assigns. This Agreement shall be binding upon the ---------------------- Company, the Banks and the Agent and their respective successors and assigns, and shall inure to the benefit of the Company, the Banks and the Agent and the successors and assigns of the Banks and the Agent. 14.13 Indemnification by the Company. ------------------------------ (a) In consideration of the execution and delivery of this Agreement by the Agent and the Banks and the agreement to extend the Commitments provided hereunder, the Company hereby agrees to indemnify, exonerate and hold the Agent, each Bank and each of the officers, directors, employees, Affiliates and agents of the Agent and each Bank (each a "Bank Party") free and harmless from and ---------- against any and all actions, causes of action, suits, losses, liabilities, damages and expenses, including reasonable attorneys' fees and charges and allocated costs of staff counsel (collectively, for purposes of this Section ------- 14.13, called the "Indemnified Liabilities"), incurred by the Bank Parties or - ----- ----------------------- any of them as a result of, or arising out of, or relating to (i) any tender offer, merger, purchase of stock, purchase of assets or other similar transaction financed or proposed to be financed in whole or in part, directly or indirectly, with the proceeds of any of the Loans, (ii) the use, handling, release, emission, discharge, transportation, storage, treatment or disposal of any hazardous substance at any property owned or leased by the Company or any Subsidiary, (iii) any violation of any Environmental Laws with respect to conditions at any property owned or leased by the Company or any Subsidiary or the operations conducted thereon, (iv) the investigation, cleanup or remediation of offsite locations at which the Company or any Subsidiary or their respective predecessors are alleged to have directly or indirectly disposed of hazardous substances or (v) the execution, delivery, performance or enforcement of this Agreement or any other Loan Document by any of the Bank Parties, except for any such Indemnified Liabilities arising on account of any such Bank Party's gross negligence or willful misconduct. If and to the extent that the foregoing undertaking may be unenforceable for any reason, the Company hereby agrees to make the maximum contribution to the payment and satisfaction of each -60- of the Indemnified Liabilities which is permissible under applicable law. Nothing set forth above shall be construed to relieve any Bank Party from any obligation it may have under this Agreement. (b) All obligations provided for in this Section 14.13 shall survive ------------- repayment of the Loans, cancellation of the Notes, any foreclosure under, or any modification, release or discharge of any or all of the Collateral Documents and any termination of this Agreement. 14.14 Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED ------------------------------------------- HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT -------- ------- AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS AND OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF ILLINOIS. THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE COMPANY HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE COMPANY HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 14.15 WAIVER OF JURY TRIAL. EACH OF THE COMPANY, THE AGENT AND EACH BANK -------------------- HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY NOTE, ANY OTHER LOAN DOCUMENT AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. -61- sDelivered at Chicago, Illinois, as of the day and year first above written. UNITED RENTALS, INC. By --------------------------------------- Chief Financial Officer BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By --------------------------------------- Title ------------------------------------ BANK OF AMERICA NATIONAL TRUST AND SAVING ASSOCIATION, as a Bank By --------------------------------------- Title ------------------------------------ -62- ANNEX I Portion of Bank Commitment Amount Percentage - ---- ----------------- ---------- Bank of America National Trust and Savings Association $30,000,000 100% ----------- --- TOTALS $30,000,000 100% SCHEDULE I PRICING SCHEDULE The Floating Rate Margin, the Eurodollar Margin, the rate per annum applicable for non-use fees and the rate per annum applicable for letter of credit fees for Financial Letters of Credit and Non-Financial Letters of Credit, respectively, shall be determined in accordance with the table below and the other provisions of this Schedule I. ---------- LEVEL I LEVEL II LEVEL LEVEL LEVEL III IV V - --------------------------------------------------------------- Rate for Non-Use Fee 0.375% 0.375% 0.375% 0.375% 0.375% Eurodollar Margin 2.500% 2.250% 2.000% 1.750% 1.500% Floating Rate Margin 0.250% 0.250% 0 0 0 Rate for Non-Financial LC 1.250% 1.125% 1.000% 0.875% 0.750% Fee Rate for Financial LC Fee 2.500% 2.250% 2.000% 1.750% 1.500% Level I applies when the Funded Debt to Cash Flow Ratio is equal to or ------- greater than 3.25 to 1.0. Level II applies when the Funded Debt to Cash Flow Ratio is equal to or -------- greater than 2.75 to 1.0 but less than 3.25 to 1.0. Level III applies when the Funded Debt to Cash Flow Ratio is equal to or --------- greater than 2.25 to 1.0 but less than 2.75 to 1.0. Level IV applies when the Funded Debt to Cash Flow Ratio is equal to or -------- greater than 1.75 to 1.0 but less than 2.25 to 1.0. Level V applies when the Funded Debt to Cash Flow Ratio is less than 1.75 ------- to 1.0. The applicable Level shall be adjusted, to the extent applicable, 45 days (or, in the case of the last Fiscal Quarter of any Fiscal Year, 90 days) after the end of each Fiscal Quarter based on the Funded Debt to Cash Flow Ratio as of the last day of such Fiscal Quarter; provided that if the Company fails to -------- deliver the financial statements required by Section 10.1.1 or 10.1.2, as -------------- ------ applicable, and the related certificate required by Section 10.1.4 by the 45th -------------- day (or, if applicable, the 90th day) 1 after any Fiscal Quarter, Level I shall apply until such financial statements are delivered. Notwithstanding the foregoing, the applicable Level shall be Level IV at all times prior to March 31, 1998. -2- SCHEDULE 12.1.11 KEY EXECUTIVES Name Current Office(s) - ---- --------------------------------- Bradley S. Jacobs Chairman, Chief Executive Officer and Director John N. Milne Vice Chairman, Secretary, Director and Chief Acquisition Officer Michael J. Nolan Chief Financial Officer Robert P. Miner Vice President, Finance 1 SCHEDULE 14.2 ADDRESSES FOR NOTICES UNITED RENTALS, INC. - -------------------- Four Greenwich Office park Greenwich, Connecticut 06830 Attention: Chief Financial Officer Telephone: (203) 622-3131 Facsimile: (203) 622-6080 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent - --------------------------------- Agency Management Services 231 South LaSalle Street Chicago, Illinois 60697 Attention: Jay McKeown Telephone: (312) 828-7299 Facsimile: (312) 974-9102 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank - ---------------------------------- 231 South LaSalle Street Chicago, Illinois 60697 Attention: Robert Rospierski Telephone: (312) 828-8363 Facsimile: (312) 828-1974 FIRST AMENDMENT THIS FIRST AMENDMENT dated as of October 17, 1997 (this "Amendment") is to the Credit Agreement (the "Credit Agreement") dated as of October 8, 1997 among UNITED RENTALS, INC. (the "Company"), various financial institutions and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("BofA"), as Agent (in such capacity, the "Agent"). Unless otherwise defined herein, terms defined in the Credit Agreement are used herein as defined in the Credit Agreement. WHEREAS, the Company, BofA and the Agent have entered into the Credit Agreement; and WHEREAS, the parties hereto desire to amend the Credit Agreement to (a) add Comerica Bank and BankBoston, N.A. (collectively the "New Banks") as "Banks" thereunder and (b) reflect the increase of the Commitment to $55,000,000; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto agree as follows: SECTION 1 AMENDMENT. Effective on (and subject to the occurrence of) the --------- First Amendment Effective Date (as defined below), the Credit Agreement shall be amended in accordance with Sections 1.1 through 1.3 below. ------------ --- 1.1 Amount of Loan Commitment. Section 2.1.1 is amended by deleting the ------------------------- amount "$30,000,000" therein and substituting the amount "$55,000,000" therefor. 1.2 Annex I. Annex I is amended in its entirety by substituting the ------- attached Annex I therefor. ------- 1.3 Schedule 14.2. Schedule 14.2 is amended in its entirety by ------------- substituting the attached Schedule 14.2 therefor. ------------- SECTION 2 REPRESENTATIONS AND WARRANTIES. The Company represents and ------------------------------ warrants to the Agent and the Banks that (a) the representations and warranties made in Section 9 (excluding Section 9.8) of the Credit Agreement are true and correct in all material respects on and as of the First Amendment Effective Date with the same effect as if made on and as of the First Amendment Effective Date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they were true and correct in all material respects as of such earlier date); (b) no Event of Default or Unmatured Event of Default exists or will result from the execution and delivery of this Amendment; (c) no event or circumstance has occurred since the Effective Date that has resulted, or would reasonably be expected to result, in a Material Adverse Effect; (d) the execution and delivery by the Company of this Amendment and the New Notes (as defined below), and the performance by the Company of its obligations under the Credit Agreement as amended hereby (as so amended, the "Amended Credit Agreement") and the New Notes, (i) are within the corporate powers of the Company, (ii) have been duly authorized by all necessary corporate action, (iii) have received all necessary governmental approval and (iv) do not and will not contravene or conflict with any provision of law or of the charter or by-laws of the Company or of any indenture, loan agreement or other contract, order or decree which is binding upon the Company; and (e) each of the Amended Credit Agreement and each New Note is the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability. SECTION 3 EFFECTIVENESS. The amendments set forth in Section 1 above ------------- --------- shall become effective, as of the day and year first above written, on such date (the "First Amendment Effective Date") when the Agent shall have received (i) a counterpart of this Amendment executed by each of the parties hereto (or, in the case of any party other than the Company from which the Agent has not received a counterpart hereof, facsimile confirmation of the execution of a counterpart hereof by such party), (ii) a new Note for each Bank (collectively the "New Notes") and (iii) the opinions of Weil, Gotshal & Manges LLP, special counsel to the Company and the Guarantors (if any), substantially in the form of Exhibit A --------- hereto, and Oscar D. Folger, counsel to the Company and the Guarantors (if any), substantially in the form of Exhibit B hereto. --------- SECTION 4 ADDITION OF BANKS. On the First Amendment Effective Date, each ----------------- New Bank shall become a "Bank" under and for all purposes of the Credit Agreement, shall be bound by the Credit Agreement, and shall be entitled to the benefits of the Credit Agreement and each other Loan Document, and each Bank shall have a portion of the Commitment and a Percentage in the amount and percentage set forth on Annex I hereto. Each New Bank agrees that all fees ------- accrued under the Credit Agreement prior to the First Amendment Effective Date are the property of BofA. By its signature below, BofA confirms that (except pursuant hereto) it has not sold or otherwise encumbered any of its rights or obligations under the Credit Agreement prior to the syndication thereof pursuant to this Amendment. -2- SECTION 5 MISCELLANEOUS. ------------- 5.1 Continuing Effectiveness, etc. As herein amended, the Credit ------------------------------ Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. After the First Amendment Effective Date, all references in the Credit Agreement, the Notes, each other Loan Document and any similar document to the "Credit Agreement" or similar terms shall refer to the Amended Credit Agreement. 5.2 Counterparts. This Amendment may be executed in any number of ------------ counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original but all such counterparts shall together constitute one and the same Amendment. 5.3 Expenses. The Company agrees to pay the reasonable costs and expenses -------- of the Agent (including reasonable attorney's fees and changes) in connection with the preparation, execution and delivery of this Amendment. 5.4 Governing Law. This Amendment shall be a contract made under and ------------- governed by the internal laws of the State of Illinois applicable to contracts made and to be performed entirely within such State. 5.5 Successors and Assigns. This Amendment shall be binding upon the ---------------------- Company, the Banks and the Agent and their respective successors and assigns, and shall inure to the benefit of the Company, the Banks and the Agent and the successors and assigns of the Banks and the Agent. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -3- Delivered at Chicago, Illinois, as of the day and year first above written. UNITED RENTALS, INC. By_____________________________ Chief Financial Officer BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By_____________________________ Title__________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank By_____________________________ Title__________________________ -4- COMERICA BANK By_____________________________ Title__________________________ BANKBOSTON, N.A. By_____________________________ Title__________________________ -5- ANNEX I COMMITMENTS
Bank Portion of Commitment Amount Percentage ---- ---------------------------- ---------- Bank of America National $25,000,000.00 45.454545454% Trust Savings Association Comerica Bank $15,000,000.00 27.272727273% BankBoston, N.A. $15,000,000.00 27.272727273% TOTAL $55,000,000.00 100.000000000%
-6- SCHEDULE 14.2 ADDRESSES FOR NOTICES UNITED RENTALS, INC. - -------------------- Four Greenwich Office Park Greenwich, Connecticut 06830 Attention: Chief Financial Officer Telephone: (203) 622-3131 Facsimile: (203) 622-6080 BANK OF AMERICA NATIONAL TRUST - ------------------------------ AND SAVINGS ASSOCIATION, - ----------------------- as Agent Agency Management Services 231 South LaSalle Street Chicago, Illinois 60603 Attention: Jay McKeown Telephone: (312) 828-7299 Facsimile: (312) 974-9102 BANK OF AMERICA NATIONAL TRUST - ------------------------------ AND SAVINGS ASSOCIATION, - ----------------------- as a Bank 231 South LaSalle Street Chicago, Illinois 60197 Attention: Robert Rospierski Telephone: (312) 828-8363 Facsimile: (312) 828-1974 COMERICA BANK - ------------- One Detroit Center 6th Floor 500 Woodward Avenue Detroit, Michigan 48226 Attention: Mark Koszyk Telephone: (313)222-7441 Facsimile: (313)222-5759 BANKBOSTON, N.A. - ---------------- 100 Federal Street Boston, Massachusetts 02110 Attention: Brent Shay Telephone: (617)434-3556 Facsimile: (617)434-2309 -2- SECOND AMENDMENT AND CONSENT THIS SECOND AMENDMENT AND CONSENT dated as of October 24, 1997 (this "Amendment") is to the Credit Agreement (as previously amended, the "Credit Agreement") dated as of October 8, 1997 among UNITED RENTALS, INC. (the "Company"), various financial institutions and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("BofA"), as Agent (in such capacity, the "Agent"). Unless otherwise defined herein, terms defined in the Credit Agreement are used herein as defined in the Credit Agreement. WHEREAS, the Company, the Banks and the Agent have entered into the Credit Agreement; and WHEREAS, the parties hereto desire to amend the Credit Agreement in certain respects as set forth below; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto agree as follows: SECTION 1 AMENDMENT. Effective on (and subject to the occurrence of) the --------- Second Amendment Effective Date (as defined below), Section 10.9 of the Credit Agreement shall be amended by deleting the amount "$2,000,000" therein and substituting therefor the amount "$3,500,000". SECTION 2 CONSENT. Notwithstanding any provision of Section 10.11 of the ------- Credit Agreement to the contrary, the Required Banks agree that the Company may make the acquisitions described on Schedule I hereto so long as the aggregate ---------- consideration paid in respect of each such acquisition does not exceed the amount set forth on Schedule I opposite such acquisition. ---------- SECTION 3 REPRESENTATIONS AND WARRANTIES. The Company represents and ------------------------------ warrants to the Agent and the Banks that (a) the representations and warranties made in Section 9 (excluding Section 9.8) of the Credit Agreement are true and correct in all material respects on and as of the Second Amendment Effective Date with the same effect as if made on and as of the Second Amendment Effective Date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they were true and correct in all material respects as of such earlier date); (b) no Event of Default or Unmatured Event of Default exists or will result from the execution and delivery of this Amendment; (c) no event or circumstance has occurred since the Effective Date that has resulted, or would reasonably be expected to result, in a Material Adverse Effect; (d) the execution and delivery by the Company of this Amendment, and the performance by the Company of its obligations under the Credit Agreement as amended hereby (as so amended, the "Amended Credit Agreement"), (i) are within the corporate powers of the Company, (ii) have been duly authorized by all necessary corporate action, (iii) have received all necessary governmental approval and (iv) do not and will not contravene or conflict with any provision of law or of the charter or by-laws of the Company or of any indenture, loan agreement or other contract, order or decree which is binding upon the Company; and (e) the Amended Credit Agreement is the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability. SECTION 4 EFFECTIVENESS. The amendment set forth in Section 1 above, and ------------- --------- the consent set forth in Section 2 above, shall become effective, as of the day --------- and year first above written, on such date (the "Second Amendment Effective Date") when the Agent shall have received a counterpart of this Amendment executed by the Company, the Agent and the Required Banks (or, in the case of any party other than the Company from which the Agent has not received a counterpart hereof, facsimile confirmation of the execution of a counterpart hereof by such party). SECTION 5 MISCELLANEOUS. ------------- 5.1 Continuing Effectiveness, etc. As herein amended, the Credit ------------------------------ Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. After the Second Amendment Effective Date, all references in the Credit Agreement, the Notes, each other Loan Document and any similar document to the "Credit Agreement" or similar terms shall refer to the Amended Credit Agreement. 5.2 Counterparts. This Amendment may be executed in any number of ------------ counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original but all such counterparts shall together constitute one and the same Amendment. 5.3 Expenses. The Company agrees to pay the reasonable costs and expenses -------- of the Agent (including reasonable attorney's fees and changes) in connection with the preparation, execution and delivery of this Amendment. -2- 5.4 Governing Law. This Amendment shall be a contract made under and ------------- governed by the internal laws of the State of Illinois applicable to contracts made and to be performed entirely within such State. 5.5 Successors and Assigns. This Amendment shall be binding upon the ---------------------- Company, the Banks and the Agent and their respective successors and assigns, and shall inure to the benefit of the Company, the Banks and the Agent and the successors and assigns of the Banks and the Agent. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -3- Delivered at Chicago, Illinois, as of the day and year first above written. UNITED RENTALS, INC. By_____________________________ Title__________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By_____________________________ Title__________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank By_____________________________ Title__________________________ COMERICA BANK By_____________________________ Title__________________________ BANKBOSTON, N.A. By_____________________________ Title__________________________ -4- SCHEDULE I -5- EX-10.(B) 5 UNITED RENTALS INC. 1997 STOCK OPTION PLAN EXHIBIT 10(b) UNITED RENTALS, INC. 1997 STOCK OPTION PLAN There is hereby established a 1997 Stock Option Plan (the "Plan"). The Plan provides for the grant to certain employees and others who render services to United Rentals, Inc. or its subsidiaries (the "Company") of options ("Options") to purchase shares of common stock of the Company ("Common Stock"). 1. Purpose: The purpose of the Plan is to provide additional incentive to the ------- officers, employees, and others who render services to the Company, who are responsible for the management and growth of the Company, or otherwise contribute to the conduct and direction of its business, operations and affairs. It is intended that Options granted under the Plan strengthen the desire of such persons to join and remain in the employ of the Company and stimulate their efforts on behalf of the Company. 2. The Stock: The aggregate number of shares of Common Stock which may be --------- subject to Options shall not exceed 5,000,000. Such shares may be either authorized and unissued shares, or treasury shares. If any Option granted under the Plan shall expire, terminate or be cancelled for any reason without having been exercised in full, the corresponding number of unpurchased shares shall again be available for the purposes of the Plan. 3. Types of Options. Options granted under the Plan shall be in the form of ---------------- (i) incentive stock options ("ISO's"), as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") or (ii) non-statutory options which do not qualify under such Section ("NSO's"), or both, in the discretion of the Board of Directors or any committee appointed by the Board (each, the "Committee"). The status of each Option shall be identified in the Option Agreement. 4. Eligibility: ----------- (a) ISO's may be granted to such employees (including officers and directors who are employees) of the Company as the Committee shall select from time to time. (b) NSO's may be granted to such employees (including officers and directors) of the Company, and to other persons who render services to the Company, as the Committee shall select from time to time. (c) In no event shall the number of shares which are subject to options awarded under the Plan to any one employee (including any options which have been exercised, canceled or expired) exceed 3,000,000. 5. Option Price. - ------------ (a) The price or prices per share of Common Stock to be sold pursuant to an Option (the "exercise price") shall be such as shall be fixed by the Committee but shall in any case not be less than: (i) the fair market value per share for such Common Stock on the date of grant in the case of ISOs other than to a 10% Shareholder, (ii) 110% of the fair market value per share for such Common Stock on the date of grant in the case of ISOs to a 10% Shareholder, and (iii) the fair market value on the date of grant in the case of NSO's. (b) A "10% Shareholder" means an individual who within the meaning of Section 422(b)(6) of the Code owns stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or of its parent or any subsidiary corporation. 6. Period of Option Vesting. - -- ------------------------ (a) The Committee shall determine for each Option the period during which such Option shall be exercisable in whole or in part, provided that no ISO to a 10% Shareholder shall be exercisable more than five years after the date of grant. (b) Special Rule for ISO's. The aggregate fair market value (determined at the --- ----------------------- time the ISO is granted) of the stock with respect to which ISOs are exercisable for the first time by an Optionee during any calendar year (under all such plans of the Company, its parent or subsidiary) shall not exceed $100,000, and any excess shall be considered an NSO. 7. Effect of Termination of Employment. ------------------------------------ (a) The Committee shall determine for each Option the extent, if any, to which such Option shall be exercisable in the event of the termination of the Optionee's employment with or rendering of other services to the Company. (b) However, any such Option which is an ISO shall in all events lapse unless exercised by the Optionee: (i) prior to the 89th day after the date on which employment terminated, if termination was other than by reason of death; and (ii) within the twelve-month period next succeeding the death of the Optionee, if termination is by reason of death. (c) The Committee shall have the right, at any time, and from time to time, with the consent of the Optionee, to modify the lapse date of an Option and to convert an ISO into an NSO to the extent that such modification in lapse date increases the life of the ISO beyond the dates set forth above or beyond dates otherwise permissible for an ISO. 8. Payment for Shares of Common Stock. Upon exercise of an Option, the ---------------------------------- Optionee shall make full payment of the Option Price in cash, or, with the consent of the Committee and to the extent permitted by it: (a) with Common Stock of the Company valued at fair market value on date of exercise, but only if held by the Optionee for a period of time sufficient to prevent a pyramid exercise that would create a charge to the Company's earnings, (b) with a full recourse interest bearing promissory note of the Optionee, secured by a pledge of the shares of Common Stock received upon exercise of such Option, and having such other terms and conditions as determined by the Committee, (c) by delivering a properly executed exercise notice together with irrevocable instructions to a broker to sell shares acquired upon exercise of the Option and promptly to deliver to the Company a portion of the proceeds thereof equal to the exercise price, or (d) any combination of any of the foregoing. B-2 9. Option Exercises. Options shall be exercised by submitting to the Company a ----------------- signed copy of notice of exercise in a form to be supplied by the Company. The exercise of an Option shall be effective on the date on which the Company receives such notice at its principal corporate offices. The Company may cancel such exercise in the event that payment is not effected in full, subject to the other terms of this Plan. 10. Limited Transferability of Option. No Option shall be assignable or --------------------------------- transferable by the Optionee to whom it is granted, other than by will or the laws of descent and distribution, except that, upon approval by the Board, the Optionee may transfer an Option that is not intended to constitute an ISO (a) pursuant to a qualified domestic relations order as defined for purposes of the Employee Retirement Income Security Act of 1974, as amended, or (b) by gift: to a member of the AFamily@ (as defined below) of the Optionee, to or for the benefit of one or more organizations qualifying under Code sec. 501(c) (3) and 170(c) (2) (a ACharitable Organization@) or to a trust for the exclusive benefit of the Optionee, one or more members of the Optionee=s Family, one or more Charitable Organizations, or any combination of the foregoing, provided that any such transferee shall enter into a written agreement to be bound by the terms of this Agreement. For this purpose, AFamily@ shall mean the ancestors, spouse, siblings, spouses of siblings, lineal descendants and spouses of lineal descendants of the Optionee. During the lifetime of an Optionee to whom an ISO is granted, only such Optionee (or, in the event of legal incapacity or incompetence, the Optionee=s guardian or legal representative) may exercise the ISO. 11. Other Plan Terms. ----------------- (a) The Committee may grant more than one Option to an individual, and, subject to the requirements of Section 422 of the Code, with respect to ISOs, such Option may be in addition to, in tandem with, or in substitution for, Options previously granted under the Plan or of another corporation and assumed by the Company. (b) The Committee may permit the voluntary surrender of all or a portion of any Option granted under the Plan or otherwise to be conditioned upon the granting to the employee of a new Option for the same or a different number of shares of Common Stock as the Option surrendered, or may require such voluntary surrender as a condition precedent to a grant of a new Option to such employee. Such new Option shall be exercisable at the price, during the period, and in accordance with any other terms or conditions specified by the Committee at the time the new Option is granted, all determined in accordance with the provisions of the Plan without regard to the price, period of exercise, or any other terms or conditions of the Option surrendered. (c) Options under the Plan may be granted at any time after the Plan has been approved by the shareholders of the Company. However, no Option shall be granted under the Plan after August 31, 2007. (d) In the event of a reorganization, recapitalization, liquidation, stock split, stock dividend, combination of shares, merger or consolidation, or the sale, conveyance, lease or other transfer by the Company of all or substantially all of its property, or any change in the corporate structure or shares of common stock of the Company, pursuant to any of which events the then outstanding shares of the common stock are split up or combined or changed into, become exchangeable at the holder's election for, or entitle the holder thereof to other shares of common stock, or in the case of any other transaction described in Section 424(a) of the Code, the Committee may change the number and kind of shares of Common Stock available under the Plan and any outstanding Option (including substitution of shares of common stock of another corporation) and the price of any Option and the fair market value determined under this Plan in such manner as it shall deem equitable in its sole discretion. (e) An Optionee or a legal representative thereof shall have none of the rights of a stockholder with respect to shares of Common Stock subject to Options until such shares shall be issued or transferred upon exercise of the Option. B-3 (f) The Company shall effect the grant of Options under the Plan, in accordance with determinations made by the Committee, by execution of instruments in writing in a form approved by the Committee. Each Option shall contain such terms and conditions (which need not be the same for all Options, whether granted at the time or at different times) as the Committee shall deem to be appropriate and not inconsistent with the provisions of the Plan, and such terms and conditions shall be agreed to in writing by the Optionee. 12. Certain Definitions. -------------------- (a) Fair Market Value. As used in the Plan, the term "fair market value" --- ----------------- shall mean as of any date: (i) if the Common Stock is not traded on any over-the-counter market or on a national securities exchange, the value determined by the Committee using the best available facts and circumstances, (ii) if the Common Stock is traded in the over-the-counter market, based on most recent closing prices for the Common Stock on the date the calculation thereof shall be made, or (iii) if the Common Stock is listed on a national securities exchange, based on the most recent closing prices for the Common Stock of the Company on such exchange. (b) Subsidiary and Parent. The term "subsidiary" and "parent" as used in the --- ---------------------- Plan shall have the respective meanings set forth in Sections 424(f) and (e) of the Internal Revenue Code. 13. Not an Employment Contract. Nothing in the Plan or in any Option or stock -------------------------- option agreement shall confer on any Optionee any right to continue in the service of the Company or any parent or subsidiary of the company or interfere with the right of the Company to terminate such Optionee's employment or other services at any time. 14. Withholding Taxes: ----------------- (a) Whenever the Company proposes or is required to issue or transfer shares of Common Stock under the Plan, the Company shall have the right to require the Optionee to remit to the Company an amount sufficient to satisfy any Federal, state and/or local withholding tax requirements prior to the delivery of any certificate or certificates for such shares. Alternatively, the Company may, in its sole discretion from time to time, issue or transfer such shares of Common Stock net of the number of shares sufficient to satisfy the withholding tax requirements. For withholding tax purposes, the shares of Common Stock shall be valued on the date the withholding obligation is incurred. (b) In the case of shares of Common Stock that an Optionee receives pursuant to his exercise of an Option which is an ISO, if such Optionee disposes of such shares of Common Stock within two years from the date of the granting of the ISO or within one year after the transfer of such shares of Common Stock to him, the Company shall have the right to withhold from any salary, wages, or other compensation for services payable by the Company to such Optionee, amounts sufficient to satisfy any withholding tax obligation attributable to such disposition. (c) In the case of a disposition described in Section (b), the Optionee shall give written notice to the Company of such disposition within 30 days following the disposition within 30 days following the disposition, which notice shall include such information as the Company may reasonably request to effectuate the provisions hereof. B-4 15. Agreements and Representations of Optionees: As a condition to the ------------------------------------------- exercise of an Option, unless counsel to the Company opines that it is not necessary under the Securities Act of 1933, as amended, and the pertinent rules thereunder, as the same are then in effect, the Optionee shall represent in writing that the shares of Common Stock being purchased are being purchased only for investment and without any present intent at the time of the acquisition of such shares of Common Stock to sell or otherwise dispose of the same. 16. Administration of the Plan: -------------------------- (a) The Plan shall be administered by the Committee. Subject to the express provisions of the Plan, the Committee shall have authority, in its discretion, to determine the individuals to receive Options, the times when they shall receive them and the number of shares of Common Stock to be subject to each Option, and other terms relating to the grant of Options. Directors, including those that may be members of the Committee, shall be eligible to receive Options under the Plan. (b) Subject to the express provisions of the Plan, the Committee shall have authority to construe the respective option agreements and the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the terms and provisions of the respective option agreements (which need not be identical) and, as specified in this Plan, the fair market value of the common stock, and to make all other determinations necessary or advisable for administering the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any option agreement in the manner and to the extent it shall deem expedient to carry it into effect, and it shall be the sole and final judge of such expediency. The determinations of the Committee on the matters referred to in this Section 16 shall be conclusive. (c) The Committee may, in its sole discretion, and subject to such terms and conditions as it may adopt, accelerate the date or dates on which some or all outstanding Options may be exercised. (d) The Committee may require that any Option Shares issued be legended as necessary to comply with applicable federal and state securities laws. 17. Amendment and Discontinuance of the Plan: ---------------------------------------- (a) The Board of Directors of the Company may at any time alter, suspend or terminate the Plan, but no change shall be made which will have a materially adverse effect upon any Option previously granted, unless the consent of the Optionee is obtained; provided, however, that the Board of Directors may not without further approval of the shareholders, (i) increase the maximum number of shares of Common Stock for which Options may be granted under the Plan or which may be purchased by an individual Optionee, (ii) decrease the minimum option price provided in the Plan, or (iii) change the class of persons eligible to receive Options. (b) The Company intends that Options designated by the Committee as ISO's shall constitute ISOs under Section 422 of the Code. Should any provision in this Plan for ISO's not be necessary in order to so comply or should any additional provisions be required, the Board of Directors of the Company may amend the Plan accordingly without the necessity of obtaining the approval of the shareholders of the Company. 18. Other Conditions: ---------------- (a) If at any time counsel to the Company shall be of the opinion that any sale or delivery of shares of Common Stock pursuant to an Option granted under the Plan is or may in the circumstances be unlawful B-5 under the statutes, rules or regulations of any applicable jurisdiction, the Company shall have no obligation to make such sale or delivery, and the Company shall not be required to make any application or to effect or to maintain any qualification or registration under the Securities Act of 1933 or otherwise with respect to shares of Common Stock or Options under the Plan, and the right to exercise any such Option may be suspended until, in the opinion of said counsel, such sale or delivery shall be lawful. (b) At the time of any grant or exercise of any Option, the Company may, if it shall deem it necessary or desirable for any reason connected with any law or regulation of any governmental authority relative to the regulation of securities, condition the grant and/or exercise of such Option upon the Optionee making certain representations to the Company and the satisfaction of the Company with the correctness of such representations. 19. Approval; Effective Date; Governing Law. The Plan was adopted by the Board --------------------------------------- of Directors on ____, and was concurrently therewith approved by the stockholders of the Company. This Plan shall be interpreted in accordance with the internal laws of the State of Connecticut. B-6 EX-10.(C) 6 FORM OF WARRANT AGREEMENT EXHIBIT 10(c) Neither this Warrant nor the shares of Common Stock issuable on exercise of this Warrant have been registered under the Securities Act of 1933. None of such securities may be transferred in the absence of registration under such Act or an opinion of counsel to the effect that such registration is not required. UNITED RENTALS, INC. WARRANT DATED: _______ Number of Shares: _______ Holder: [Name] Address: c/o United Rentals, Inc. Four Greenwich Office Park Greenwich, Connecticut 06830 _______________________________ 1. THIS CERTIFIES THAT the Holder is entitled to purchase from UNITED RENTALS, INC., a Delaware corporation (hereinafter called the "Company"), the number of shares of the Company's common stock ("Common Stock") set forth above, at an exercise price equal to $10.00. This Warrant may be exercised in whole or in part at any time prior to expiration. 2. All rights granted under this Warrant shall expire on September 12, 2007. 3. This Warrant and the Common Stock issuable on exercise of this Warrant (the "Underlying Shares") may be transferred, sold, assigned or hypothecated, only if registered by the Company under the Securities Act of 1933 (the "Act") or if the Company has received from counsel to the Company a written opinion to the effect that registration of the Warrant or the Underlying Shares is not necessary in connection with such transfer, sale, assignment or hypothecation. The Holder shall through its counsel provide such information as is reasonably necessary in connection with such opinion. TRANSFER OF THIS WARRANT OR THE UNDERLYING SHARES IS ALSO RESTRICTED UNDER THE TERMS OF A PRIVATE PLACEMENT PURCHASE AGREEMENT DATED OF EVEN DATE HEREWITH. The Warrant and the Underlying Shares shall be appropriately legended to reflect these restrictions and stop transfer instructions shall apply. 4. Any permitted assignment of this Warrant shall be effected by the Holder by (i) executing a standard form of assignment (which the Company will provide), (ii) surrendering the Warrant for cancellation at the office of the Company, accompanied by the opinion of counsel to the Company referred to above; and (iii) unless in connection with an effective registration statement which covers the sale of this Warrant and or the shares underlying the Warrant, delivery to the Company of a statement by the transferee (in a form acceptable to the Company and its counsel) that such Warrant is being acquired by the Holder for investment and not with a view to its distribution or resale; whereupon the Company shall issue, in the name or names specified by the Holder (including the Holder) new Warrants representing in the aggregate rights to purchase the same number of Shares as are purchasable under the Warrant surrendered. Such Warrants shall be exercisable immediately upon any such assignment of the number of Warrants assigned. The transferor will pay all relevant transfer taxes. Replacement warrants shall bear the same legend as is borne by this Warrant. 5. The term "Holder" should be deemed to include any permitted record transferee of this Warrant. 6. The Company covenants and agrees that all shares of Common Stock which may be issued upon exercise hereof will, upon issuance, be duly and validly issued, fully paid and non-assessable and no personal liability will attach to the holder thereof. The Company further covenants and agrees that, during the periods within which this Warrant may be 1 exercised, the Company will at all times have authorized and reserved a sufficient number of shares of Common Stock for issuance upon exercise of this Warrant and all other Warrants. 7. This Warrant shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. 8. In the event that as a result of reorganization, merger, consolidation, liquidation, recapitalization, stock split, combination of shares or stock dividends payable with respect to such Common Stock, the outstanding shares of Common Stock of the Company are at any time increased or decreased or changed into or exchanged for a different number or kind of share or other security of the Company or of another corporation, then appropriate adjustments in the number and kind of such securities then subject to this Warrant shall be made effective as of the date of such occurrence so that the position of the Holder upon exercise will be the same as it would have been had it owned immediately prior to the occurrence of such events the Common Stock subject to this Warrant. Such adjustment shall be made successively whenever any event listed above shall occur and the Company will notify the Holder of the Warrant of each such adjustment. Any fraction of a share resulting from any adjustment shall be eliminated and the price per share of the remaining shares subject to this Warrant adjusted accordingly. 9. The rights represented by this Warrant may be exercised at any time within the period above specified by (i) surrender of this Warrant (with a standard purchase form, which the Company will provide, properly executed) at the principal executive office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company); (ii) payment to the Company of the exercise price for the number of Shares specified in the above-mentioned purchase form together with applicable stock transfer taxes, if any; and (iii) unless in connection with an effective registration statement which covers the sale of the shares underlying the Warrant, the delivery to the Company of a statement by the Holder (in a form acceptable to the Company and its counsel) that such Shares are being acquired by the Holder for investment and not with a view to their distribution or resale. 10. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware. The federal and state courts in Delaware shall have exclusive jurisdiction over this instrument and the enforcement thereof. Service of process shall be effective if by certified mail, return receipt requested. All notices shall be in writing and shall be deemed given upon receipt by the party to whom addressed. This instrument shall be enforceable by decrees of specific performances well as other remedies. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officers under Its corporate seal, and to be dated as of the date set forth above. UNITED RENTALS, INC. By ------------------------- John Milne, Vice Chairman 2 EX-10.(D) 7 FORM OF PRIVATE PLACEMENT PURCHASE AGREEMENT EXHIBIT 10(d) FORM OF PRIVATE PLACEMENT PURCHASE AGREEMENT -------------------------------------------- United Rentals, Inc. Four Greenwich Office Park Greenwich, Connecticut 06830 Re: Purchase of Units Gentlemen: 1. Purchase of Units. (a) United Rentals, Inc. (the "Company") hereby sells to the undersigned (the "Subscriber"), and Subscriber hereby purchases from the Company, the number of Units set forth opposite Subscriber's name below. The purchase price for each Unit is $3.50, and is payable concurrently herewith. (b) Each Unit consists of one share of common stock of the Company ("common stock") and a warrant (collectively, the "Warrants") in the form of Exhibit A to purchase one-half share of common stock. The preceding sentence gives effect to a contemplated stock split upon which Bradley Jacobs and his family will own 10,000,00 shares of common stock and 5,000,000 Warrants. (c) Until the fifth anniversary of the date of this Agreement or, if earlier, until the Termination Date (as defined in Section 2(b)(iii)) all of Subscriber's shares of common stock and Warrants will be registered in the name of Subscriber and will be delivered to him, provided that Subscriber shall promptly redeliver such certificates to John Milne, together with a stock and warrant power therefor endorsed in blank. John Milne will hold such certificates and stock and warrant power for the benefit of Subscriber as a Shareholder and also for the benefit of the Company hereunder in order to effectuate the provisions of this Agreement. Should Subscriber request that John Milne deliver any such certificates or stock or warrant power to a lender as collateral for a loan to Subscriber, and should John Milne do so in his sole discretion, Subscriber shall direct such lender to redeliver such certificates or stock or warrant power to John Milne on repayment of Subscriber's obligations to such lender. 2. Units Subject to Call. (a) Subject to the provisions of Section 2(b), upon notice by the Company to Subscriber given at any time or times (a "Call Notice"), the Company shall be obligated to purchase from Subscriber, and Subscriber shall be obligated to sell to the Company, at the purchase price and at the closing set forth below, that number of Units which is set forth in the Call Notice. The Company's rights to purchase Units as aforesaid is referred to herein as a "Call." For the purposes of this Section, "Units" also includes any shares of common stock which have been issued upon exercise of Warrants included in the Units. (b) Period during which Calls may be made. (i) THE COMPANY MAY MAKE CALLS BEFORE SEPTEMBER 1, 2005 IN THE EVENT THAT EITHER OF THE OR BOTH OF THE FOLLOWING (A "DEFAULT EVENT") SHALL BE TRUE: (A) THE COMPANY --IN ITS SOLE INCONTESTABLE DISCRETION -- BELIEVES THAT SUBSCRIBER HAS AT ANY TIME BREACHED ANY COVENANT OR OBLIGATION TO THE COMPANY OR UNDERSTANDING WITH THE COMPANY, WHETHER OR NOT SUCH COVENANT OR OBLIGATION OR UNDERSTANDING IS LEGALLY ENFORCEABLE, OR (B) THE COMPANY - IN ITS SOLE INCONTESTABLE DISCRETION -- BELIEVES THAT SUBSCRIBER HAS AT ANY TIME CONDUCTED HIMSELF OR HERSELF IN A MANNER WHICH ADVERSELY 1 AFFECTS OR COULD ADVERSELY AFFECT THE COMPANY. (ii) So long as no default event has occurred: (A) all Units shall be subject to Call until the first anniversary of the date of this Agreement; (B) one-third of the Units shall cease to be subject to a Call on the first anniversary of the date of this Agreement; and (C) two-thirds of the Units shall cease to be subject to a Call on the second anniversary of the date of this Agreement; and (D) no Calls may be made after the third anniversary of the date of this Agreement. (iii) Notwithstanding anything to the contrary contained herein, no Calls may be made after the occurrence of a Change of Control (as hereinafter defined), provided that this clause (iii) shall not apply so long as after such Change of Control Bradley Jacobs is the Company's chief executive officer. The first date as of which Calls may not be made under this Section is referred to above as the "Termination Date." (iv) A "Change of Control" for the purposes of this agreement shall be deemed to have occurred if and only if: (A) any "person" is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934 (the "Act") directly or indirectly, of securities of United Rentals, Inc. representing 50% or more of the total voting power represented by then outstanding voting securities of United Rentals, Inc., or has the power (whether as a result of stock ownership, revocable or irrevocable proxies, contract or otherwise) or ability to elect or cause the election of directors consisting at the time of such election of a majority of the Board. The term "persons" is defined in Sections 13(d) and 14(d) of the Act, except that the term "person" shall not include: (1) any person or an Affiliate of such person who as of the date of this Agreement owns 10% or more of the total voting power represented by the outstanding voting securities of the Company; and (2) a trustee or other fiduciary holding securities under any employee benefit plan of the Company or a corporation which is owned directly or indirectly by the stockholders of the Company in substantially the same percentage as their ownership in the Company; or (B) the stockholders of United Rentals, Inc. approve a merger of United Rentals, Inc., or a plan of complete liquidation of United Rentals, Inc., or an agreement for the sale or disposition by United Rentals, Inc. of all or substantially all of its assets, or any other business combination of United Rentals, Inc. with any other corporation, other than any such merger or business combination which would result in the voting securities of United Rentals, Inc. outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the total voting power represented by the voting securities of United Rentals, Inc. or such surviving entity outstanding immediately after such merger or business 2 combination. An "Affiliate" of a person is a person that controls, is controlled by, or is under common control with such person. (c) Subscriber acknowledges that the Company may in its discretion elect to call Units owned by one or more shareholders but not to call Units owned by other shareholders. (d) The purchase price for each Unit subject to a Call shall be payable in cash at the Closing (as hereinafter defined) and shall be equal to $3.50, plus a return thereon accruing at the rate of 10% per annum from the date hereof until the Closing therefor. (e) The closing (the "Closing") for each Call shall occur at the offices of the Company on the 10th business day after the Call Notice therefor. At the Closing, Subscriber shall deliver to the Company the securities comprising the Units in form acceptable for transfer, free and clear of all liens, claims and encumbrances. (f) Until the Closing for any Units, Subscriber shall have the right to vote the shares of common stock included in the Units and to receive any dividends declared thereon. 3. Come Along and Bring Along. (a) Until the fifth anniversary of the date of this Agreement, should Bradley Jacobs or any entity which Bradley Jacobs designates as his affiliate sell any Units, Warrants or common stock which he owns beneficially in a commercial, non-charitable transaction (a "triggering sale"), then Bradley Jacobs will concurrently therewith or as soon as practicable before or after the triggering sale use his best efforts on behalf of Subscriber to sell a pro rata portion of Subscriber's Units, Warrants or common stock at then prevailing prices. In calculating Subscriber's pro rata portion under the preceding sentence, account shall be taken only of Subscriber's shares of common stock which were purchased as part of the Units or which were issued to Subscriber on exercise of the Warrants. (b) Bradley Jacobs shall give to the Subscriber oral or written or telephonic notice of any such sales as soon as practicable after the sales have been consummated, or, in the case of a series of sales, after the series of sales have been consummated. Should Subscriber within 24 hours' thereafter request by written notice to Bradley Jacobs that all (but not any part) of such sales be rescinded by reallocating such sales to other persons who are affiliates of the Company, Bradley Jacobs will rescind all or any part of such sales to the extent that such reallocations can be made in his reasonable discretion. (c) Neither the Company nor Bradley Jacobs represents or warrants that any triggering sale will occur. (d) Subscriber agrees that until the fifth anniversary of the date of this Agreement (or, if later, until the second anniversary of any consummation of a public offering by the Company), Subscriber shall not without the Company's prior written consent (which may be withheld or delayed at its discretion, and which may be offered to some shareholders and not to other shareholders) make any sale or other disposition of any Units, warrants or common stock except as required under Section 3(a). The foregoing shall not restrict charitable gifts which do not for any year after the date of this Agreement exceed 10% of the number of Units initially purchased by Subscriber hereunder. 4. Attorney in Fact. Subscriber hereby irrevocably appoints each of Bradley Jacobs and the Company as his or her attorney in fact, with full power of substitution and in Subscriber's name or otherwise, to effect all sales which Subscriber is required to make under the terms of this Agreement. John Milne is expressly authorized to deliver the certificates and stock power he holds under this Agreement to the buyer in any such transaction. 5. Securities and other Representations. (a) Subscriber represents and warrants that it is purchasing the Units solely for investment solely for its 3 own account and not with a view to or for the resale or distribution thereof. (b) In addition to the restrictions set forth in Section 3, Subscriber understands that it may sell or otherwise transfer the Units or the Warrants or the shares issuable on exercise of the Warrants only if such transaction is duly registered under the Securities Act of 1933, as amended, or if Subscriber shall have received the favorable opinion of counsel to the holder, which opinion shall be reasonably satisfactory to counsel to the Company, to the effect that such sale or other transfer may be made in the absence of registration under the Securities Act of 1933, as amended, and registration or qualification in every applicable state. (c) Subscriber has no demand, piggyback or other registration rights. (d) Subscriber has not relied upon the advice of a "Purchaser Representative" (as defined in Regulation D of the Securities Act) in evaluating the risks and merits of this investment. (e) Subscriber represents and warrants that Subscriber is an "accredited investor" as such term is defined in Rule 501 of Regulation D promulgated pursuant to the Securities Act of 1933, as amended, and shall be such on the date any shares are issued to the holder; Subscriber acknowledges that Subscriber is able to bear the economic risk of losing Subscriber's entire investment in the shares and understands that an investment in the Company involves substantial risks; Subscriber has the power and authority to enter into this agreement, and the execution and delivery of, and performance under this agreement shall not conflict with any rule, regulation, judgment or agreement applicable to the Subscriber; and Subscriber has invested in previous transactions involving restricted securities. Subscriber realizes that the Units are not a liquid investment. 6. Subscriber Aware of Risks; No Representations. Subscriber has the knowledge and experience to evaluate the Company and the risks and merits relating thereto. Subscriber acknowledges that the Company is newly formed and had heretofore not engaged in any business activities. NEITHER THE COMPANY NOR ANY OF ITS SHAREHOLDERS MAKES ANY REPRESENTATIONS OR WARRANTIES OR PROJECTIONS WHATSOEVER WITH RESPECT TO ANY MATTER OR THING, WHETHER WITH RESPECT TO THE PRESENT OR FUTURE PERFORMANCE OR PROSPECTS OF THE COMPANY OR OF ITS COMPETITORS, OR OTHERWISE. 7. No Offsets. The obligations of Subscriber under this Agreement shall not be subject to any defense or offset or counterclaim for any matter or thing, including, without limitation, any actual or claimed breach by the Company of any obligation or covenant, it being understood that any and all claims by Subscriber may be brought by Subscriber only in separate proceedings. 8. Miscellaneous. (a) The certificates representing the Units will be legended to reflect the restrictions and other provisions of this Agreement. (b) This Agreement may not be changed or terminated except by written agreement. It shall be binding on the parties and on their personal representatives and permitted assigns. (c) It sets forth all agreements of the parties. It supersedes and cancels all prior agreements with respect to the subject matter hereof. It shall be enforceable by decrees of specific performance (without posting bond or other security) as well as by other available remedies. (d) Each party hereto shall be responsible for its own expenses with regard to the negotiation and execution of this Agreement. (e) This Agreement shall be governed by, and construed in accordance with, the laws of Delaware. The federal and state courts sitting in Connecticut shall have exclusive jurisdiction over all matters relating to this Agreement. Trial by jury is expressly waived. 4 (f) All notices, requests, service of process, consents, and other communications under this Agreement shall be in writing and shall be deemed to have been delivered (i) on the date personally delivered or (ii) one day after properly sent by Federal Express, addressed to the respective parties at their address set forth in this Agreement or (iii) on the day transmitted by facsimile so long as a confirmation copy is simultaneously forwarded by Federal Express, in each case addressed to the respective parties at their address set forth in this Agreement. Either party hereto may designate a different address by providing written notice of such new address to the other party hereto as provided above. Dated: SUBSCRIBER: Signature: _________________________ Type or print name: Address: Social Security No: Number of Units: AGREED: UNITED RENTALS, INC. BY_______________________ Confirmed as to Sections 3 and 4: - --------------------------- Bradley Jacobs 5 Exhibit A Neither this Warrant nor the shares of Common Stock issuable on exercise of this Warrant have been registered under the Securities Act of 1933. None of such securities may be transferred in the absence of registration under such Act or an opinion of counsel to the effect that such registration is not required. UNITED RENTALS, INC. WARRANT DATED: Number of Shares: Holder: Address: - ------------------------------- 1. THIS CERTIFIES THAT the Holder is entitled to purchase from UNITED RENTALS, INC., a Delaware corporation (hereinafter called the "Company"), the number of shares of the Company's common stock ("Common Stock") set forth above, at an exercise price equal to $10.00. This Warrant may be exercised in whole or in part at any time prior to expiration. 2. All rights granted under this Warrant shall expire on the tenth anniversary of the date of issuance of this Warrant. 3. This Warrant and the Common Stock issuable on exercise of this Warrant (the "Underlying Shares") may be transferred, sold, assigned or hypothecated, only if registered by the Company under the Securities Act of 1933 (the "Act") or if the Company has received from counsel to the Company a written opinion to the effect that registration of the Warrant or the Underlying Shares is not necessary in connection with such transfer, sale, assignment or hypothecation. The Holder shall through its counsel provide such information as is reasonably necessary in connection with such opinion. TRANSFER OF THIS WARRANT OF THE UNDERLYING SHARES IS ALSO RESTRICTED UNDER THE TERMS OF A PRIVATE PLACEMENT PURCHASE AGREEMENT DATED OF EVEN DATE HEREWITH. The Warrant and the Underlying Shares shall be appropriately legended to reflect these restrictions and stop transfer instructions shall apply. 4. Any permitted assignment of this Warrant shall be effected by the Holder by (i) executing the form of assignment at the end hereof, (ii) surrendering the Warrant for cancellation at the office of the Company, accompanied by the opinion of counsel to the Company referred to above; and (iii) unless in connection with an effective registration statement which covers the sale of this Warrant and or the shares underlying the Warrant, delivery to the Company of a statement by the transferee (in a form acceptable to the Company and its counsel) that such Warrant is being acquired by the Holder for investment and not with a view to its distribution or resale; whereupon the Company shall issue, in the name or names specified by the Holder (including the Holder) new Warrants representing in the aggregate rights to purchase the same number of Shares as are purchasable under the Warrant surrendered. Such Warrants shall be exercisable immediately upon any such assignment of the number of Warrants assigned. The transferor will pay all relevant transfer taxes. Replacement warrants shall bear the same legend as is borne by this Warrant. 5. The term "Holder" should be deemed to include any permitted record transferee of this Warrant. 6. The Company covenants and agrees that all shares of Common Stock which may be issued upon exercise hereof will, upon issuance, be duly and validly issued, fully paid and non-assessable and no personal liability will attach to the 6 holder thereof. The Company further covenants and agrees that, during the periods within which this Warrant may be exercised, the Company will at all times have authorized and reserved a sufficient number of shares of Common Stock for issuance upon exercise of this Warrant and all other Warrants. 7. This Warrant shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. 8. In the event that as a result of reorganization, merger, consolidation, liquidation, recapitalization, stock split, combination of shares or stock dividends payable with respect to such Common Stock, the outstanding shares of Common Stock of the Company are at any time increased or decreased or changed into or exchanged for a different number or kind of share or other security of the Company or of another corporation, then appropriate adjustments in the number and kind of such securities then subject to this Warrant shall be made effective as of the date of such occurrence so that the position of the Holder upon exercise will be the same as it would have been had it owned immediately prior to the occurrence of such events the Common Stock subject to this Warrant. Such adjustment shall be made successively whenever any event listed above shall occur and the Company will notify the Holder of the Warrant of each such adjustment. Any fraction of a share resulting from any adjustment shall be eliminated and the price per share of the remaining shares subject to this Warrant adjusted accordingly. 9. The rights represented by this Warrant may be exercised at any time within the period above specified by (i) surrender of this Warrant (with the purchase form at the end hereof properly executed) at the principal executive office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company); (ii) payment to the Company of the exercise price for the number of Shares specified in the above-mentioned purchase form together with applicable stock transfer taxes, if any; and (iii) unless in connection with an effective registration statement which covers the sale of the shares underlying the Warrant, the delivery to the Company of a statement by the Holder (in a form acceptable to the Company and its counsel) that such Shares are being acquired by the Holder for investment and not with a view to their distribution or resale. 10. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware. The federal and state courts in Connecticut shall have exclusive jurisdiction over this instrument and the enforcement thereof. Service of process shall be effective if by certified mail, return receipt requested. All notices shall be in writing and shall be deemed given upon receipt by the party to whom addressed. This instrument shall be enforceable by decrees of specific performances well as other remedies. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officers under Its corporate seal, and to be dated as of the date set forth above. UNITED RENTALS, INC. By__________________________ 7 EX-10.(E) 8 UNITED RENTALS SUBSCRIPTION AGREEMENT EXHIBIT 10(e) UNITED RENTALS, INC. SUBSCRIPTION AGREEMENT United Rentals, Inc. Four Greenwich Office Park Greenwich, Connecticut 06830 Gentlemen: 1. SUBSCRIPTION (a) The undersigned hereby subscribes for and agrees to purchase shares of Common Stock, par value $0.01 per share (the "Shares"), of United Rentals, Inc. (the "Company"), a Delaware corporation, for a purchase price of $3.50 per Share in the amount indicated on the signature page hereof, on the terms and conditions described herein and in the Private Placement Memorandum (together with any exhibits and supplements thereto, the "Memorandum") relating to the offering (the "Offering") of Shares of the Company. The undersigned tenders herewith a check payable to the order of United Rentals, Inc., in the amount indicated on the signature page hereof. (b) The Company has the right to reject this subscription, in whole or in part, within 15 days of receipt of this subscription. If this subscription or any part thereof is rejected, the Company will promptly return the subscription funds relating to the rejected portion without interest. The undersigned has no right to withdraw the undersigned's subscription funds. (c) The undersigned acknowledges that any delivery of information relating to the Shares prior to the determination by the Company of the undersigned's suitability as an "Accredited Investor" shall not constitute an offer of securities until such determination of suitability shall be made and the Shares are issued by the Company to the undersigned. 2. RESTRICTIONS ON TRANSFER AND RESALE (a) The undersigned agrees that until the fourth anniversary of the date on which the Shares are originally issued to the undersigned pursuant to this Agreement, the undersigned shall not, directly or indirectly, sell, offer to sell, contract to sell, grant any option to purchase, or otherwise transfer or dispose of (collectively, "Transfer") any Shares purchased pursuant to this Agreement without the prior written consent of the Company (which may be withheld at its discretion and may be offered to some stockholders and not to others); provided, however, that, if the Company closes an initial public -------- ------- offering of Common Stock registered under the Securities Act of 1933, as amended (the "Act"), such restriction will in all events lapse with respect to one-third of such Shares on the first anniversary of the date of such closing and with respect to an additional one-third of such Shares on each of the second and third anniversaries of the date of such closing. The foregoing restriction on Transfer will not, however, restrict charitable gifts which in any 12-month period do not exceed 10% of the Shares originally purchased by the undersigned pursuant to this Agreement (provided that the donee agrees to be bound by such restrictions on Transfer by instrument satisfactory to the Company). For purposes of this Agreement, a Transfer of Shares will be deemed to include any transaction involving the sale or purchase of common stock of the Company or contracts relating to the purchase or sale thereof (such as "shorting against the box" or hedging or using derivative instruments) that is intended to eliminate or reduce the market risk of owning the Shares purchased by the undersigned pursuant to this Agreement. (b) The undersigned understands that the Shares have not been registered under the Act or any state or foreign securities laws, and that the Company has no obligation to register the Shares (except as contemplated by the Memorandum) or to assist in complying with any exemption from registration. Without limiting the restrictions provided for in Section 2(a) hereof, the undersigned agrees not to Transfer any Shares in the absence of an effective registration statement under the Act or an opinion of counsel satisfactory to the Company that such Transfer does not require such registration under the Act and will not be in violation of applicable state securities laws. (c) The restrictions on Transfer with respect to the Shares provided for in this Section 2 shall apply to any securities issued in respect of the Shares (by way of stock split, dividend or otherwise). 3. GENERAL REPRESENTATIONS AND WARRANTIES AND COVENANTS The undersigned hereby acknowledges, represents and warrants to, and agrees with, the Company as follows: (a) The undersigned is acquiring the Shares for the undersigned's own account, for investment purposes only, and not with a view to or for or in connection with the resale, public distribution or fractionalization thereof, in whole or in part. (b) The undersigned has read carefully the definition of "Accredited Investor" contained in the Memorandum under the caption "Plan of Distribution-- Investor Suitability Standards." The undersigned meets the standards of an "Accredited Investor" set forth under Rule 501(a) of Regulation D under the Act and has such knowledge and experience in financial and business matters that the undersigned with the assistance of the undersigned's representatives and/or advisors, is capable of evaluating the merits and risks of an investment in the Shares. The undersigned will promptly notify the Company in the event that prior to the issuance of the Shares to the undersigned the foregoing representation ceases to be accurate. (c) The undersigned: (i) has received and carefully read the Memorandum and understands and has evaluated the risks of a purchase of the Shares, including the risks set forth in the 2 Memorandum, and has relied solely (except as indicated in subparagraphs (ii) and (iii) below) on the information contained in the Memorandum; (ii) has been given the opportunity to ask questions of, and receive answers from, the Company concerning the Company and the Offering and other matters pertaining to this investment, and to obtain any additional information necessary to verify the accuracy of the information contained in the Memorandum or otherwise provided, and has not been furnished any other offering literature or prospectus except as mentioned herein or in the Memorandum; (iii) has been furnished with all additional documents and information requested by the undersigned; and (iv) has determined that the Shares are a suitable investment and that at this time the undersigned could bear a complete loss of the investment. (d) The certificates representing the Shares will bear a legend in substantially the following form: "The shares represented by this certificate have not been registered under the Securities Act of 1933. The shares may not be offered, sold, transferred, or otherwise disposed of except pursuant to an effective registration statement under that Act and under any applicable state securities laws unless prior to such disposition the issuer is furnished with an opinion of counsel, in form and substance satisfactory to the issuer, that the proposed transaction will be exempt from such registration. The shares are subject to additional restrictions on transfer contained in a Subscription Agreement dated September __, 1997, between the issuer and the holder." (e) If the undersigned is a corporation, partnership, trust or other entity, it (i) is authorized and qualified to become a shareholder in, and authorized to make its investment in, the Company, and the person signing this Agreement on behalf of such entity has been duly authorized to do so, and (ii) was not formed for the specific purpose of investing in the Company nor did or will the shareholders, partners or grantors, as the case may be, of the undersigned entity contribute additional capital for the specific purpose of purchasing the Shares. (f) No representations not contained in the Memorandum have been made to the undersigned by the Company or any officer, employee, agent or affiliate thereof. 3 4. MISCELLANEOUS (a) Neither this Agreement nor any provisions hereof shall be modified, discharged or terminated except by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought. (b) Any notice, demand or other communication which any party hereto may be required, or may elect, to give to anyone interested hereunder shall be sufficiently given if (i) deposited, postage prepaid, in the United States mail, registered or certified mail, return receipt requested, addressed to such address as may be given herein, or (ii) delivered personally at such address (against receipt). (c) Except as otherwise provided herein, this Agreement shall bind and benefit the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns. If the undersigned is more than one person, the obligations of the undersigned shall be joint and several and the agreements, representations, warranties and acknowledgments herein contained shall be deemed to be made by and be binding upon each such person and his heirs, executors, administrators and successors. (d) This instrument contains the entire agreement of the parties, and there are no representations, covenants or other agreements except as stated or referred to herein. (e) This Agreement is not transferable or assignable by the undersigned. (f) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed entirely within such state. The federal and state courts sitting in Delaware shall have exclusive jurisdiction over all matters relating to this Agreement. Trial by jury is expressly waived. (g) All pronouns herein and any variations thereof shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the parties hereto may require. (h) This Agreement may be executed through the use of separate signature pages or in any number of counterparts, and each of such counterparts shall, for all purposes, constitute one agreement binding on all the parties, notwithstanding that all parties are not signatories to the same counterpart. 4 SIGNATURE PAGE -------------- NOTE: THE MAXIMUM INVESTMENT AMOUNT IS $_____________________________ . AMOUNT OF INVESTMENT $_________________ FOR _________________SHARES. . Type of Ownership for individuals (check one): Type of Ownership for entities (check one): ____ Individual ____ Trust ____ Joint Tenants with Right of Survivorship ____ Corporation ____ Tenants-in-Common ____ Partnership ____ Tenants by the Entirety ____ Limited Liability Company ____ Community Property ____ Other . Under the penalties of perjury, the undersigned certifies that the number shown below is the undersigned's correct social security number or taxpayer identification number (or the undersigned is waiting for a number to be assigned to it). . The undersigned has read and executed this Agreement on this ____ day of September, 1997. _________________________________ ____________________________________ Name of Entity (If Applicable) Year of Organization (If Applicable) X________________________________ X___________________________________ Signature of Subscriber Signature of Joint Subscriber, if any. _________________________________ ____________________________________ Print Name of Subscriber Print Name of Joint Subscriber, if any. _________________________________ ____________________________________ Telephone Number Social Security/Tax ID Number(s) Set Forth Address Below: _________________________________ _________________________________ 5 EX-10.(F) 9 INDEMNIFICATION AGREEMENT EXHIBIT 10(f) INDEMNIFICATION AGREEMENT ------------------------- THIS INDEMNIFICATION AGREEMENT is entered into as of this ___________ day of _____________, 1997, by and between [ ] , a Delaware corporation (the "Company"), and ___________________________________ ("Indemnitee"). RECITALS -------- A. The Company is aware that because of the increased exposure to litigation costs, talented and experienced persons are increasingly reluctant to serve or continue serving as directors and officers of corporations unless they are protected by comprehensive liability insurance and indemnification. B. The statutes and judicial decisions regarding the duties of directors and officers are often difficult to apply, ambiguous, or conflicting, and therefore fail to provide such directors and officers with adequate guidance regarding the proper course of action. C. The Board of Directors of the Company (the "Board") has concluded that, in order to retain and attract talented and experienced individuals to serve as officers and directors of the Company and its subsidiaries and to encourage such individuals to take the business risks necessary for the success of the Company and its subsidiaries, the Company should contractually indemnify its officers and directors, and the officers and directors of its subsidiaries, in connection with claims against such officers and directors in connection with their services to the Company and its subsidiaries, and has further concluded that the failure to provide such contractual indemnification could be detrimental to the Company, its subsidiaries and stockholders. NOW, THEREFORE, the parties, intending to be legally bound, hereby agree as follows: 1. Definitions. ----------- (a) Agent. "Agent" with respect to the Company means any person who is or ----- was a director, officer, employee or other agent of the Company or a Subsidiary of the Company; or is or was serving at the request of, for the convenience of, or to represent the interests of, the Company or a Subsidiary of the Company as a director, officer, employee or agent of another entity or enterprise; or was a director, officer, employee or agent of a predecessor corporation (or other predecessor entity or enterprise) of the Company or a Subsidiary of the Company, or was a director, officer, employee or agent of another enterprise at the request of, for the convenience of, or to represent the interests of such predecessor. (b) Expenses. "Expenses" means all direct and indirect costs of any type -------- or nature whatsoever (including, without limitation, all attorneys' fees, costs of investigation and related disbursements) incurred by the Indemnitee in connection with the investigation, settlement, defense or appeal of a Proceeding covered hereby or the establishment or enforcement of a right to indemnification under this Agreement. (c) Proceeding. "Proceeding" means any threatened, pending, or completed ---------- claim, suit or action, whether civil, criminal, administrative, investigative or otherwise. (d) Subsidiary. "Subsidiary" means any corporation or other entity of ---------- which more than 10% of the outstanding voting securities or other voting interests is owned directly or indirectly by the Company, and one or more other Subsidiaries, taken as a whole. 2. Maintenance of Liability Insurance. ----------------------------------- (a) The Company hereby covenants and agrees with Indemnitee that, subject to Section 2(b), the Company shall obtain and maintain in full force and effect directors' and officers' liability insurance ("D&O Insurance") in reasonable amounts as the Board of Directors shall determine from established and reputable insurers, but no less than the amounts in effect upon initial procurement of the D&O Insurance. In all policies of D&O Insurance, Indemnitee shall be named as an insured. (b) Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain D&O Insurance if the Company determines in good faith that the premium costs for such insurance are (i) disproportionate to the amount of coverage provided after giving effect to exclusions, and (ii) substantially more --- burdensome to the Company than the premiums charged to the Company for its initial D&O Insurance. (c) If the Company completes an initial underwritten public offering of its securities, then thereafter (i) for purposes of Sections 2(b) hereof the "initial D&O Insurance" shall be deemed to be the D&O Insurance in effect at the time of the closing of such offering and (ii) for purposes of Section 2(a) hereof "the amounts in effect upon initial procurement" shall be deemed to be the amount in effect at the time of the closing of such offering. 3. Mandatory Indemnification. The Company shall defend, indemnify and -------------------------- hold harmless Indemnitee: (a) Third Party Actions. If Indemnitee is a person who was or is a party, -------------------- or is threatened to be made a party, to any Proceeding (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was or is claimed to be an Agent of the Company, or by reason of anything done or not done by Indemnitee in any such capacity, or by reason of the fact that Indemnitee personally guaranteed any obligation of the Company at any time, against any and all Expenses and liabilities or any type whatsoever (including, but not limited to, legal fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) incurred by such person in connection with the investigation, defense, settlement or appeal of such Proceeding, so long as the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not 2 opposed to the best interests of the Company, or, with respect to any criminal action or Proceeding, had no reasonable cause to believe such person's conduct was unlawful. (b) Derivative Actions. If Indemnitee is a person who was or is a party, ------------------ or is threatened to be made a party, to any Proceeding by or in the right of the Company by reason of the fact that he is or was an Agent of the Company, or by reason of anything done or not done by him in any such capacity, against any and all Expenses and liabilities of any type whatsoever (including, but not limited to, legal fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) incurred by him in connection with the investigation, defense, settlement or appeal of such Proceeding, so long as the Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company; except that no indemnification under this subsection shall be made, and Indemnitee shall repay all amounts previously advanced by the Company, in respect of any claim, issue or matter for which such person is judged in a final, non-appealable decision to be liable to the Company by a court of competent jurisdiction due to willful misconduct in the performance of his duties to the Company, unless and only to the extent that the court in which such Proceeding was brought or the Court of Chancery of Delaware shall determine that Indemnitee is fairly and reasonably entitled to indemnity. (c) Actions Where Indemnitee Is Deceased. If Indemnitee is a person who ------------------------------------ was or is a party, or is threatened to be made a party, to any Proceeding by reason of the fact that he is or was an Agent of the Company, or by reason of anything done or not done by him in any such capacity, and prior to, during the pendency of, or after completion of, such Proceeding, the Indemnitee shall die, then the Company shall defend, indemnify and hold harmless the estate, heirs and legatees of the Indemnitee against any and all Expenses and liabilities incurred by or for such persons or entities in connection with the investigation, defense, settlement or appeal of such Proceeding on the same basis as provided for the Indemnitee in Sections 3(a) and 3(b) above. The Expenses and liabilities covered hereby shall be net of any payments by D&O Insurance carriers or others. 4. Partial Indemnification. If Indemnitee is found under Section 3, 6 or ----------------------- 9 hereof not to be entitled to indemnification for all of the Expenses relating to a Proceeding, the Company shall indemnify the Indemnitee for any portion of such Expenses not specifically precluded by the operation of such Section 3, 6 or 9. 3 5. Indemnification Procedures; Mandatory Advancement of Expenses. -------------------------------------------------------------- (a) Promptly after receipt by Indemnitee of notice to him or her of the commencement or threat of any Proceeding covered hereby, Indemnitee shall notify the Company of the commencement or threat thereof, provided that any failure to so notify shall not relieve the Company of any of its obligations hereunder. (b) If, at the time of the receipt of a notice pursuant to Section 5(a) above, the Company has D&O Insurance in effect, the Company shall give prompt notice of the Proceeding or claim to its insurers in accordance with the procedures set forth in the applicable policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay all amounts payable as a result of such Proceeding in accordance with the terms of such policies. (c) Indemnitee shall be entitled to retain one or more counsel from time to time selected by it in its sole discretion to act as its counsel in and for the investigation, defense, settlement or appeal of each Proceeding. The Company shall not waive any privilege or right available to Indemnitee in any such Proceeding. (d) The Company shall bear all fees and Expenses (including invoices for advance retainers) of such counsel, and all fees and Expenses invoiced by other persons or entities, in connection with the investigation, defense, settlement or appeal of each such Proceeding. Such fees and Expenses are referred to herein as "Covered Expenses." (e) Until a determination to the contrary under Section 6 hereof is made, the Company shall advance all Covered Expenses in connection with each Proceeding. If required by law, as a condition to such advances, Indemnitee shall, at the request of the Company, agree to repay such amounts advanced if it shall ultimately be determined by a final order of a court that Indemnitee is not entitled to be indemnified by the Company by the terms hereof or under applicable law. (f) Each advance to be made hereunder shall be paid by the Company to Indemnitee within 10 days following delivery of a written request therefor by Indemnitee to the Company. (g) The Company acknowledges the potentially severe damage to Indemnitee should the Company fail timely to make such advances to Indemnitee. 6. Determination of Right to Indemnification. ----------------------------------------- (a) To the extent Indemnitee has been successful on the merits or otherwise in defense of any Proceeding, claim, issue or matter covered hereby, Indemnitee need not repay any of the Expenses advanced in connection with the investigation, defense or appeal of such Proceeding. (b) If Section 6(a) is inapplicable, the Company shall remain obligated to indemnify Indemnitee, and Indemnitee need not repay Expenses previously advanced, unless the Company, by motion before a court of competent jurisdiction, obtains an order for preliminary or permanent relief 4 suspending or denying the obligation to advance or indemnify for Expenses. (c) Notwithstanding a determination by a court that Indemnitee is not entitled to indemnification with respect to a specific Proceeding, Indemnitee shall have the right to apply to the Court of Chancery of Delaware for the purpose of enforcing Indemnitee's right to indemnification pursuant to this Agreement. (d) Notwithstanding any other provision in this Agreement to the contrary, the Company shall indemnify Indemnitee against all Expenses incurred by Indemnitee in connection with any Proceeding under Section 6(b) or 6(c) and against all Expenses incurred by Indemnitee in connection with any other Proceeding between the Company and Indemnitee involving the interpretation or enforcement of the rights of Indemnitee under this Agreement unless a court of competent jurisdiction finds that each of the material claims and/or defenses of Indemnitee in any such Proceeding were frivolous or made in bad faith. 7. Certificate of Incorporation and By-Laws. The Company agrees that the ---------------------------------------- Company's Certificate of Incorporation and By-laws in effect on the date hereof shall not be amended to reduce, limit, hinder or delay (i) the rights of Indemnitee granted hereby, or (ii) the ability of the Company to indemnify Indemnitee as required hereby. The Company further agrees that it shall exercise the powers granted to it under its Certificate of Incorporation, its By-laws and by applicable law to indemnify Indemnitee to the fullest extent possible as required hereby. 8. Witness Expenses. The Company agrees to compensate Indemnitee for the ---------------- reasonable value of his or her time spent, and to reimburse Indemnitee for all Expenses (including attorneys' fees and travel costs) incurred by him or her, in connection with being a witness, or if Indemnitee is threatened to be made a witness, with respect to any Proceeding, by reason of his or her serving or having served as an Agent of the Company. 9. Exceptions. Notwithstanding any other provision hereunder to the ---------- contrary, the Company shall not be obligated pursuant to the terms of this Agreement: (a) Claims Initiated by Indemnitee. To indemnify or advance Expenses to ------------------------------ Indemnitee with respect to Proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense (other than Proceedings under Section 6(b) or Section 6(c) or brought to establish or enforce a right to indemnification under this Agreement or the provisions of the Company's Certificate of Incorporation or By-laws unless a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such Proceeding were not made in good faith or were frivolous). (b) Unauthorized Settlements. To indemnify Indemnitee under this ------------------------ Agreement for any amounts paid in settlement of a Proceeding covered hereby without the prior written consent of the Company to such settlement. 10. Non-exclusivity. This Agreement is not the exclusive arrangement --------------- between the Company and Indemnitee regarding the subject matter hereof and shall not diminish or affect any 5 other rights which Indemnitee may have under any provision of law, the Company's Certificate of Incorporation or By-laws, under other agreements, or otherwise. 11. Continuation After Term. Indemnitee's rights hereunder shall continue ----------------------- after the Indemnitee has ceased acting as a director or Agent of the Company and the benefits hereof shall inure to the benefit of the heirs, executors and administrators of Indemnitee. 12. Interpretation of Agreement. This Agreement shall be interpreted and --------------------------- enforced so as to provide indemnification to Indemnitee to the fullest extent now or hereafter permitted by law. 13. Severability. If any provision or provisions of this Agreement shall ------------ be held to be invalid, illegal or unenforceable, provisions of the Agreement shall not in any way be affected or impaired thereby, and to the fullest extent possible, the provisions of this Agreement shall be construed or altered by the court so as to remain enforceable and to provide Indemnitee with as many of the benefits contemplated hereby as are permitted under law. 14. Counterparts, Modification and Waiver. This Agreement may be signed ------------------------------------- in counterparts. This Agreement constitutes a separate agreement between the Company and Indemnitee and may be supplemented or amended as to Indemnitee only by a written instrument signed by the Company and Indemnitee, with such amendment binding only the Company and Indemnitee. All waivers must be in a written document signed by the party to be charged. No waiver of any of the provisions of this Agreement shall be implied by the conduct of the parties. A waiver of any right hereunder shall not constitute a waiver of any other right hereunder. 15. Notices. All notices, demands, consents, requests, approvals and ------- other communications required or permitted hereunder shall be in writing and shall be deemed to have been properly given if hand delivered (effective upon receipt or when refused), or if sent by a courier freight prepaid (effective upon receipt or when refused), in the case of the Company, at the addresses listed below, or to such other addresses as the parties may notify each other in writing. To Company: [ ] Four Greenwich Office Park Greenwich, CT 06901 Attention: President With a copy to: Oscar D. Folger, Esq. 521 Fifth Avenue New York, NY 10175 To Indemnitee: At the Indemnitee's residence address and facsimile number on the records of the Company from time to time. 16. Evidence of Coverage. Upon request by Indemnitee, the Company shall -------------------- provide 6 evidence of the liability insurance coverage required by this Agreement. The Company shall promptly notify Indemnitee of any change in the Company's D&O Insurance coverage. 17. Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the internal laws of the State of Delaware. IN WITNESS WHEREOF, the parties hereto have entered into this Indemnification Agreement effective as of the date first above written. [ ] By ______________________ INDEMNITEE: _________________________ 7 EX-10.(I) 10 EMPLOYMENT AGREEMENT COMPANY & MICHAEL J NOLAN EXHIBIT 10(i) AGREEMENT This Agreement between UNITED RENTALS, INC., a Delaware corporation ("URI"), and Michael J. Nolan ("Employee") is hereby entered into on October 14, 1997 and effective as of September 4, 1997. It cancels and supersedes all prior agreements with respect to the subject matter hereof. Recitals: -------- URI and its affiliates (collectively, the "Company") propose to engage in the business of acquiring, operating and financing companies which rent, operate, finance, maintain or otherwise deal in or with equipment or similar assets, and may in the future engage in other businesses which the Company deems to be related to the foregoing. All such businesses are collectively referred to herein as the "Business." Employee is or will be employed by the Company in a confidential relationship wherein Employee, in the course of his employment with the Company, will become familiar with and aware of information as to the specific manner of doing business and the potential acquisition candidates and customers of the Company and its affiliates and future plans with respect thereto, all of which will be established and maintained at great expense to the Company; this information is a trade secret and constitutes the valuable goodwill of the Company. Employee recognizes that the Company's business is dependent upon a number of trade secrets, including the identity of customers and potential acquisition candidates, the analysis of such candidates and financial data of the Company. The protection of these trade secrets is of critical importance to the Company. The Company will sustain great loss and damage if during the periods hereinafter set forth after the termination of Employee's employment, for whatever reason, Employee should violate the provisions of this Agreement. Further, monetary damages for such losses would be extremely difficult to measure. NOW, THEREFORE, in consideration of the mutual promises, terms, covenants and conditions set forth herein and the performance of each, it is hereby agreed as follows: 1. Employment and Duties. --------------------- (a) Upon commencement of the term of this Agreement, the Company shall employ Employee on the terms and conditions herein set forth. Employee's initial title shall be Chief Financial Officer, but such title may be changed from time to time by the Board of Directors. Employee shall perform such duties, have such authority, and report to such officers, as shall from time to time be designated by the Board of Directors of the Company. Employee shall accept this employment upon the terms and conditions herein contained and agrees to devote his full time, attention and efforts to promote and further the business and services of the Company. Employee shall faithfully adhere to, execute and fulfill all policies established by the Company. (b) Employee shall perform such duties, assume such responsibilities and devote such time, attention and energy to the business of the Company as the Board of Directors of the Company shall from time to time require and shall not, during the term of his employment hereunder, be engaged in any other business activity pursued for gain, profit or other pecuniary advantage without the prior written consent of the Company. However, the foregoing limitations shall not be construed as prohibiting Employee from making personal investments in such form or manner as will neither require his services in the operation or affairs of the companies or enterprises in which such investments are made nor violate the terms of Section 5. 2. Compensation and Other Benefits. For all services rendered by Employee to ------------------------------- the Company, the Company shall compensate the Employee as follows: (a) Base Salary and Bonus. The base salary payable to Employee shall be $175,000 per year, payable in accordance with the Company's standard payroll practices. The Board of Directors may from time to time award bonuses to Employee based on such criteria as the Board shall establish in its discretion. The payment of base salary and bonuses shall be subject to all federal, state and local withholding taxes, social security deductions and other general obligations. (b) Vacation. Employee shall be entitled to three (3) weeks of paid vacation during each 12-month period of his employment hereunder at times mutually acceptable to Employee and the Company. Unused vacations can be carried forward for 12 months, and shall thereupon lapse. (c) Other Compensation and Benefits. Employee may be entitled to receive additional compensation from the Company in such form and only to the extent explicitly set forth below. Employee shall be entitled to participate upon commencement of the term of this Agreement in the Company group health insurance plan and any 401(k) plan which is made available, from time to time, to other executives of the Company who are at the same or comparable level as Employee. (d) Reimbursement. The Company shall reimburse Employee for properly documented expenses which are incurred by Employee on behalf of the Company in accordance with Company policies in effect from time to time. (e) Vesting of Options. (i) The term "Options" as used herein means any and all options to purchase shares of common stock which are at any time hereafter granted by the Company to Employee, whether under the Company's 1997 Stock Option Plan or otherwise. All unvested Options shall automatically vest on a Change of Control. (ii) A "Change of Control" shall be deemed to have occurred if: (A) any "person" is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934 (the "Act") directly or indirectly, of securities of United Rentals, Inc. representing 50% or more of the total voting power represented by then outstanding voting securities of United Rentals, Inc., or has the power (whether as a result of stock ownership, revocable or irrevocable proxies, contract or otherwise) or ability to elect or cause the election of directors consisting at the time of such election of a majority of the Board. The term "persons" is defined in Sections 13(d) and 14(d) of the Act, except that the term "person" shall not include: (1) any person or an Affiliate of such person who as of the date of this Agreement owns 10% or more of the total voting power represented by the outstanding voting securities of the Company; and (2) a trustee or other fiduciary holding securities under any employee benefit plan of the Company or a corporation which is owned directly or indirectly by the stockholders of the Company in substantially the same percentage as their ownership in the Company; or (B) the stockholders of United Rentals, Inc. approve a merger of United Rentals, Inc., or a plan of complete liquidation of United Rentals, Inc., or an agreement for the sale or disposition by United Rentals, Inc. of all or substantially all of its assets, or any other business combination of United Rentals, Inc. with any other corporation, other than any such merger or business combination which would result in the voting securities of United Rentals, Inc. outstanding immediately 2 prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the total voting power represented by the voting securities of United Rentals, Inc. or such surviving entity outstanding immediately after such merger or business combination. (iii) An "Affiliate" of a person is a person that controls, is controlled by, or is under common control with such person. 3. Term; Termination; Rights of Termination. ---------------------------------------- (a) The term of this Agreement shall begin on September 2, 1997, and shall continue until the third anniversary of the commencement date. Such three- (3) year term shall automatically be renewed on the same terms and conditions contained herein at the end of each calendar month such that at no time will the balance of the term of Employee's employment hereunder be less than three (3) years. This Agreement and Employee's employment may terminate in any one of the following ways: (i) The death of Employee shall terminate the Agreement; (ii) A notice of resignation by the Employee presented to the Company shall terminate the Agreement; (iii) The Company may terminate the Agreement after ten (10) days' written notice to Employee for good cause, which shall be defined to mean: (A) Employee's material breach of this Agreement, including, without limitation, failure to perform his obligations hereunder in a manner reasonably satisfactory to the Board of Directors of the Company; (B) the material default of the Company in performing its obligations under contracts with other persons or business entities if directly caused by Employee; (C) if, because of illness or physical or mental disability or other incapacity which continues for a period in excess of four months in any consecutive 16-month period, Employee is unable to perform his duties under this Agreement; (D) Employee's fraud or dishonesty with respect to the business or affairs of the Company or if Employee is convicted of a crime which in the reasonable opinion of the Board of Directors of the Company would negatively affect the Company's business or reputation; or (E) alcohol or drug abuse by Employee; or (iv) The Company may terminate this Agreement without cause at any time, provided that in the event of a termination of this Agreement without cause, Employee shall be entitled to receive his then current monthly base salary in each of the three months immediately following termination of employment or, if less, for the balance of the term of this Agreement. (b) Upon termination of this Agreement or Employee's employment for any reason whatsoever, Employee shall be entitled to receive all salary earned under this Agreement to the date of termination. However, termination of this Agreement shall not accelerate the payment date of any monies accrued or accruing to the account of Employee as a result of any bonuses or other 3 compensation, nor shall termination vest in Employee any right in connection therewith other than as expressly set forth herein. (c) In the event of termination of this Agreement for any reason provided in this paragraph or if Employee resigns prior to the expiration of the term of this Agreement, all rights and obligations of the Company and Employee under this Agreement shall cease immediately, except for those which by their terms specifically apply to periods following the termination of this Agreement, and thereafter Employee shall have no right to receive any compensation hereunder except as otherwise expressly set forth above. 4. Confidentiality ---------------- (a) During and at all times after Employee's employment: (i) Employee will not disclose to any person or entity, without the Company's prior consent, any confidential or secret information, whether prepared by him or others. (ii) Employee will not directly or indirectly use any such information other than as directed by the Company in writing. (iii) Employee will not, except in the furtherance of the business of the Company, remove confidential or secret information from the premises of the Company without the prior written consent of the Company. (iv) Upon termination of his employment for whatever reason, with or without cause, Employee will promptly deliver to the Company all originals and copies (whether in note, memo or other document form or on video, audio or computer tapes or discs or otherwise) of confidential or secret information that is in his possession, custody or control, whether prepared by him or others. (b) Confidential information includes, but is not limited to: (i) the name of any company or business all or any substantial part of which is or at any time was a candidate for potential acquisition by the Company, together with all analyses and other information which the Company has generated, compiled or otherwise obtained with respect to such candidate, business or potential acquisition, or with respect to the potential effect of such acquisition on the Company's business, assets, financial results or prospects; (ii) business, pricing and management methods; (iii) finances, strategies, systems, research, surveys, plans, reports, recommendations and conclusions; (iv) names, arrangements with, or other information relating to, the Company's customers, suppliers, equipment manufacturers, financiers, owners or operators, representatives and other persons who have business relationships with the Company or who are prospects for business relationships with the Company; (v) technical information, work products and know-how; and (vi) cost, operating, and other management information systems, and other software and programming. 4 5. Non-Compete Provisions. The following covenants are made by Employee in ------------------------ partial consideration for the substantial economic investment made by the Company in the hiring, education and training of Employee and the compensation and other benefits afforded by the Company to the Employee. Such covenants were material inducements to the Company in hiring Employee. (a) During his employment by the Company and for a period of 36 months immediately following the termination of his employment for any reason whatsoever, whether or not for cause: (b) Employee will not in any Restricted Area (as hereinafter defined) directly or indirectly be employed or retained by any person or entity who or which then competes with the Company to any extent, nor will Employee directly or indirectly own any interest in any such person or entity or render to it any consulting, brokerage, contracting, financial or other services. Employee shall be deemed to be employed or retained in the Restricted Area if he has an office in the Restricted Area or if he performs any duties or renders any advice with respect to any facility or business activities in the Restricted Area. A "Restricted Area" means each of: (i) any state in the United States and any province in Canada in which the Company conducts any equipment rental or other equipment-related activity, it being agreed that each state and province is one unitary market for purposes of the Company's business; (ii) regardless of state, the area within a 200-mile radius of any office or facility of the Company in which or in relation to which Employee shall have performed any duties for the Company during the one year period preceding the termination of his employment. (c) Employee will not anywhere in the United States or Canada directly or indirectly be employed or retained by a Similar Entity (as hereinafter defined) nor will Employee directly or indirectly own any interest in any Similar Entity or render to it any consulting, brokerage, financing, contracting, or other services, provided, however, that the Employee may own, directly or indirectly, solely as an investment, securities of any business traded on any national securities exchange or NASDAQ, provided the Employee is not a controlling person of, or a member of a group which controls, such business and further provided that the Employee does not, directly or indirectly, own 1% or more of any class of securities in such business. A "Similar Entity" means each of: (i) the entities listed in Exhibit A to this Agreement; and (ii) any person or entity which anywhere in the United States now or hereafter engages in any aspect of any business in which the Company now or hereafter engages; and (iii) any entity which at any time during the term of Employee's employment was a candidate for acquisition by or merger with the Company; and (iv) any entity which owns or owned any facility which was acquired by the Company, or was a candidate for acquisition by the Company, at any time during the term of Employee's employment. 5 (d) During his employment by the Company and for a period of 36 months immediately following the termination of his employment for any reason whatsoever, whether or not for cause, Employee will not anywhere directly or indirectly (whether as an owner, partner, employee, consultant, broker, contractor or otherwise, and whether personally or through other persons): (i) solicit or accept the business of, or call upon, any person or entity who or which is or was (i) a customer, supplier, manufacturer, finder, broker, or other person who had a business relationship with the Company, or who was a prospect for a business relationship with the Company, at any time during the period the period of his employment, or (ii) an affiliate of any such person; (ii) approve, solicit or retain, or discuss the employment or retention (whether as an employee, consultant or otherwise) of any person who was an employee of the Company at any time during the one-year period preceding the termination of his employment; (iii) solicit or encourage any person to leave the employ of the Company; (iv) call upon or assist in the acquisition of any company which was, during the term of his employment, either called upon by an employee of the Company or by a broker or other third party, for possible acquisition by the Company or for which an employee of the Company or other person made an acquisition analysis for the Company; or (v) own any interest in or be employed by or provide any services to any person or entity which engages in any conduct which is prohibited to Employee under this Section (d), provided, however, that the Employee may own, directly or indirectly, solely as an investment, securities of any business traded on any national securities exchange or NASDAQ, provided the Employee is not a controlling person of, or a member of a group which controls, such business and further provided that the Employee does not, directly or indirectly, own 1% or more of any class of securities of such business. (e) Before taking any position with any person or entity during the 36- month period following the termination of his employment for any reason, with or without cause, Employee will give prior written notice to the Company of the name of such person or entity. The Company shall be entitled to advise each such person or entity of the provisions of this Agreement, and to correspond and otherwise deal with each such person or entity to ensure that the provisions of this Agreement are enforced and duly discharged. (f) All time periods in this Agreement shall be computed by excluding from such computation any time during which Employee is in violation of any provision of this Agreement and any time during which there is pending in any court of competent jurisdiction any action (including any appeal from any final judgment) brought by any person, whether or not a party to this Agreement, in which action the Company seeks to enforce the agreements and covenants in this Agreement or in which any person contests the validity of such agreements and covenants or their enforceability or seeks to avoid their performance or enforcement. (g) Employee understands that the provisions of this Agreement have been carefully designed to restrict his activities to the minimum extent which is consistent with law and the Company's requirements. Employee has carefully considered these restrictions, and Employee confirms that they will not unduly restrict Employee's ability to obtain a livelihood. Employee has heretofore engaged in businesses other than the Business. Before signing this Agreement, Employee has had the opportunity to discuss this Agreement and all of its terms with his or her attorney. 6 (h) Since monetary damages will be inadequate and the Company will be irreparably damaged if the provisions of this Agreement are not specifically enforced, the Company shall be entitled, among other remedies (i) to an injunction restraining any violation of this Agreement (without any bond or other security being required) by Employee and by any person or entity to whom Employee provides or proposes to provide any services in violation of this Agreement, (ii) to require Employee to hold in a constructive trust, account for and pay over to the Company all compensation and other benefits which Employee shall derive as a result of any action or omission which is a violation of any provision of this Agreement and (iii) to require Employee to account for and pay over to the Company: (i) any net profit earned by the Employee from the exercise, during the 24-month period prior to the termination of his or her employment, of any stock options issued to him by the Company; and (ii) any bonus received by Employee during the 12-month period immediately preceding termination of his or her employment. (i) If any provision contained in this Agreement is determined to be void, illegal or unenforceable, in whole or in part, then the other provisions contained herein shall remain in full force and effect as if the provision which was determined to be void, illegal, or unenforceable had not been contained herein. (j) The courts enforcing this Agreement shall be entitled to modify the duration and scope of any restriction contained herein to the extent such restriction would otherwise be unenforceable, and such restriction as modified shall be enforced. 6. Return of Company Property. All products, records, designs, patents, plans, -------------------------- manuals, "field guides," memoranda, lists and other property delivered to Employee by or on behalf of the Company or by its customers (including, but not limited to, customers obtained for the Company by Employee), and all records compiled by the Employee which pertain to the business of the Company (whether or not confidential) shall be and remain the property of the Company and be subject at all times to its discretion and control. Likewise, all correspondence with customers or representatives, reports, records, charts, advertising materials, and any data collected by Employee, or by or on behalf of the Company or its representatives (whether or not confidential) shall be delivered promptly to the Company without request by it upon termination of Employee's employment. 7. Inventions. Employee shall disclose promptly to the Company any and all ---------- conceptions and ideas for inventions, improvements and valuable discoveries, whether patentable or not, which are conceived or made by Employee solely or jointly with another during the period of employment or within one (1) year thereafter and which are related to the business or activities of the Company or which Employee conceives as a result of his employment by the Company, and Employee hereby assigns and agrees to assign all his interests therein to the Company or its nominee. Whenever requested to do so by the Company, Employee shall execute any and all applications, assignments or other instruments that the Company shall deem necessary to apply for and obtain Letters Patent of the United States or any foreign country or to otherwise protect the Company's interest therein. These obligations shall continue beyond the termination of employment with respect to inventions, improvements and valuable discoveries, whether patentable or not, conceived, made or acquired by Employee during the period of employment or within one (1) year thereafter, and shall be binding upon Employee's assigns, executors, administrators and other legal representatives. 8. Suits Against Company. ---------------------- (a) Both during and after the term of employment hereunder, Employee covenants that Employee will not bring suit or file counterclaims against the Company for corporate misconduct (which for this purpose does not mean the mere breach by the Company of this Agreement), unless both of (i) and (ii) shall have occurred, namely: 7 (i) Employee shall have first made written demand to the Company's Board of Directors to investigate and deal with such misconduct, and (ii) The Board of Directors shall have failed within 45 days after the date of receipt of such demand to establish a Special Litigation Committee, consisting exclusively of outside directors, to investigate and deal with such misconduct. (b) Without limiting the generality and to further implement the foregoing, Employee irrevocably and unconditionally consents at the option of the Company to the entry of temporary restraining orders and temporary and permanent injunctions (without posting bond or other security) against the filing of any action or counterclaim which is prohibited hereunder. (c) The opinion of the Board of Directors shall be binding and conclusive on the determination of which directors constitute "outside directors," and the determination of the Special Litigation Committee shall be binding and conclusive on all matters relating to the actual or alleged misconduct which is referred to it as aforesaid. 9. Cooperation in Proceedings. During and after the termination of Employee's -------------------------- employment, Employee will for reasonable compensation consistent with his compensation from the Company cooperate fully and at reasonable times with the Company and its subsidiaries in all litigations and regulatory proceedings on which the Company or any subsidiary seeks Employee's assistance and as to which Employee has any knowledge or involvement. Without limiting the generality of the foregoing, Employee will be available to testify at such litigations and other proceedings, and will cooperate with counsel to the Company in preparing materials and offering advice in such litigations and other proceedings. Except as required by law and then only upon reasonable prior written notice to the Company, Employee will not in any way cooperate or assist any person or entity in any matter which is adverse to the Company or to any person who was at any time an officer or director of the Company. 10. No Derogation. Except as otherwise required by law (and then only upon 10 ------------- days' prior written notice to the Company), Employee will not from and after the date hereof, whether during Employee's employment or at any time thereafter, in any way or to any person, denigrate or derogate the Company or any of its subsidiaries, or any person who was at any time an officer or director of the Company, or any products, services or procedures, whether or not such denigrating or derogatory statements shall be true and are based on acts or omissions which were learned or are learned by Employee heretofore or from and after the date hereof or on acts or omissions which occurred at any time heretofore or which occur at any time from and after the date hereof, or otherwise. 11. Miscellaneous. -------------- (a) Complete Agreement. There are no oral representations, understandings or ------------------- agreements with the Company or any of its officers, directors or representatives covering the same subject matter as this Agreement. This written Agreement is the final, complete and exclusive statement and expression of the agreement between the Company and Employee and of all the terms of this Agreement, it cancels and supersedes all prior agreements with respect to the subject matter hereof, and it cannot be varied, contradicted or supplemented by evidence of any prior or contemporaneous oral or written agreements. This written Agreement may not be later modified except by a further writing signed by the Company and Employee, and no term of this Agreement may be waived except by writing signed by the party waiving the benefit of such terms. (b) No Waiver. No waiver by the parties hereto of any default or breach of ---------- any term, condition or covenant of this Agreement shall be deemed to be a waiver of any subsequent default or breach of the same or any other term, condition or covenant contained herein. (c) Binding Effect. This Agreement shall be binding upon and inure to the -------------- benefit of the parties thereto and their respective heirs, successors and assigns. Notwithstanding the foregoing, the Company may assign this Agreement only to a person or entity who or which directly or indirectly succeeds to all or any substantial part of the Company's assets or business. 8 (d) Notice. Whenever any notice is required hereunder, it shall be given in ------ writing addressed as follows: To the Company: Attn: CEO United Rentals, Inc. Third Floor Four Greenwich Office Park Greenwich, Connecticut 06830 with a copy to: Oscar D. Folger, Esq. 24th floor 521 Fifth Avenue New York, New York 10175 To Employee 209 Shelter Rock Road Stamford, CT 06903 Notice shall be deemed given and effective (a) five business days after the deposit in the U.S. mail of a writing addressed as above and sent first class mail, certified, return receipt requested, (b) one (1) business day after delivered to a nationally recognized air courier for next day delivery service, or (c) upon personal delivery. Either party may change the address for notice by notifying the other party of such change in accordance with this paragraph. (e) Severability; Headings. If any portion of this agreement is held invalid ---------------------- or inoperative, the other portions of this agreement shall be deemed valid and operative, and so far as it is reasonable and possible, effect shall be given to the intent manifested by the portion held invalid or inoperative. The paragraph headings herein are for reference purposes only and are not intended in any way to describe, interpret, define or limit the extent or intent of this Agreement or any part hereof. (f) Governing Law; Resolution of Disputes; Service of Process. This Agreement ---------------------------------------------------------- shall in all respects be construed according to the laws of the State of New York. All disputes relating to the interpretation and enforcement of the provisions of this Agreement shall be resolved and determined exclusively by the state or federal courts sitting in Fairfield County, Connecticut, and such courts are hereby granted exclusive jurisdiction for such purpose. Employee waives trial by jury. Service of process shall be effective when given in the manner provided for notices hereunder. UNITED RENTALS, INC. BY: ____________________________ Bradley S. Jacobs, CEO EMPLOYEE: ____________________ 9 EXHIBIT A - --------- US Rentals Rental Service Corp. Neff RentX Hertz Equipment Rental Corporation Prime Services National Equipment Services Falconite Brambles American Equipment GE Capital equipment leasing divisions Brentwood Associates Golder Thoma Caterpillar Deere any company on the "RER 100' list Any affiliate of any of the foregoing. 10 EX-10.(J) 11 EMPLOYMENT BETWEEN COMPANY AND ROBERT P. MINER EXHIBIT 10(j) AGREEMENT This Agreement between UNITED RENTALS, INC., a Delaware corporation ("URI"), and Robert Miner ("Employee") is hereby entered into on October ___ 1997 and effective September 4, 1997. It cancels and supersedes all prior agreements with respect to the subject matter hereof. Recitals: -------- URI and its affiliates (collectively, the "Company") propose to engage in the business of acquiring, operating and financing companies which rent, operate, finance, maintain or otherwise deal in or with equipment or similar assets, and may in the future engage in other businesses which the Company deems to be related to the foregoing. All such businesses are collectively referred to herein as the "Business." Employee is or will be employed by the Company in a confidential relationship wherein Employee, in the course of his employment with the Company, will become familiar with and aware of information as to the specific manner of doing business and the potential acquisition candidates and customers of the Company and its affiliates and future plans with respect thereto, all of which will be established and maintained at great expense to the Company; this information is a trade secret and constitutes the valuable goodwill of the Company. Employee recognizes that the Company's business is dependent upon a number of trade secrets, including the identity of customers and potential acquisition candidates, the analysis of such candidates and financial data of the Company. The protection of these trade secrets is of critical importance to the Company. The Company will sustain great loss and damage if during the periods hereinafter set forth after the termination of Employee's employment, for whatever reason, Employee should violate the provisions of this Agreement. Further, monetary damages for such losses would be extremely difficult to measure. NOW, THEREFORE, in consideration of the mutual promises, terms, covenants and conditions set forth herein and the performance of each, it is hereby agreed as follows: 1. Employment and Duties. --------------------- (a) Upon commencement of the term of this Agreement, the Company shall employ Employee on the terms and conditions herein set forth. Employee's initial title shall be Vice President, Finance, but such title may be changed from time to time by the Board of Directors. Employee shall perform such duties, have such authority, and report to such officers, as shall from time to time be designated by the Board of Directors of the Company. Employee shall accept this employment upon the terms and conditions herein contained and agrees to devote his full time, attention and efforts to promote and further the business and services of the Company. Employee shall faithfully adhere to, execute and fulfill all policies established by the Company. (b) Employee shall perform such duties, assume such responsibilities and devote such time, attention and energy to the business of the Company as the Board of Directors of the Company shall from time to time require and shall not, during the term of his employment hereunder, be engaged in any other business activity pursued for gain, profit or other pecuniary advantage without the prior written consent of the Company. However, the foregoing limitations shall not be construed as prohibiting Employee from making personal investments in such form or manner as will neither require his services in the operation or affairs of the companies or enterprises in which such investments are made nor violate the terms of Section 5. 2. Compensation and Other Benefits. For all services rendered by Employee to ------------------------------- the Company, the Company shall compensate the Employee as follows: (a) Base Salary and Bonus. The base salary payable to Employee shall be $150,000 per year, payable in accordance with the Company's standard payroll practices. The Board of Directors may from time to time award bonuses to Employee based on such criteria as the Board shall establish in its discretion. The payment of base salary and bonuses shall be subject to all federal, state and local withholding taxes, social security deductions and other general obligations. (b) Vacation. Employee shall be entitled to three (3) weeks of paid vacation during each 12-month period of his employment hereunder at times mutually acceptable to Employee and the Company. Unused vacations can be carried forward for 12 months, and shall thereupon lapse. (c) Other Compensation and Benefits. Employee may be entitled to receive additional compensation from the Company in such form and only to the extent explicitly set forth below. Employee shall be entitled to participate upon commencement of the term of this Agreement in the Company group health insurance plan and any 401(k) plan which is made available, from time to time, to other executives of the Company who are at the same or comparable level as Employee. (d) Reimbursement. The Company shall reimburse Employee for properly documented expenses which are incurred by Employee on behalf of the Company in accordance with Company policies in effect from time to time. (e) Vesting of Options. (i) The term "Options" as used herein means any and all options to purchase shares of common stock which are at any time hereafter granted by the Company to Employee, whether under the Company's 1997 Stock Option Plan or otherwise. All unvested Options shall automatically vest on a Change of Control. (ii) A "Change of Control" shall be deemed to have occurred if: (A) any "person" is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934 (the "Act") directly or indirectly, of securities of United Rentals, Inc. representing 50% or more of the total voting power represented by then outstanding voting securities of United Rentals, Inc., or has the power (whether as a result of stock ownership, revocable or irrevocable proxies, contract or otherwise) or ability to elect or cause the election of directors consisting at the time of such election of a majority of the Board. The term "persons" is defined in Sections 13(d) and 14(d) of the Act, except that the term "person" shall not include: (1) any person or an Affiliate of such person who as of the date of this Agreement owns 10% or more of the total voting power represented by the outstanding voting securities of the Company; and (2) a trustee or other fiduciary holding securities under any employee benefit plan of the Company or a corporation which is owned directly or indirectly by the stockholders of the Company in substantially the same percentage as their ownership in the Company; or (B) the stockholders of United Rentals, Inc. approve a merger of United Rentals, Inc., or a plan of complete liquidation of United Rentals, Inc., or an agreement for the sale or disposition by United Rentals, Inc. of all or substantially all of its assets, or any other business combination of United Rentals, Inc. with any other corporation, other than any such merger or business combination which would result in the voting securities of United Rentals, Inc. outstanding immediately 2 prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the total voting power represented by the voting securities of United Rentals, Inc. or such surviving entity outstanding immediately after such merger or business combination. (iii) An "Affiliate" of a person is a person that controls, is controlled by, or is under common control with such person. 3. Term; Termination; Rights of Termination. ---------------------------------------- (a) The term of this Agreement shall begin on September 2, 1997, and shall continue until the third anniversary of the commencement date. Such three (3) -year term shall automatically be renewed on the same terms and conditions contained herein at the end of each calendar month such that at no time will the balance of the term of Employee's employment hereunder be less than three (3) years. This Agreement and Employee's employment may terminate in any one of the following ways: (i) The death of Employee shall terminate the Agreement; (ii) A notice of resignation by the Employee presented to the Company shall terminate the Agreement; (iii) The Company may terminate the Agreement after ten (10) days' written notice to Employee for good cause, which shall be defined to mean: (A) Employee's material breach of this Agreement, including, without limitation, failure to perform his obligations hereunder in a manner reasonably satisfactory to the Board of Directors of the Company; (B) the material default of the Company in performing its obligations under contracts with other persons or business entities if directly caused by Employee; (C) if, because of illness or physical or mental disability or other incapacity which continues for a period in excess of four months in any consecutive 16-month period, Employee is unable to perform his duties under this Agreement; (D) Employee's fraud or dishonesty with respect to the business or affairs of the Company or if Employee is convicted of a crime which in the reasonable opinion of the Board of Directors of the Company would negatively affect the Company's business or reputation; or (E) alcohol or drug abuse by Employee; or (iv) The Company may terminate this Agreement without cause at any time, provided that in the event of a termination of this Agreement without cause, Employee shall be entitled to receive his then current monthly base salary in each of the three months immediately following termination of employment or, if less, for the balance of the term of this Agreement. (b) Upon termination of this Agreement or Employee's employment for any reason whatsoever, Employee shall be entitled to receive all salary earned under this Agreement to the date of termination. However, termination of this Agreement shall not accelerate the payment date of any monies accrued or accruing to the account of Employee as a result of any bonuses or other 3 compensation, nor shall termination vest in Employee any right in connection therewith other than as expressly set forth herein. (c) In the event of termination of this Agreement for any reason provided in this paragraph or if Employee resigns prior to the expiration of the term of this Agreement, all rights and obligations of the Company and Employee under this Agreement shall cease immediately, except for those which by their terms specifically apply to periods following the termination of this Agreement, and thereafter Employee shall have no right to receive any compensation hereunder except as otherwise expressly set forth above. 4. Confidentiality ---------------- (a) During and at all times after Employee's employment: (i) Employee will not disclose to any person or entity, without the Company's prior consent, any confidential or secret information, whether prepared by him or others. (ii) Employee will not directly or indirectly use any such information other than as directed by the Company in writing. (iii) Employee will not, except in the furtherance of the business of the Company, remove confidential or secret information from the premises of the Company without the prior written consent of the Company. (iv) Upon termination of his employment for whatever reason, with or without cause, Employee will promptly deliver to the Company all originals and copies (whether in note, memo or other document form or on video, audio or computer tapes or discs or otherwise) of confidential or secret information that is in his possession, custody or control, whether prepared by him or others. (b) Confidential information includes, but is not limited to: (i) the name of any company or business all or any substantial part of which is or at any time was a candidate for potential acquisition by the Company, together with all analyses and other information which the Company has generated, compiled or otherwise obtained with respect to such candidate, business or potential acquisition, or with respect to the potential effect of such acquisition on the Company's business, assets, financial results or prospects; (ii) business, pricing and management methods; (iii) finances, strategies, systems, research, surveys, plans, reports, recommendations and conclusions; (iv) names, arrangements with, or other information relating to, the Company's customers, suppliers, equipment manufacturers, financiers, owners or operators, representatives and other persons who have business relationships with the Company or who are prospects for business relationships with the Company; (v) technical information, work products and know-how; and (vi) cost, operating, and other management information systems, and other software and programming. 4 5. Non-Compete Provisions. The following covenants are made by Employee in ------------------------ partial consideration for the substantial economic investment made by the Company in the hiring, education and training of Employee and the compensation and other benefits afforded by the Company to the Employee. Such covenants were material inducements to the Company in hiring Employee. (a) During his employment by the Company and for a period of 36 months immediately following the termination of his employment for any reason whatsoever, whether or not for cause: (b) Employee will not in any Restricted Area (as hereinafter defined) directly or indirectly be employed or retained by any person or entity who or which then competes with the Company to any extent, nor will Employee directly or indirectly own any interest in any such person or entity or render to it any consulting, brokerage, contracting, financial or other services. Employee shall be deemed to be employed or retained in the Restricted Area if he has an office in the Restricted Area or if he performs any duties or renders any advice with respect to any facility or business activities in the Restricted Area. A "Restricted Area" means each of: (i) any state in the United States and any province in Canada in which the Company conducts any equipment rental or other equipment-related activity, it being agreed that each state and province is one unitary market for purposes of the Company's business; (ii) regardless of state, the area within a 200-mile radius of any office or facility of the Company in which or in relation to which Employee shall have performed any duties for the Company during the one year period preceding the termination of his employment. (iii) Employee will not anywhere in the United States or Canada directly or indirectly be employed or retained by a Similar Entity (as hereinafter defined) nor will Employee directly or indirectly own any interest in any Similar Entity or render to it any consulting, brokerage, financing, contracting, or other services, provided , however, that the Employee may own, directly or indirectly, solely as an investment, securities of any business traded on any national securities exchange or NASDAQ, provided the Employee is not a controlling person of, or a member of a group which controls, such business and further provided that the Employee does not, directly or indirectly, own 1% or more of any class of securities of such business. A "Similar Entity" means each of: (iv) the entities listed in Exhibit A to this Agreement; and (v) any person or entity which anywhere in the United States now or hereafter engages in any aspect of any business in which the Company now or hereafter engages; and (vi) any entity which at any time during the term of Employee's employment was a candidate for acquisition by or merger with the Company; and (vii) any entity which owns or owned any facility which was acquired by the Company, or was a candidate for acquisition by the Company, at any time during the term of Employee's employment. (c) During his employment by the Company and for a period of 36 months immediately following the termination of his employment for any reason whatsoever, whether or not for cause, Employee will not anywhere directly or indirectly (whether as an owner, partner, employee, consultant, broker, contractor or otherwise, and whether personally or through other persons): (i) solicit or accept the business of, or call upon, any person or entity who or which is or was (i) a customer, supplier, manufacturer, finder, broker, or other person who had a business relationship with the Company, or who was a prospect for a business relationship with 5 the Company, at any time during the period the period of his employment, or (ii) an affiliate of any such person; (ii) approve, solicit or retain, or discuss the employment or retention (whether as an employee, consultant or otherwise) of any person who was an employee of the Company at any time during the one-year period preceding the termination of his employment; (iii) solicit or encourage any person to leave the employ of the Company; (iv) call upon or assist in the acquisition of any company which was, during the term of his employment, either called upon by an employee of the Company or by a broker or other third party, for possible acquisition by the Company or for which an employee of the Company or other person made an acquisition analysis for the Company; or (v) own any interest in or be employed by or provide any services to any person or entity which engages in any conduct which is prohibited to Employee under this Section (d), provided , however, that the Employee may own, directly or indirectly, solely as an investment, securities of any business traded on any national securities exchange or NASDAQ, provided the Employee is not a controlling person of, or a member of a group which controls, such business and further provided that the Employee does not, directly or indirectly, own 1% or more of any class of securities of such business. (d) Before taking any position with any person or entity during the 36- month period following the termination of his employment for any reason, with or without cause, Employee will give prior written notice to the Company of the name of such person or entity. The Company shall be entitled to advise each such person or entity of the provisions of this Agreement, and to correspond and otherwise deal with each such person or entity to ensure that the provisions of this Agreement are enforced and duly discharged. (e) All time periods in this Agreement shall be computed by excluding from such computation any time during which Employee is in violation of any provision of this Agreement and any time during which there is pending in any court of competent jurisdiction any action (including any appeal from any final judgment) brought by any person, whether or not a party to this Agreement, in which action the Company seeks to enforce the agreements and covenants in this Agreement or in which any person contests the validity of such agreements and covenants or their enforceability or seeks to avoid their performance or enforcement. (f) Employee understands that the provisions of this Agreement have been carefully designed to restrict his activities to the minimum extent which is consistent with law and the Company's requirements. Employee has carefully considered these restrictions, and Employee confirms that they will not unduly restrict Employee's ability to obtain a livelihood. Employee has heretofore engaged in businesses other than the Business. Before signing this Agreement, Employee has had the opportunity to discuss this Agreement and all of its terms with his or her attorney. (g) Since monetary damages will be inadequate and the Company will be irreparably damaged if the provisions of this Agreement are not specifically enforced, the Company shall be entitled, among other remedies (i) to an injunction restraining any violation of this Agreement (without any bond or other security being required) by Employee and by any person or entity to whom Employee provides or proposes to provide any services in violation of this Agreement, (ii) to require Employee to hold in a constructive trust, account for and pay over to the Company all compensation and other benefits which Employee shall derive as a result of any action or omission which is a violation of any provision of this Agreement and (iii) to require Employee to account for and pay over to the Company: 6 (i) any net profit earned by the Employee from the exercise, during the 24-month period prior to the termination of his or her employment, of any stock options issued to him by the Company; and (ii) any bonus received by Employee during the 12-month period immediately preceding termination of his or her employment. (h) If any provision contained in this Agreement is determined to be void, illegal or unenforceable, in whole or in part, then the other provisions contained herein shall remain in full force and effect as if the provision which was determined to be void, illegal, or unenforceable had not been contained herein. (i) The courts enforcing this Agreement shall be entitled to modify the duration and scope of any restriction contained herein to the extent such restriction would otherwise be unenforceable, and such restriction as modified shall be enforced. 6. Return of Company Property. All products, records, designs, patents, plans, -------------------------- manuals, "field guides," memoranda, lists and other property delivered to Employee by or on behalf of the Company or by its customers (including, but not limited to, customers obtained for the Company by Employee), and all records compiled by the Employee which pertain to the business of the Company (whether or not confidential) shall be and remain the property of the Company and be subject at all times to its discretion and control. Likewise, all correspondence with customers or representatives, reports, records, charts, advertising materials, and any data collected by Employee, or by or on behalf of the Company or its representatives (whether or not confidential) shall be delivered promptly to the Company without request by it upon termination of Employee's employment. 7. Inventions. Employee shall disclose promptly to the Company any and all ---------- conceptions and ideas for inventions, improvements and valuable discoveries, whether patentable or not, which are conceived or made by Employee solely or jointly with another during the period of employment or within one (1) year thereafter and which are related to the business or activities of the Company or which Employee conceives as a result of his employment by the Company, and Employee hereby assigns and agrees to assign all his interests therein to the Company or its nominee. Whenever requested to do so by the Company, Employee shall execute any and all applications, assignments or other instruments that the Company shall deem necessary to apply for and obtain Letters Patent of the United States or any foreign country or to otherwise protect the Company's interest therein. These obligations shall continue beyond the termination of employment with respect to inventions, improvements and valuable discoveries, whether patentable or not, conceived, made or acquired by Employee during the period of employment or within one (1) year thereafter, and shall be binding upon Employee's assigns, executors, administrators and other legal representatives. 8. Suits Against Company. ---------------------- (a) Both during and after the term of employment hereunder, Employee covenants that Employee will not bring suit or file counterclaims against the Company for corporate misconduct (which for this purpose does not mean the mere breach by the Company of this Agreement), unless both of (i) and (ii) shall have occurred, namely: (i) Employee shall have first made written demand to the Company's Board of Directors to investigate and deal with such misconduct, and The Board of Directors shall have failed within 45 days after the date of receipt of such demand to establish a Special Litigation Committee, consisting exclusively of outside directors, to investigate and deal with such misconduct. (b) Without limiting the generality and to further implement the foregoing, Employee irrevocably and unconditionally consents at the option of the Company to the entry of temporary restraining orders and temporary and permanent injunctions (without posting bond or other security) against the 7 filing of any action or counterclaim which is prohibited hereunder. (c) The opinion of the Board of Directors shall be binding and conclusive on the determination of which directors constitute "outside directors," and the determination of the Special Litigation Committee shall be binding and conclusive on all matters relating to the actual or alleged misconduct which is referred to it as aforesaid. 9. Cooperation in Proceedings. During and after the termination of Employee's -------------------------- employment, Employee will for reasonable compensation consistent with his compensation from the Company cooperate fully and at reasonable times with the Company and its subsidiaries in all litigations and regulatory proceedings on which the Company or any subsidiary seeks Employee's assistance and as to which Employee has any knowledge or involvement. Without limiting the generality of the foregoing, Employee will be available to testify at such litigations and other proceedings, and will cooperate with counsel to the Company in preparing materials and offering advice in such litigations and other proceedings. Except as required by law and then only upon reasonable prior written notice to the Company, Employee will not in any way cooperate or assist any person or entity in any matter which is adverse to the Company or to any person who was at any time an officer or director of the Company. 10. No Derogation. Except as otherwise required by law (and then only upon 10 ------------- days' prior written notice to the Company), Employee will not from and after the date hereof, whether during Employee's employment or at any time thereafter, in any way or to any person, denigrate or derogate the Company or any of its subsidiaries, or any person who was at any time an officer or director of the Company, or any products, services or procedures, whether or not such denigrating or derogatory statements shall be true and are based on acts or omissions which were learned or are learned by Employee heretofore or from and after the date hereof or on acts or omissions which occurred at any time heretofore or which occur at any time from and after the date hereof, or otherwise. 11. Miscellaneous. -------------- (a) Complete Agreement. There are no oral representations, understandings or ------------------- agreements with the Company or any of its officers, directors or representatives covering the same subject matter as this Agreement. This written Agreement is the final, complete and exclusive statement and expression of the agreement between the Company and Employee and of all the terms of this Agreement, it cancels and supersedes all prior agreements with respect to the subject matter hereof, and it cannot be varied, contradicted or supplemented by evidence of any prior or contemporaneous oral or written agreements. This written Agreement may not be later modified except by a further writing signed by the Company and Employee, and no term of this Agreement may be waived except by writing signed by the party waiving the benefit of such terms. (b) No Waiver. No waiver by the parties hereto of any default or breach --------- of any term, condition or covenant of this Agreement shall be deemed to be a waiver of any subsequent default or breach of the same or any other term, condition or covenant contained herein. (c) Binding Effect. This Agreement shall be binding upon and inure to the -------------- benefit of the parties thereto and their respective heirs, successors and assigns. Notwithstanding the foregoing, the Company may assign this Agreement only to a person or entity who or which directly or indirectly succeeds to all or any substantial part of the Company's assets or business. (d) Notice. Whenever any notice is required hereunder, it shall be given in ------ writing addressed as follows: To the Company: Attn: CEO United Rentals, Inc. Third Floor Four Greenwich Office Park Greenwich, Connecticut 06830 with a copy to: 8 Oscar D. Folger, Esq. 24th floor 521 Fifth Avenue New York, New York 10175 To Employee 7 Snowberry Lane Shelton, CT 06484 Notice shall be deemed given and effective (a) five business days after the deposit in the U.S. mail of a writing addressed as above and sent first class mail, certified, return receipt requested, (b) one (1) business day after delivered to a nationally recognized air courier for next day delivery service, or (c) upon personal delivery. Either party may change the address for notice by notifying the other party of such change in accordance with this paragraph. (e) Severability; Headings. If any portion of this agreement is held invalid ---------------------- or inoperative, the other portions of this agreement shall be deemed valid and operative, and so far as it is reasonable and possible, effect shall be given to the intent manifested by the portion held invalid or inoperative. The paragraph headings herein are for reference purposes only and are not intended in any way to describe, interpret, define or limit the extent or intent of this Agreement or any part hereof. (f) Governing Law; Resolution of Disputes; Service of Process. This Agreement ---------------------------------------------------------- shall in all respects be construed according to the laws of the State of New York. All disputes relating to the interpretation and enforcement of the provisions of this Agreement shall be resolved and determined exclusively by the state or federal courts sitting in Fairfield County, Connecticut, and such courts are hereby granted exclusive jurisdiction for such purpose. Employee waives trial by jury. Service of process shall be effective when given in the manner provided for notices hereunder. UNITED RENTALS, INC. BY: ____________________________ Bradley S. Jacobs, CEO EMPLOYEE: ____________________ 9 EXHIBIT A - --------- US Rentals Rental Service Corp. Neff RentX Hertz Equipment Rental Corporation Prime Services National Equipment Services Falconite Brambles American Equipment GE Capital equipment leasing divisions Brentwood Associates Golder Thoma Caterpillar Deere any company on the "RER 100' list Any affiliate of any of the foregoing. 10 EX-10.(K) 12 STOCK PURCHASE AGREEMENT MERCER EXHIBIT (10)(k) STOCK PURCHASE AGREEMENT AMONG UNITED RENTALS, INC. AND THE SHAREHOLDERS OF MERCER EQUIPMENT COMPANY DATED AS OF OCTOBER 24, 1997 TABLE OF CONTENTS ----------------- i STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT, dated as of October 24, 1997 (the "Agreement"), is by and among United Rentals, Inc., a Delaware corporation (the "Purchaser"), and the shareholders of Mercer Equipment Company, a North Carolina corporation (the "Company"), listed on the signature pages hereof (collectively the "Sellers"). W I T N E S S E T H: WHEREAS, the Sellers own an aggregate of 16,667 shares of Class A Voting Common Stock, $1.00 par value (the "Class A Shares") and 150,000 shares of Class B Nonvoting Common Stock, $1.00 par value (the "Class B Shares" and, together with the Class A Shares, the "Shares"), of the Company, which Shares constitute all of the issued and outstanding shares of capital stock of the Company; and WHEREAS, the Sellers desire to sell to Purchaser, and Purchaser desires to purchase from the Sellers, the Shares for the purchase price and upon the terms and conditions hereinafter set forth; and WHEREAS, certain terms used in this Agreement are defined in Section 9.1 hereof; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter contained, the parties hereby agree as follows: ARTICLE I SALE AND PURCHASE OF SHARES 1.1 Sale and Purchase of Shares. At the Closing (as hereinafter defined), --------------------------- upon the terms and subject to the conditions contained herein each Seller shall sell, assign, transfer, convey and deliver to the Purchaser, and the Purchaser shall purchase from each Seller, the Shares of such Seller set forth opposite such Seller's name on Annex A hereto. ARTICLE II PURCHASE CONSIDERATION 2.1 Amount of Purchase Price. The purchase price for the Shares shall be ------------------------ an aggregate amount equal to $25,000,000 (the "Purchase Price"), subject to adjustment pursuant to the provisions of Sections 2.3, 2.4 and 2.5 hereof. 2.2 Payment of Estimated Purchase Price. The Purchaser shall pay the ----------------------------------- Estimated Purchase Price (as hereinafter defined) to the Sellers, less the Escrow Amount (as hereinafter defined), by wire transfer of immediately available funds into a trust account of Kennedy, Covington, Lobdell & Hickman L.L.P. designated by the Sellers' Representative for allocation among the Sellers in accordance with their pro-rata ownership of the Shares as set forth on Annex A. 2.3 Determination of Purchase Price ------------------------------- (a) The Sellers have prepared and delivered to the Purchaser an estimate of the Purchase Price Adjustment (as hereinafter defined) (the "Estimated Purchase Price Adjustment"). The "Estimated Purchase Price" paid by the Purchaser at Closing shall be the Purchase Price increased by the amount of the Estimated Purchase Price Adjustment if such Estimated Purchase Price Adjustment is a number greater than zero or decreased by the amount of the Estimated Purchase Price Adjustment if such Estimated Purchase Price Adjustment is a number less than zero. (b) As soon as practicable following the Closing Date, the Purchaser shall cause the Company to prepare and deliver to the Purchaser and the Sellers a balance sheet of the Company as at the close of business on the Closing Date (the "Closing Balance Sheet"). The Closing Balance Sheet shall be compiled by Webster, Duke & Co., P.A., ("Company's Accountants") and shall be prepared in accordance with GAAP applied on a basis consistent with that of the preceding fiscal year (subject to the absence of notes and to normal year-end adjustments). The Seller, the Purchaser and the Purchaser's accountants ("Purchaser's Accountants") shall have the opportunity to consult with and to examine the work papers, schedules and other documents prepared or reviewed by Company's Accountants in connection with the compilation of the Closing Balance Sheet and of the Purchase Price Certificate referred to in subparagraph (c) hereof. (c) The calculation of the Purchase Price Adjustment (as defined below) shall be made by the Company's Accountants, who shall render a certificate (the "Purchase Price Certificate") showing such calculation and stating that such calculation has been made in accordance with the provisions of this Article II hereof. The Purchase Price Certificate shall be delivered to the Purchaser and the Sellers as soon as practicable following the Closing Date but in no event later than 45 days thereafter. (d) The "Purchase Price Adjustment" shall equal the difference between (A) the aggregate of the Company's (i) cash and cash equivalents, (ii) accounts receivable (without regard to the allowance for doubtful accounts), finance accounts, advances, unearned insurance premiums, refundable non-highway use fuel taxes and notes receivable (including notes receivable from any Seller or Affiliate of any Seller) (the "Receivables") and (iii) prepaid expenses and (B) the total liabilities of the Company, as reflected on the Closing Balance Sheet or the Estimated Purchase Price Adjustment, as applicable. (e) The Purchaser and the Sellers' Representative shall have a period of twenty (20) days after delivery of the Closing Balance Sheet and the Purchase Price Certificate to present in writing to the Company's Accountants (with a copy to the Sellers or the Purchaser, as applicable) any objections the Purchaser or the Sellers' Representative on behalf of the Sellers, may have to any of the matters set forth therein, which objections shall be set forth in reasonable detail. If no objections are raised within such 20-day period, the Closing Balance Sheet and the determination of the Purchase Price Adjustment shall be deemed accepted and approved by the Purchaser and by the Sellers and (i) within five business days thereafter, the Purchaser shall pay to the Sellers by wire transfer of immediately available funds to accounts designated by the Sellers within five business days thereafter, the amount, if any, by which the Purchase Price Adjustment shall exceed the amount of the Estimated Purchase Adjustment ("Positive Purchase Price Adjustment") and allocated among the Sellers in accordance with their pro-rata ownership of the Shares as set forth on Annex A or (ii) the Purchaser shall, to the extent of the Escrow Amount, collect from the Escrow (in which case the Purchaser and the Sellers' Representative shall give instructions to the Escrow Agent to permit the 2 Purchaser to collect from the Escrow) or within five business days after the 20- day period, be paid by the Sellers by wire transfer of immediately available funds to an account designated by the Purchaser, the amount, if any, by which the Estimated Purchase Adjustment shall exceed the Purchase Price Adjustment ("Negative Purchase Price Adjustment"). (f) If the Purchaser or the Sellers' Representative shall raise any objections within the aforesaid 20-day period, the Company's Accountants and the Purchaser's Accountants shall attempt to resolve the matter or matters in dispute and, if resolved, such firms shall send a joint notice to the Purchaser and the Sellers stating the manner in which the dispute was resolved and a revised Purchase Price Certificate prepared in accordance with such resolution, whereupon the revised Purchase Price Certificate shall be final and binding on the parties hereto and the revised Positive Purchase Price Adjustment or Negative Purchase Price Adjustment as applicable shall be paid in accordance with the payment provisions of Section 2.4(e) hereof. If such dispute cannot be resolved by the Purchaser and the Sellers' Representative nor by such accounting firms within forty (40) days after the delivery of the Closing Balance Sheet, then the specific matters in dispute shall be submitted to another firm of independent public accountants mutually acceptable to the Purchaser and the Sellers' Representative, which firm shall make a final and binding determination as to such matter or matters and the revised Positive Purchase Price Adjustment or Negative Purchase Price Adjustment as applicable shall be paid in accordance with the payment provisions of Section 2.4(e) hereof. The parties agree to cooperate with each other and each other's authorized representatives and with any other accounting firm selected by the Purchaser and the Sellers' Representative in order that any and all matters in dispute shall be resolved as soon as practicable. (g) The fees and expenses hereunder of Company's Accountants and the Purchaser's Accountants shall be paid by the Sellers and the Purchaser, respectively, except that the fees and expenses of Company's Accountants in conducting the compilation as required by Section 2.3(b) hereof, shall be paid when due by the Purchaser, and those of the other accounting firm selected by the Purchaser and the Sellers' Representative pursuant to Section 2.4(f) hereof shall be paid one-half by the Purchaser and one-half by the Sellers. 2.4 Equipment Adjustment. The Rental Asset Listing attached as Schedule -------------------- 2.4 sets forth, as of October 21, 1997, the asset description, make, model and original cost of all rental equipment inventory (the "Equipment") held for rent to customers as used in the preparation of the Closing Balance Sheet. The Equipment is Rental Ready (as defined below). Within 30 days following the Closing Date, the Purchaser shall complete a physical inventory of each item of Equipment on the Rental Asset Listing, including by visiting renters' locations as necessary to inspect such Equipment. The Purchase Price shall be (i) reduced for each item of Equipment listed on the Rental Asset Listing which is missing (or non-existing), not Rental Ready, or otherwise not available for rent to customers by the Company and not replaced with other like Equipment, but only to the extent the value (as calculated in the next sentence) of all such Equipment exceeds $50,000 (ii) increased for each item of Equipment listed on the Rental Asset Listing, which has a unit cost less than $7,500 (unless approved by Purchaser) and which was purchased by the Company subsequent to October 21, 1997; provided, however , without -------- ------- 3 the written consent of the Purchaser, the aggregate of all such Equipment purchased shall not exceed $75,000; provided further, the Purchase Price shall -------- ------- be increased for all such Equipment purchased in the aggregate in excess of $75,000 if the purchase thereof was consented to by the Purchaser, and (iii) reduced for each item of Equipment sold by the Company subsequent to October 21, 1997 (collectively, the "Equipment Adjustment"). The reduction in the Purchase Price in item (i) above shall be calculated by the aggregate fair market value (as determined by the Purchaser and the Sellers' Representative) of all missing or unavailable Equipment and at the repair cost for all non-Rental Ready Equipment. Such repair cost with respect to any item of Equipment shall be determined based upon the cost of similar repair most recently performed by the Company to the same or similar item of such Equipment. In the event of a Purchase Price reduction due to an Equipment Adjustment, the Purchaser shall be entitled to be paid out of the Escrow Amount, and the Purchaser and the Sellers' Representative shall give instructions to the Escrow Agent to pay, an amount equal to such reduction within five business days of completion of the determination of the Equipment Adjustment. For purposes of this Agreement, an item of Equipment is "Rental Ready" only if it does not require any repairs in excess of $750 per item for those items having a net book value in excess of $25,000, in excess of $500 per item for those items having a net book value in excess of $10,000 but not in excess of $25,000, in excess of $200 per item for those items having a net book value in excess of $5,000 but not in excess of $10,000 and $100 per item for those items having a net book value not in excess of $5,000 per item. Any disputes as to the physical count, fair market value or Rental Readiness of any item of Equipment will, if possible, be resolved while the physical inventory of such Equipment is being taken. Any disputes not so resolved will be resolved by the dispute resolution provisions of Section 2.3(f) hereof. 2.5 Receivables Adjustment. The Sellers represent and warrant that ---------------------- all of the Receivables on the Closing Balance Sheet are good and valid and will be collectable by the Company not later than 120 days after the Closing Date. To the extent any Receivables existing on the Closing Date remain outstanding following such 120 day period, the Purchaser shall be entitled to be paid, and the Purchaser and the Sellers' Representative shall give instructions to the Escrow Agent to pay, out of the Escrow Amount an amount equal to the Receivables remaining unpaid at such time. Upon receipt of such payment in respect of the unpaid Receivables, the Company shall assign such unpaid Receivables to the Sellers' Representative for the benefit of the Sellers free and clear of any Liens and, if the Company receives any payment with respect to any such assigned Receivables, the Company shall promptly turn over to the Sellers' Representative for the benefit of the Sellers such payment in the form received, properly endorsed for transfer, if necessary. The Purchaser shall cause the Company to take all reasonable action, consistent with past practice to collect the Receivables and, unless otherwise specified in any remittance, collected Receivables will be applied against invoices on a "FIFO" basis. The Purchaser shall cause the Company to permit the Sellers and their representatives full access, during normal business hours, to the books and records of the Company relating to the Receivables. 2.6 Escrow ------ (a) At the Closing, $2,000,000 (the "Escrow Amount") of the Purchase Price shall be deposited by the Purchaser with First Union National Bank, a national banking association (the "Escrow Agent") pursuant to an escrow agreement mutually agreeable to the parties hereto (the "Escrow Agreement"). All interest and other income earned on the Escrow Amount shall, subject to Section 2.6(b) hereof, be disbursed by the Escrow Agent 4 together with the Escrow Amount (collectively, the "Escrow") to the Sellers' Representative for the benefit of the Sellers 120 days after the Closing Date (the "Escrow Expiration Date"); provided, however, that, in the event that the -------- ------- Purchaser has prior to the Escrow Expiration Date delivered notice to the Escrow Agent and the Sellers that the Purchaser, in good faith, disputes the adjustment to the Purchase Price, the Equipment Adjustment or the Receivables Adjustment and setting for the amount of such dispute (the "Disputed Amount"), the Escrow Agent shall disburse to the Sellers' Representative for the benefit of the Sellers the sum of (i) the remaining Escrow less (ii) the Disputed Amount. Upon ---- resolution by the Purchaser and the Sellers' Representative of the Disputed Amount, the Escrow Agent shall disburse the Disputed Amount as so resolved. (b) To the extent there is any of the Escrow Amount remaining following the adjustment of the Purchase Price pursuant to Section 2.3 hereof, the Equipment Adjustment pursuant to Section 2.4 hereof and the Receivables Adjustment pursuant to Section 2.5 hereof, the Sellers shall be entitled to be paid in accordance with their pro-rata ownership of Shares as set forth on Annex A, and the Purchaser and Sellers' Representative shall give instructions to the Escrow Agent to pay out, any such amount within five business days of the determination of the last of such adjustments. (c) To the extent that the aggregate amount of the adjustments pursuant to Sections 2.3, 2.4 and 2.5 exceed the Escrow Amount, the Sellers shall pay the deficiency in the Escrow Amount to the Purchaser by wire transfer of immediately available funds not later than five business days after resolution of the calculation of such deficiency as provided in Section 2.3, 2.4 and 2.5, as applicable. The obligation to pay to the Purchaser any deficiency in the Escrow Amount shall be a joint and several obligation of the Sellers. 2.7 Payment of Certain Company Debt. At the Closing, the Purchaser ------------------------------- shall, on behalf of the Company, pay in full all amounts then owing by the Company to the Persons specified in Schedule 2.7 and cause the obligations (including guarantees), if any, of the Sellers with respect thereto to be terminated, and the Purchaser shall cause the guaranty of Angus W. Mercer, Thomas J. Fletcher and William Mark Rigsbee with American Honda Motor Co., Inc. and the guaranty of William Mark Rigsbee with Stone Financing, Inc. to be terminated within thirty (30) days of the Closing Date. ARTICLE III CLOSING AND TERMINATION 3.1 Closing Date. The closing of the sale and purchase of the Shares ------------ provided for in Section 1.1 hereof (the "Closing") shall take place simultaneous with the execution of this Agreement at the offices of Kennedy Covington Lobdell & Hickman, L.L.P. located at 100 North Tryon Street, Suite 4200, Charlotte, North Carolina 28202-4006 on October 24, 1997. The date on which the Closing was held is referred to in this Agreement as the "Closing Date". ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLERS The Sellers hereby jointly and severally represent and warrant to the Purchaser that: 5 4.1 Organization and Good Standing. The Company is a corporation duly ------------------------------ organized, validly existing and in good standing under the laws of the state of North Carolina, is qualified to do business and is in good standing as a foreign corporation in the state of South Carolina and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now conducted. The Company is not, and is not required to be, qualified or authorized to do business as a foreign corporation in any other jurisdiction, the failure to so qualify or be authorized would result in a Material Adverse Change. 4.2 Authorization of Agreement. Each Seller has all requisite power, -------------------------- authority and legal capacity to execute and deliver, as applicable, this Agreement, an Employment Agreement substantially in the form of Exhibit A hereto (the "Employment Agreements"), an Escrow Agreement substantially in the form of Exhibit B hereto (the "Escrow Agreement"), a Non-Competition Agreement substantially in the form of Exhibit C hereto (the "Non-Competition Agreements"), a Consulting Agreement substantially in the form of Exhibit D hereto (the "Consulting Agreement") and each other agreement, document, or instrument or certificate contemplated by this Agreement to be executed by such Seller in connection with the consummation of the transactions contemplated by this Agreement (together with this Agreement, the Employment Agreements, the Escrow Agreement, the Non-Competition Agreement and the Consulting Agreement, the "Seller Documents"), and to consummate the transactions contemplated hereby and thereby. This Agreement and each of the other Seller Documents have been duly and validly executed and delivered by each Seller and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement constitutes, and each of the other Seller Documents constitutes a legal, valid and binding obligation of each Seller, enforceable against each Seller in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). 4.3 Capitalization. -------------- (a) The authorized capital stock of the Company consists of 200,000 Shares, of which 25,000 shares are Class A Shares and 175,000 shares are Class B Shares. As of the date hereof, there are 166,667 Shares issued and outstanding, of which 16,667 shares are Class A Shares and 150,000 shares are Class B Shares. All of the issued and outstanding Shares were duly authorized for issuance and are validly issued, fully paid and non-assessable. The Shares being acquired by the Purchaser hereunder constitute all of the outstanding shares of capital stock of the Company. (b) There is no existing option, warrant, call, right, commitment or other agreement of any character to which any Seller or the Company is a party requiring, and there are no securities of the Company outstanding which upon conversion or exchange would require, the issuance, sale or transfer of any additional shares of capital stock or other equity securities of the Company or other securities convertible into, exchangeable for or evidencing the right to subscribe for or purchase shares of capital stock or other equity securities of the Company. Except as set forth on Schedule 4.3 (which agreements would terminate upon closing), none of the Sellers nor the Company is a party to any voting trust or other voting agreement with respect to any 6 of the Shares or to any agreement relating to the issuance, sale, redemption, transfer or other disposition of the capital stock of the Company. 4.4 No Subsidiaries. The Company does not, directly or indirectly, --------------- own any stock or other equity interest in any other Person. 4.5 Corporate Records -----------------. (a) The Sellers have delivered to the Purchaser true, correct and complete copies of the Articles of Incorporation certified by the Secretary of State of the State of North Carolina and By-laws of the Company, each certified by the secretary, assistant secretary or other appropriate officer of the Company. (b) The stock certificate books and stock transfer ledgers of the Company previously made available to the Purchaser are true, correct and complete. All stock transfer taxes levied or payable with respect to all transfers of shares of the Company prior to the date hereof, if any, have been paid and appropriate transfer tax stamps affixed, if required. 4.6 Conflicts; Consents of Third Parties. ------------------------------------ (a) Neither the execution, delivery and performance by any Seller of this Agreement and the other Seller Documents, nor compliance by any Seller with any of the provisions hereof or thereof will (i) conflict with, or result in the breach of, any provision of the Articles of Incorporation or By-laws of the Company, (ii) conflict with, violate, result in the breach or termination of, or constitute a default under any material note, bond, mortgage, indenture, license, agreement or other instrument or obligation to which the Company or any Seller is a party or by which any of them or any of their respective properties or assets is bound, (iii) violate any statute, rule, regulation, order or decree of any governmental body or authority by which the Company or any Seller is bound, or (iv) result in the creation of any Lien upon the properties or assets of the Company, except, in the case of clause (ii), (iii) and (iv), for such violations, Liens, breaches or defaults as would not, individually or in the aggregate, result in a Material Adverse Change. (b) Except as set forth on Schedule 4.6 hereto, no consent, waiver, approval, Order, Permit or authorization of, or declaration or filing with, or notification to, any Person or Governmental Body is required on the part of any Seller or the Company in connection with the execution and delivery of this Agreement or the other Seller Documents, or the compliance by each Seller or the Company, as the case may be, with any of the provisions hereof or thereof. 4.7 Ownership and Transfer of Shares. Each Seller is the record and -------------------------------- beneficial owner of the Shares indicated as being owned by such Seller on Annex A, free and clear of any and all Liens, other than any restrictions imposed by any federal or state securities Laws. Annex A hereto sets forth, as of the date hereof, the name, address and social security number of each record or beneficial owner of Shares and the number and type of Shares so owned. Each Seller has the power and authority to sell, transfer, assign and deliver such Shares as provided in this Agreement, and such delivery will convey to the Purchaser good and marketable title to such Shares, free and clear of any and all Liens, other than any restrictions imposed by any federal or state securities Laws. 7 4.8 Financial Statements. The Sellers have delivered to the Purchaser -------------------- copies of (i) the audited balance sheets of the Company as at December 31, 1990, 1991, 1992, 1993, 1994, 1995 and 1996 and the related audited statements of income and of cash flows of the Company for the years then ended and (ii) the unaudited balance sheet of the Company as at September 30, 1997 and the related statement of income of the Company for the nine (9) month period then ended (such audited and unaudited statements, including the related notes and schedules thereto, are referred to herein as the "Financial Statements"). Each of the Financial Statements is, and the Closing Balance Sheet when delivered will be, complete and correct in all material respects, has been (or will be) prepared in accordance with GAAP (subject to the absence of notes and to normal year-end adjustments in the case of the unaudited statements) and in conformity with the practices consistently applied by the Company without modification of the accounting principles used in the preparation thereof and presents (or will present) fairly the financial position, results of operations and cash flows of the Company as at the dates and for the periods indicated as applicable, in accordance with GAAP consistently applied, subject in the case of the unaudited Financial Statements and the Closing Balance Sheet to the absence of notes and a statement of cash flows and to normal year-end adjustments For the purposes hereof, the audited balance sheet of the Company as at December 31, 1996 is referred to as the "1996 Balance Sheet", December 31, 1996 is referred to as the "1996 Balance Sheet Date" and the unaudited balance sheet of the Company as at September 30, 1997 is referred to as the "September Balance Sheet". 4.9 No Undisclosed Liabilities. Except as set forth on Schedule 4.9, -------------------------- the Company has no indebtedness, obligations or liabilities of any kind (whether accrued, absolute, contingent or otherwise, and whether due or to become due) that would have been required to be reflected in, reserved against or otherwise described on the September Balance Sheet, the 1996 Balance Sheet or in the notes to the 1996 Balance Sheet in accordance with GAAP which was not fully reflected in, reserved against or otherwise described in the September Balance Sheet, the 1996 Balance Sheet or the notes to the 1996 Balance Sheet or was not incurred in the ordinary course of business consistent with past practice since the Balance Sheet Date. 4.10 Absence of Certain Developments. Except as expressly contemplated ------------------------------- by this Agreement or as set forth on Schedule 4.10, since the 1996 Balance Sheet Date: (i) there has not been any Material Adverse Change nor has there occurred any event which is reasonably likely to result in a Material Adverse Change; (ii) there has not been any damage, destruction or loss, whether or not covered by insurance, with respect to the property and assets of the Company having a replacement cost of more than $5,000 for any single loss; (iii) there has not been any declaration, setting aside or payment of any dividend or other distribution in respect of any shares of capital stock of the Company or any repurchase, redemption or other acquisition by any Seller or the Company of any outstanding shares of capital stock or other securities of, or other ownership interest in, the Company; (iv) The Company has not awarded or paid any bonuses to employees of the Company except to the extent accrued on the 1996 Balance Sheet or the September Balance Sheet or entered into any employment, deferred compensation, severance or similar agreement (nor amended any such agreement) that is not terminable at will or 8 agreed to increase the compensation payable or to become payable by it to any of the Company's directors, officers or employees or agreed to increase the coverage or benefits available under any severance pay, termination pay, vacation pay, company awards, salary continuation for disability, sick leave, deferred compensation, bonus or other incentive compensation, insurance, pension or other employee benefit plan, payment or arrangement made to, for or with such directors, officers, employees, agents or representatives (other than in each case in this Section 4.10(iv) normal increases in the ordinary course of business consistent with past practice and that in the aggregate have not resulted in a material increase in the benefits or compensation expense of the Company); (v) there has not been any change by the Company in accounting or Tax reporting principles, methods or policies; (vi) the Company has not entered into any transaction or Contract or conducted its business other than in the ordinary course consistent with past practice; (vii) the Company has not failed to promptly pay and discharge current liabilities except where disputed in good faith by appropriate proceedings; (viii) the Company has not made any loans, advances or capital contributions to, or investments in, any Person; (ix) the Company has not mortgaged, pledged or subjected to any Lien any of its assets, or acquired any assets or sold, assigned, transferred, conveyed, leased or otherwise disposed of any assets of the Company, except for assets acquired or sold, assigned, transferred, conveyed, leased or otherwise disposed of in the ordinary course of business consistent with past practice; (x) the Company has not discharged or satisfied any Lien, or paid any obligation or liability (fixed or contingent), except in the ordinary course of business consistent with past practice; (xi) the Company has not canceled or compromised any debt or claim or amended, canceled, terminated, relinquished, waived or released any Contract or right except in the ordinary course of business consistent with past practice; (xii) the Company has not made or committed to make any capital expenditures or capital additions or betterments outside of the ordinary course of business consistent with past practices; (xiii) the Company has not instituted or settled any material Legal Proceeding; and (xiv) neither the Sellers nor the Company has agreed to do anything set forth in this Section 4.10. 4.11 Taxes. ----- (a) The Company has properly and timely elected under Section 1362 of the Code, and under each analogous or similar provision of state or local law in each jurisdiction where the Company is required to file a Tax Return, to be treated as an "S" 9 corporation for all taxable periods since its inception. There has not been any voluntary or involuntary termination or revocation of any such election. (b) Except as set forth on Schedule 4.11(a), (i) all Tax Returns required to be filed by or on behalf of the Company have been properly prepared and duly and timely filed with the appropriate taxing authorities in all jurisdictions in which such Tax Returns are required to be filed (after giving effect to any valid extensions of time in which to make such filings), and all such Tax Returns were true, complete and correct in all material respects; and (ii) all amounts that are due from the Company with respect to the periods covered by such Tax Returns (including interest and penalties) have been fully and timely paid, and adequate reserves or accruals for Taxes have been provided in the Closing Balance Sheet with respect to any period for which Tax Returns have not yet been filed or for which Taxes are not yet due and owing. (c) The Company has complied in all material respects with all applicable laws, rules and regulations relating to the payment and withholding of Taxes and has duly and timely withheld from employee salaries, wages and other compensation and has paid over to the appropriate taxing authorities all amounts required to be so withheld and paid over for all periods under all applicable laws. (d) All federal and state income Tax Returns of the Company relating to the last three (3) taxable periods of the Company have been made available to the Purchaser. All income and franchise Tax Returns filed by or on behalf of the Company for the taxable years ended on the respective dates set forth on Schedule 4.11(d) have been or are being audited by the relevant taxing authority. Except as set forth on Schedule 4.11(d), the Company has not filed for any extension to file any income or franchise Tax Return. (e) Except as set forth on Schedule 4.11(e), the Company has received no written claim by a taxing authority in a jurisdiction where the Company does not file Tax Returns such that it is or may be subject to taxation by that jurisdiction. (f) Except as set forth on Schedule 4.11(f), all deficiencies asserted or assessments made as a result of any examinations by the Internal Revenue Service or any other taxing authority of the Tax Returns of or covering or including the Company have been fully paid, and there are no other audits or, to the Knowledge of the Sellers, investigations by any taxing authority in progress, nor have the Sellers or the Company received any written notice or, to the Knowledge of the Sellers, oral notice from any taxing authority that it intends to conduct such an audit or investigation. No issue has been raised by a federal, state, local or foreign taxing authority in any current or prior examination which, by application of the same or similar principles, could reasonably be expected to result in a material deficiency for any subsequent taxable period. (g) Except as set forth on Schedule 4.11(g), neither the Company nor any other Person (including any of the Sellers) on behalf of the Company has (i) agreed to or is required to make any adjustments pursuant to Section 481(a) of the Code or any similar provision of state, local or foreign law by reason of a change in accounting method initiated by the Company or has any Knowledge that the Internal Revenue Service has proposed any such adjustment or change in accounting method, or has any application pending with any taxing authority requesting permission for any changes in accounting methods that relate to the business or operations of the Company, (ii) executed or entered into a closing agreement pursuant to Section 7121 of the Code or any predecessor provision thereof or any similar provision of state, local or foreign law with respect to the 10 Company, (iii) extended the time within which to file any Tax Return, which Tax Return has since not been filed or the assessment or collection of taxes, which taxes have not since been paid or (iv) granted any power of attorney with respect to any tax matter currently in force. (h) No property owned by the Company (i) is property required to be treated as being owned by another Person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect immediately prior to the enactment of the Tax Reform Act of 1986, (ii) constitutes "tax-exempt use property" within the meaning of Section 168(h)(1) of the Code or (iii) is "tax- exempt bond financed property" within the meaning of Section 168(g) of the Code. (i) No Seller is a foreign person within the meaning of Section 1445 of the Code. (j) The Company is not a party to any tax sharing or similar agreement or arrangement (whether or not written). (k) There is no contract, agreement, plan or arrangement covering any person that, individually or collectively, could give rise to the payment of any amount that would not be deductible by the Purchaser, or its Affiliates by reason of Section 280G of the Code. (l) The Company is not subject to any private letter ruling of the IRS or comparable rulings of other taxing authorities that are addressed expressly to the Company or the Sellers. (m) There are no Liens as a result of any unpaid Taxes upon any of the assets of the Company. (n) Except as set forth on Schedule 4.11(n), the Company has no elections in effect for federal income tax purposes under Sections 108, 168, 338, 441, 463, 472, 1017, 1033 or 4977 of the Code. (o) The Company has never owned any Subsidiaries and has never been a member of any consolidated, combined or affiliated group of corporations for any Tax purposes. 4.12 Real Property. ------------- (a) The Company owns no real property or interests in real property. Schedule 4.12(a) sets forth a complete list of all real property and interests in real property leased by the Company (individually, a "Real Property Lease" and the real properties specified in such leases, being referred to herein individually as a "Company Property" and collectively as the "Company Properties") as lessee or lessor. The Company Properties constitute all interests in real property currently used or currently held for use in connection with the business of the Company and which are necessary for the continued operation of the business of the Company as the business is currently conducted. The Company has a valid and enforceable leasehold interest under each of the Real Property Leases, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of 11 commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). The Company has not received any written notice of any material default or event that with notice or lapse of time, or both, would constitute a material default by the Company under any of the Real Property Leases. All of the Company Property, buildings, fixtures and improvements thereon owned or leased by the Company are in good operating condition and repair for items of comparable age (subject to normal wear and tear). The Sellers have delivered or otherwise made available to the Purchaser true, correct and complete copies of the Real Property Leases, together with all amendments, modifications or supplements, if any, thereto. (b) The Company has all material certificates of occupancy and Permits of any Governmental Body necessary to be possessed by it for the current use and operation of each Company Property, and the Company has fully complied with all material conditions of the Permits applicable to them. No material default or violation, or event that with the lapse of time or giving of notice or both would become material a default or violation, has occurred in the due observance of any Permit. (c) There does not exist any actual or, to the best Knowledge of the Sellers, threatened or contemplated condemnation or eminent domain proceedings in respect of any Company Property or any part thereof, and none of the Sellers has received any written notice of the intention of any Governmental Body to institute any condemnation or eminent domain proceedings in respect of any Company Property to take or use all or any part thereof. (d) None of the Sellers nor the Company has received any written notice from any insurance company that has issued a policy with respect to any Company Property requiring performance of any structural or other repairs or alterations to such Company Property. (e) The Company does not own or hold, and is not obligated under or a party to, any option, right of first refusal or other contractual right to purchase, acquire, sell, assign or dispose of any real estate or interest therein. 4.13 Tangible Personal Property. -------------------------- (a) Schedule 2.4 sets forth a list, as of October 21, 1997, of all Equipment owned or leased pursuant to a capital lease by the Company for lease or rent to its customers. Schedule 4.13(a) also sets forth a list, as of October 22 or September 30, 1997, as indicated on the list attached thereto, of all material tangible personal property (other than the Equipment) owned or leased by the Company ("Other Assets"). (b) Except as set forth in Schedule 4.13(b), the Company has good and marketable title to all of the Equipment and Other Assets (except as sold or disposed of subsequent to the date indicated in Section 4.13(a) hereof in the ordinary course of business consistent with past practice), free and clear of any and all Liens other than the Permitted Exceptions. All such Other Assets are in good condition and repair for items of comparable age (ordinary wear and tear excepted). 4.14 Intangible Property. Other than generally available, "off-the- ------------------- shelf" items containing intellectual property, Schedule 4.14(a) contains a complete and correct list of each patent, trademark, trade name, service mark and copyright owned or used by 12 Company as well as all registrations thereof and pending applications therefor, and each license or other agreement relating thereto. Except as set forth on Schedule 4.14, each of the foregoing is owned by the Company free and clear of all Liens and, to the Knowledge of Sellers, is not the subject of any ownership challenge. To the Knowledge of the Sellers, neither the Sellers nor the Company has received any written notice or otherwise knows or has reason to believe that any of the foregoing is invalid or conflicts with the asserted rights of others. 4.15 Material Contracts. ------------------ Schedule 4.15 sets forth all of the following Contracts to which the Company is a party or by which it is bound (collectively, the "Material Contracts"): (i) Contracts with any Seller or any current officer or director of the Company; (ii) Contracts with any labor union or association representing any employee of the Company; (iii) Contracts for the sale of any of the assets of the Company other than in the ordinary course of business or for the grant to any person of any preferential rights to purchase any of its assets; (iv) Contracts containing covenants of the Company not to compete in any line of business or with any person in any geographical area or covenants of any other person not to compete with the Company in any line of business or in any geographical area; (v) Contracts relating to the acquisition by the Company of any operating business or the capital stock of any other person; (vi) Contracts relating to the borrowing of money; (vii) written Contracts under which the Company acts as a distributor, dealer or franchisor; or (viii) any other Contracts, including oral distributor, dealer or franchisor Contracts, which require the expenditure of more than $20,000 in the aggregate per Contract or $20,000 annually per Contract. There have been made available to the Purchaser or its representatives true and complete copies of all of the Material Contracts. Except as set forth on Schedule 4.15(a), all of the Material Contracts and other agreements are in full force and effect and are the legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). Except as set forth on Schedule 4.15(b), the Company is not in default in any material respect under any Material Contracts, nor, to the Knowledge of any Seller, is any other party to any Material Contract in default thereunder in any material respect. Except as set forth on Schedule 4.6, no Material Contract requires notice to, or consent or approval of, any third party to the transactions contemplated by this Agreement. 4.16 Employee Benefits. ----------------- (a) Schedule 4.16(a) sets forth a complete and correct list of (i) all "employee benefit plans", as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and any other pension plans or employee benefit arrangements, programs or payroll practices (including, without limitation, severance pay, vacation pay, company awards, salary continuation for disability, sick leave, retirement, deferred compensation, bonus or other incentive compensation, stock purchase arrangements or policies, hospitalization, medical insurance, life insurance and scholarship programs) as to which the Company has any obligation or liability (contingent or otherwise) ("Employee Benefit Plans") and (ii) all "employee pension benefit plans", as defined in Section 3(2) of ERISA, maintained by the Company or any trade or business (whether or not incorporated) which are under control, or which are treated as a single employer, with Company under Section 414(b), (c), (m) or (o) of the Code ("ERISA Affiliate") or to which the Company or any ERISA Affiliate contributed or is obligated to contribute thereunder ("Pension Plans"). 13 (b) No Pension Plan is subject to Title IV of ERISA. (c) Each of the Employee Benefit Plans and Pension Plans intended to qualify under Section 401 of the Code ("Qualified Plans") so qualify and the trusts maintained thereto are exempt from federal income taxation under Section 501 of the Code, and, except as disclosed on Schedule 4.16(c), nothing has occurred with respect to the operation of any such plan which could cause the loss of such qualification or exemption or the imposition of any material liability, penalty or tax under ERISA or the Code. (d) All contributions and premiums required by law or by the terms of any Employee Benefit Plan or Pension Plan or any agreement relating thereto have been timely made (without regard to any waivers granted with respect thereto) to any funds or trusts established thereunder or in connection therewith, and no accumulated funding deficiencies exist in any of such plans subject to Section 412 of the Code. (e) There are no pending Legal Proceedings which have been asserted or instituted against any of the Employee Benefit Plans or Pension Plans, the assets of any such plans or the Company, or the plan administrator or any fiduciary of the Employee Benefit Plans or Pension Plans with respect to the operation of such plans (other than routine, uncontested benefit claims), and there are no facts or circumstances which could form the basis for any such Legal Proceeding. (f) Each of the Employee Benefit Plans and Pension Plans has been maintained, in all material respects, in accordance with its terms and all provisions of applicable Law. All amendments and actions required to bring each of the Employee Benefit Plans and Pension Plans into conformity in all material respects with all of the applicable provisions of ERISA and other applicable Laws have been made or taken except to the extent that such amendments or actions are not required by law to be made or taken until a date after the Closing Date. (g) Neither the Company nor any ERISA Affiliate has terminated any Employee Benefit Plan or Pension Plan subject to Title IV of ERISA, or incurred any outstanding liability under Section 4062 of ERISA to the Pension Benefit Guaranty Corporation or to a trustee appointed under Section 4042 of ERISA. (h) Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) result in any payment becoming due to any employee of Company; (ii) increase any benefits otherwise payable under any Employee Benefit Plan or Pension Plan; or (iii) result in the acceleration of the time of payment or vesting of any such benefits. (i) No stock or other security issued by Company forms or has formed a material part of the assets of any Employee Benefit Plan or Pension Plan. 14 4.17 Labor; Personnel. ---------------- (a) Schedule 4.17(a) sets forth a complete list, as of the Closing Date, of all officers, directors and employees (by type or classification) of the Company and their respective rates of compensation, including (i) the portions thereof attributable to bonuses, (ii) any other salary, bonus, stock option, equity participation, or other compensation arrangement made with or promised to any of them, and (iii) copies of all employment agreements with non-union officers, directors and employees. (b) The Company is not party to any labor or collective bargaining agreement and there are no labor or collective bargaining agreements which pertain to employees of the Company. No employees of the Company are represented by any labor organization. No labor organization or group of employees of the Company has made a pending written demand to the Company for recognition, and there are no representation proceedings or petitions seeking a representation proceeding presently pending or, to the best Knowledge of the Sellers, threatened to be brought or filed, with the National Labor Relations Board or other labor relations tribunal. To the Knowledge of the Sellers, there is no organizing activity involving the Company pending or threatened by any labor organization or group of employees of the Company. (c) There are no (i) strikes, work stoppages, slowdowns, lockouts or arbitrations or (ii) material grievances or other material labor disputes pending or, to the best Knowledge of any Seller, threatened against or involving the Company. There are no unfair labor practice charges, grievances or complaints pending or, to the best Knowledge of any Seller, threatened by or on behalf of any employee or group of employees of the Company. 4.18 Litigation. Except as set forth in Schedule 4.18, there is ---------- no suit, action, proceeding, investigation, claim or order of which the Company has had notice pending before any court, or before any governmental department, commission, board, agency, or instrumentality or, to the Knowledge of the Sellers, threatened against the Company (or to the Knowledge of the Sellers or the Company, pending or threatened, against any of the officers, directors or key employees of the Company with respect to their business activities on behalf of the Company), or to which the Sellers or the Company is otherwise a party, which would reasonably be expected to result in a judgment in excess of $100,000 to the Company. Except as set forth in Schedule 4.18, the Company is not subject to any judgment, order or decree of any court or governmental agency that is not of general application, and the Company is not engaged in any legal action to recover monies due it or for damages sustained by it. 4.19 Compliance with Laws; Permits. ----------------------------- (a) The Company is in compliance in all material respects with all Laws applicable to the Company or to the conduct of the business or operations of the Company or the use of its properties (including any leased properties) and assets as now used. Except as set forth on Schedule 4.19(a), the Company has received no notice from any party asserting that the Company has violated any Laws. (b) Schedule 4.19(b) sets forth a full and complete list of all Permits owned by or issued to the Company and which are material to the operation of the business of the Company or now conducted. Such Permits constitute all Permits necessary in the 15 operation of the business of the Company as currently conducted. All of such Permits are valid and in full force and effect and there are no proceedings pending, or to the Knowledge of the Sellers, threatened which may result in the revocation, cancellation, suspension or material adverse modification of any such Permit. 4.20 Environmental Matters. Except as set forth on Schedule 4.20 hereto: --------------------- (a) the operations of the Company are in compliance with all applicable Environmental Laws and all permits issued pursuant to Environmental Laws; (b) the Company has obtained all material permits required under all applicable Environmental Laws necessary to operate its business; (c) the Company is not the subject of any outstanding written order or Contract with any governmental authority or person respecting (i) Environmental Laws, (ii) Remedial Action or (iii) any Release or threatened Release of a Hazardous Material; (d) the Company has not received any written communication or, to the Knowledge of the Sellers, any other communication alleging either or both that the Company may be in violation of (i) any Environmental Law or (ii) any permit issued pursuant to any Environmental Law, or that the Company may have any liability under any Environmental Law; (e) the Company does not have any material contingent liability in connection with any Release of any Hazardous Materials into the indoor or outdoor environment (whether on-site or off-site); (f) to the Sellers' Knowledge, there are no investigations by any Governmental Body of the business, operations, or currently owned, operated or leased property of the Company pending or threatened which could lead to the imposition of any material liability pursuant to Environmental Law; (g) to the Sellers' Knowledge there is not located at any of the properties of the Company any (i) underground storage tanks ("UST"), (ii) asbestos- containing material necessitating immediate abatement or (iii) equipment containing polychlorinated biphenyls necessitating immediate removal or remediation; (h) the Sellers have provided to the Purchaser all material environmentally related audits, studies, reports, analyses, and results of investigations that have been performed and provided to the Company with respect to the currently or previously owned, leased or operated properties of the Company during the time that the Company owned, leased or operated such property and that are in the Company's possession and reduced to writing; (i) As to each UST, Schedule 4.20(i) sets forth to the extent available to the Company (1) the location of the UST currently or formerly owned by the Company, and whether the Company currently owns or leases the property on which the UST is located (and if the Company does not currently own or lease such property, the dates on which it did and the current owner or lessee of such property); (2) the approximate date of installation and specific use or uses of the UST; (3) a copy of each notice to or from a governmental body or agency relating to the UST; (4) other material records with regard to the UST, including, without limitation, repair records, financial assurance compliance 16 records and records of ownership; and (5) to the extent not otherwise set forth pursuant to the above, a summary description of instances, past or present, in which, to the Seller's Knowledge, the UST failed to meet applicable standards and regulations in any material respect for tightness or otherwise and the extent of such failure, and any other material operational or environmental problems with regard to the UST, including, without limitation, spills, including spills in connection with delivery of materials to the UST, releases from the UST and soil contamination. 4.21 Insurance. Schedule 4.21 sets forth (i) a complete and accurate --------- list of all policies of insurance of any kind or nature covering the Company or any of its employees (as employees), properties or assets, including, without limitation, policies of life, disability, fire, theft, workers compensation, employee fidelity and other casualty and liability insurance; and (ii) as to each such policy, the name of the insurer, the type of risks insured, the deductible and limits of coverage and the annual premium therefor. All such policies are in full force and effect, and, to the Sellers' Knowledge, the Company is not in default of any provision thereof. 4.22 Related Party Transactions. Except as set forth on Schedule 4.22, -------------------------- neither the Sellers nor any of their respective Affiliates has borrowed any moneys from the Company which has not been repaid or has outstanding any indebtedness or other similar obligations to the Company. Except as set forth in Schedule 4.22, none of the Sellers, any Affiliate of the Company or the Sellers or any officer or employee of the Company (i) to the Knowledge of the Sellers, owns any direct or indirect interest of any kind in (other than any interest of less than 5% in any in any Person subject to the reporting requirements of the Exchange Act of 1934, as amended), or controls or is a director, officer, employee or partner of, or consultant to, or lender to or borrower from or has the right to participate in the profits of, any Person which is (A) a competitor, supplier, customer, landlord, tenant, creditor or debtor of the Company, (B) engaged in a business related to the business of the Company, or (C) a participant in any transaction to which the Company is a party or (ii) is a party to any Contract with the Company. 4.23 Banks. Schedule 4.23 contains a complete and correct list of the ----- names and locations of all banks in which the Company has accounts or safe deposit boxes and the names of all persons authorized to draw thereon or to have access thereto. Except as set forth on Schedule 4.23(a), no person holds a power of attorney to act on behalf of the Company. 4.24 Product Quality, Warranty Claims, Product Liability. All products --------------------------------------------------- and services sold, rented, leased, provided or delivered by the Company to customers on or prior to the Closing Date conform or will conform in all material respects to applicable contractual commitments, express and implied warranties, product and service specifications and quality standards made or established by the Company and, to the knowledge of the Sellers, those of the manufacturer thereof, as applicable. To the Knowledge of the Sellers, the Company has no liability for replacement or repair of any such product or other damages in connection therewith other than warranty repairs in the ordinary course of business consistent with past practices. Except as set forth on Schedule 4.24, no product or service sold, leased, rented, provided or delivered by the Company to customers on or prior to the Closing Date is subject to any guaranty, warranty or other indemnity beyond the applicable standard terms and conditions of sale, rent or lease. Except as set forth on Schedule 4.24, the Company has no liability arising out of any injury to a person or property as a result of the ownership, possession, provision or use of any Equipment, product or service sold, rented, leased, provided or 17 delivered by the Company on or prior to the Closing Date. There has been no product liability claim asserted in writing against the Company since January 1, 1991, whether covered by insurance or not and whether litigation has resulted or not. 4.25 No Misrepresentation. No representation or warranty of any Seller -------------------- contained in this Agreement or in any schedule hereto or in any certificate or other instrument furnished by any Seller to the Purchaser pursuant to the terms hereof, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading. 4.26 Brokers; Finders. No Person has acted, directly or indirectly, as ---------------- a broker or finder for the Sellers or the Company in connection with the transactions contemplated by this Agreement for which such Person is entitled to any fee or commission or like payment in respect thereof. ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER The Purchaser hereby represents and warrants to the Sellers that: 5.1 Organization and Good Standing. The Purchaser is a corporation duly ------------------------------ organized, validly existing and in good standing under the laws of the State of Delaware. 5.2 Authorization of Agreement. The Purchaser has full corporate power -------------------------- and authority to execute and deliver this Agreement, the Employment Agreements, the Escrow Agreement, the Non-Competition Agreement and each other agreement, document, instrument or certificate contemplated by this Agreement to be executed by the Purchaser in connection with the consummation of the transactions contemplated hereby and thereby (together with this Agreement, the Employment Agreements, the Escrow Agreement and Non-Competition Agreement, the "Purchaser Documents"), and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by the Purchaser of this Agreement and each other Purchaser Document have been duly authorized by all necessary corporate action on behalf of the Purchaser. This Agreement and each other Purchaser Document have been duly executed and delivered by the Purchaser and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement and each other Purchaser Document constitutes a legal, valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). 5.3 Conflicts; Consents of Third Parties. ------------------------------------ (a) Neither the execution, delivery and performance by the Purchaser of this Agreement and the other Purchaser Documents nor the compliance by the Purchaser with any of the provisions hereof or thereof will (i) conflict with, or result in the breach of, any provision of the certificate of incorporation or by-laws of the Purchaser, (ii) conflict with, violate, result in the breach of, or constitute a default under any note, bond, mortgage, indenture, license, agreement or other obligation to which the Purchaser is a party or by 18 which the Purchaser or its properties or assets are bound or (iii) violate any statute, rule, regulation, order or decree of any governmental body or authority by which the Purchaser is bound, except, in the case of clauses (ii) and (iii), for such violations, breaches or defaults as would not, individually or in the aggregate, have a material adverse effect on the business, properties, results of operations, prospects, conditions (financial or otherwise) of the Purchaser, taken as a whole. (b) No consent, waiver, approval, Order, Permit or authorization of, or declaration or filing with, or notification to, any Person or Governmental Body is required on the part of the Purchaser in connection with the execution and delivery of this Agreement or the other Purchaser Documents or the compliance by Purchaser with any of the provisions hereof or thereof. 5.4 Litigation. There are no Legal Proceedings pending or, to ---------- the best Knowledge of the Purchaser, threatened that are reasonably likely to prohibit or restrain the ability of the Purchaser to enter into this Agreement or consummate the transactions contemplated hereby. 5.5 Investment Intention. The Purchaser is acquiring the Shares for -------------------- its own account, for investment purposes only and not with a view to the distribution (as such term is used in Section 2(11) of the Securities Act of 1933, as amended (the "Securities Act"), thereof. Purchaser understands that the Shares have not been registered under the Securities Act and cannot be sold unless subsequently registered under the Securities Act or an exemption from such registration is available. 5.6 Brokers; Finders. No Person has acted, directly or indirectly, ---------------- as a broker or finder for the Purchaser in connection with the transactions contemplated by this Agreement for which such Person is entitled to any fee or commission or like payment in respect thereof. 5.7 HRS Filing. The Purchaser is not required to file a Notification ---------- and Report Form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, with respect to the transactions contemplated by this Agreement. ARTICLE VI DOCUMENTS DELIVERED 6.1 Deliveries by the Sellers. At the Closing, the Sellers shall deliver, ------------------------- or cause to be delivered, to the Purchaser the following: (a) stock certificates representing the Shares, duly endorsed in blank or accompanied by stock transfer powers and with all requisite stock transfer tax stamps attached; (b) the opinion of Kennedy Covington Lobdell & Hickman, L.L.P., counsel to the Seller; (c) executed copies of the Leases; (d) a Non-Competition Agreement, duly executed by each Seller; 19 (e) Employment Agreements, between the Company and each of William Mark Rigsbee and Thomas James Fletcher; (f) a Consulting Agreement, between the Company and Angus Wilton Mercer; (g) written resignations of each of the officers and directors of the Company; (i) certificates of good standing with respect to the Company issued by the Secretary of State of the State of North Carolina and for each state in which the Company is qualified to do business as a foreign corporation; (j) a copy of a Power of Attorney appointing the Seller's Representatives; (k) UCC termination statements, releases or other similar documentation evidencing satisfaction of the indebtedness required to be paid pursuant to Section 2.7 hereof; (l) an executed copy of the Escrow Agreement; and (m) such other documents as the Purchaser reasonably requested. 6.2 Deliveries by the Purchaser. At the Closing, the Purchaser shall --------------------------- deliver, or cause to be delivered, to the Sellers (or the Escrow Agent with respect to Section 6.2(b) hereof or the Persons listed on Schedule 2.7 with respect to Section 6.2(c) hereof) the following: (a) the Purchase Price referred to in Section 2.2(a) hereof; (b) the Escrow Amount referred to in Section 2.6 hereof together with an executed copy of the Escrow Agreement; (c) the amounts due in accordance with Section 2.7 hereof; (d) executed copies of the Leases; (e) a Non-Competition Agreement with each letter, duly executed by each the Purchaser; (f) Employment Agreements, between the Company and each of William Mark Rigsbee and Thomas James Fletcher; (g) a Consulting Agreement, between the Company and Angus Wilton Mercer; (h) the opinion of Weil, Gotshal & Manges LLP, counsel to the Purchaser; and (i) such other documents as the Sellers reasonably requested. 20 ARTICLE VII INDEMNIFICATION 7.1 Indemnification. --------------- (a) Subject to Section 7.2 hereof, the Sellers hereby agree to jointly and severally indemnify and hold the Purchaser, the Company, and their respective directors, officers, employees, Affiliates, agents, successors and assigns (collectively, the "Purchaser Indemnified Parties") harmless from and against: (i) any and all losses, liabilities, obligations, damages, costs and expenses (collectively, "Losses") based upon, attributable to or resulting from the failure of any representation or warranty of the Sellers set forth in Article IV hereof, or any representation or warranty contained in any certificate delivered by or on behalf of the Sellers pursuant to this Agreement, to be true and correct in all respects as of the date made; (ii) any and all Losses based upon, attributable to or resulting from the breach of any covenant or other agreement on the part of the Sellers under this Agreement; (iii) any and all Losses (including any loss of use of Company Property or any of the tangible personal property of the Company), arising from the use, operation or existence of any UST on any property owned or leased by the Company on or prior to the Closing Date; (iv) any and all Losses in respect of any and all Taxes of the Company for all periods (or portions thereof) ending on or prior to the Closing Date for which no accrual has been made on the September Balance Sheet; and (v) any and all notices, actions, suits, proceedings, claims, demands, assessments, judgments, costs, penalties and expenses, including attorneys' and other professionals' fees and disbursements (collectively, "Expenses") incident to any and all Losses with respect to which indemnification is provided hereunder. (b) Purchaser hereby agrees to indemnify and hold the Sellers and their respective Affiliates, agents, successors and assigns (collectively, the "Seller Indemnified Parties") harmless from and against: (i) any and all Losses based upon, attributable to or resulting from the failure of any representation or warranty of the Purchaser set forth in Article V hereof, or any representation or warranty contained in any certificate delivered by or on behalf of the Purchaser pursuant to this Agreement, to be true and correct as of the date made; (ii) any and all Losses based upon, attributable to or resulting from the breach of any covenant or other agreement on the part of the Purchaser under this Agreement; and (iii) any and all Losses based upon, attributable to or resulting form the failure of the Purchaser to abide by its notice to Sellers' Representative pursuant to Section 8.1(b)(i) relating to whether it will make the Election. 21 (iv) any and all Expenses incident to the foregoing. 7.2 Limitations on Indemnification. Notwithstanding anything in this ------------------------------ Agreement to the contrary: (a) An indemnifying party shall not have any liability under Section 7.1(a)(i), (ii) and (iii) or Section 7.1(b)(i) and (ii) hereof unless the aggregate amount of Losses and Expenses to the indemnified parties finally determined to arise thereunder based upon, attributable to or resulting from the failure of any representation or warranty to be true and correct, other than the representations and warranties set forth in Sections 4.2, 4.3, 4.7, 4.11, 4.26, 5.2 and 5.6 hereof, exceeds $250,000 (the "Basket") and, in such event, the indemnifying party shall be required to pay the entire amount of such Losses and Expenses in excess of $250,000 (the "Deductible"). The maximum amount of Losses and Expenses, in the aggregate together with all other Losses and Expenses, which either the Sellers, in the aggregate, or the Purchaser shall be liable hereunder shall not exceed fifty percent (50%) of the Purchase Price, as adjusted pursuant hereto. (b) Except with respect to the Employment Agreements, the Non-Competition Agreements and the Consulting Agreement, neither the Purchaser nor the Sellers shall have any liability or responsibility in any manner whatsoever to the other whether for indemnification or otherwise with respect to any matter arising out of or in connection with this Agreement or any instrument or document delivered in connection herewith and Article VII hereof provides the exclusive remedy and cause of action of the Seller Indemnified Parties and the Purchase Indemnified Parties against the Purchaser and the Sellers, respectively, with respect to any matter arising out of or in connection with this Agreement or any instrument or document delivered in connection herewith. (c) With respect to the incurrence of any Losses and Expenses indemnifiable hereunder and dealing with any Claim indemnifiable hereunder under Section 7.4 hereof, the Purchaser and each of the Sellers as Indemnified Parties agree to act as would a reasonable and prudent person to whom no indemnity were available. The Purchaser shall, and shall cause the Company to, allow the Sellers and their representatives access at all reasonable times during normal business hours to the records and files, correspondence, audits and properties reasonably pertaining or relating to any Claim as the Sellers or their representatives may request. (d) Neither the Purchaser nor the Sellers shall have any liability for any Losses or Expenses otherwise indemnifiable hereunder with respect to which a Notice of Claim is not delivered to the indemnifying party no later than, with respect to any Claim relating to Section 4.2, 4.3, 4.7, 4.11, 4.26, 5.2 or 5.6 hereof, thirty (30) days after the date on which the applicable statute of limitations would have run, with respect to any Claim relating to Section 4.20 or 7.1(a)(iii) hereof, thirty (30) days after the three (3) year anniversary of the Closing Date, and, with respect to any other representation, warranty, covenant or agreement, thirty (30) days after the eighteen (18) month anniversary of the Closing Date. (e) The amount of any Losses and Expenses indemnifiable hereunder shall be reduced by the amount of (i) any tax benefits actually realized (taking into account Purchaser's loss of any tax benefit as a result of the Election) by the Purchaser Indemnified Parties or the Seller Indemnified parties, as applicable, (ii) insurance proceeds net of premium increases reasonably anticipated to result therefrom and (iii) 22 proceeds or amount from third parties (regardless of when received but only if actually received), in each case of clauses (i), (ii) and (iii) in connection with or as a result of such Losses and Expenses. (f) The Sellers shall no liability with respect to any breach of any representation or warranty in this Agreement or in any instrument or document delivered pursuant to this Agreement to the extent (but only to the extent) that the adjustments to the Purchase Price set forth in Article II hereof cover the same subject matter. (g) The Sellers shall have no liability with respect to any breach of Section 4.2 hereof relating to the Employment Agreements, the Non-Competition Agreements or the Consulting Agreement, provided that this Section 7.2(g) shall not limit, modify or otherwise affect in any manner the rights and remedies of the parties to the Employment Agreements, the Non-Competition Agreements and the Consulting Agreement as provided therein. 7.3 Survival of Representations and Warranties ------------------------------------------ . The parties hereto hereby agree that the representations, warranties, covenants and agreements, including Section 7.1 hereof, contained in this Agreement or in any certificate, document or instrument delivered in connection herewith, shall survive the execution and delivery of this Agreement, and the Closing hereunder, regardless of any investigation made by the parties hereto, for a period of eighteen (18) months from the Closing Date; provided, however, ----------------- that the representations and warranties contained in Sections 4.2, 4.3, 4.7, 4.11, 4.26, 5.2 and 5.6 hereof shall survive for periods coterminous with any applicable statutes of limitation; provided, further, that the representations -------- ------- and warranties contained in Section 4.20 hereof and the indemnification provided in Section 7.1(a)(iii) hereof shall survive for a period of three (3) years from the Closing Date; and provided, further, that any representation or warranty on -------- ------- which a claim for indemnification has been made in good faith within the applicable time limit set forth in Section 7.4 hereof shall survive, with respect to such claim only, until resolution of such claim pursuant to Section 7.4 hereof. 7.4 Indemnification Procedures. -------------------------- (a) In the event that any Legal Proceedings shall be instituted or that any claim or demand in respect of which payment may be sought under Section 7.1 hereof (regardless of the Basket or the Deductible referred to above) (collectively, a "Claim") shall be instituted or asserted by any Person, the indemnified party shall reasonably and promptly cause written notice of the assertion of such Claim (a "Notice of Claim") to be delivered to the indemnifying party no later than, with respect to any Claim relating to Section 4.2, 4.3, 4.7, 4.11, 4.26, 5.2 or 5.6,hereof the date on which the applicable statute of limitations would have run or, with respect to Section 4.20 hereof and the indemnification pursuant to Section 7.1(a)(iii) hereof, the three (3) year anniversary of the Closing Date, and, with respect to any other representation, warranty, covenant or agreement, the eighteen (18) month anniversary of the Closing Date, which Notice of Claim shall set forth in reasonable detail the basis upon which indemnification is sought and the specific nature of the Claim and shall include or be accompanied by any available documents supporting the Claim. The indemnified party shall continue to provide prompt notice to the indemnifying party of any material developments with respect to such Claim of which it has Knowledge. The indemnifying party shall have the right, at its sole option and expense, to be represented by counsel of its choice, which must be reasonably satisfactory to the indemnified party, and to defend against, negotiate, settle or 23 otherwise deal with any Claim which relates to any Losses indemnified against hereunder; provided however, that the Purchaser shall have the right to control -------- ------- the defense to the extent of any claim seeking equitable relief or Remedial Action. If the indemnifying party elects to defend against, negotiate, settle or otherwise deal with any Claim which relates to any Losses indemnified against hereunder, it shall within ten (10) business days (or sooner, if the nature of the Claim so requires) notify the indemnified party of its intent to do so. If the indemnifying party elects not to defend against, negotiate, settle or otherwise deal with any Claim which relates to any Losses indemnified against hereunder, fails to notify the indemnified party of its election as herein provided or contests its obligation to indemnify the indemnified party for such Losses under this Agreement, the indemnified party may defend against, negotiate, settle or otherwise deal with such Claim. If the indemnified party defends any Claim, then the indemnifying party shall reimburse the indemnified party for the Expenses of defending such Claim upon submission of periodic bills. If the indemnifying party shall assume the defense of any Claim, the indemnified party may participate, at his or its own expense, in the defense of such Claim; provided, however, that such indemnified party shall be entitled to -------- ------- participate in any such defense with separate counsel at the expense of the indemnifying party if, (i) so requested by the indemnifying party to participate or (ii) in the reasonable opinion of counsel to each of the indemnified party and the indemnifying party, a conflict or potential conflict exists between the indemnified party and the indemnifying party that would make such separate representation advisable; and provided, further, that the indemnifying -------- ------- party shall not be required to pay for more than one such counsel for all indemnified parties in connection with any Claim. The parties hereto agree to cooperate fully with each other in connection with the defense, negotiation or settlement of any such Claim. (b) After any final judgment or award shall have been rendered by a court, arbitration board or administrative agency of competent jurisdiction and the expiration of the time in which to appeal therefrom, or a settlement shall have been consummated, or the indemnified party and the indemnifying party shall have arrived at a mutually binding agreement with respect to a Claim hereunder, the indemnified party shall forward to the indemnifying party notice of any sums due and owing by the indemnifying party pursuant to this Agreement with respect to such matter and the indemnifying party shall be required to pay all of the sums so due and owing to the indemnified party by wire transfer of immediately available funds within 10 business days after the date of such notice. (c) Except as provided in Section 7.5 hereof, the failure of the indemnified party to give reasonably prompt notice of any Claim and continuing notice of any material developments with respect to such Claim shall not release, waive or otherwise affect the indemnifying party's obligations with respect thereto except to the extent that the indemnifying party can demonstrate actual loss and prejudice as a result of such failure. 7.5 Right of Set Off. The Purchaser may, but shall not be obligated to, ---------------- set off against any and all payments due Sellers out of the Escrow Amount, any amount to which any Purchaser Indemnified Party is entitled hereunder. Such right of set off shall be separate and apart from any and all other rights and remedies that such persons may have against the Sellers or their successors. Notwithstanding the foregoing, no Notice of Claim of which the Claim is disputed by the Sellers or the Sellers' Representative and the Purchaser shall affect or otherwise restrict the disbursement provisions set forth in Section 2.6 hereof. 24 ARTICLE VIII TAX MATTERS 8.1 Tax Matters. ----------- (a) The Sellers and the Purchaser agree to treat any indemnity payment made pursuant to Article VII as an adjustment to the Purchase Price for federal, state, local and foreign income tax purposes. (b) (i) At the election of the Purchaser, the Sellers and the Purchaser shall file an election under Section 338(h)(10) of the Code and under any comparable provisions of state, local, or foreign law with respect to the purchase of the Shares (the "Election"). No later than February 15, 1998, the Purchaser shall notify the Sellers' Representative whether the Purchaser will make the Election. If the Election is made, the Election Tax Cost (as determined hereunder) shall be paid as additional Purchase Price by the Purchaser to the Sellers' Representative for the benefit of the Sellers and the Sellers and the Purchaser shall report, in connection with the determination of Taxes, the transactions contemplated by this Agreement in a manner consistent with the Election, the computation of the Election Tax Cost, the Modified Aggregate Deemed Sales Price (as defined below) and the Deemed Sales Price Allocation (as defined below). The Sellers and the Purchaser shall take no action which is inconsistent with the Election or its validity under the Code and the applicable Treasury Regulations. (ii) On the Closing Date, the Sellers shall execute and deliver to Ernst & Young five copies of Internal Revenue Service Form 8023-A provided by the Purchaser and any similar forms under applicable state, local or foreign law (the "Election Forms") which shall be released to the Purchaser upon the Purchaser's payment of the Election Tax Cost to the Sellers' Representative for the benefit of the Sellers. (iii) As soon as practicable after the Closing Date, the Purchaser shall deliver to the Sellers a written notice of its intention to file the Election, together with the Purchaser's calculation of (A) the Modified Aggregate Deemed Sales Price, (B) the allocation thereof among the assets of the Company in accordance with the principles of Treasury Regulation (S)1.338(h)(10)- 1(f)(1)(ii) (the "Deemed Sales Price Allocation") and (C) the Election Tax Cost. The term "Modified Aggregate Deemed Sales Price" shall mean an amount resulting from the Election, determined pursuant to Treasury Regulation (S)1.338(h)(10)- 1(f) without regard to items described in Treasury Regulation (S)1.338(h)(10)- 1(f)(4) (provided that the Sellers may take such items into account in filing Tax Returns). The term "Election Tax Cost" shall mean, with respect to each Seller, (A) the excess, if any, of (x) the net ordinary income and capital gain recognized by such Seller as a consequence of the Election multiplied by such Seller's net effective federal and state income tax rate applicable to ordinary income and capital gain, as the case may be, in effect on the Closing Date, over (y) the net long-term capital gain that would have been recognized by such Seller on the sale of his Shares if the Election had not been made multiplied by such Seller's net effective federal and state income tax rate applicable to long-term capital gain on the sale of stock, divided by (B) the excess of 100 percent over the applicable percentage described in clause (x). (iv) The Purchaser shall be responsible for the preparation and filing of all forms and documents required in connection with the Election. The Purchaser shall provide the Sellers with copies of (A) any necessary corrections, amendments, or 25 supplements to Form 8023-A, (B) all attachments required to be filed therewith pursuant to applicable Treasury Regulations, and (C) any comparable forms and attachments with respect to any applicable state, foreign, or local elections included as part of the Election. The Sellers shall execute and deliver to the Purchaser within five (5) days of receipt by the Sellers such documents or forms as are required properly to complete the Election. (v) The Sellers and the Purchaser shall cooperate fully with each other and make available to each other such Tax data and other information as may be reasonably required by the Sellers or the Purchaser in order for the Purchaser to (A) timely file the Election and any other required statements or schedules (or any amendments or supplements thereto), (B) compute the Modified Aggregate Deemed Sale Price and the Deemed Sale Price Allocation and (C) compute the Election Tax Cost. ARTICLE IX MISCELLANEOUS 9.1 Certain Definitions. For purposes of this Agreement, the ------------------- following terms shall have the meanings specified in this Section 10.1: "Agreement" shall have the meaning ascribed to such term in the recitals --------- hereof. "Affiliate" means, with respect to any Person, any other Person --------- controlling, controlled by or under common control with such Person. "1996 Balance Sheet" shall have the meaning ascribed to such term in ------------------ Section 4.8 hereof. "1996 Balance Sheet Date" shall have the meaning ascribed to such term in ----------------------- Section 4.8 hereof. "Basket" shall have the meaning ascribed to such term in Section 7.2(a) ------ hereof. "Business Day" means any day of the year on which national banking ------------ institutions in New York and Charlotte, North Carolina are open to the public for conducting business and are not required or authorized to close. "Claim" shall have the meaning ascribed to such term in Section 7.3(a) ----- hereof. "Class A Shares" shall have the meaning ascribed to such term in the -------------- recitals hereto. "Class B Shares" shall have the meaning ascribed to such term in the -------------- recitals hereto. "Closing" shall have the meaning ascribed to such term in Section 3.1 ------- hereof. "Closing Balance Sheet" shall have the meaning ascribed to such term in --------------------- Section 2.3(b) hereof. "Closing Date" shall have the meaning ascribed to such term in Section 3.1 ------------ 26 hereof. "Closing Statement" shall have the meaning ascribed to such term in Section ----------------- 2.2 hereof. "Code" shall mean the Internal Revenue Code of 1986, as amended. ---- "Company" shall have the meaning ascribed to such term in the recitals ------- hereof. "Company's Accountants" shall have the meaning ascribed to such term in --------------------- Section 2.3(b) hereof. "Company Property" shall have the meaning ascribed to such term in Section ---------------- 4.12(a) hereof. "Contract" means any contract, agreement, indenture, note, bond, loan, -------- lease or other legally binding arrangement or agreement. "Deductible" shall have the meaning ascribed to such term in Section 7.2(a) ---------- hereof. "Demand Sale Price Allocation" shall have the meaning ascribed to such term ---------------------------- in Section 8.1(b) hereof. "Election" shall have the meaning ascribed to such term in Section 8.1(b) -------- hereof. "Election Forms" shall have the meaning ascribed to such term in Section -------------- 8.1(b) hereof. "Election Tax Cost" shall have the meaning ascribed to such term in Section ----------------- 8.1(b) hereof. "Employee Benefit Plan" shall have the meaning ascribed to such term in --------------------- Section 4.16(a) hereof. "Environmental Law" means any federal, state or local statute, regulation, ----------------- or ordinance, in any way relating to the protection of the environment including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. (S)9601 et seq.), the Hazardous -- ---- Materials Transportation Act (49 U.S.C. App. (S)1801 et seq.), the Resource -- ---- Conservation and Recovery Act (42 U.S.C. (S)6901 et seq.), the Clean Water Act -- ---- (33 U.S.C. (S)1251 et seq.), the Clean Air Act (42 U.S.C. (S)7401 et seq.) the -- ---- -- ---- Toxic Substances Control Act (15 U.S.C. (S)2601 et seq.), and the Federal -- ---- Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. (S)136 et seq.), and the -- ---- regulations promulgated pursuant thereto. "Equipment" shall have the meaning ascribed to such term in Section 2.4 --------- hereof. "Equipment Adjustment" shall have the meaning ascribed to such term in -------------------- Section 2.5 hereof. 27 "ERISA" shall have the meaning ascribed to such term in Section 4.16(a) ----- hereof. "ERISA Affiliate" shall have the meaning ascribed to such term in Section --------------- 4.16(a) hereof. "Escrow Agreement" shall have the meaning ascribed to such term in Section ---------------- 2.6(a) hereof. "Escrow Amount" shall have the meaning ascribed to such term in Section ------------- 2.6(a) hereof. "Estimated Purchase Price" shall have the meaning ascribed to such term in ------------------------ Section 2.3(a) hereof. "Estimated Purchase Price Adjustment" shall have the meaning ascribed to ----------------------------------- such term in Section 2.3(a) hereof. "Expenses" shall have the meaning ascribed to such term in Section 7.1(a) -------- hereof. "Financial Statements" shall have the meaning ascribed to such term in -------------------- Section 4.8 hereof. "GAAP" means generally accepted accounting principles set forth in the ---- opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the United States accounting profession, that are applicable to the circumstances as of the date of determination. "Governmental Body" means any government or governmental or regulatory ----------------- body thereof, or political subdivision thereof, whether federal, state, local or foreign, or any agency, instrumentality or authority thereof, or any court or arbitrator (public or private). "Hazardous Material" means any substance, material or waste which is ------------------ regulated by the United States, or any state or local governmental authority including, without limitation, petroleum and its by-products, asbestos, and any material or substance which is defined as a "hazardous waste," "hazardous substance," "hazardous material," "restricted hazardous waste," "industrial waste," "solid waste," "contaminant," "pollutant," "toxic waste" or "toxic substance" under any provision of Environmental Law. "Knowledge" means the actual Knowledge of a person after due inquiry of the --------- person at the Company with the primary responsibility for such matter. "Law" means any federal, state, local or foreign law (including common --- law), statute, code, ordinance, rule, regulation or other requirement of any governmental authority. 28 "Leases" shall mean the real property leases between the Company and ------ Fletcher-Rigsbee, LLC to be entered into on the Closing Date relating to each of the Company Properties. "Legal Proceeding" means any judicial, administrative or arbitral actions, ---------------- suits, proceedings (public or private), claims or governmental proceedings. "Lien" means any lien, pledge, mortgage, deed of trust, security interest, ---- lease, charge, option, right of first refusal, easement, servitude, transfer restriction under any shareholder or similar agreement, encumbrance or any other restriction whatsoever. "Losses" shall have the meaning ascribed to such term in Section 7.1(a) ------ hereof. "Material Adverse Change" means any material adverse change in the ----------------------- business, properties, results of operations and condition (financial or otherwise) of the Company, taken as a whole, excluding any change caused in whole or in part by any of the following: (i) general economic conditions, (ii) general industry or regulatory conditions and (iii) matters previously disclosed by the Seller in this Agreement, including the Schedules hereto. "Material Contracts" shall have the meaning ascribed to such terms in ------------------ Section 4.15 hereof. "Modified Aggregate Demand Sales Price" shall have the meaning ascribed to ------------------------------------- such term in Section 8.1(b) hereof. "Negative Purchase Price Adjustment" shall have the meaning ascribed to ---------------------------------- such term in Section 2.3(e) hereof. "Non-Competition Agreements" shall have the meaning ascribed to such term -------------------------- in Section 4.2 hereof. "Notice of Claim" shall have the meaning ascribed to such term in Section --------------- 7.4(a) hereof. "Order" means any order, injunction, judgment, decree, ruling, writ, ----- assessment or arbitration award by any Governmental Body. "Other Assets" shall have the meaning ascribed to such term in Section ------------ 4.13(a) hereof. "PBGC" shall have the meaning ascribed to such term in Section 4.16(e) ---- hereof. "Pension Plans" shall have the meaning ascribed to such term in Section ------------- 4.16(a) hereof. "Permits" means any approvals, authorizations, consents, licenses, permits ------- or certificates of any type from any Governmental Body. 29 "Permitted Exceptions" means (i) all defects, exceptions, restrictions, -------------------- easements, rights of way, encumbrances and Liens of record or disclosed in policies of title insurance which have been made available to Purchaser; (ii) statutory liens for current taxes, assessments or other governmental charges not yet delinquent or the amount or validity of which is being contested in good faith by appropriate proceedings, provided a reserve is established therefor in accordance with GAAP; (iii) mechanics', carriers', workers', repairers' and similar Liens arising or incurred in the ordinary course of business that are not material to the business, operations and financial condition of the property so encumbered or the Company, taken as a whole; (iv) zoning, entitlement and other land use and environmental regulations by any Governmental Body, provided that such regulations have not been violated in any material respect; and (v) such other imperfections in title, charges, easements, restrictions and encumbrances which do not materially detract from the value of or materially interfere with the present use of any Company Property subject thereto or affected thereby. "Person" means any individual, corporation, partnership, firm, joint ------ venture, association, joint-stock company, trust, unincorporated organization, Governmental Body or other entity. "Positive Purchase Price Adjustment" shall have the meaning ascribed to ---------------------------------- such term in Section 2.3(e) hereof. "Purchase Price" shall have the meaning ascribed to such term in Section -------------- 2.1 hereof. "Purchaser" shall have the meaning ascribed to such term in the recitals --------- hereof. "Purchaser's Accountants" shall have the meaning ascribed to such term in ----------------------- Section 2.3(b) hereof. "Purchase Price Adjustment" shall have the meaning ascribed to such term in ------------------------- Section 2.3(d) hereof. "Purchase Price Certificate" shall have the meaning ascribed to such term -------------------------- in Section 2.3(c) hereof. "Purchaser Documents" shall have the meaning ascribed to such term in ------------------- Section 5.2 hereof. "Purchaser Indemnified Parties" shall have the meaning ascribed to such ----------------------------- term in Section 7.1(a) hereof. "Qualified Plans" shall have the meaning ascribed to such term in Section --------------- 4.16(c) hereof. "Real Property Lease" shall have the meaning ascribed to such term in ------------------- Section 4.12(a) hereof. "Receivables" shall have the meaning ascribed to such term in Section ----------- 2.3(d) hereof. 30 "Release" means any release, spill, emission, leaking, pumping, injection, ------- deposit, disposal, discharge, dispersal, or leaching into the indoor or outdoor environment, or into or out of any property; "Remedial Action" means all actions to (x) clean up, remove, treat or in --------------- any other way address any Hazardous Material as required by applicable Environmental Law; or (y) perform pre-remedial studies and investigations or post-remedial monitoring and care with respect to matters under clause (x) above. "Securities Act" means the Securities Act of 1933, as amended. -------------- "Sellers" shall have the meaning ascribed to such term in the recitals ------- hereto. "Sellers Documents" shall have the meaning ascribed to such term in Section ----------------- 4.2 hereof. "Seller Indemnified Parties" shall have the meaning ascribed to such term -------------------------- in Section 7.1(b) hereof. "Sellers' Representative" shall mean Angus W. Mercer or such other ----------------------- individual as provided in the Irrevocable and Durable Power of Attorney, made and entered into as of October 24, 1997 by and among Angus W. Mercer and the shareholders of the Company signatories thereto. "September Balance Sheet" shall have the meaning ascribed to such term in ----------------------- Section 4.8 hereof. "Share Limitation" shall have the meaning ascribed to such term in Section ---------------- 2.3(a) hereof. "Shares" shall have the meaning ascribed to such term in the recitals ------ hereof. "Subsidiary" means any Person of which a majority of the outstanding ---------- voting securities or other voting equity interests are owned, directly or indirectly, by the Company. "Taxes" means (i) all federal, state, local or foreign governmental taxes, ----- charges, fees, imposts, levies or other assessments, including, without limitation, all net income, gross receipts, capital, sales, use, ad valorem, value added, transfer, franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation, property and estimated taxes, customs duties, fees, assessments and charges of any kind whatsoever and (ii) all interest, penalties, fines, additions to tax or additional amounts imposed by any taxing authority in connection with any item described in clause (i). "Tax Return" means all returns, declarations, reports, estimates, ---------- information returns and statements required to be filed in respect of any Taxes. "UST" shall have the meaning ascribed to such term in Section 4.20(g) --- hereof. 31 9.2 Payment of Sales, Use or Similar Taxes. All required sales, use, -------------------------------------- transfer, intangible, recordation, documentary stamp or similar Taxes or charges, of any nature whatsoever, applicable to, or resulting from, the transactions contemplated by this Agreement shall be borne by the Sellers. All recordation charges for recording any Memorandum of Lease with respect to the Leases shall be borne by the Company. 9.3 Expenses. Except as otherwise provided in this Agreement or -------- the Escrow Agreement, the Sellers and the Purchaser shall each bear its own expenses incurred in connection with the negotiation and execution of this Agreement and each other agreement, document and instrument contemplated by this Agreement and the consummation of the transactions contemplated hereby and thereby, it being understood that in no event shall the Company bear any of such costs and expenses. 9.4 Specific Performance. The Sellers acknowledge and agree that the -------------------- this Agreement would cause irreparable damage to the Purchaser and that the Purchaser will not have an adequate remedy at law. Therefore, the obligations of the Sellers under this Agreement, including, without limitation, the Sellers' obligation to sell the Shares to the Purchaser, shall be enforceable by a decree of specific performance issued by any court of competent jurisdiction, and appropriate injunctive relief may be applied for and granted in connection therewith. Such remedies shall, however, be cumulative and not exclusive and shall be in addition to any other remedies which any party may have under this Agreement or otherwise. 9.5 Further Assurances. The Sellers and the Purchaser each agrees to ------------------ execute and deliver such other documents or agreements and to take such other action as may be reasonably necessary or desirable for the implementation of this Agreement and the consummation of the transactions contemplated hereby. 9.6 Entire Agreement; Amendments and Waivers. This Agreement (including ---------------------------------------- the schedules and exhibits hereto) represents the entire understanding and agreement between the parties hereto with respect to the subject matter hereof and can be amended, supplemented or changed, and any provision hereof can be waived, only by written instrument making specific reference to this Agreement signed by the party against whom enforcement of any such amendment, supplement, modification or waiver is sought. No action taken pursuant to this Agreement, including without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representation, warranty, covenant or agreement contained herein. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a further or continuing waiver of such breach or as a waiver of any other or subsequent breach. No failure on the part of any party to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by such party preclude any other or further exercise thereof or the exercise of any other right, power or remedy. All remedies hereunder are cumulative and are not exclusive of any other remedies provided by law. 9.7 Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the laws of the State of North Carolina applicable to contracts made and to be performed wholly within the State of North Carolina and without regard to the conflict of laws principles thereof. 32 9.8 Table of Contents and Headings The table of contents and section ------------------------------ headings of this Agreement are for reference purposes only and are to be given no effect in the construction or interpretation of this Agreement. 9.9 Notices. All notices and other communications under this ------- Agreement shall be in writing and shall be deemed given when delivered personally or mailed by certified mail, return receipt requested, to the parties (and shall also be transmitted by facsimile to the Persons receiving copies thereof) at the following addresses (or to such other address as a party may have specified by notice given to the other party pursuant to this provision): If to any Seller: at their respective addresses set forth on Annex A With a copy to: Kennedy Covington Lobdell & Hickman, L.L.P. 100 North Tryon Street - Suite 4200 Charlotte, North Carolina 28202-4006 Attn: Marcus T. Hickman, Esq. Facsimile No.: (704) 331-7598 If to Purchaser, to: United Rentals, Inc. Four Greenwich Office Park Greenwich, Connecticut 06830 Attn: Mr. John Milne Facsimile No.: (203) 622-6080 With a copy to: Oscar D. Folger, Esq. 521 Fifth Avenue New York, New York 10175 Facsimile No.: (212) 697-9570 Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153-0119 Attn: Stephen M. Besen, Esq. Facsimile No.: (212) 310-8007 9.10 Severability. If any provision of this Agreement ------------ is invalid or unenforceable, the balance of this Agreement shall remain in effect. 9.11 Binding Effect; Assignment . This Agreement shall be binding -------------------------- upon and inure to the benefit of the parties and their respective successors and permitted assigns. Nothing in this Agreement shall create or be deemed to create any third party beneficiary rights in any person or entity not a party to this Agreement except as provided below. No assignment of this Agreement or of any rights or obligations hereunder may be made by 33 either the Sellers or the Purchaser (by operation of law or otherwise) without the prior written consent of the other parties hereto and any attempted assignment without the required consents shall be void; provided, however, that -------- ------- the Purchaser may assign this Agreement and any or all rights or obligations hereunder (including, without limitation, the Purchaser's rights to purchase the Shares and the Purchaser's rights to seek indemnification hereunder) to any Affiliate of the Purchaser so long as Purchaser remains jointly and severally liable for the assigned obligations with the assignee thereof. Upon any such permitted assignment, the references in this Agreement to the Purchaser shall also apply to any such assignee unless the context otherwise requires. 34 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above. UNITED RENTALS, INC. By: ------------------------------------ Name: Title: --------------------------------------- William Mark Rigsbee --------------------------------------- Laurey Mercer Rigsbee --------------------------------------- Angus Wilton Mercer --------------------------------------- Joyce Maxwell Mercer --------------------------------------- Thomas James Fletcher --------------------------------------- Holly Mercer Fletcher --------------------------------------- Kathy Mercer Caffey --------------------------------------- Kimberly Mercer Bowers 35 ANNEX A
Number of Shares Owned Pro Rata KCL&H ---------------------- Shares Checks -------- ------- Seller Voting Non-Voting - ------ ------ ---------- Angus W. Mercer 16,667 10% $ 1,243,324.20 4500 Carmel Estates Road Charlotte, NC 28226 SS No.: ###-##-#### Joyce Maxwell Mercer 10,000 6% 745,994.52 4500 Carmel Estates Road Charlotte, NC 28226 SS No.: ###-##-#### William Mark Rigsbee 30,000 18% 2,237,983.56 4900 Rea Road Charlotte, NC 28226 SS No.: ###-##-#### Laurey Mercer Rigsbee 30,000 18% 2,237,983.56 4900 Rea Road Charlotte, NC 28226 SS No.: ###-##-#### Thomas James Fletcher 30,000 18% 2,237,983.56 4600 Carmel Estates Road Charlotte, NC 28226 SS No.: ###-##-#### Holly Mercer Fletcher 30,000 18% 2,237,983.56 4600 Carmel Estates Road. Charlotte, NC 28226 SS No.: ###-##-#### Kimberly Mercer Bowers 10,000 6% 745,994.52 812 McNair Court High Point, NC 27265 SS No.: ###-##-#### Kathy Mercer Caffey 10,000 6% 745,994.52 814 McNair Court High Point, NC 27265 SS No.: ###-##-#### Angus W. Mercer, $ 500,000.00 as Sellers' Representative
36 TOTAL $12,933.242.00 37 EX-10.(L) 13 STOCK PURCHASE AGREEMENT BRONCO HI-LIFT EXHIBIT 10(l) STOCK PURCHASE AGREEMENT Dated as of October 24, 1997 by and among UNITED RENTALS, INC., a Delaware corporation, and THE SHAREHOLDERS OF BRONCO HI-LIFT INC. TABLE OF CONTENTS -----------------
Page ---- SECTION 1. Certain Definitions............................................ 1 ------------------- SECTION 2. Transfer of Shares and Payment of Purchase Price............... 6 ------------------------------------------------ 2.1 Transfer of Shares............................................. 6 ------------------ 2.2 Amount of Purchase Price....................................... 6 ------------------------ 2.3 Payment of Purchase Price...................................... 6 ------------------------- 2.4 Purchase Price Adjustment...................................... 6 ------------------------- SECTION 3. Representations and Warranties of the Shareholders............. 10 -------------------------------------------------- 3.1 Organization and Authorization................................. 10 ------------------------------ 3.2 Articles of Incorporation; By-Laws; Minute Books............... 10 ------------------------------------------------ 3.3 No Consent; No Conflict........................................ 11 ----------------------- 3.4 Authorized Capitalization...................................... 11 ------------------------- 3.5 Subsidiaries; Investments; Affiliate Notes..................... 12 ------------------------------------------ 3.6 Financial Statements........................................... 12 -------------------- 3.7 Records and Books of Account................................... 13 ---------------------------- 3.8 Liabilities.................................................... 13 ----------- 3.9 Title to Assets; Liens and Encumbrances........................ 13 --------------------------------------- 3.10 Tangible Assets................................................ 14 --------------- 3.11 Facilities..................................................... 15 ---------- 3.12 Leased Assets.................................................. 15 ------------- 3.13 Trademarks, Service Marks, Trade Names, Patents and Copyrights. 16 -------------------------------------------------------------- 3.14 Contracts; Customers........................................... 16 -------------------- 3.15 Labor Relations; Employees..................................... 17 -------------------------- 3.16 Legal Proceedings.............................................. 18 ----------------- 3.17 Orders, Decrees, Etc........................................... 18 -------------------- 3.18 Compliance With Law; Permits and Licenses...................... 19 ----------------------------------------- 3.19 Changes Since December 31, 1996................................ 21 ------------------------------- 3.20 No Material Adverse Change..................................... 22 -------------------------- 3.21 Capital Projects and Expenditures.............................. 22 --------------------------------- 3.22 Employee Benefits.............................................. 23 ----------------- 3.23 Governmental Approvals......................................... 25 ---------------------- 3.24 Tax Matters.................................................... 26 ----------- 3.25 Insurance Coverage............................................. 27 ------------------ 3.26 Preservation of Property....................................... 28 ------------------------ 3.27 Accounts Receivable............................................ 28 ------------------- 3.28 Representations and Warranties................................. 28 ------------------------------ SECTION 4. Representations and Warranties of Buyer........................ 29 ---------------------------------------
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Page ---- 4.1 Good Standing.................................................. 29 ------------- 4.2 Authorization.................................................. 29 ------------- 4.3 Representations and Warranties................................. 29 ------------------------------ 4.4 Governmental Approvals......................................... 29 ---------------------- SECTION 5. Conditions of Buyer's Obligations to Close..................... 30 ------------------------------------------ 5.1 Agreements and Conditions...................................... 30 ------------------------- 5.2 Representations and Warranties................................. 30 ------------------------------ 5.3 No Legal Proceeding............................................ 30 ------------------- 5.4 Deliveries..................................................... 30 ---------- 5.5 Legal Opinion.................................................. 31 ------------- SECTION 6. Conditions of the Shareholders' Obligation to Close............ 31 --------------------------------------------------- 6.1 Agreements and Conditions...................................... 31 ------------------------- 6.2 Representations and Warranties................................. 31 ------------------------------ 6.3 Deliveries..................................................... 31 ---------- 6.4 No Legal Proceeding............................................ 31 ------------------- 6.5 Legal Opinion.................................................. 32 ------------- SECTION 7. Deliveries of the Shareholders on the Closing Date............. 32 -------------------------------------------------- 7.1 Stock Certificates............................................. 32 ------------------ 7.2 Corporate Records.............................................. 32 ----------------- 7.3 Resignations................................................... 32 ------------ 7.4 Consents....................................................... 32 -------- 7.5 Possession of Assets........................................... 32 -------------------- 7.6 Pay Off Letters................................................ 32 --------------- 7.7 Lease Agreement................................................ 32 --------------- 7.8 Legal Opinion.................................................. 33 ------------- 7.9 Employment and Consulting Agreements........................... 33 ------------------------------------ 7.10 Release from Broker............................................ 33 ------------------- 7.11 Termination of Shareholders' Agreement......................... 33 -------------------------------------- SECTION 8. Deliveries of Buyer on the Closing Date........................ 33 --------------------------------------- SECTION 9. Additional Covenants........................................... 33 -------------------- 9.1 Cooperation of Buyer and the Shareholders...................... 33 ----------------------------------------- 9.2 Further Assurances of the Shareholders and Buyer............... 35 ------------------------------------------------ 9.3 Non-Competition Covenant....................................... 36 ------------------------ 9.4 No Disparagement............................................... 37 ----------------
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Page ---- 9.5 Code Section 338(h)(10) Election............................... 37 -------------------------------- SECTION 10. Indemnification................................................ 38 --------------- 10.1 Indemnification by the Shareholders............................ 38 ----------------------------------- 10.2 Indemnification by Buyer....................................... 39 ------------------------ 10.3 Procedures for Third Party Indemnification..................... 39 ------------------------------------------ 10.4 Right of Set Off............................................... 40 ---------------- SECTION 11. Survival of Representations; Effect of Certificates............ 41 --------------------------------------------------- SECTION 12. Brokerage Indemnity............................................ 41 ------------------- SECTION 13. Notices........................................................ 41 ------- SECTION 14. Termination.................................................... 43 ----------- SECTION 15. Miscellaneous.................................................. 44 ------------- 15.1 Entire Agreement............................................... 44 ---------------- 15.2 Taxes.......................................................... 45 ----- 15.3 Governing Law.................................................. 45 ------------- 15.4 Arbitration.................................................... 45 ----------- 15.5 Representation by Counsel...................................... 45 ------------------------- 15.6 Benefit of Parties; Assignment................................. 46 ------------------------------ 15.7 Pronouns....................................................... 46 -------- 15.8 Headings....................................................... 47 -------- 15.9 Expenses....................................................... 47 -------- 15.10 Counterparts................................................... 47 ------------
-iii- STOCK PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT, dated as of October 24, 1997 (this "Agreement"), is by and among UNITED RENTALS, INC., a Delaware corporation ("Buyer"), and the persons whose names are listed on the signature page of this Agreement (the "Shareholders"). RECITALS: -------- A. The Shareholders own, of record and beneficially, all of the issued and outstanding capital stock of Bronco Hi-Lift Inc., a Colorado corporation ("Bronco"), which is engaged in the business of renting and selling equipment in the state of Colorado. B. Buyer desires to purchase from the Shareholders, and the Shareholders desire to sell to Buyer, on the terms and conditions set forth herein, all of the issued and outstanding capital stock of Bronco. AGREEMENT --------- NOW, THEREFORE, in consideration of the foregoing, and the mutual agreements, representations, warranties and covenants contained herein, and for other good and valuable consideration set forth herein, the parties hereto agree as follows: SECTION 1. Certain Definitions. For purposes of this Agreement, the ------------------- following terms shall have the respective meanings set forth below: "Actions" mean any claims, actions, suits, proceedings and investigations, whether at law or in equity, before any court, arbitrator, arbitration panel or Governmental Authority. "Affiliate" of a party means any Person that, directly or indirectly, controls, is controlled by, or is under common control with, such party. "Balance Sheet" has the meaning specified in Section 3.6 below. "Balance Sheet Date" means June 30, 1997. "Business" means Bronco's equipment rental and sales business. "Closing" means the closing of the transactions contemplated hereby, which shall take place at the office of Holme Roberts & Owen LLP, Denver, Colorado, on the Closing Date commencing at 11:00 A.M., or at such other time or place as the parties may agree upon in writing, and shall be effective as of the close of business on the Closing Date. "Closing Date" means October 24, 1997, or such other date as the parties may agree upon in writing. "Code" means the Internal Revenue Code of 1986, as amended, and the rules and regulations thereunder. "Contracts" mean all contracts, agreements, indentures, licenses, leases, commitments, plans, arrangements, sales orders and purchase orders of every kind, whether written or oral. "Damages" mean losses, liabilities, obligations, penalties, costs, damages, claims and expenses (including reasonable costs of investigation and attorneys' fees and disbursements). "Equipment" means all of the furniture, fixtures, furnishings, machinery, automobiles, trucks, tools, equipment and other tangible personal property (excluding Inventory) owned by Bronco and used in connection with the Business, including all items held for rental in the Business. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder. 2 "ERISA Affiliate" means Bronco and each corporation, partnership or other trade or business, whether or not incorporated, which is or has been treated as a single employer or controlled group member with Bronco pursuant to Code Section 414 or ERISA Section 4001. "Environmental Law" has the meaning given in Section 3.18(c). "Facilities" shall mean the rental yards, stores, offices, maintenance and storage facilities, shops, warehouses, improvements, other structures, and all real property and related facilities which are owned or leased by Bronco. "Financial Statements" means those financial statements of Bronco referred to in Section 3.6. "GAAP" means generally accepted United States accounting principles. "Governmental Authority" means any agency, instrumentality, department, commission, court, tribunal or board of any government, whether foreign or domestic and whether national, Federal, state, provincial or local. "Inventory" means all of Bronco's new repair or replacement parts, supplies and packaging items and similar items with respect to the Business, in each case wherever the same may be located. "Laws" mean laws, rules, regulations, codes, orders, ordinances, judgments, injunctions, decrees and policies. "Liabilities" mean debts (including interest thereon and any prepayment penalties applicable thereto), liabilities, claims, obligations, duties and responsibilities of any kind and 3 description, whether absolute or contingent, monetary or non-monetary, direct or indirect, known or unknown, matured or unmatured, or of any other nature. "Lien" means any security interest, lien, mortgage, claim, charge, pledge, restriction, equitable interest or encumbrance of any nature. "Material" with respect to Bronco means an event, change or effect substantially related to the condition (financial or otherwise), operations or prospects of the Business of Bronco as currently conducted. "Material Adverse Effect" means an event, change or effect that substantially and adversely affects the condition (financial or otherwise), operations or prospects of the Business of Bronco, as currently conducted. "Net Current Position" means with respect to Bronco the difference between the current assets (including Inventory and the amount of all RPT payments held by Bronco and all accrued but unbilled revenues) and current liabilities (excluding the current portion of long-term debt and RPTs) of Bronco on the Closing Date. For purposes of calculating the Net Current Position, accounts receivable of Bronco that are less than 90 days old on the Closing Date shall be valued at 100% of their full value. No value shall be assigned to accounts receivable more than 89 days old, and such receivables shall be assigned to the Shareholders at their request. "Permits and Licenses" mean those municipal, state and federal consents, orders, filings, franchisees, permits, licenses, agreements, waivers and authorizations used in Bronco's Business, including those listed on Schedule 3.18. 4 "Person" means any natural person, corporation, trust, business trust, joint venture, association, company, firm, partnership, limited liability company or other entity or Governmental Authority. "Plan" has the meaning given in Section 3.22. "Proportionate Share" with respect to Bronco means, for each Shareholder, that Shareholder's percentage interest in the capital stock of Bronco, determined by dividing the number of shares of capital stock of Bronco held by that Shareholder by the number of Shares of Bronco. "Proprietary Right" means any trade name, trademark, trade secret, know- how, service mark, patent or copyright and any application for any of the foregoing. "Returns" mean all returns, declarations, reports, forms, estimates, information returns and statements required to be filed with or supplied to any Governmental Authority in connection with any Taxes. "RPT" means rental purchase transaction. "Shares" mean all of the issued and outstanding shares of common stock of Bronco. "Taxes" mean all taxes, charges, fees, levies, customs, duties or other assessments, including, without limitation, income, gross receipts, excise, real and personal property, sales, transfer, license, payroll and franchise taxes imposed by any Governmental Authority and shall include any interest, penalties or additions to tax attributable to any of the foregoing. As used in this Agreement, the terms "to the knowledge," "known to," and other phrases of like substance are to be broadly construed (i) to include the knowledge of the Shareholders, 5 and (ii) to represent that the Shareholders have caused a thorough inquiry and investigation to be made into the matter represented to be true. SECTION 2. Transfer of Shares and Payment of Purchase Price. ------------------------------------------------ 2.1 Transfer of Shares. Based upon and subject to the terms, agreements, ------------------ warranties, representations and conditions of this Agreement, the Shareholders hereby agree to sell, convey, transfer, assign and deliver to Buyer on the Closing Date, and Buyer hereby agrees to buy and accept on the Closing date, all of the Shares of Bronco held by the Shareholders. 2.2 Amount of Purchase Price. The total consideration (the "Purchase ------------------------ Price") to be paid by Buyer for the Shares shall be (a) $10,000,000 (plus or minus any Purchase Price adjustment as provided in paragraph 2.4), plus (b) an amount determined under the provisions of Section 9.5 (which shall be paid as set forth in that section). 2.3 Payment of Purchase Price. On the Closing Date, Buyer shall pay to ------------------------- the Shareholders in accordance with their Proportionate Share, the Purchase Price described in Section 2.2(a) less five percent of such amount (which shall be held back subject to the provisions of Section 2.4) by means of a wire transfer of immediately available funds to the account number and depository previously designated by each Shareholder (or otherwise as directed by each Shareholder). 2.4 Purchase Price Adjustment. The Purchase Price described in Section ------------------------- 2.2 shall be adjusted as follows: (a) Long-Term Debt. The amount shall be reduced by the amount of the -------------- long-term debt (including the current portion and any prepayment penalties applicable thereto) of 6 Bronco on the Closing Date. For purposes of calculating the long-term debt of Bronco, the amount of the RPT payments held by Bronco shall be excluded from long-term debt; (b) Purchases and Sales. The Purchase Price shall be increased by the ------------------- purchase price of Equipment and other fixed assets acquired by Bronco after June 30, 1997, and reduced by the net book value of Equipment and other fixed assets of Bronco sold after June 30, 1997. Schedule 2.4(b) sets out the Equipment purchased and sold after June 30, 1997 and the purchase price and net book value, respectively, of each. (c) Net Current Position. The amount shall be increased or decreased -------------------- as follows. Schedule 2.4(c) hereto sets out the projected Net Current Position of Bronco at the Closing Date (the "Projected Net Current Position"), which the Shareholders represent has been prepared on a basis consistent with the Balance Sheet referred to in Section 3.6, other than as specifically set forth in this Agreement. The consideration to be paid to the Shareholders set out in Section 2.2 shall be increased by the amount shown as a positive balance on Schedule 2.4, or decreased by the amount shown as a negative balance on that schedule. Promptly following the Closing Date (but in any event no later than 60 days after the Closing Date) Bronco shall prepare a schedule showing the actual Net Current Position of Bronco at the Closing Date (the "Closing Net Current Position"). If the Shareholders agree in writing with the Closing Net Current Position, it shall be accepted as final, binding and conclusive on the parties hereto. If a notice of objection to the Closing Net Current Position is given by the Shareholders within 30 days after its receipt specifying any objections they may have (an "Objection Notice"), the Shareholders and 7 Buyer shall attempt to reconcile such items as are in dispute. If the Shareholders and Buyer are unable to reconcile all such items within 30 days after the date on which the Objection Notice is given, then such items as remain in dispute shall be determined in accordance with the principles set forth in this Section 2.4 by a representative of a firm of independent public accountants designated by a representative of the Shareholders and a representative of Buyer. The determination of the items in dispute shall be final, binding and conclusive on the parties hereto. The fees and expenses of the designated accounting firm mentioned above shall be shared equally by the Shareholders and the Buyer. In the event that the Closing Net Current Position is greater than the Projected Net Current Position, the Buyer shall pay to the Shareholders the amount of such excess in accordance with their Proportionate Share. In the event that the Closing Net Current Position is less than the Projected Net Current Position, the amount of such shortfall shall be deducted from the amount withheld from the Purchase Price at Closing or, if such amount is insufficient, the Shareholders shall pay to the Buyer the amount of such shortfall (or the Buyer may offset amounts owed the Shareholders as provided in Section 10.4), all in accordance with the Shareholders' Proportionate Share. (d) Equipment Adjustment. Schedule 3.10(a) sets forth the asset -------------------- description, make, model, original cost and net book value of all Equipment that, on the Closing Date, will be fully operable and available for transfer to Buyer. (The market value of each item of Equipment is referred to herein as the "Agreed Value.") On or prior to 45 days following the Closing Date, personnel of Buyer and Seller jointly shall complete a physical inventory of each item of Equipment comprising such schedule, including by visiting locations as necessary to inspect such 8 Equipment. The Purchase Price shall be reduced, within 90 calendar days after the Closing, for each item of Equipment contained in such schedule that is missing or otherwise not available for rental by Bronco, provided that such reduction shall apply only to the extent that the missing, or unavailable Equipment exceeds in the aggregate $10,000 in market value. The reduction in the Purchase Price shall be calculated by the aggregate Agreed Value of all missing, or unavailable Equipment. The Agreed Value of such Equipment shall be established by personnel of Buyer and Seller or, if they disagree, by another independent third party mutually acceptable to both parties or by arbitration as provided in Section 15.4. The result of the foregoing calculation shall be subtracted from the Purchase Price. In the event of a Purchase Price reduction as contemplated hereby, Buyer shall be entitled to retain a portion of the amount held back under Section 2.3 equal to such reduction. Any disputes regarding the foregoing not resolved by the 90th day following the Closing Date will be separately listed and settled as soon as expeditiously practicable thereafter by the parties or by another independent third party mutually acceptable to both paries, or by arbitration as provided in Section 15.4. (e) Seller's Accounts Receivable Adjustment. The Purchase Price shall --------------------------------------- be decreased within 90 days after the Closing, on a dollar-for-dollar basis, by the face amount of any accounts receivable less than 90 days old on the Closing Date that Buyer is unable to collect within 90 days after the Closing, and such accounts receivable shall be distributed to the Shareholders, at their request. (f) Timing. Purchase price adjustments under this Section 2.4 shall ------ be completed within 90 days after the Closing Date, and the amount held back under Section 2.3, reduced by 9 amounts described in paragraphs (a) through (e), or subject to disputes under such paragraphs, or the subject of indemnification claims under Section 10 hereof, shall be released to the Shareholders in accordance with their Proportionate Share. Notwithstanding the foregoing, Buyer shall not be limited to the held back amount as its sole remedy in the event that any Purchase Price adjustment or indemnification exceeds the held back amount. In such event, Buyer shall have the right to collect promptly from Shareholders, in cash, the amount of such excess. SECTION 3. Representations and Warranties of the Shareholders. The -------------------------------------------------- Shareholders hereby jointly and severally warrant and represent to and agree with Buyer as follows: 3.1 Organization and Authorization. Bronco is a corporation duly ------------------------------ organized, validly existing and in good standing under the laws of Colorado, has full power and authority to own, lease and operate its properties and assets and to conduct its Business as now being conducted. Bronco owns, leases and operates properties, and conducts business only in the State of Colorado. Bronco is qualified or licensed to do business only in the State of Colorado. This Agreement has been, and the other agreements, documents required to be delivered by the Shareholders in accordance with the provisions hereof will be, duly executed and delivered on behalf of the Shareholders and constitute the valid and binding obligation of the Shareholders, enforceable against them in accordance with their respective terms. 3.2 Articles of Incorporation; By-Laws; Minute Books. True and complete ------------------------------------------------ copies of the Articles of Incorporation and By-Laws, as amended, to and including the date hereof, of Bronco have been delivered to Buyer. The minute books, stock books and stock transfer records 10 of Bronco, true and complete copies of which have been made available to Buyer, contain true and complete minutes and records of all issuances and transfers of Shares of Bronco and of all minutes and records of all meetings, consents, proceedings and other actions of the Shareholders, board of directors and committees of the board of directors of Bronco since the date of its incorporation. 3.3 No Consent; No Conflict.. Except as provided on Schedule 3.3, no ------------------------ consent of any lender, trustee or other Person is required for Bronco or the Shareholders to enter into and deliver this Agreement or to consummate the transactions contemplated hereby, nor does any Contract, mortgage or other instrument to which Bronco or any of the Shareholders is a party or by which Bronco or any of the Shareholders is bound or affecting any of its or his properties conflicts with or restricts the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. 3.4 Authorized Capitalization. The authorized capital stock of Bronco ------------------------- consists solely of 100,000 shares of common stock, with $.01 par value, of which 10,000 shares are issued and outstanding. All Shares of Bronco are validly issued and outstanding, fully paid and nonassessable, and are owned beneficially and of record by the Shareholders and are not subject to any Lien or any restriction on their transfer. There are no outstanding warrants, options or rights (preemptive or otherwise) or other securities, plans or agreements that give the holder or any other Person the right to purchase or otherwise acquire (whether from Bronco, the Shareholders, or an Affiliate of Bronco or the Shareholders) any Shares of Bronco or any 11 securities convertible into, or exchangeable or exercisable for, Shares or under which any such warrant, option, right or security may be issued in the future. 3.5 Subsidiaries; Investments; Affiliate Notes. Bronco has no directly or ------------------------------------------ indirectly owned subsidiaries and, except as set forth on Schedule 3.5 hereto, has made no advances to or investments in, and does not own any securities of or other interests in, any Person. Schedule 3.5 contains a list of all notes held by Bronco issued by the Shareholders or any Affiliate of the Shareholders. 3.6 Financial Statements. Annexed hereto as Schedule 3.6 are (a) -------------------- unaudited financial statements of Bronco for the six-month period ended June 30, 1997, including the balance sheet of Bronco as of the Balance Sheet Date (the "Balance Sheet") and (b) reviewed financial statements of Bronco as of and for the fiscal years ended December 31, 1996, 1995 and 1994. The financial statements referred to in the preceding sentence are referred to collectively as the "Financial Statements." The Financial Statements in each case have been prepared in accordance with GAAP consistently applied throughout the periods covered thereby and fairly present the financial condition, results of operations and cash flows of Bronco as of, or for the period ended on, their respective dates (subject in the case of interim financial statements to normal year-end adjustments), except as otherwise noted on Schedule 3.6. Since the Balance Sheet Date, Bronco has conducted its Business in a consistent manner without change of policy or procedure including, without limitation, its practices in connection with the treatment of revenue recognition, capitalization policies, reserves and expenses. 12 3.7 Records and Books of Account. Since January 1, 1996, the records and ---------------------------- books of account of Bronco have been regularly kept and maintained in conformity with GAAP consistently applied. 3.8 Liabilities. On the Balance Sheet Date, there were no Liabilities of ----------- Bronco that would have been required by GAAP to be included on the balance sheet of Bronco as of such date other than those Liabilities (including, without limitation, product liabilities) disclosed or provided for on the Balance Sheet or those described in Schedule 3.8. To the knowledge of the Shareholders, there are no other Liabilities of Bronco except (i) those incurred since the Balance Sheet Date in the ordinary course of business consistent with past practice and not in violation of or in conflict with any of the terms, agreements, warranties, representations and conditions of the Shareholders contained in this Agreement, (ii) those set forth in Schedule 3.8 hereto and (iii) those which would not, individually or in the aggregate, have a Material Adverse Effect on Bronco. 3.9 Title to Assets; Liens and Encumbrances. Bronco is the owner of, and --------------------------------------- has good and marketable title to, or a valid leasehold interest in, or has the legally enforceable right to use in its Business, all of the assets, properties and rights currently used in the operation of the Business of Bronco, free and clear of all Liens except for the Liens, if any, set forth on the Balance Sheet or on Schedule 3.9 hereto. The assets, properties and rights referred to in the preceding sentence include, without limitation, all assets, properties, rights and Business of Bronco shown or reflected on the Balance Sheet or acquired by Bronco since the Balance Sheet Date. Bronco owns or has the legally enforceable right to use in its Business all of the assets used 13 by it in the operation and conduct of its Business, or required by it for the normal conduct of its Business. 3.10 Tangible Assets. Schedule 3.10(a) contains a list of all of the --------------- Equipment owned, leased or otherwise held by Bronco and used in the Business, including its description, make, model, original cost and net book value. Schedule 3.10(b) contains a list of all of the Inventory owned, leased or otherwise held by Bronco and used in the Business. Schedule 3.10(c) contains a list of all other tangible assets of Bronco. All of the Inventory is located at the Facilities or on Bronco's Equipment. The values at which the Equipment and Inventory are shown on the Balance Sheet have been determined in accordance with GAAP consistently applied throughout the periods covered by the Financial Statements, with adequate provisions or adjustments for excess Inventory, slow- moving Inventory and Inventory obsolescence and shrinkage. All tangible (other than real property) assets listed on Schedule 3.10(a), (b), or (c) are either owned by Bronco or leased under an agreement reflected on Schedule 3.11. All Equipment, Inventory and other tangible assets that are listed on Schedule 3.10 (a), (b) or (c) are fit for the purpose for which it was procured and are usable in the ordinary course of business, in good working order and condition, normal wear and tear excepted, and are in conformity with all applicable Laws. With respect to each piece of Equipment, all normal maintenance has been performed in the ordinary course of business of Bronco. Schedule 3.11 contains a list of certain assets not owned by Bronco that are the property of the Shareholders or employees of Bronco. 14 3.11 Facilities. ---------- (a) Each parcel of real property owned or leased by Bronco, including the legal description and address thereof, is listed on Schedule 3.11(a), and copies of all deeds, purchase documents, mortgages, other encumbrances and title insurance policies or lawyer's title opinions relating to such parcels have been provided to Buyer. Bronco or its lessor, has good and marketable title to the real property, and such real property is subject only to normal easements and restrictions that do not interfere with Bronco's current use and intended future use of the real estate. Schedule 3.11 contains a list of certain assets not owned by Bronco that is the property of the Shareholders or employees of Bronco. (b) Except for the lease of the Facility described on Schedule 3.11, Bronco does not lease any real property. Bronco enjoys peaceful and undisturbed possession of the leased premises. (c) The Facilities and the improvements thereon, including without limitation all Equipment (including all fixtures) and other tangible assets owned, leased or used by Bronco at the Facilities are insured to the extent and manner customary in the industry, are sufficient for the operation of the Business as presently conducted and are in conformity, in all Material respects, with all applicable Laws. None of the improvements is subject to any commitment or other arrangement for their sale or use by any Affiliate of Bronco or third parties. 3.12 Leased Assets. Bronco has no leased assets. ------------- 15 3.13 Trademarks, Service Marks, Trade Names, Patents and Copyrights. -------------------------------------------------------------- Schedule 3.13 hereto sets forth a true and complete list of all Proprietary Rights used by Bronco in the conduct of its Business. Each such Proprietary Right is owned or licensed by Bronco and is not subject to any royalty arrangement or dispute. To the knowledge of the Shareholders, no other Proprietary Rights are used in Bronco's Business as now conducted. No claim has been asserted or, to the knowledge of the Shareholders, threatened, by any Person with respect to the ownership, validity, license or use of, or any infringement resulting from, any of the Proprietary Rights used by Bronco. 3.14 Contracts; Customers. Schedule 3.14(a) contains a list of all -------------------- dealership, agency, franchise, license, sales or commission contracts to which Bronco is a party or by which it is bound. Schedule 3.14(b) contains a list of all other Contracts not made in the ordinary course of business of Bronco, and other Contracts involving expenditures or Liability, actual or potential, in excess of $5,000 or otherwise Material to Bronco to which Bronco is a party or by which it is bound. Schedules 3.14(a) and (b) hereto contain a true and complete description of the terms and conditions of each Contract on each such schedule to which Bronco is a party or to which it is subject or by which it is bound that is not in writing. A true and complete copy of all Contracts listed on Schedules 3.14(a) and (b) has heretofore been provided to Buyer by Bronco. Except as set forth on Schedules 3.14(a) and (b), no Contract to which Bronco is a party or to which it is subject or by which it is bound conflicts with, would be terminated by, would be breached as a result of, would be materially modified or changed by, or requires the consent of any other Person by reason of, the execution and delivery 16 of this Agreement or the consummation of the transactions contemplated hereby, other than such Contracts the loss of which, individually or in the aggregate, would not have a Material Adverse Effect on Bronco, or the loss of which would involve a loss of less than $5,000 ("Immaterial Contracts"). Each of the Contracts to which Bronco is a party or to which it is subject or by which it is bound (including, without limitation, those set forth on Schedules 3.14(a) and (b) hereto) is a valid and existing Contract of all of the parties thereto in full force and effect without modification, other than Immaterial Contracts. Bronco has performed all obligations required to be performed by it and is not in default under any Contract, instrument or other document to which it is a party or to which it is subject or by which it is bound, and no event has occurred thereunder which, with or without the lapse of time or the giving of notice, or both, would constitute a default by it thereunder, other than Immaterial Contracts. Schedule 3.14(c) is a list of the 20 customers of Bronco who have incurred the largest charges with Bronco since December 31, 1996 and all RPT customers of Bronco. None of such customers has canceled or substantially reduced service or has given notice that it intends to cancel or substantially reduce service. Neither Bronco nor any of its officers, employees or agents has engaged in transactions or relationships with customers or representatives of customers that constitute breaches of Bronco's corporate policies or, to the knowledge of the Shareholders, breaches of such customers' corporate policies, including policies relating to transactions or relationship with vendors. 3.15 Labor Relations; Employees. There are no labor strikes, disputes, -------------------------- slow downs, work stoppages or other labor troubles or grievances pending or, to the Shareholders' knowledge, 17 threatened against Bronco. No unfair labor practice complaint before the National Labor Relations Board, no charges pending before the Equal Employment Opportunity Commission and no complaint, charge or grievance of any nature before any similar or comparable Governmental Authority, in any case relating to Bronco or the conduct of its business, is pending or, to the knowledge of the Shareholders, threatened. Bronco has not received notice, nor has any knowledge, of the intent of any Governmental Authority responsible for the enforcement of labor or employment laws to conduct any investigation of or relating to such corporation or the conduct of its Business. To the knowledge of the Shareholders, no officer or key employee of Bronco, has any plan to terminate his or her employment with Bronco. Schedule 3.15 is a true and correct list of all employees of Bronco as of Balance Sheet Date, by job classification, their respective rates of compensation and all perquisites provided to each such employee (i.e., company car, etc.). ---- 3.16 Legal Proceedings. Except as set forth on Schedule 3.16 hereto, there ----------------- are no Actions (whether or not purportedly on behalf of Bronco) pending or, to the knowledge of the Shareholders, threatened against Bronco or any of its properties, rights or Business. No Action involving negligence or strict liability has ever been instituted or, to the knowledge of the Shareholders, threatened against Bronco. Bronco is not in default with respect to any order, writ, injunction or decree of any Governmental Authority. None of the Actions referred to on Schedule 3.16, individually or in the aggregate, will have a Material Adverse Effect on Bronco. 3.17 Orders, Decrees, Etc. There are no orders, decrees, injunctions, -------------------- rulings, publications, decisions, directives, consents, pronouncements or regulations of any court or any 18 Governmental Authority issued against, or, to the knowledge of the Shareholders, binding on, Bronco which do or may affect, limit or control Bronco's method or manner of doing business, except for laws, statutes, ordinances, orders and regulations that affect all similarly situated businesses. 3.18 Compliance With Law; Permits and Licenses. ----------------------------------------- (a) Bronco has complied and is in compliance with all Laws of any Governmental Authority applicable to it, and to its assets, property and its operations, including, without limitation, Laws relating to zoning, building codes, licensing, permits, antitrust, occupational safety and health, environmental protection and conservation, water or air pollution, toxic and hazardous waste and substance control, consumer product safety, product liability, hiring, wages, hours, employee benefit plans and programs, collective bargaining and withholding and social security taxes, other than any failure to comply that, individually or in the aggregate, will not result in any Material Liability or have a Material Adverse Effect on Bronco. (b) Bronco presently holds all the permits, licenses and franchises that are necessary for or Material to its current and known future use, occupancy or operation of its assets or properties or the conduct of the Business; and no notice of violation of any applicable zoning regulations, ordinances or other similar Laws binding on Bronco with respect to its assets, properties or business has been received by Bronco, the Shareholders or any of their agents or affiliates. Schedule 3.18(b) lists all permits, licenses and franchises held by Bronco. (c) Bronco has not violated nor is alleged to have violated, nor is in violation of, any Environmental Law, nor has released, treated, stored, disposed of or transported, or 19 arranged or contracted for the release, treatment, storage, disposal or transportation of any Hazardous Substance in violation of any Environmental Law. There are no Hazardous Substances located at, in, on, within or under the surface of Bronco's assets, properties or Facilities in Material violation of applicable Environmental Law. Other than as set forth on Schedule 3.18(c) hereto, neither the Shareholders nor Bronco has received, or has any knowledge of, any request for information, notice of claim, demand, lawsuit, action or other notification from any Governmental Authority or any third party that they or it may be responsible for any threatened or actual release of Hazardous Substances, or be in violation of or in noncompliance with any Environmental Law, and neither the Shareholders nor Bronco is subject to any agreement, consent, decree, administrative order, notice or enforcement action brought under any Environmental Law. For purposes of this paragraph 3.18(c), "Environmental Law" means any applicable Federal, state, local or Indian law, rule, regulation, ordinance, program, permit, guidance, order, consent, decree or notice of violation pertaining to the protection of natural resources, the environment and the health and safety of employees and the general public; and "Hazardous Substances" means any material, chemical, compound, mixture, substance or waste which is regulated by any Governmental Authority having jurisdiction over any premises, including, but not limited to (a) any oil or petroleum compounds, flammable substances, explosives, radioactive materials or any other materials or pollutants which pose a hazard to the premises or to any persons on or about the premises or which cause premises to be in violation of any legal requirements, (b) asbestos, (c) polychlorinated biphenyls, (d) and any materials or substance designated as hazardous substances, pursuant to Section 311 of the Clean Waters Act, 20 33 USC Section 1251, (e) economic poison as defined in the Federal Insecticide, Fungicide and Rodenticide Act. 7 USC Section 135, (f) new chemical substance or mixture pursuant to 3, 6, 7 of the Toxic Substance Control Act, 15 USC Section 2601, (g) hazardous substances pursuant to Section 101 of the Comprehensive Environmental Response, Compensation, and Liability Act 42 USC Section 9601 and (h) hazardous substances pursuant to section 1004 of Resource Conservation and Recovery Act, 42 USA Section 6901. (d) Except as set forth on Schedule 3.18(d), there is not now and has not been at any time in the past any underground or above-ground storage tank or pipeline at any Facility where the installation, use, maintenance, repair, testing, closure or removal of such tank or pipeline was not in compliance with all Environmental Law and there has been no release from or rupture of any such tank or pipeline, including without limitation any release from or in connection with the filling or emptying of such tank. 3.19 Changes Since December 31, 1996. Except as set forth on Schedule 3.19 ------------------------------- hereto, since December 31, 1996, Bronco has not (i) incurred any Liability, except current liabilities in the ordinary course of business consistent with past practice and Liabilities incurred under Contracts entered into in the ordinary course of business consistent with past practice; (ii) discharged or satisfied any Lien or paid any Liability, other than current liabilities shown on the Balance Sheet and current liabilities incurred since the Balance Sheet Date in the ordinary course of business consistent with past practice; (iii) sold or transferred any Material assets or written off any accounts receivable, except in the ordinary course of business; (iv) mortgaged, pledged or subjected to any other Lien of its assets or properties, other than Liens reflected on the 21 Balance Sheet or as set forth on Schedule 3.9; (v) suffered any losses or waived any rights of substantial value; (vi) granted any bonuses or commissions or increased the compensation payable to any of its employees, directors or officers or increased the aggregate payment of any fees except for customary bonuses and regular salary increases made in accordance with Bronco's past practices as summarized on Schedule 3.19 or in accordance with the employee benefit plans described on Schedule 3.22; (vii) made any loans to any individuals, firms, corporations or other entities; (viii) declared, made, set aside or paid any dividend, distribution or payment on, or any purchase or redemption of, any Shares or any commitment therefor, other than as described on Schedule 3.19; (ix) made any Material change in any method of accounting (for book or tax purposes), or (x) entered into any transaction not in the ordinary course of business or agreed (whether or not in writing) to do any of the foregoing. From January 1, 1997, the Business of Bronco has been operated only in the regular and ordinary course consistent with past practice. 3.20 No Material Adverse Change. Since December 31, 1996, there has not -------------------------- been any Material adverse change in the condition (financial or otherwise), Business, prospects of the Business as currently conducted, or operations, of Bronco, nor has there been any damage, destruction or loss to property owned by Bronco, whether or not covered by insurance, that, individually or in the aggregate, has or will have a Material Adverse Effect on the assets or Business of Bronco. 3.21 Capital Projects and Expenditures. All capital expenditures of Bronco --------------------------------- since June 30, 1997, are listed on Schedule 3.21 hereto. In addition, all capital projects and capital expenditures (including any leases capitalized in accordance with GAAP) committed for or 22 undertaken by Bronco that have not been completed by the Closing Date as well as the terms of any and all financing arranged in connection therewith and details for payments, if any, made with respect thereto, are set forth on Schedule 3.21 hereto, which also describes all capital commitments of Bronco that will survive the Closing. Except as set forth on such Schedule 3.21, from June 30, 1997, to the date hereof, Bronco has not made any additional expenditures or additional commitments for capital expenditures. 3.22 Employee Benefits. ----------------- (a) Except for the plans of Bronco set forth on Schedule 3.22 hereto (the "Plans"), neither Bronco nor any of its ERISA Affiliates maintains or contributes to or has any liability with respect to any "employee benefit plan" as that term is defined in Section 3(3) of ERISA, or any other bonus, incentive, compensation, profit sharing, stock, severance, retirement, health, life, disability, group insurance, vacation, holiday, fringe benefit, employment, stock option, stock purchase, stock appreciation right, supplemental unemployment, layoff or consulting plan, agreement, policy or understanding (whether written or oral, qualified or nonqualified, currently effective or terminated). True and complete copies of all the Plan documents and summary plan descriptions have been furnished to Buyer (along with all related trust agreements, insurance contracts or other funding agreements which implement each Plan, and all other documents, records or other materials related thereto reasonably requested by Buyer). (b) With respect to each Plan, the requirements of ERISA, the Code (including, without limitation Part 6 of Subtitle B of Title I of ERISA and Sections 105(h) and 23 4980B of the Code) and all other applicable laws have been fulfilled in all respects, and copies of all filings with the Internal Revenue Service and the Department of Labor or other applicable Governmental Authority for the three most recent plan years for the Plans have been furnished to Buyer. No written or oral representations have been made to any employee or former employee of Bronco promising or guaranteeing any employer payment or funding for the continuation of medical, dental, life or disability coverage for any period of time beyond the end of the current plan year (except to the extent of coverage required under Section 4980B of the Code). (c) Neither Bronco nor any ERISA Affiliate has ever (i) maintained or contributed to any plan subject to Section 412 of the Code and Section 302 of ERISA or (ii) contributed to any "multi-employer plan," as such term is defined in Section 3(37) of ERISA, and neither Bronco nor any ERISA Affiliate has effected either a "complete withdrawal" or a "partial withdrawal," as those terms are defined in Sections 4203 and 4205, respectively, of ERISA, from any such multi-employer plan. (d) Except as set forth on Schedule 3.22 hereto, at the Balance Sheet Date and at the date hereof, there was no bonus, profit sharing, incentive, commission or other compensation of any kind with respect to work done prior to the Balance Sheet Date or the date hereof due to or expected by present or former employees of Bronco not paid prior to such date or, with respect to compensation for work done prior to the Balance Sheet Date, not fully accrued on the Balance Sheet. (e) Each Plan that is an "employee pension benefit plan" (as defined in Section 3(2) of ERISA) meets the requirements of a "qualified plan" under Section 401(a) of the 24 Code in form and in operation, and such Plan, and each trust (if any) forming a part thereof, has received a favorable determination letter, or a favorable determination letter has been applied for, from the Internal Revenue Service as to the qualification under the Code of such Plan and the tax-exempt status of such related trust, and nothing has occurred since the date of such determination letter, or request therefor, that could reasonably be expected to adversely affect the qualification of such Plan or the tax-exempt status of such related trust. (f) There are no unfunded liabilities existing under any Plan, and, subject to compliance with applicable notice requirements under ERISA and state laws, each Plan could be terminated promptly following the Closing Date with no liability to Buyer, Bronco, any ERISA Affiliate or any Person that is under common control, or is treated as a single employer, with Buyer under Section 414 of the Code or ERISA Section 4001. (g) With respect to each Plan (i) there have been no non-exempt prohibited transactions as defined in Section 406 of ERISA or Section 4975 of the Code, (ii) no fiduciary (as defined in Section 3(21) of ERISA) has liability for breaching of fiduciary duty or any other failure to act or comply in connection with the administration or investment of assets in such Plan, and (iii) no actions, investigations, suits or claims with respect to the assets thereof (other than routine claims for benefits) are pending or, to the knowledge of the Shareholders, threatened, and the Shareholders have no knowledge of any facts that would give rise to or could reasonably be expected to give rise to any such actions, suits or claims. 3.23 Governmental Approvals. To the knowledge of the Shareholders, no ---------------------- governmental authorization, approval, order, license, permit, franchise or consent and no 25 registration, declaration or filing by Bronco or the Shareholders with any Governmental Authority is required in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. 3.24 Tax Matters. ----------- (a) Bronco (the "Taxpayer") has duly and timely filed all Returns required to be filed by it. Bronco is not currently the beneficiary of any extension of time within which to file any Return. No claim has ever been made by an authority in a jurisdiction where Bronco does not file Returns that it is or may be subject to taxation by that jurisdiction. All Returns filed by the Taxpayer were correct and complete in all respects. The Taxpayer has paid in full all Taxes (whether or not shown on a Return) required to be paid by the Taxpayer before such payment became delinquent. Bronco has made adequate provision in the Financial Statements, in conformity with GAAP, for the payment of all accrued Taxes not yet payable as of the respective dates of such Financial Statements. All Taxes that the Taxpayer has been required to collect or withhold have been duly collected or withheld and, to the extent required when due, have been or will be duly and timely paid to the proper taxing authority. (b) There are no audits, inquiries, investigations or examinations relating to any of the Taxpayer's Returns pending or threatened, and there are no claims that have been or may be asserted relating to any of the Taxpayer's Returns filed for any year which if determined adversely would result in the assertion by any Governmental Authority of any Tax deficiency against the Taxpayer. There have been no waivers or extensions of statutes of limitations with 26 respect to Taxes by the Taxpayer, or any agreements to extend the time with respect to a Tax assessment or deficiency. (c) Bronco is not a party to any tax-sharing Contract or similar arrangement with any Person. Bronco has not made a disclosure on a Return pursuant to Code Section 6662(d)(2)(B)(ii) and the Regulations thereunder. (d) Bronco has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, Shareholders or other third party. (e) Bronco has not been a member of an affiliated group filing consolidated Federal income tax returns, or has any liability for Taxes of any other person under Treasury Regulation section 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract, or otherwise. (f) Bronco has not filed a consent under Code Section 341(f) concerning collapsible corporations. (g) Bronco is not obligated to make any payments and is not a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Code Section 280G. 3.25 Insurance Coverage. Schedule 3.25 hereto describes each insurance ------------------ policy (specifying the insured, the insurer, the amount of coverage, the type of insurance, the policy number, the expiration date, the annual premium, and any pending claims thereunder) maintained by Bronco. Bronco is not in default in any Material respect with respect to any provisions 27 contained in any such insurance policy, and has not failed to give any notice or present any presently existing Material claims under any such insurance policy in due and timely fashion. 3.26 Preservation of Property. Between October 8, 1997 and the Closing ------------------------ Date, without Buyer's express prior written consent, Bronco shall not sell, assign, transfer, mortgage, hypothecate, or otherwise dispose of or encumber any of the assets of Bronco except for the disposition of Inventory in the ordinary course of business. Buyer agrees that Buyer will not unreasonably withhold written consent to a particular change and/or replacement of property necessary for Bronco either (i) to perform Bronco's obligations under this Agreement, or (ii) to conduct the operation of the Business between October 8, 1997 and the Closing Date, provided that such change or replacement does not adversely affect the nature or quality or value of the assets being purchased by Buyer hereunder. 3.27 Accounts Receivable. Schedule 3.27 lists the accounts receivable as ------------------- of October 17, 1997. Accounts receivable reflected in the Balance Sheet, and all accounts receivable arising since the Balance Sheet Date, represent bona fide claims of Bronco against debtors for sales, services performed or other charges arising on or before the date hereof, and all the goods delivered and services performed which gave rise to said accounts receivable were delivered or performed in accordance with the applicable orders, Contracts or customer requirements. 3.28 Representations and Warranties. The representations and warranties ------------------------------ contained in this Section 3 do not contain any untrue statement of a fact or, to the knowledge of the Shareholders, omit to state a fact necessary in order to make the statements made not misleading. 28 There are no other facts or circumstances known to the Shareholders not disclosed herein that may have a Material Adverse Effect on the value of Bronco's assets or Business prospects. SECTION 4. Representations and Warranties of Buyer. Buyer warrants and --------------------------------------- represents to and agree with the Shareholders as follows: 4.1 Good Standing. Buyer is a corporation duly organized, validly ------------- existing and in good standing under the laws of Delaware. 4.2 Authorization. The execution and delivery of this Agreement and the ------------- consummation of the transactions contemplated hereby have been duly authorized by the Board of Directors of Buyer, and all other corporate action of Buyer, including all authorizations and ratifications, necessary to authorize the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, have been taken. This Agreement constitutes a binding obligation of Buyer, enforceable against Buyer in accordance with its terms. No consent of any lender, trustee or security holder of Buyer, Buyer or any other Person is required for Buyer to enter into and deliver this Agreement and to consummate the transactions contemplated hereby. 4.3 Representations and Warranties. The representations and warranties of ------------------------------ Buyer contained in this Agreement, do not contain any untrue statement of a fact or omit to state a fact necessary in order to make the statements made not misleading. 4.4 Governmental Approvals. No governmental authorization, approval, ---------------------- order, license, permit, franchise or consent and no registration, declaration or filing by Buyer with any 29 Governmental Authority is required in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. SECTION 5. Conditions of Buyer's Obligations to Close. The obligations of ------------------------------------------ Buyer under this Agreement are, at the option of Buyer, subject to the conditions set forth below, which conditions may be waived by Buyer without releasing or waiving any of its rights hereunder. 5.1 Agreements and Conditions. On or before the Closing Date, the ------------------------- Shareholders shall have complied with and duly performed all agreements and conditions on their part to be complied with and performed pursuant to or in connection with this Agreement on or before the Closing Date. 5.2 Representations and Warranties. The representations and warranties of ------------------------------ the Shareholders contained in this Agreement, or otherwise made in writing in connection with the transactions contemplated hereby, shall be materially true and correct on and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of the Closing Date. 5.3 No Legal Proceeding. No Action shall have been instituted or ------------------- threatened to restrain or prohibit the acquisition by Buyer, and on the Closing Date there are no Actions pending or threatened against the Shareholders or Bronco that involve a demand for any judgment or Liability, whether or not covered by insurance, and that may result in any Material Adverse Effect on Bronco. 5.4 Deliveries. Buyer shall have received the deliveries to be made by ---------- the Shareholders pursuant to Section 7. 30 5.5 Legal Opinion. Buyer shall have received the favorable opinion of ------------- Sherman & Howard LLC substantially in the form of Exhibit A attached hereto. SECTION 6. Conditions of the Shareholders' Obligation to Close. The --------------------------------------------------- obligations of the Shareholders under this Agreement are, at the option of the Shareholders, subject to the following express conditions, which conditions may be waived by the Shareholders without releasing or waiving any of the rights hereunder. 6.1 Agreements and Conditions. On or before the Closing Date, Buyer shall ------------------------- have complied with and duly performed all of the agreements and conditions on its part required to be complied with or performed pursuant to this Agreement on or before the Closing Date. 6.2 Representations and Warranties. The representations and warranties of ------------------------------ Buyer contained in this Agreement, or otherwise made in writing in connection with the transactions contemplated hereby, shall be materially true and correct on and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of the Closing Date. 6.3 Deliveries. The Shareholders shall have received the deliveries to be ---------- made by Buyer pursuant to Section 8. 6.4 No Legal Proceeding. No action shall have been initiated or ------------------- threatened to restrain or prohibit the acquisition by Buyer and on the Closing Date there are no actions pending or threatened against or affecting Buyer that involve a demand for any judgment or liability, whether or not covered by insurance, and that may result in any Material Adverse Effect on Buyer. 31 6.5 Legal Opinion. The Shareholders shall have received the favorable ------------- opinion of Holme Roberts & Owen LLP, dated the Closing Date, and in form and substance reasonably satisfactory to the Shareholders, to the effect that the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by Buyer, that this Agreement constitutes the valid and binding obligation of Buyer and that Buyer is duly organized, validly existing and in good standing under the laws of the State of Delaware. SECTION 7. Deliveries of the Shareholders on the Closing Date. The -------------------------------------------------- Shareholders agree to deliver to Buyer on the Closing Date the following: 7.1 Stock Certificates. Certificates representing all of the Shares being ------------------ acquired by Buyer hereunder, duly endorsed in blank for transfer or with appropriate stock powers duly executed in blank. 7.2 Corporate Records. The stock books, minute books and corporate seal ----------------- of Bronco. 7.3 Resignations. Written resignations of Bronco's directors and ------------ officers. 7.4 Consents. All consents required in connection with the execution and -------- delivery of this Agreement and the transactions contemplated hereby. 7.5 Possession of Assets. Possession of the assets and properties of -------------------- Bronco held by the Shareholders. 7.6 Pay Off Letters. The pay off letters, in the form attached hereto, --------------- from those creditors of Bronco listed on Schedule 7.6. 7.7 Lease Agreement. The Lease Agreement in the form attached as Exhibit --------------- B. 32 7.8 Legal Opinion. The legal opinion of Sherman & Howard LLC, as ------------- described in Section 5.5. 7.9 Employment and Consulting Agreements. The Employment Agreements for ------------------------------------ John R. Lupinsky, Thomas J. Malone and Jim Lawrence in the form of Exhibits C, D and E hereto, respectively, and the Consulting Agreement for Jim Lawrence in the form of Exhibit F hereto, which are all guaranteed by Buyer. 7.10 Release from Broker. The release, non-disclosure and ------------------- confidentiality agreement of Grand Teton Acquisitions in the form of Exhibit G hereto. 7.11 Termination of Shareholders' Agreement. The Termination of Bronco -------------------------------------- Shareholders Agreement dated July 18, 1996. SECTION 8. Deliveries of Buyer on the Closing Date. Buyer agrees to --------------------------------------- deliver to the Shareholders, on the Closing Date the Purchase Price described in Section 2.2, the Employment and Consulting Agreements in the form of Exhibits C, D E and F the Lease Agreement in the form of Exhibit B hereto, and the legal opinion of Holme Roberts & Owen LLP as described in Section 6.5. SECTION 9. Additional Covenants. -------------------- 9.1 Cooperation of Buyer and the Shareholders. The Shareholders shall ----------------------------------------- cooperate with Buyer, and the Shareholders shall use all reasonable efforts to have the officers, directors and other employees of Bronco cooperate with Buyer, at Buyer's request and expense, after the Closing, in furnishing information, evidence, testimony and other assistance in connection with 33 any Actions involving the Shareholders and Bronco and based upon Contracts or acts of Bronco which were in effect or occurred on or prior to the Closing. Buyer and the Shareholders shall each cooperate fully, as and to the extent reasonably requested by the other party, in connection with any audit, litigation or other Action, or the preparation of Returns with respect to Taxes or other matters relating to the period prior to the Closing Date, at the Shareholders' cost. Such cooperation shall include the retention and (upon the other party's reasonable request) the provision of records and information, including work papers of Bronco and its independent auditors, but excluding records and information that are protected by recognized professional privilege, related to tax periods on or prior to the Closing Date, which are reasonably relevant to any such audit, litigation or other Action, or any Returns, and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Buyer and the Shareholders agree (i) to retain all books and records with respect to Tax matters pertinent to Bronco relating to the six-year period (or portion thereof) prior to the Closing, and (ii) to give the other party reasonable written notice prior to destroying or discarding any such books and records and, if the other party so requests, Buyer or the Shareholders, as the case may be, shall allow the other party to take possession of such books and records. The Shareholders agree that for a period of three months after the Closing Date they will, upon the written request of Buyer and at Buyer's expense, visit (either alone or with a representative of Buyer, at Buyer's option), any of Bronco's customers who have declined or ceased, or whom Buyer concludes may decline or cease, to rent or buy Equipment or Inventory 34 formerly provided by the Bronco and attempt to persuade any such customer to continue to rent or buy from Buyer. 9.2 Further Assurances of the Shareholders and Buyer. The Shareholders ------------------------------------------------ agree at any time and from time to time after the Closing, upon the request of Buyer, to do, execute, acknowledge and deliver, or to cause to be done, executed, acknowledged and delivered, all such further acts, assignments, transfers, powers of attorney and assurances as may be required and to carry out the terms and conditions of this Agreement. The Bronco shall prepare, at its sole cost and expense, all short year federal, state and local Returns required by law for Bronco for the short year ending with the day of the Closing. Each such return shall be prepared by Bronco's accountants, and shall be delivered to Buyer, together with all necessary supporting schedules, within 75 days following the Closing, for its approval (but such approval shall not relieve the Shareholders of their responsibility for the Taxes and other amounts that may be assessed under these returns). Buyer shall cause such returns to be timely filed with the appropriate authorities. Bronco shall be entitled to receive all refunds shown on such returns and any such refunds received by Bronco shall be remitted to the Shareholders within five days of receipt unless otherwise previously credited to the Shareholders. The Shareholders shall be responsible for any and all assessments or deficiencies that may be due or become due in connection with the short period set forth above. The Shareholders shall have the right to examine all of the books and records of Bronco necessary to determine the items of income, loss, deduction and credit accrued or paid allocable to such short year return period. 35 Buyer shall remit to the Shareholders from time to time (but in no event less frequently than in two-week intervals), in accordance with their Proportionate Shares, amounts collected by Buyer attributable to all accounts receivable more than 89 days old on the Closing Date. Buyer shall also distribute to the Shareholders, at their request, all accounts receivable less than 90 days old on the Closing Date that Buyer is unable to collect within 90 days after the Closing Date. 9.3 Non-Competition Covenant. The Shareholders covenant for themselves ------------------------ and their Affiliates that neither they nor their Affiliates shall engage, directly or indirectly (whether as owner, partner, shareholder or investor (other than a holder of less than 5% of the shares of a public company), or joint venturer, manager, investor (which shall include any gift), advisor, consultant or otherwise), in the business of equipment rental or sales and any related businesses for a period of five years after the Closing Date in the State of Colorado except as an employee of Buyer or any Affiliate of Buyer, or such other manner as Buyer shall consent to in writing. The Shareholders covenant for themselves and any of their Affiliates that for a period of five years from and after the Closing Date neither they nor their Affiliates shall directly or indirectly induce or solicit, or directly or indirectly aid or assist any other Person to induce or solicit, any Person who is (or within the prior twelve months had been) an employee, salesman, agent, consultant, distributor, representative, advisor, customer or supplier of Bronco to terminate that Person's employment or business relations with such corporation. If any provision of this covenant is deemed invalid in whole or in part, it shall be curtailed, whether as to time, geographical area, scope of activity or otherwise, as and to the extent required for its validity under applicable law and, as so curtailed, shall be enforceable. 36 The Shareholders acknowledge that this Section 9.3 and their and their Affiliates' obligations hereunder are a material inducement and condition to Buyer's entering into this Agreement. In the event of a breach or threatened breach of this paragraph, Buyer shall be entitled to an injunction restraining such breach; however, nothing herein shall be construed as prohibiting Buyer from pursuing any remedy available to Buyer as a result of such breach or threatened breach. 9.4 No Disparagement. For the period of the covenant not to compete set ---------------- out in Section 9.3, the Shareholders covenant for themselves and their Affiliates, and Buyer covenants for itself and its Affiliates, that neither party nor its Affiliates shall disparage the other party or its Affiliates. As used in this section "disparage" shall include, in addition to its common law meaning, negative comments concerning Buyer's or any of its Affiliates', Bronco's or any of its Affiliates', or the Shareholders' or their Affiliates', past, present or future business ethics or management decisions, or the quality or effectiveness of their goods or services. 9.5 Code Section 338(h)(10) Election. At Buyer's option, the Shareholders -------------------------------- will join with Buyer in making an election under Code Sections 338(g) and 338(h)(10) (and any corresponding elections under state, local or foreign tax law) (collectively, a "Section 338(h)(10) Election") with respect to the purchase and sale of the stock of Bronco. In connection therewith, the Shareholders shall cooperate in executing and filing all returns, reports, documents or elections required to be executed and filed. Buyer covenants and agrees to indemnify and hold the Shareholders harmless from any and all Taxes incurred by the Shareholders as a result of making the Section 338(h)(10) Election with an estimate of such costs to be submitted upon such 37 election, and any incremental costs for accounting and tax preparation services related to such election. Such Taxes shall be determined by comparing the Taxes incurred by the Shareholders from the transactions contemplated by this Agreement after making the Section 338(h)(10) Election to the Taxes that would have been incurred by the Shareholders from the transactions contemplated by this Agreement if the Section 338(h)(10) Election had not been made. SECTION 10. Indemnification. --------------- 10.1 Indemnification by the Shareholders. The Shareholders agree to ----------------------------------- indemnify Buyer and every Affiliate of Buyer against and hold them harmless from any and all Damages that Buyer or any Affiliate of Buyer may sustain at any time by reason of: (a) the breach or inaccuracy (or alleged breach or inaccuracy) of, or failure to comply with (or alleged failure to comply with), any of the warranties, representations, covenants or agreements of Bronco or the Shareholders contained in this Agreement or in the exhibits or schedules hereto. As used in this Agreement, the terms "alleged breach or inaccuracy" or "alleged failure to comply with" shall only apply to allegations by parties other than Buyer or its Affiliates as to such matters; (b) any abatement order, compliance order, consent order, clean-up order or exhumation order or potentially responsible party notification against Bronco arising out of any act of Bronco or shareholder, officer, director, employee, predecessor, consultant or agent of Bronco occurring on or prior to the Closing Date; (c) any act or omission of Bronco, or any shareholder, officer, director, employee, predecessor, consultant or agent of Bronco, occurring on or prior to the Closing Date. 38 Notwithstanding the above provisions of this Section 10.1, except for matters described in Sections 3.4, 3.18(c), 3.24 and 9.1 through 9.4, matters involving fraud and those matters concerning which Buyer has provided notice to the Shareholders hereunder of a possible claim under this Section 10.1 within three years after the Closing Date, Buyer's right of indemnification hereunder shall terminate three years after the Closing Date. In addition, with respect to any matter for which Buyer is entitled to indemnity hereunder, Buyer shall not be entitled to be indemnified unless and until, and only to the extent that, the amount of all claims for indemnity shall exceed $100,000 in the aggregate. 10.2 Indemnification by Buyer. Buyer agrees to indemnify and hold the ------------------------ Shareholders and every Affiliate of the Shareholders harmless from and against any and all Damages that the Shareholders or any Affiliate of the Shareholders may sustain at any time by reason of the breach or inaccuracy (or alleged breach or inaccuracy) of, or failure to comply with (or alleged failure to comply with) any warranties, representations, conditions, covenants or agreements of Buyer contained in this Agreement or in any exhibit or schedule hereto, or for any acts or omissions of Buyer after the Closing Date. Buyer further agrees to indemnify and hold the Shareholders harmless from any and all taxes, penalties, interests and professional fees incurred by the Shareholders as a result of a change of Bronco's method of accounting for RPT's for federal income tax or financial accounting purposes. 10.3 Procedures for Third Party Indemnification. In those instances in ------------------------------------------ which a third party claim is asserted against any party hereto, or any party hereto is made a party defendant in any action or proceeding, and such claim, action or proceeding involves a matter that is the 39 subject of this indemnification, then such party (an "Indemnified Party") shall give written notice to the other party hereto (the "Indemnifying Party") of such claim, action or proceeding, and such Indemnifying Party shall have the right to join in the defense of said claim, action or proceeding at such Indemnifying Party's cost and expense and, if the Indemnifying Party agrees in writing to be bound by and to promptly pay the full amount of any final judgment from which no further appeal may be taken, and if the Indemnified Party is reasonably assured of the Indemnifying Party's ability to satisfy such agreement, then at the option of the Indemnifying Party, such Indemnifying Party may take over the defense of such claim, action or proceeding, except that, in such case, the Indemnified Party shall have the right to join in the defense of said claim, action or proceeding at its own cost and expense. 10.4 Right of Set Off. In addition to any other rights Buyer has ---------------- under this paragraph 10 or elsewhere in this Agreement to indemnification or recoupment, the Shareholders agree that Buyer is entitled to set off any amounts it may owe the Shareholders under this Agreement or any Exhibits hereto, or any other amounts owed to the Shareholders by Buyer, including amounts owed under Section 2.2, against such claims for indemnity or recoupment. Such right of set off may be exercised by Buyer at the time a claim for indemnity or recoupment is made by Buyer. In the event such claim is contested by the Shareholders, and the final resolution of the claim results in a reduction or elimination of such claim, Buyer shall pay to the Shareholders the amount by which the claim is reduced (limited by the amount of the set off applied against such claim) plus interest on such amount at an annual rate equal to the prime rate as announced from time to time by Buyer's primary lender. 40 SECTION 11. Survival of Representations; Effect of Certificates. The --------------------------------------------------- parties hereto agree that, subject to the restrictions on Buyer's indemnification rights under Section 10 hereof, all representations, warranties, covenants and agreements contained herein or in any instrument or other document delivered pursuant to this Agreement or in connection with the transactions contemplated hereby shall survive the consummation of the transactions contemplated hereby. SECTION 12. Brokerage Indemnity. Buyer, on the one hand, and the ------------------- Shareholders, on the other hand, each represent to the other that no broker or finder has been involved with any of the transactions relating to this Agreement, except that the Shareholders have retained Grand Teton Acquisitions, at their sole cost and expense. In the event of a claim by any other broker or finder that such broker or finder represented or was retained by the Shareholders on the one hand, or Buyer, on the other hand, (or in the event Grand Teton Acquisitions makes any claim against Buyer), in connection herewith, the Shareholders or Buyer, as the case may be, agree to indemnify and hold the other harmless from and against any and all loss, liability, cost, damage, claim and expense, including, without limitation, attorneys' fees and disbursements, which may be incurred in connection with such claim. SECTION 13. Notices. All notices, requests, demands and other ------- communications provided for by this Agreement shall be in writing and shall be deemed to have been given when hand delivered, when received if sent by telecopier or by same day or overnight recognized commercial courier service or three business days after being mailed in any general or branch office of the United States Postal Service, enclosed in a registered or certified postpaid envelope, 41 addressed to the address of the parties stated below or to such changed address as such party may have fixed by notice: To Bronco or the Shareholders: Jim Lawrence c/o Bronco Hi-Lift Inc. 12600 E. 38th Avenue Denver, CO 80239 Telecopier: - copy to - Sherman & Howard LLC 633 Seventeenth Street Suite 3000 Denver, Colorado 80202 Attention: James McMaster Telecopier: (303) 298-0940 To Buyer: United Rentals, Inc. Four Greenwich Office Park Greenwich, Connecticut 06830 Attention: John N. Milne, Vice Chairman Telecopier: (203) 622-6080 - copy to - Oscar D. Folger, Esq. 521 Fifth Avenue New York, New York 10175 Telecopier: (212) 697-9570 42 - and - Holme Roberts & Owen LLP 1700 Lincoln, Suite 4100 Denver, Colorado 80203 Attention: Thomas A. Richardson, Esq. Telecopier: (303) 866-0200 provided, that any notice of change of address shall be effective only upon receipt. SECTION 14. Termination. ----------- 14.1 This Agreement may be terminated at any time prior to the Closing by any of the following: (a) By mutual written agreement of Buyer and the Shareholders; (b) By either Buyer or the Shareholders, if the Closing has not occurred by 11.59:00 p.m., October 31, 1997, upon written notice by such terminating party, provided that at the time such notice is given a material breach of this Agreement by such terminating party shall not be the reason for the Closing's failure to occur; (c) Subject to the provisions of Section 14.2, by Buyer, by written notice to the Shareholders, if there has been a material violation or breach of any of the Shareholders' covenants or agreements made herein or in connection herewith or if any representation or warranty of the Shareholders made herein or in connection herewith proves to be materially inaccurate or misleading with respect to Bronco, taken as a whole; or (d) Subject to the provisions of Section 14.2, by the Shareholders, by written notice to Buyer, if there has been a material violation or breach of any of Buyer's covenants or 43 EX-10.(M) 14 STOCK PURCHASE AGREEMENT CORAN EXHIBIT 10(m) STOCK PURCHASE AGREEMENT Dated as of October 24, 1997, by and among United Rentals, Inc. Coran Enterprises, Inc. Monterey Bay Equipment Rentals, Inc. James M. Shade Carol A. Shade James M. Shade and Carol Anne Shade, Trustees under the James M. Shade and Carol A. Shade Trust Agreement dated September 14, 1982 Randall Shade and Corey Shade TABLE OF CONTENTS Page ---- 1. PURCHASE OF CORPORATIONS' STOCK................................... 1 ------------------------------- 1.1 SHARES TO BE PURCHASED....................................... 1 ---------------------- 1.2 PURCHASE PRICE............................................... 1 -------------- 1.3 ADJUSTMENTS TO PURCHASE PRICE................................ 2 ----------------------------- 1.4 HOLD BACK.................................................... 3 --------- 1.5 EXCLUDED ASSETS.............................................. 4 --------------- 2. CLOSING TIME AND PLACE....................................... 5 ---------------------- 3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATIONS AND THE ---------------------------------------------------------- SHAREHOLDERS................................................. 5 ------------ 3.1 ORGANIZATION, STANDING AND QUALIFICATION..................... 5 ---------------------------------------- 3.2 CAPITALIZATION............................................... 5 -------------- 3.3 ALL STOCK BEING ACQUIRED..................................... 5 ------------------------ 3.4 AUTHORITY FOR AGREEMENT...................................... 5 ----------------------- 3.5 NO BREACH OR DEFAULT......................................... 6 -------------------- 3.6 SUBSIDIARIES................................................. 6 ------------ 3.7 FINANCIAL STATEMENTS......................................... 6 -------------------- 3.8 LIABILITIES.................................................. 7 ----------- 3.9 [INTENTIONALLY OMITTED]...................................... 8 ----------------------- 3.10 PERMITS AND LICENSES........................................ 8 -------------------- 3.11 CERTAIN RECEIVABLES......................................... 9 ------------------- 3.12 FIXED ASSETS AND REAL PROPERTY.............................. 9 ------------------------------ 3.13 ACQUISITION/DISPOSAL OF ASSETS.............................. 10 ------------------------------ 3.14 CONTRACTS AND AGREEMENTS; ADVERSE RESTRICTIONS.............. 10 ---------------------------------------------- 3.15 INSURANCE................................................... 11 --------- 3.16 PERSONNEL................................................... 11 --------- 3.17 BENEFIT PLANS AND UNION CONTRACTS........................... 11 --------------------------------- 3.18 TAXES....................................................... 13 ----- 3.19 COPIES COMPLETE............................................. 14 --------------- 3.20 PRODUCT QUALITY, WARRANTY CLAIMS, PRODUCT LIABILITY......... 14 --------------------------------------------------- 3.21 NO CHANGE WITH RESPECT TO CORPORATION....................... 14 ------------------------------------- 3.22 CLOSING DATE DEBT; CLOSING DATE CURRENT ASSETS AND CLOSING ---------------------------------------------------------- DATE CURRENT LIABILITIES.................................... 16 ------------------------ 3.23 BANK ACCOUNTS............................................... 16 ------------- 3.24 COMPLIANCE WITH LAWS........................................ 16 -------------------- 3.25 POWERS OF ATTORNEY.......................................... 17 ------------------ 3.26 UNDERGROUND STORAGE TANKS................................... 17 ------------------------- 3.27 PATENTS, TRADEMARKS, TRADE NAMES, ETC....................... 18 ------------------------------------- 3.28 ASSETS, ETC., NECESSARY TO BUSINESS......................... 18 ----------------------------------- 3.29 CONDEMNATION................................................ 18 ------------ 3.30 MANUFACTURERS, SUPPLIERS AND CUSTOMERS...................... 18 -------------------------------------- i 3.31 ABSENCE OF CERTAIN BUSINESS PRACTICES....................... 18 ------------------------------------- 3.32 RELATED PARTY TRANSACTIONS.................................. 19 -------------------------- 3.33 DISCLOSURE SCHEDULES........................................ 19 -------------------- 3.34 NO MISLEADING STATEMENTS.................................... 19 ------------------------ 3.35 ACCURATE AND COMPLETE RECORDS............................... 19 ----------------------------- 3.36 KNOWLEDGE................................................... 19 --------- 3.37 BROKERS; FINDERS............................................ 20 ---------------- 3.38 S CORPORATIONS.............................................. 20 -------------- 4. REPRESENTATIONS AND WARRANTIES OF UNITED.......................... 20 ---------------------------------------- 4.1 EXISTENCE AND GOOD STANDING.................................. 20 --------------------------- 4.2 NO CONTRACTUAL RESTRICTIONS.................................. 20 --------------------------- 4.3 AUTHORIZATION OF AGREEMENT................................... 20 -------------------------- 4.4 NO MISLEADING STATEMENTS..................................... 20 ------------------------ 4.5 BROKERS; FINDERS............................................. 20 ---------------- 4.6 DISCLOSURE SCHEDULES......................................... 21 -------------------- 5. CLOSING DELIVERIES........................................... 21 ------------------ 5.1 UNITED DELIVERIES............................................ 21 ----------------- 5.2 SHAREHOLDERS DELIVERIES...................................... 21 ----------------------- 6. ADDITIONAL COVENANTS OF UNITED, THE CORPORATION AND THE ------------------------------------------------------- SHAREHOLDERS...................................................... 22 ------------ 6.1 FURTHER ASSURANCES AND ADDITIONAL CONVEYANCES................ 22 --------------------------------------------- 6.2 RELEASE OF GUARANTIES........................................ 22 --------------------- 6.3 CONFIDENTIALITY.............................................. 22 --------------- 6.4 BROKERS AND FINDERS FEES..................................... 22 ------------------------ 6.5 TAXES........................................................ 22 ----- 6.6 SHORT YEAR TAX RETURNS....................................... 23 ---------------------- 6.7 CERTAIN TAX MATTERS.......................................... 23 ------------------- 6.8 SHAREHOLDERS' REPRESENTATIVE................................. 23 ---------------------------- 6.9 GENERAL RELEASE BY SHAREHOLDERS.............................. 24 ------------------------------- 7. INDEMNIFICATION................................................... 25 --------------- 7.1 INDEMNITY BY THE SHAREHOLDERS................................ 25 ----------------------------- 7.2 LIMITATIONS ON SHAREHOLDERS' INDEMNITIES..................... 26 ---------------------------------------- 7.3 NOTICE OF INDEMNITY CLAIM.................................... 27 ------------------------- 7.4 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS....... 28 ------------------------------------------------------ 7.5 NO EXHAUSTION OF REMEDIES OR SUBROGATION; RIGHT OF SET OFF... 28 ---------------------------------------------------------- 8. OTHER POST-CLOSING COVENANTS OF THE SHAREHOLDERS AND UNITED.. 29 ----------------------------------------------------------- 8.1 RESTRICTIVE COVENANTS........................................ 29 --------------------- 8.2 RIGHTS AND REMEDIES UPON BREACH.............................. 30 ------------------------------- ii 9. GENERAL........................................................... 31 ------- 9.1 ASSIGNMENT................................................... 31 ---------- 9.2 COUNTERPARTS................................................. 31 ------------ 9.3 NOTICES...................................................... 31 ------- 9.4 ATTORNEYS' FEES.............................................. 32 --------------- 9.5 APPLICABLE LAW............................................... 32 -------------- 9.6 PAYMENT OF FEES AND EXPENSES................................. 32 ---------------------------- 9.7 INCORPORATION BY REFERENCE................................... 33 -------------------------- 9.8 CAPTIONS..................................................... 33 -------- 9.9 NUMBER AND GENDER OF WORDS; CORPORATION...................... 33 --------------------------------------- 9.10 ENTIRE AGREEMENT............................................. 33 ---------------- 9.11 WAIVER....................................................... 33 ------ 9.12 CONSTRUCTION................................................. 33 ------------ 10. ARBITRATION AND DISPUTE RESOLUTION................................ 33 ---------------------------------- iii STOCK PURCHASE AGREEMENT ------------------------ STOCK PURCHASE AGREEMENT, dated as of October 24, 1997, is entered into by and among United Rentals, Inc., a Delaware corporation ("United"), Coran Enterprises, Inc., a California corporation doing business as A-1 Rents ("Coran"), Monterey Bay Equipment Rentals, Inc., a California corporation ("Monterey") (Coran and Monterey are occasionally herein referred collectively as the "Corporations" and individually as a "Corporation") and James M. Shade ("James"), Carol A. Shade ("Carol"), James M. Shade and Carol Anne Shade, Trustees under the James M. Shade and Carol A. Shade Trust Agreement dated September 14, 1982 (the "Trust"), Randall Shade ("Randall") and Corey Shade ("Corey") (the "Shareholders"). WHEREAS, Coran is engaged in the equipment and party supply rental business in the Central Coast region of Northern California, and other related activities; WHEREAS, Monterey is engaged in the business of obtaining equipment and party supplies for lease to Coran; WHEREAS, the Trust owns of record, and James and Carol own beneficially, all of the issued and outstanding capital stock of Coran (the "Coran Stock") in the amount set forth on Schedule 3.2 hereto, and Randall and Corey own all of the issued and outstanding capital stock of Monterey (the "Monterey Stock" and, collectively with the Coran Stock, the "Corporations' Stock") in the amount set forth on Schedule 3.2; WHEREAS, United wishes to acquire from the Shareholders all of the issued and outstanding capital stock of the Corporations; WHEREAS, concurrent with the execution of this Agreement, Coran will enter into four separate leases (the "Leases") of the premises at the four locations where the Corporations do business; NOW, THEREFORE, in consideration of the premises and of the mutual agreements, representations, warranties, provisions and covenants herein contained, the parties hereto, each intending to be bound hereby, agree as follows: 1. PURCHASE OF CORPORATIONS' STOCK ------------------------------- 1.1 SHARES TO BE PURCHASED. At the Closing (as hereinafter defined), the ---------------------- Shareholders sold and delivered to United all of the issued and outstanding Corporations' Stock, being the number of shares of the Corporations set forth on Schedule 3.2. At the Closing, United purchased the Corporations' Stock and in exchange therefor will deliver to the Shareholders on October 27, 1997, or shall deliver thereafter as provided by this Agreement the purchase price described in Section 1.2 (the "Purchase Price"). 1.2 PURCHASE PRICE. The Purchase Price is fifteen million two hundred -------------- thousand dollars ($15,200,000), subject to adjustment as provided in Section 1.3. The Purchase Price, 1 as so adjusted, less the Hold Back (as defined in Section 1.4), shall be paid in cash by wire transfer to the accounts of the Shareholders as set forth on Schedule 3.2 on October 27, 1997. 1.3 ADJUSTMENTS TO PURCHASE PRICE. The Purchase Price was or shall be ----------------------------- adjusted as follows: (a) ADJUSTMENT FOR CLOSING DATE DEBT. The Closing Date Debt was -------------------------------- subtracted from the Purchase Price. The Closing Date Debt is set forth on Schedule 1.3(a) and includes: (i) the amount of the aggregate debt (excluding trade payables) of the Corporations outstanding on the Closing Date to be repaid by United at or immediately after the Closing Date and all prepayment penalties incurred or to be incurred by United in connection with the repayment of any such debt; (ii) the amount of the aggregate debt (excluding trade payables) of the Corporations outstanding on the Closing Date which will remain outstanding obligations of the Corporations after the Closing Date, including in each case all interest accrued through and including the Closing Date; (iii) the aggregate amount of the present value of all capitalized lease obligations (determined in accordance with generally accepted accounting principals) of the Corporations and (iv) the aggregate amount of the present value, discounted at the lease rate factor, if known, inherent in the lease or, if the lease rate factor is not known, at the rate charged to the Corporations by a third party lender in connection with its most recent borrowing to finance equipment, of all personal property lease obligations of the Corporations that are not capitalized lease obligations. Schedule 1.3(a) includes wire transfer instructions for creditors whose Closing Date Debt will be repaid by United, and attached to Schedule 1.3(a) are pay-off letters or instructions from such creditors. (b) WORKING CAPITAL ADJUSTMENT. The amount by which the estimated -------------------------- Month-End Working Capital is greater or less than zero was added to or subtracted from the Purchase Price, as the case may be. The estimated Month-End Working Capital was determined by subtracting the estimated Month-End Current Liabilities from the estimated Month-End Current Assets. The estimated Month-End Closing Date Current Assets consist of the amount of the estimated aggregate current assets of the Corporations as of October 31, 1997, plus the estimated accounts receivable of the Corporations earned prior to October 31, 1997, and collectible (valued as set forth below) on or after October 31, 1997 and minus the Inventory Value of the fuel and merchandise set forth on Schedule 1.3(c). The estimated Month-End Current Liabilities consist of the amount of the estimated aggregate current liabilities (including all amounts payable to employees of the Corporations with respect to bonuses or additional compensation payable on account of the Equipment sold by such employees prior to October 31, 1997, and any reserve for unpaid taxes, but excluding the current portion of long-term debt to the extent such current portion is included in the Closing Date Debt) and trade payables of the Corporations as of the October 31, 1997. The estimated Month-End Working Capital, the estimated Month-End Current Assets and the estimated Month-End Current Liabilities are set forth on Schedule 1.3(b). (c) INVENTORY ADJUSTMENT. There was added to the Purchase Price the -------------------- Inventory Value (as defined below) of the fuel and merchandise held for sale (other than 2 Equipment held for sale included on Schedule 1.3(d)), which Inventory Value and related fuel and merchandise is described on Schedule 1.3(c). (d) EQUIPMENT ADJUSTMENT. There was added to the Purchase Price the -------------------- market value, as determined by United and the Shareholders' Representative, of the Equipment listed on Schedule 1.3(d), which Equipment was held for sale (other than for occasional rental) by one of the Corporations or has otherwise been set aside as being obsolete (the "Surplus Equipment"). The Surplus Equipment will be sold within six months after the Closing Date and the net proceeds of such sale shall be paid to the Shareholders. 1.4 HOLD BACK. --------- (a) HOLD BACK. United will hold back from the Purchase Price the sum --------- of Five Hundred Thousand dollars ($500,000) (the "Hold Back"), which amount will be deposited by United with First Trust of California (the "Escrow Agent") to be held pursuant to an Escrow Agreement (the "Escrow Agreement") on October 27, 1997, for later distribution pending the determination of the amount of the Inventory Adjustment and Working Capital Adjustment pursuant to Sections 1.4(c) and 1.4(d), respectively. United and the Shareholders' Representative will use reasonable efforts to complete the Inventory Adjustment and the Working Capital Adjustment within 90 days after the Closing Date, whereupon United shall notify the Shareholders' Representative of the amount of such Adjustments. If there is no disagreement between United and the Shareholders' Representative regarding the Inventory Adjustment and the Working Capital Adjustment, United will adjust the Hold Back by the amount of such Adjustments and United and the Shareholders' Representative will instruct the Escrow Agent to release the Hold Back, as adjusted, to the Shareholders 120 days after the Closing Date. In the event of any disagreement between United and Shareholders' Representative regarding the dollar amount of any such adjustment, United shall nevertheless adjust the Hold Back by the amount of such Adjustments not in dispute and United and the Shareholders' Representative will instruct the Escrow Agent to release to the Shareholders any portion of the Hold Back, as adjusted, that is not in dispute. Promptly upon resolution of any such disagreement in accordance with the terms hereof, United shall adjust the remaining portion of the Hold Back and United and the Shareholders' Representative shall instruct the Escrow Agent to release to the Shareholders any remaining portion of the Hold Back, as adjusted, to which the Shareholders are entitled. Notwithstanding the foregoing, United shall not be limited to the Hold Back as a sole remedy in the event that any Purchase Price adjustment exceeds the Hold Back. (b) INTENTIONALLY OMITTED. --------------------- (c) INVENTORY VALUATION. The Purchase Price shall be adjusted (the ------------------- "Inventory Adjustment") on a dollar-for-dollar basis pursuant to the procedures set forth below by the amount, if any, by which the Inventory Value of the fuel and Equipment included on Schedule 1.3(c) as of the Closing Date is greater or less than the amount set forth on Schedule 1.3(c) plus or minus, as the case may be, the lesser of $10,000 or two percent 3 (2%) of the Inventory Value. "Inventory Value" shall mean the lower of (x) vendor cost as last received (excluding all freight and other charges) and (y) market value (excluding any non-salable or obsolete merchandise, parts or supplies) as of the Closing Date, as determined in accordance with generally accepted accounting principles. Inventory Value shall be determined pursuant to a physical inventory to be taken promptly following the Closing Date, and shall be finalized within 90 days following the Closing Date. Any disputes as to the physical condition, salability or obsolescence of any item of Inventory will, if possible, be resolved by United and the Shareholders' Representative while such physical inventory is being taken. Any disputes regarding the foregoing not so resolved will be resolved by arbitration in accordance with Section 10. (d) WORKING CAPITAL ADJUSTMENT. The adjustment made to the Purchase -------------------------- Price wired on the Closing Date pursuant to Section 1.3(b) is based on Schedule 1.3(b) as delivered at the Closing, which the parties understand includes only an estimate of the Month-End Working Capital. Within 90 days after the Closing Date, United will determine the actual Month-End Working Capital as of October 31, 1997, and will advise the Shareholders' Representative of such actual amount. If the Purchase Price increases, United will promptly pay any additional amount due to the Shareholders within 120 days after the Closing Date; if the Purchase Price declines, United may deduct the amount by which the Purchase Price declines from the Hold Back. To the extent the parties disagree on such amount, United and the Shareholders' Representative will attempt to resolve such dispute and, if they are unable to do so, such dispute shall be decided by arbitration in accordance with Section 10. For purposes of valuing the accounts receivable of the Corporations in determining Month-End Current Assets, accounts receivable outstanding 120 days or more shall be valued at zero. The Purchase Price shall also be reduced 120 days after the Closing, on a dollar-for-dollar basis, by the value of all accounts receivable included in Month-End Current Assets that have not been collected within 120 days after the Closing Date, and shall be increased by the amount by which accounts receivable on the Closing Date collected within 120 days after the Closing Date exceed the value of the accounts receivable included in the Month-End Current Assets. United will cause the Corporations to use reasonable efforts to collect all such accounts receivable within 120 days after the Closing Date. All such uncollected receivables shall then be assigned by the Corporations to the Shareholders' Representative, who shall hold and attempt to collect them for the benefit of the Shareholders. The Corporations shall have no right to receive any of such collections. Payments received within 120 days after the Closing Date on accounts receivable for customers who generate accounts receivable before and after the Closing Date shall be credited to the oldest receivables first until the payments have been fully credited. The adjustments pursuant to this Section 1.4(d) are herein called the "Working Capital Adjustment." 1.5 EXCLUDED ASSETS. The Assets of the Corporations listed on --------------- Schedule 1.5 (the "Excluded Assets") shall be distributed to the Shareholders prior to the Closing, and United shall acquire no interest in or claim to any of the Excluded Assets. 4 2. CLOSING TIME AND PLACE ---------------------- The closing of the transactions contemplated herein (the "Closing") took place simultaneous with the execution of this Agreement (the "Closing Date"). The Closing took place at the Law Offices of Groom & Cave LLP, 150 Alameda Blvd., Suite 1375, San Jose, California 95113. At the Closing, United and the Shareholders delivered to each other the documents, instruments and other items described in Section 5 of this Agreement. 3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATIONS AND THE ---------------------------------------------------------- SHAREHOLDERS ------------ The Corporations and the Shareholders, jointly and severally, (i) represent and warrant that each of the following representations and warranties is true as of the Closing Date with respect to the Shareholders, Coran and Monterey, as the case may be, and (ii) agree that such representations and warranties shall survive the Closing. 3.1 ORGANIZATION, STANDING AND QUALIFICATION. Each Corporation is duly ---------------------------------------- organized, validly existing and in good standing under the laws of the State of California. Each Corporation has full corporate power and authority to own and lease its properties and to carry on its business as now conducted. Neither Corporation is required to be qualified or licensed to conduct business as a foreign corporation in any other jurisdiction. 3.2 CAPITALIZATION. Schedule 3.2 sets forth, as of the Closing Date, the -------------- authorized and outstanding capital stock of Coran and Monterey, the name, addresses and social security numbers or taxpayer identification numbers of the record and beneficial owners thereof, and the number of shares so owned, and wire transfer instructions for each Shareholder relating to the bank account to which the Purchase Price should be sent. On the Closing Date, all of the issued and outstanding shares of the capital stock of the Corporations were owned of record and beneficially by the Shareholders, as set forth in Schedule 3.2, and were free and clear of all liens, security interests, encumbrances and claims of every kind. Each share of the capital stock of each Corporation is validly authorized and issued, fully paid and nonassessable, and was not issued in violation of any preemptive rights of any past or present shareholder of either Corporation. No option, warrant, call, conversion right or commitment of any kind (including any of the foregoing created in connection with any indebtedness of a Corporation) exists which obligates either Corporation to issue any of its authorized but unissued capital stock or other equity interest, or which obligates any Shareholder to transfer any Corporations' Stock to any person. 3.3 ALL STOCK BEING ACQUIRED. The Coran Stock being acquired by United ------------------------ hereunder constitutes all of the outstanding capital stock of Coran. The Monterey Stock being acquired by United hereunder constitutes all of the issued and outstanding capital stock of Monterey. 3.4 AUTHORITY FOR AGREEMENT. Each Corporation and each of the ----------------------- Shareholders has full right, power and authority to enter into this Agreement and to perform its or his obligations hereunder. The execution and delivery of this Agreement by the Corporations has been duly authorized by their respective Boards of Directors. This Agreement has been duly and validly 5 executed and delivered by each Corporation and each of the Shareholders and, subject to the due authorization, execution and delivery by United, constitutes the legal, valid and binding obligation of each Corporation and each of the Shareholders enforceable against each Corporation and each of the Shareholders in accordance with its terms. 3.5 NO BREACH OR DEFAULT. Except as disclosed on Schedule 3.5, the -------------------- execution and delivery by the Corporations and the Shareholders of this Agreement, and the consummation by the Shareholders of the transactions contemplated hereby, do not and will not: (a) result in the breach of any of the terms or conditions of, or constitute a default under, or allow for the acceleration or termination of, in any manner release any party from any obligation under, require any consent under, or will result in any lien, claim, or encumbrance on the Corporations' Stock or the assets of either Corporation under, any mortgage, lease, note, bond, indenture, or material contract, agreement, license or other instrument or obligation of any kind or nature to which a Corporation or any of the Shareholders is a party, or by which either Corporation, or any of its assets, is or may be bound or affected; or (b) violate any law or any order, writ, injunction or decree of any court, administrative agency or governmental authority, or require the approval, consent or permission of any governmental or regulatory authority; or (c) violate the Articles of Incorporation or Bylaws of either Corporation. 3.6 SUBSIDIARIES. Schedule 3.6 lists as of the Closing Date any and all ------------ subsidiaries of either Corporation and any securities of any other corporation or any securities or other interest in any other business entity owned by a Corporation or any of its subsidiaries. 3.7 FINANCIAL STATEMENTS. The Corporations have delivered to United, as -------------------- Schedule 3.7, copies of the following financial statements ("Financial Statements"): financial statements for the fiscal year ended December 31, 1995 and 1966, compiled by Grant Thornton LLP and unaudited interim Financial Statements for the Corporations for the period ended August 31, 1997 (the "Balance Sheet Date"). To the knowledge of the Corporations and the Shareholders, the Financial Statements are true and correct and fairly present (i) the financial position of each such Corporation as of the respective dates of the balance sheets included in said statements, and (ii) the results of operations for the respective periods indicated. To the knowledge of the Corporations and the Shareholders, the Financial Statements have been prepared in accordance with generally accepted accounting principles, applied consistently with prior periods. Except to the extent reflected or reserved against in a Corporation's balance sheet as of the Balance Sheet Sate, or as disclosed on Schedule 3.7 or Schedule 3.8, neither Corporation had as of the Balance Sheet Date, nor had, as of the Closing Date, any liabilities of any nature, whether accrued, absolute, contingent or otherwise, including, without limitation, tax liabilities due. 6 3.8 LIABILITIES. Schedules 3.8(a), (b), (c) and (d), are accurate lists ----------- and descriptions of all liabilities of each Corporation required to be described below in the format set forth below. (a) Schedule 3.8(a) lists, as of the Closing Date, other than with respect to trade payables and as of the end of the month prior to the Closing Date with respect to trade payables, all indebtedness for money borrowed and all other fixed and uncontested liabilities of any kind, character and description (excluding all real and personal property leasehold interests included in Schedule 3.8 (d)), whether reflected or not reflected on the Financial Statements and whether accrued or absolute, and states as to each such liability the amount of such liability and to whom payable. From the date as of which trade payables are listed through the Closing Date, trade payables have been incurred only in the ordinary course of business consistent with comparable prior periods. (b) Schedule 3.8(b) lists, as of the Closing Date, all claims, suits and proceedings which are pending against either Corporation and, to the knowledge of the Corporations and the Shareholders, all contingent liabilities and all claims, suits and proceedings threatened or anticipated against a Corporation. For each such liability, the following is provided in Schedule 3.8(b): (i) a summary description of such liability together with copies of all material documents, reports and other records relating thereto; (ii) all amounts claimed or relief sought with respect to such liability and the identity of the claimant; and (iii) without limitation of the foregoing, (A) the name of each court, agency, bureau, board or body before which any such claim, suit or proceeding is pending, (B) the date such claim, suit or proceeding was instituted, (C) the parties to such claim, suit or proceeding, (D) a description of the factual basis alleged to underlie such claim, suit or proceeding, including the date or dates of all material occurrences, (E) the amount claimed and other relief sought, and (F) all material pleadings, briefs and other documents relating thereto to the extent the same are in the possession or under the control of the Corporations or the Shareholders. (c) Schedule 3.8(c) lists, as of the Closing Date and to the extent not otherwise included in Schedule 3.8(a), all liens and encumbrances secured by or otherwise affecting any asset of a Corporation (including any Corporate Property, as hereafter defined), including a description of the nature of such lien or encumbrance, the amount secured if it secures a liability, the nature of the obligation secured, and the party holding such lien or encumbrance. (d) Schedule 3.8(d) lists, as of the Closing Date and to the extent not otherwise included in Schedules 3.8(a) and (c), all real and personal property leasehold interests or to which a Corporation is a party as lessor or lessee or, to the knowledge of 7 the Corporations or the Shareholders, affecting or relating to any Corporate Property, including a description of the nature and principal terms of such leasehold interest and the identity of the other party thereto. Except as described on Schedules 3.8(a), (b), (c) and (d), neither Corporation nor any of the Shareholders has made any payment or committed to make any payment since the Balance Sheet Date on or with respect to any of the liabilities or obligations listed on Schedule 3.8(a), (b), (c) and (d) except, in the case of liabilities and obligations listed on Schedule 3.8(a), (c) and (d), periodic payments required to be made under the terms of the agreements or instruments governing such obligations or liabilities. 3.9 [INTENTIONALLY OMITTED]. ----------------------- 3.10 PERMITS AND LICENSES. -------------------- (a) Schedule 3.10(a) is a full and complete list, and includes copies, of all material permits, licenses, titles (including motor vehicle titles and current registrations), fuel permits, zoning and land use approvals and authorizations, including, without limitation, any conditional or special use approvals or zoning variances, occupancy permits, and any other similar documents constituting a material authorization or entitlement or otherwise material to the operation of the business of the Corporations (collectively the "Governmental Permits") owned by, issued to, held by or otherwise benefiting the Corporations or the Shareholders as of the Closing Date. Any material conditions to the Governmental Permits to and, if applicable, the expiration dates thereof, are also described in Schedule 3.10(a). Schedule 3.10(a) also sets forth the name of any third party from whom the Shareholders, either Corporation or United must obtain consent (the "Required Governmental Consents") in order to effect a direct or indirect transfer of the Governmental Permits required as a result of the consummation of the transactions contemplated by this Agreement. Except as set forth on Schedule 3.10(a), all of Governmental Permits enumerated and listed on Schedule 3.10(a) are adequate for the operation of the business of the Corporations and of each Corporate Property as presently operated and are valid and in full force and effect. All of said Governmental Permits and agreements have been duly obtained and are in full force and effect, and there are no proceedings pending or, to the knowledge of the Corporations or the Shareholders, threatened which may result in the revocation, cancellation, suspension or adverse modification of any of the same. Neither the Corporations nor any of the Shareholders has any knowledge of any reason why all such Governmental Permits and agreements will not remain in effect after consummation of the transactions contemplated hereby. (b) Schedule 3.10(b) lists, as of the Closing Date, each facility owned, leased, operated or otherwise used by the Corporations, the ownership, lease, operation or use of which is being transferred to, assumed by or otherwise acquired directly or indirectly by United pursuant to this Agreement (each, a "Facility" and collectively, the "Facilities"). Except as otherwise disclosed on Schedule 3.10(b): 8 (i) Each Facility is fully licensed, permitted and authorized to carry on its current business under all applicable federal, state and local statutes, orders, approvals, zoning or land use requirements, rules and regulations and no Facility is a non-conforming use or otherwise subject to any restrictions regarding reconstruction. (ii) All activities and operations at each Facility are being and have been conducted in compliance in all material respects with the requirements, criteria, standards and conditions set forth in all applicable federal, state and local statutes, orders, approvals, permits, zoning or land use requirements and restrictions, variances, licenses, rules and regulations. (iii) Each Facility is located on real property owned or leased by a Corporation (each a "Facility Property") and each Facility Property owned by a Corporation is legally described on the surveys or site plans attached to Schedule 3.10(b) (the "Facility Surveys/Site Plans"), each of which when delivered will accurately depict the respective Facility Property. (iv) There are no circumstances, conditions or reasons which are likely to be the basis for revocation or suspension of any Facility's site assessments, permits, licenses, consents, authorizations, zoning or land use permits, variances or approvals relating to any Facility owned by a Corporation or owned by any of the Shareholders or an Affiliate (as hereinafter defined) of any of the Shareholders and leased to a Corporation, and to the knowledge of the Corporations and the Shareholders there are no circumstances, conditions or reasons which are likely to be the basis for revocation or suspension of any site assessment, permits, licenses, consents, authorizations, zoning or land use permits, variances or approvals relating to any Facility. 3.11 CERTAIN RECEIVABLES. Schedule 3.11 is an accurate list as of the ------------------- Closing Date of the accounts and notes receivable of the Corporations from and advances to employees, former employees, officers, directors, the Shareholders and Affiliates of the foregoing. For purposes of this Agreement, the term "Affiliate" means, with respect to any person, any person that directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with such person, and in the case of a Corporation includes directors and officers, in the case of individuals includes the individual's spouse, father, mother, grandfather, grandmother, brothers, sisters, children and grandchildren and in the case of a trust includes the grantors, trustees and beneficiaries of the trust. 3.12 FIXED ASSETS AND REAL PROPERTY. ------------------------------ (a) Schedule 3.12(a) lists, as of the Closing Date, substantially all the fixed assets (other than real estate, inventory subject to the Inventory Adjustment and Equipment included in the Rental Asset Listing) of each Corporation, including, without limitation, identification of each vehicle by description and serial number, identification of machinery, equipment and general descriptions of parts, supplies and inventory. All 9 leases of fixed assets are in full force and effect and binding upon the parties thereto; neither Corporation nor any other party to such leases is in breach of any of the material provisions thereof. (b) Each parcel of real property leased, owned or being purchased by each Corporation as of the Closing Date (the "Corporate Property"), including street address and, in the case of Corporate Property owned or being purchased, the legal description thereof, is listed on Schedule 3.12(b) and attached to said Schedule 3.12(b) are copies of all leases, deeds, outstanding mortgages, other encumbrances and any existing title insurance policies relating to each Corporate Property, as well as a current commitments for title insurance issued by a title insurance company satisfactory to United with respect to each Corporate Property owned or being purchased by a Corporation together with copies of all of the title exceptions referred to in said commitments. All leases listed on Schedule 3.12(b) are and shall be in full force and effect and binding on the parties thereto. Except as described on Schedule 3.12(b) there are and shall be as of the Closing Date no material physical or mechanical defects in or any Facility located on any Corporate Property and each such Facility is in good condition and repair. (c) Each Corporation has good, valid and marketable title to all properties and assets, real, personal, and mixed, tangible and intangible, actually used or necessary for the conduct of its business, free of any encumbrance or charge of any kind except: (i) liens for current taxes not yet due; (ii) minor imperfections of title and encumbrances, if any, that are not substantial in amount, do not materially detract from the value of the property subject thereto, do not materially impair the value of the Corporations, and have arisen only in the ordinary course of business and consistent with past practice; and (iii) the liens identified on Schedule 3.8(c) (collectively, the "Permitted Liens"). Except as described on Schedule 3.12(b) there are and as of the Closing Date will be no leases, occupancy agreements, options, rights of first refusal or any other agreements or arrangements, either oral or written, that create or confer in any person or entity the right to acquire, occupy or possess, now or in the future, any Facility, any Corporate Property, or any portion thereof, or create in or confer on any person or entity any right, title or interest therein or in any portion thereof. 3.13 ACQUISITION/DISPOSAL OF ASSETS. Except as indicated on Schedule 3.13, ------------------------------ since the Balance Sheet Date, neither Corporation has acquired or sold or otherwise disposed of any properties or assets which, singly or in the aggregate, have a value in excess of $25,000, or which are material to the operation of either Corporation's business as presently conducted, without the prior written consent of United. 3.14 CONTRACTS AND AGREEMENTS; ADVERSE RESTRICTIONS. ---------------------------------------------- (a) Schedule 3.14(a) lists, as of the Closing Date, and includes copies of, all material contracts and agreements (other than standard rental agreements with customers, leases included with Schedule 3.12(b) and documents included with Schedule 3.12(b)) to which either Corporation is a party or by which it or any of its property is bound (including, but not limited to, joint venture or partnership agreements, contracts with any 10 labor organizations, promissory notes, loan agreements, bonds, mortgages, deeds of trust, liens, pledges, conditional sales contracts or other security agreements). Except as disclosed on Schedule 3.14(a), all such contracts and agreements included in Schedule 3.14(a) are in full force and effect and binding upon the parties thereto. Except as described or cross referenced on Schedule 3.14(a), neither Corporation nor, to any of the Shareholders' knowledge, any other parties to such contracts and agreements is in breach thereof, and none of the parties has threatened to breach any of the material provisions thereof or notified a Corporation or any of the Shareholders of a default thereunder, or exercised any options thereunder. None of such contracts, agreements and licenses requires notice to, or consent or approval of, any third party to any of the transactions contemplated hereby, except such consents and approvals as are listed on Schedule 3.14(a). (b) Except as set forth on Schedule 3.14(b), there is no outstanding judgment, order, writ, injunction or decree against a Corporation, the result of which could materially adversely affect the Corporation or its business or any of the Corporate Properties, nor has either Corporation been notified that any such judgment, order, writ, injunction or decree has been requested. 3.15 INSURANCE. Schedule 3.15 is a complete list and includes copies, as --------- of the Closing Date, of all insurance policies in effect on the Closing Date or, with respect to "occurrence" policies that were in effect, carried by the Corporations in respect of the Facilities, the Corporate Properties or any other property used by the Corporations specifying, for each policy, the name of the insurer, the type of risks insured, the deductible and limits of coverage, and the annual premium therefor. During the last five years, there has been no lapse in any material insurance coverage of either Corporation. For each insurer providing coverage for any of the contingent or other liabilities listed on Schedule 3.8, except to the extent otherwise set forth in Schedule 3.8(b), each such insurer, if required, has been properly and timely notified of such liability, no reservation of rights letters have been received by a Corporation and the insurer has assumed defense of each suit or legal proceeding. 3.16 PERSONNEL. Schedule 3.16 is a complete list, as of the Closing Date, --------- of all officers, directors and employees (by type or classification) of each Corporation and their respective rates of compensation, including (i) the portions thereof attributable to bonuses, (ii) any other salary, bonus, stock option, equity participation, or other compensation arrangement made with or promised to any of them, and (iii) copies of all employment agreements with non- union officers, directors and employees. Schedule 3.16 shall also lists the driver's license number for each driver of the Corporations' motor vehicles who is required to have a commercial, chauffeur's, or other special class of drivers license in order to operate commercial or heavy vehicles used in the Corporation's business. 3.17 BENEFIT PLANS AND UNION CONTRACTS. --------------------------------- (a) Schedule 3.17(a) is a complete list as of the Closing Date, and includes complete copies (or, in the case of oral arrangements, descriptions), of all employee benefit plans and agreements (written or oral) currently maintained or contributed to by 11 the Corporations, including employment agreements and any other agreements containing "golden parachute" provisions, retirement plans, welfare benefit plans and deferred compensation agreements, together with copies of such plans, agreements and any trusts related thereto, and classifications of employees covered thereby as of the Closing Date. Except for the employee benefit plans described on Schedule 3.17(a), the Corporations have no other pension, retirement, welfare, profit sharing, deferred compensation, stock option, employee stock purchase or other employee benefit plans or arrangements with any party. Except as disclosed on Schedule 3.17(a), all employee benefit plans listed on Schedule 3.17(a) are fully funded and in substantial compliance with all applicable federal, state and local statutes, ordinances and regulations. All such plans that are intended to qualify under Section 401(a) of the Internal Revenue Code have been determined by the Internal Revenue Service to be so qualified, and copies of such determination letters are included as part of Schedule 3.17(a). Except as disclosed on Schedule 3.17(a), all reports and other documents required to be filed with any governmental agency or distributed to plan participants or beneficiaries (including, but not limited to, actuarial reports, audits or tax returns) have been timely filed or distributed, and copies thereof are included as part of Schedule 3.17(a). All employee benefit plans listed on such Schedule have been operated in accordance with the terms and provisions of the plan documents and all related documents and policies. The Corporations have not incurred any liability for excise tax or penalty due to the Internal Revenue Service or U.S. Department of Labor nor any liability to the Pension Benefit Guaranty Corporation for any employee benefit plan, nor has a Corporation, nor party-in-interest or disqualified person, engaged in any transaction or other activity which would give rise to such liability. The Corporations have not participated in or made contributions to any "multi-employer plan" as defined in the Employee Retirement Income Security Act of 1974 ("ERISA"), nor would a Corporation or any affiliate be subject to any withdrawal liability with respect to such a plan if any such employer withdrew from such a plan immediately prior to the Closing Date. No employee pension benefit plan is under funded on a termination basis as of the date of this Agreement. (b) Schedule 3.17(b) is a complete list, as of the Closing Date, and includes complete copies of all union contracts and agreements between a Corporation and any collective bargaining group. Each Corporation is in compliance in all material respects with all applicable federal and state laws respecting employment and employment practices, terms and conditions of employment, wages and hours, and nondiscrimination in employment, and is not engaged in any unfair labor practice. There is no charge pending or, to the Corporations' or the Shareholders' knowledge, threatened, against a Corporation before any court or agency and alleging unlawful discrimination in employment practices and there is no charge of or proceeding with regard to any unfair labor practice against it pending before the National Labor Relations Board. There is no labor strike, dispute, slow down or stoppage as of the Closing Date, existing or threatened against a Corporation; no union organizational activity exists respecting employees of a Corporation not currently subject to a collective bargaining agreement; the union contracts or other agreements delivered as part of Schedule 3.17(b) constitute all agreements with the unions or other collective bargaining groups, and there are no other arrangements or established practices relating to the employees covered by any 12 collective bargaining agreement; and Schedule 3.17(b) will contain as of the date it is delivered a list of all arbitration or grievance proceedings that have occurred since the Balance Sheet Date. No one has petitioned within the last five years, and no one is now petitioning, for union representation of any employees of a Corporation. The Corporations have not experienced any labor strike, slow-down, work stoppage, labor difficulty or other job action during the last five years. (c) No payment made to any employee, officer, director or independent contractor of a Corporation (the "Recipient") pursuant to any employment contract, severance agreement or other arrangement (the "Golden Parachute Payment") will be nondeductible by the Corporation because of the application of Sections 280G and 4999 of the Code to the Golden Parachute Payment, nor will a Corporation be required to compensate any Recipient because of the imposition of an excise tax (including any interest or penalties related thereto) on the Recipient by reason of Sections 280G and 4999 of the Code. 3.18 TAXES. ----- (a) Each Corporation has timely filed all requisite federal, state, local and other tax and information returns due for all fiscal periods ended on or before the Closing Date. All such returns are accurate and complete. Except as set forth on Schedule 3.18, there are no open years, examinations in progress, extensions of any statute of limitations or claims against a Corporation relating to federal, state, local or other taxes (including penalties and interest) for any period or periods prior to and including the Closing Date and no notice of any claim for taxes has been received. Copies of (i) any tax examinations, (ii) extensions of statutory limitations and (iii) the federal income, and state franchise, income and sales tax returns of each Corporation for its last three fiscal years are attached as part of Schedule 3.18. Copies of all other federal, state, local and other tax and information returns for all prior years of the Corporations' existence have been made available to United and are among the records of the Corporations which will accrue to United at the Closing. The Corporations have not been contacted by any federal, state or local taxing authority regarding a prospective examination. (b) Except as set forth on Schedule 3.18 (which schedule also includes the amount due with respect to such Corporation) the Corporations have duly paid all taxes and other related charges required to be paid prior to the Closing Date. The reserves for taxes contained in the Financial Statements of the Corporations are adequate to cover their tax liability as of the Closing Date. (c) Each of the Corporations has withheld all required amounts from its employees for all pay periods in full and complete compliance with the withholding provisions of applicable federal, state and local laws. All required federal, state and local and other returns with respect to income tax withholding, social security, and unemployment taxes have been duly filed by the Corporations for all periods for which 13 returns are due, and the amounts shown on all such returns to be due and payable have been paid in full. 3.19 COPIES COMPLETE. Except as disclosed on Schedule 3.19, the certified --------------- copies of the Articles of Incorporation and Bylaws of the Corporations, both as amended to the Closing Date, and the copies of all standard form rental agreements, leases, instruments, agreements, licenses, permits, certificates or other documents that have been delivered to United in connection with the transactions contemplated hereby are complete and accurate as of the Closing Date and are true and correct copies of the originals thereof. Except as specifically disclosed on Schedule 3.19, the rights and benefits of the Corporations will not be adversely affected by the transactions contemplated hereby, and the execution of this Agreement and the performance of the obligations hereunder will not violate or result in a breach or constitute a default under any of the terms or provisions thereof. None of such leases, instruments, agreements, licenses, permits, site assessments, certificates or other documents requires notice to, or consent or approval of, any governmental agency or other third party to any of the transactions contemplated hereby, except such consents and approvals as are listed on Schedule 3.19 and which have been given or obtained prior to the Closing. 3.20 PRODUCT QUALITY, WARRANTY CLAIMS, PRODUCT LIABILITY. All products and --------------------------------------------------- services sold, rented, leased, provided or delivered by the Corporations to customers on or prior to the Closing Date conform or will conform to applicable contractual commitments, express and implied warranties, product and service specifications and quality standards, and, to the knowledge of the Corporations and the Shareholders, the Corporations have no liability (and there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against the Corporations giving rise to any liability) for replacement or repair thereof or other damages in connection therewith. No product or service sold, leased, rented, provided or delivered by the Corporations to customers on or prior to the Closing Date is subject to any guaranty, warranty or other indemnity beyond the applicable standard terms and conditions of sale, rent or lease. Except as set forth on Schedule 3.20, the Corporations have no liability (and there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against the Corporations which might give rise to any liability) arising out of any injury to a person or property as a result of the ownership, possession, provision or use of any Equipment, product or service sold, rented, leased, provided or delivered by the Corporations on or prior to the Closing Date. All product liability claims that have been asserted against the Corporations since January 1, 1991, whether covered by insurance or not and whether litigation has resulted or not, are listed and summarized on Schedule 3.20. 3.21 NO CHANGE WITH RESPECT TO CORPORATION. Except as set forth on ------------------------------------- Schedule 3.21, since the Balance Sheet Date, the business of each Corporation has been conducted only in the ordinary course there has been no change in the condition (financial or otherwise) of the assets, liabilities or operations of the Corporations other than changes in the ordinary course of business, none of which either singly or in the aggregate has been materially adverse. Specifically, and without limiting the generality of the foregoing, except as set forth on Schedule 3.21, with respect to each Corporation, since the Balance Sheet Date, there has not been: 14 (a) any change in its financial condition, assets, liabilities (contingent or otherwise), income, operations or business which would have a material adverse effect on the financial condition, assets, liabilities (contingent or otherwise), income, operations or business of the Corporation, taken as a whole; (b) any damage, destruction or loss (whether or not covered by insurance) adversely affecting any material portion of its properties or business; (c) any change in or agreement to change (i) its shareholders, (ii) ownership of its authorized capital or outstanding securities, or (iii) its securities; (d) any declaration or payment of, or any agreement to declare or pay, any dividend or distribution in respect of its capital stock or any direct or indirect redemption, purchase or other acquisition of any of its capital stock; (e) any increase or bonus or promised increase or bonus in the compensation payable or to become payable by it, in excess of usual and customary practices, to any of its directors, officers, employees or agents, or any accrual or arrangement for or payment of any bonus or other special compensation to any employee or any severance or termination pay paid to any of its present or former officers or other key employees; (f) any labor dispute or any other event or condition of any character, materially adversely affecting its business or future prospects; (g) any sale or transfer, or any agreement to sell or transfer, any of its material assets, property or rights to any other person, including, without limitation, the Shareholders and their Affiliates, other than in the ordinary course of business; (h) any cancellation, or agreement to cancel, any material indebtedness or other material obligation owing to it, including, without limitation, any indebtedness or obligation of any of the Shareholders or any Affiliate thereof; (i) any plan, agreement or arrangement granting any preferential rights to purchase or acquire any interest in any of its assets, property or rights or requiring consent of any party to the transfer and assignment of any such assets, property or rights; (j) any purchase or acquisition of, or any agreement, plan or arrangement to purchase or acquire, any of its property, rights or assets outside the ordinary course of its business; (k) any waiver of any of its material rights or claims; (l) any new or any amendment or termination of any existing material contract, agreement, license, permit or other right to which it is a party; 15 (m) any decline in the stockholders equity of the Corporation to an amount less than the stockholders equity of the Corporation as of the Balance Sheet Date; (n) any increase in the amount of indebtedness owed by the Shareholders or their Affiliates to any person other than the Corporation and secured by one or more Corporate Properties; (o) any increase in the amount of aggregate indebtedness owed by the Shareholders or their Affiliates to the Corporation; or (p) any other transaction outside the ordinary course of its business. 3.22 CLOSING DATE DEBT; CLOSING DATE CURRENT ASSETS AND CLOSING DATE --------------------------------------------------------------- CURRENT LIABILITIES. Schedule 1.3(a) accurately sets forth the Closing Date - ------------------- Debt of the Corporations. Schedule 1.3(b) accurately sets forth the Closing Date Current Assets and Closing Date Current Liabilities of the Corporations. 3.23 BANK ACCOUNTS. Schedule 3.23 is a complete and accurate list, as of ------------- the Closing Date, of: (a) the name of each bank in which each Corporation has accounts or safe deposit boxes; (b) the name(s) in which the accounts or boxes are held; (c) the type of account; and (d) the name of each person authorized to draw thereon or have access thereto. 3.24 COMPLIANCE WITH LAWS. Except as disclosed on Schedule 3.24, each -------------------- Corporation has materially complied with, and each Corporation is presently in material compliance with, federal, state and local laws, ordinances, codes, rules, regulations, Governmental Permits, orders, judgments, awards, decrees, consent judgments, consent orders and requirements applicable to it (collectively "Laws"), including, but not limited to, the Americans with Disabilities Act, the Federal Occupational Safety and Health Act, and Laws relating to the public health, safety or protection of the environment (collectively, "Environmental Laws"). Except as disclosed on Schedule 3.24, there has been no assertion by any party that a Corporation is in material violation of any Laws. Specifically and without limiting the generality of the foregoing, except as disclosed on Schedule 3.24: (i) except as permitted under Environmental Laws, the Corporations have not processed, handled, transferred, generated, treated, stored or disposed of any Hazardous Material (as defined below), (ii) no Hazardous Material, other than that allowed under Environmental Laws has been disposed of, or otherwise released on any Corporate Property, and (iii) no Corporate Property has ever been subject to or received any notice of any private, administrative or judicial action, or notice of any intended private, administrative or judicial action relating to the presence or alleged presence of Hazardous Material in, under, upon or emanating from any Corporate Property or any real property now 16 or previously owned or leased by the Corporation. As used in this Agreement, "Hazardous Material" shall mean the substances defined as "Hazardous Waste" in 40 CFR 261, and substances defined in any comparable California statute or regulation; any substance the presence of which requires remediation pursuant to any Environmental Laws. 3.25 POWERS OF ATTORNEY. The Corporations have not granted any power of ------------------ attorney (except routine powers of attorney relating to representation before governmental agencies) or entered into any agency or similar agreement whereby a third party may bind or commit either Corporation in any manner. 3.26 UNDERGROUND STORAGE TANKS. Except as set forth on Schedule 3.26, no ------------------------- underground storage tanks containing petroleum products or wastes or other hazardous substances regulated by 40 CFR 280 or Environmental Laws are currently or have been located on any Corporate Property. Except as set forth on Schedule 3.26, no Corporation has ever owned or leased any real property not included in the Corporate Property having any underground storage tanks containing petroleum products or wastes or other hazardous substances regulated by 40 CFR 280. As to each such underground storage tank ("UST") identified on Schedule 3.26, each Corporation has provided to United, on Schedule 3.26: (a) the location of the UST, information and material, including any available drawings and photographs, showing the location, and whether the Corporation currently owns or leases the property on which the UST is located (and if the Corporation does not currently own or lease such property, the dates on which it did and the current owner or lessee of such property); (b) the date of installation and specific use or uses of the UST; (c) copies of tank and piping tightness tests and cathodic protection tests and similar studies or reports for each UST; (d) a copy of each notice to or from a governmental body or agency relating to the UST; (e) other material records with regard to the UST, including, without limitation, repair records, financial assurance compliance records and records of ownership; and (f) to the extent not otherwise set forth pursuant to the above, a summary description of instances, past or present, in which, to the Corporations', or the Shareholders' knowledge, the UST failed to meet applicable standards and regulations for tightness or otherwise and the extent of such failure, and any other operational or environmental problems with regard to the UST, including, without limitation, spills, including spills in connection with delivery of materials to the UST, releases from the UST and soil contamination. 17 Except to the extent set forth on Schedule 3.26, each Corporation has complied with Environmental Laws regarding the installation, use, testing, monitoring, operation and closure of any UST described on Schedule 3.26. 3.27 PATENTS, TRADEMARKS, TRADE NAMES, ETC. Schedule 3.27 lists all -------------------------------------- patents, tradenames, fictitious business names, trademarks, service marks, and copyrights owned by the Corporations or which they are licensed to use (other than licenses to use software for personal computer operating systems that were provided when the computer was purchased and licenses to use software for personal computers that are granted to retail purchasers of such software). No patents, trade secrets, know-how, intellectual property, trademarks, trade names, assumed names, copyrights, or designations used by a Corporation in its business infringe on any patents, trademarks, or copyrights, or any other rights of any person. Neither Corporation nor any of the Shareholders knows or has any reason to believe that there are any claims of third parties to the use of any such names or any similar name, or knows of or has any reason to believe that there exists any basis for any such claim or claims. 3.28 ASSETS, ETC., NECESSARY TO BUSINESS. Each Corporation owns or leases ----------------------------------- all properties and assets, real, personal, and mixed, tangible and intangible, and, except as disclosed on Schedules 3.5, 3.10(a), 3.10(b), 3.14(a) and 3.19, is a party to all Governmental Permits and other agreements necessary to permit it to carry on its business as presently conducted. All of said Governmental Permits and agreements have been duly obtained and, except as disclosed on Schedules 3.5, 3.8(b), 3.10(a), 3.10(b) 3.14(a) and 3.19, are in full force and effect and there are no proceedings pending or threatened which may result in the revocation, cancellation, suspension or adverse modification of any of the same. Neither of the Corporations nor any of the Shareholders has any knowledge of any reason why all such Governmental Permits and agreements will not remain in effect after consummation of the transactions contemplated hereby. 3.29 CONDEMNATION. No Corporate Property owned or leased by a Corporation ------------ is the subject of, or would be affected by, any pending condemnation or eminent domain proceedings, and, to the knowledge of the Corporations and the Shareholders, no such proceedings are threatened. 3.30 MANUFACTURERS, SUPPLIERS AND CUSTOMERS. The relations between each -------------------------------------- Corporation and its customers are good. Neither Corporation nor any of the Shareholders has knowledge of any fact (other than general economic and industry conditions) which indicates that any of the manufacturers or suppliers supplying products, components or materials to the Corporations intends to cease providing such items to the Corporations, nor does either Corporation or any of the Shareholders have knowledge of any fact (other than general economic and industry conditions) which indicates that any of the customers of a Corporation intends to terminate, limit or reduce its business relations with the Corporation. 3.31 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither Corporation nor any of ------------------------------------- the Shareholders has directly or indirectly within the past five years given or agreed to give any gift or similar benefit to any customer, supplier, governmental employee or other person who is or may be in a position to help or hinder the business of a Corporation in connection with any actual or proposed transaction which (a) might subject a Corporation to any damage or penalty 18 in any civil, criminal or governmental litigation or proceeding, (b) if not given in the past, might have had an adverse effect on the financial condition, business or results of operations of a Corporation, or (c) if not continued in the future, might adversely affect the financial condition, business or operations of the Corporations or which might subject a Corporation to suit or penalty in any private or governmental litigation or proceeding. 3.32 RELATED PARTY TRANSACTIONS. Except as disclosed in the Financial -------------------------- Statements, none of the Shareholders nor their Affiliates owns any direct or indirect interest of any kind in, or controls or is a director, officer, employee, shareholder or partner of, or consultant to or lender to or borrower from or has the right to participate in the profits of, any Person which is a competitor, supplier, customer, landlord, tenant, creditor or debtor of any Corporation. 3.33 DISCLOSURE SCHEDULES. Any matter disclosed on any Schedule to this -------------------- Agreement shall be deemed to have been disclosed on every other Schedule that refers to such Schedule by cross reference so long as the nature of the matter disclosed is obvious from a fair reading of the Schedule on which the matter is disclosed. 3.34 NO MISLEADING STATEMENTS. The representations and warranties of the ------------------------ Corporations and the Shareholders contained in this Agreement, the Exhibits and Schedules hereto and all other documents and information furnished to United and its representatives pursuant hereto are complete and accurate in all material respects and do not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements made not misleading. 3.35 ACCURATE AND COMPLETE RECORDS. The corporate minute books, stock ----------------------------- ledgers, books, ledgers, financial records and other records of the Corporations: (a) have been made available to United and its agents at the Corporations' offices or at the offices of United's attorneys or the Corporations' attorneys; (b) have been, in all material respects, maintained in accordance with all applicable laws, rules and regulations; and (c) are accurate and complete, reflect all material corporate transactions required to be authorized by the Boards of Directors and/or shareholders of the Corporations and do not contain or reflect any material discrepancies. 3.36 KNOWLEDGE. Wherever reference is made in this Agreement to the --------- "knowledge" of the Shareholders, such term means the actual knowledge of the Shareholders or any knowledge which should have been obtained by the Shareholders upon reasonable inquiry by a reasonable business person. Wherever reference is made in this Agreement to the "knowledge" of a Corporation, such term means the actual knowledge of any management employee, officer or director of the Corporation or any knowledge which should have been obtained by any such person upon reasonable inquiry by a reasonable business person. 19 3.37 BROKERS; FINDERS. Except as set forth on Schedule 3.37, no person has ---------------- acted directly or indirectly as a broker, finder or financial advisor for the Corporations or the Shareholders in connection with the transactions contemplated by this Agreement and no person is entitled to any broker's, finder's, financial advisory or similar fee or payment in respect thereof based in any way on any agreement, arrangement or understanding made by or on behalf of the Corporations or the Shareholders. 3.38 S CORPORATIONS. The Corporations have both elected to be treated as S -------------- Corporations within the meaning of the Federal Income Tax Code of 1986, as amended. Such elections have been made for the years listed on Schedule 3.38. 4. REPRESENTATIONS AND WARRANTIES OF UNITED ---------------------------------------- United represents and warrants to the Shareholders that each of the following representations and warranties is true as of the date of this Agreement and will be true as of the Closing Date, and agrees that such representations and warranties shall survive the Closing: 4.1 EXISTENCE AND GOOD STANDING. United is a Corporation duly organized, --------------------------- validly existing and in good standing under the laws of the State of Delaware. 4.2 NO CONTRACTUAL RESTRICTIONS. No provisions exist in any article, --------------------------- document or instrument to which United is a party or by which it is bound which would be violated by consummation of the transactions contemplated by this Agreement. 4.3 AUTHORIZATION OF AGREEMENT. This Agreement has been duly authorized, -------------------------- executed and delivered by United and, subject to the due authorization, execution and delivery by the Shareholders, constitutes a legal, valid and binding obligation of United. United has full corporate power, legal right and corporate authority to enter into and perform its obligations under this Agreement and to carry on its business as presently conducted. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and the fulfillment of and compliance with the terms and conditions hereof do not and will not, after the giving of notice, or the lapse of time or otherwise: (a) violate any provisions of any judicial or administrative order, award, judgment or decree applicable to United; (b) conflict with any of the provisions of the Certificate of Incorporation or Bylaws of United; or (c) conflict with, result in a breach of or constitute a default under any material agreement or instrument to which United is a party or by which it is bound. 4.4 NO MISLEADING STATEMENTS. The representations and warranties of ------------------------ United contained in this Agreement, the Exhibits and Schedules hereto and all other documents and information furnished to the Shareholders pursuant hereto are materially complete and accurate, and do not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements made not misleading as of the Closing Date. 4.5 BROKERS; FINDERS. No person has acted directly or indirectly as a ---------------- broker, finder or financial advisor for United in connection with the transactions contemplated by this Agreement and no person is entitled to any broker's, finder's, financial advisory or similar fee 20 or payment in respect thereof based in any way on any agreement, arrangement or understanding made by or on behalf of United. 4.6 DISCLOSURE SCHEDULES. Any matter disclosed by United on any Schedule -------------------- to this Agreement shall be deemed to have been disclosed on every other Schedule that refers to such Schedule by cross reference so long as the nature disclosed is obvious from a fair reading of the Schedule on which the matter is disclosed. 5. CLOSING DELIVERIES ------------------ At the Closing, the respective parties made the deliveries indicated: 5.1 UNITED DELIVERIES. ----------------- (a) United delivered to the Shareholders the portion of the Purchase Price (including the Note) required to be delivered on the Closing Date pursuant to Section 1.2, and delivered the Hold Back to the Escrow Agent. (b) United executed and delivered a Consulting Agreement with James Shade. (c) United executed and delivered Employment Agreements with Corey, Randall, John Martin and Kathy Hughes. (d) Coran executed and delivered the Leases. 5.2 SHAREHOLDERS DELIVERIES. ----------------------- (a) The Shareholders delivered to United the certificates representing the outstanding Corporations' Stock free and clear of all liens, security interests, claims and encumbrances, accompanied by stock powers duly executed in blank. (b) The Shareholders delivered to United an opinion of counsel for the Shareholders, dated as of the Closing Date. (c) The Lessor executed and delivered the Leases. (d) The Corporations delivered to United evidence satisfactory to United showing that all written employment contracts and all oral employment contracts other than those that are terminable "at will" without payment of severance (other than normal severance benefits approved by United) or other benefits with non-union employees of the Corporation (including, without limitation, stock options or other rights to obtain equity in the Corporation) have been terminated, effective on or before the Closing Date. (e) The Shareholders caused each officer and director of the Corporations to deliver a resignation as an officer and/or director of each Corporation together with a 21 general release releasing the Corporations from all obligations under any indemnification agreements, the charter documents of the Corporations, or otherwise, arising out of or relating to this Agreement or the consummation of the transactions contemplated thereby, other than obligations arising after the Closing Date under this Agreement 6. ADDITIONAL COVENANTS OF UNITED, THE CORPORATION AND THE SHAREHOLDERS -------------------------------------------------------------------- 6.1 FURTHER ASSURANCES AND ADDITIONAL CONVEYANCES. Following the Closing, --------------------------------------------- the Shareholders and United shall each deliver or cause to be delivered at such times and places as shall be reasonably agreed upon such additional instruments as United or the Shareholders may reasonably request for the purpose of carrying out this Agreement. The Shareholders will cooperate with United and/or the Corporations on and after the Closing Date in furnishing information, evidence, testimony and other assistance in connection with any actions, proceedings or disputes of any nature with respect to matters pertaining to all periods prior to the Closing Date. 6.2 RELEASE OF GUARANTIES. United shall use reasonable efforts to obtain --------------------- the termination and release promptly after the Closing Date of the personal guaranties of the Shareholders listed on Schedule 6.2 or otherwise given by the Shareholders with respect to obligations of the Corporations, all of which relate to indebtedness or other financial obligations of the Corporations included in the Financial Statements as of the Balance Sheet Date. United shall defend and indemnify the Shareholders and hold them harmless from and against all losses, expenses or claims by third parties to enforce or collect indebtedness owed by the Corporations as of the Closing Date which is personally guaranteed by the Shareholders pursuant to such guaranties. The Shareholders shall cooperate with United in obtaining such releases. 6.3 CONFIDENTIALITY. Neither of the Corporations nor any of the --------------- Shareholders shall disclose or make any public announcements of the transactions contemplated by this Agreement without the prior written consent of United, unless required to make such disclosure or announcement by law, in which event the party making the disclosure or announcement shall notify United at least 24 hours before such disclosure or announcement is expected to be made. 6.4 BROKERS AND FINDERS FEES. Each party shall pay and be responsible for ------------------------ any broker's, finder's or financial advisory fee incurred by such party in connection with the transactions contemplated by this Agreement. 6.5 TAXES. United shall reasonably cooperate, at the expense of the ----- Shareholders, with the Shareholders with respect to any matters involving the Shareholders arising out of the Shareholders' ownership of the Corporations prior to the Closing, including matters relating to tax returns and any tax audits, appeals, claims or litigation with respect to such tax returns or the preparation of such tax returns. In connection therewith, United shall make available to the Shareholders such files, documents, books and records of the Corporations for inspection and copying as may be reasonably requested by the Shareholders and shall cooperate with the Shareholders with respect to retaining information and documents which relate to such matters. 22 6.6 SHORT YEAR TAX RETURNS. After the Closing Date, the Shareholders ---------------------- shall prepare at their sole cost and expense, all short year federal, state, county, local and foreign tax returns required by law for the period beginning with the first day of each Corporation's fiscal year in which the Closing occurs and ending with the Closing Date. Each such return shall be prepared in a financially responsible and conservative manner and shall be delivered to United together with all necessary supporting schedules within 90 days following the Closing Date for its approval (but such approval shall not relieve the Shareholders of their responsibility for the taxes (including without limitation any taxes arising as a result of the conversion of the Corporations from a cash to an accrual basis of reporting) assessed under these returns). The Shareholders shall be responsible for the payment of all taxes shown to be due or that may come to be due on such returns and, at the time of the delivery of the returns, shall contemporaneously deliver to United checks payable to the respective taxing authorities in amounts equal to that shown as being due on the returns. United shall sign tax returns and cause such returns to be timely filed with the appropriate authorities. The Shareholders shall be entitled to receive all refunds shown on said returns and any such refunds received by the Corporations or United shall be remitted to the Shareholders. 6.7 CERTAIN TAX MATTERS. The Shareholders acknowledge that United will ------------------- make an election under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended (the "Code") no later than December 31, 1997. When such election is made by United: (a) United shall be authorized to complete Form 8023-A; (b) The Shareholders shall sign such completed Form 8023-A on United's request; (c) United and the Shareholders shall agree upon the allocation of the Purchase Price among the assets (including intangible assets) of the Corporations. 6.8 SHAREHOLDERS' REPRESENTATIVE. ---------------------------- (a) In order to administer efficiently the rights and obligations of the Shareholders under this Agreement, the Shareholders hereby designate and appoint James as the Shareholders' Representative, to serve as the Shareholders' agent and attorney-in-fact for the limited purposes set forth in this Agreement. (b) Each of the Shareholders hereby appoints the Shareholders' Representative as such Shareholder's agent, proxy and attorney-in-fact, with full power of substitution, for all purposes set forth in this Agreement, including, without limitation, the full power and authority on such Shareholder's behalf (i) to consummate the transactions contemplated by this Agreement, (ii) to disburse any funds received hereunder to the Shareholders, (iii) to execute and deliver on behalf of each Shareholder any amendment or waiver under this Agreement, and to agree to resolution of all Adjustments pursuant to Section 1.4 or 10, and of all Claims hereunder, (iv) to retain legal counsel and other professional services, at the expense of the Shareholders, in connection with the performance by the Shareholders' Representative of this Agreement, 23 and (v) to do each and every act and exercise any and all rights which such Shareholder or Shareholders are permitted or required to do or exercise under this Agreement and the other agreements, documents and certificates executed in connection herewith. Each of the Shareholders agrees that such agency and proxy are coupled with an interest, are therefore irrevocable without the consent of the Shareholders' Representative and shall survive the death, bankruptcy or other incapacity of any Shareholder. (c) Each of the Shareholders hereby agrees that any amendment or waiver under this Agreement, and any action taken on behalf of the Shareholders to enforce the rights of the Shareholders under this Agreement, and any action taken with respect to any Adjustment or Claim (including any action taken to object to, defend, compromise or agree to the payment of such Adjustment or Claim), shall be effective if approved in writing by the Shareholders' Representative and the holders of a majority of the Corporations' Stock (including any Corporations' Stock held by the Shareholders' Representative), or, in the case of any amendment or waiver made or given or action taken after the Closing, if so approved by persons who were the holders of a majority of the Corporations' Stock immediately prior to the Closing, and that each and every action so taken shall be binding and conclusive on every Shareholder, whether or not such Shareholder had notice of, or approved, such amendment or waiver. (d) James shall serve as the Shareholders' Representative until he resigns or is otherwise unable or unwilling to serve. In the event that a Shareholders' Representative resigns from such position or is otherwise unable or unwilling to serve, the remaining Shareholders shall select, by the vote of the holders of a majority of the Corporations' Stock immediately prior to the Closing, a successor representative to fill such vacancy, shall provide prompt written notice to United of such change and such substituted representative shall then be deemed to be the Shareholders' Representative for all purposes of this Agreement. 6.9 GENERAL RELEASE BY SHAREHOLDERS. Each Shareholder hereby fully ------------------------------- releases and discharges each Corporation and its directors, officers, agents and employees from all rights, claims and actions, known or unknown, of any kind whatsoever, which such Shareholder now has or may hereafter have against each Corporation and its directors, officers, agents and employees, arising out of or relating to events arising prior to or on the Closing Date, except (a) as may be described in written contracts disclosed in Schedule 6.9 and expressly described and specifically excepted from this release in Schedule 6.9, (b) in the case of Shareholders who are employees of the Corporations, compensation for current periods expressly described and excepted from such releases, and (c) for the obligations of each Corporation arising after the Closing Date under this Agreement. Specifically, but not by way of limitation, each Shareholder waives any right of indemnification, contribution or other recourse against each Corporation which it now has or may hereafter have against each Corporation with respect to representations, warranties or covenants made in this Agreement by each Corporation. Each Shareholder hereby waives and relinquishes all rights and benefits afforded by Section 1542 of the California Civil Code, which states as follows: 24 "A general release does not extend to claims to which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." Each Shareholder understands and acknowledges the significance and consequence of this waiver of Section 1542 and nevertheless elects to, and does, release those claims described in this Section 6.9, known or unknown, that it may have now or in the future arising out of or relating to any event arising on or prior to the date of this Agreement. 7. INDEMNIFICATION --------------- 7.1 INDEMNITY BY THE SHAREHOLDERS. The Shareholders, jointly and ----------------------------- severally, subject to the limitations set forth in Section 7.2, covenant and agree that they will indemnify and hold harmless United, the Corporations and their respective directors, officers and agents and their respective successors and assigns (collectively the "United Indemnitees"), from and after the date of this Agreement, against any and all losses, damages, assessments, fines, penalties, adjustments, liabilities, claims, deficiencies, costs, expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation), expenditures, including, without limitation, any "Environmental Site Losses" (as such term is hereinafter defined) identified by a United Indemnitee in a Claims Notice (as defined in Section 7.3(a)), or asserted by a United Indemnitee in litigation commenced against the Shareholders provided that in either case any such Claims Notice shall be given or the - -------- litigation commenced prior to the expiration of the periods set forth in Section 7.2(c) (irrespective of the date of discovery), with respect to each of the following contingencies (all, the "Indemnity Events"): (a) Any misrepresentation, breach of warranty, or nonfulfillment of any agreement or covenant on the part of the Shareholders or the Corporations pursuant to the terms of this Agreement or any misrepresentation in or omission from any Exhibit, Schedule, list, certificate, or other instrument furnished or to be furnished to United pursuant to the terms of this Agreement, regardless of whether, in the case of a breach of a representation or a warranty, United relied on the truth of such representation or warranty or had any knowledge of any breach thereof. (b) "Environmental Site Losses," which shall mean any and all losses, damages (including exemplary damages and penalties), liabilities, claims, deficiencies, costs, expenses, and expenditures (including, without limitation, expenses in connection with site evaluations, risk assessments and feasibility studies) arising out of or required by an interim or final judicial or administrative decree, judgment, injunction, mandate, interim or final permit condition or restriction, cease and desist order, abatement order, compliance order, consent order, clean-up order, exhumation order, reclamation order or any other remedial action that is required to be undertaken under federal, state or local law in respect of operating activities on or affecting any Facility, any UST or any other environmental site prior to the Closing Date, including, but not limited to (i) any actual or alleged violation of any law or regulation respecting the protection of the environment, or any other law or regulation respecting the protection of the air, water and land 25 occurring prior to the Closing Date and (ii) any remedies or violations, whether by a private or public action, alleged or sought to be assessed as a consequence, directly or indirectly, of any Release of pollutants (including odors) or Hazardous Materials from any Facility, any UST or any other environmental site resulting from activities thereat occurring prior to the Closing Date, whether such Release is into the air, water (including groundwater) or land and whether such Release arose before, during or after the Closing Date, provided that with respect to any such activities occurring at an environmental site that is not a Facility or UST, the Shareholders had knowledge of such activities on or prior to the Closing Date. The term "Release" as used herein means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the ambient environment. (c) the cost of tearing down and removing from any Facility any structure constructed thereon by the Corporations (i) in violation of applicable building regulations or codes, (ii) without required building or other permits or (iii) in violation of applicable zoning regulations and requirements, and all fines and penalties arising from such violations or failure to obtain permits, provided that the Shareholders shall have no liability with respect to construction of replacement structures; (d) any liability arising from the matters described on Schedule 3.8(b); (e) Any liability arising from remedial action required with respect to the UST's described on Schedule 3.26; (f) All actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incident to any of the foregoing. 7.2 LIMITATIONS ON SHAREHOLDERS' INDEMNITIES. ---------------------------------------- (a) The obligations of the Shareholders to indemnify the United Indemnities as provided in Section 7.1 shall be equal to the amount by which the cumulative amount of all such liabilities, claims, damages deficiencies, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses, expenditures and Environmental Site Losses with respect to any or all Indemnity Events exceed $250,000 (the "General Deductible Amount"); provided, that the amount of any obligation of -------- indemnity arising pursuant to Section 7.1(a) with respect to any representation, warranty or covenant contained in Sections 3.1 through 3.5; 3.12(c), 3.18 and 6.7 hereof and pursuant to section 7.1(c), 7.1(d) and 7.1(e) and shall not be subject to the General Deductible Amount and the amount of any indemnity obligation arising pursuant to Section 7.1(a) with respect to any representation, warranty or covenant contained in Section 3.9 or 3.22 with respect to Claims based on the Inventory Value and the Equipment included on the Rental Asset Listing shall be subject to the applicable amounts set forth in Sections 1.4(b) and 1.4(c) in lieu of the General Deductible Amount. 26 (b) The maximum amount which United can recover as a result of one or more Indemnity Events pursuant to the provisions hereof for Claims shall not in the aggregate exceed $7,500,000, provided that the amount of any obligation of indemnity arising pursuant to Section 7.1(a) with respect to any representation, warranty or covenant contained in Sections 3.1 through 3.5, 3.12(c), 3.18, 3.24 and 8.1 hereof shall not be subject to such maximum, and the maximum amount that United can recover from Corey or Randall shall not exceed the portion of the Purchase Price received by them. (c) The obligations of the Shareholders under Section 7.1 shall expire, unless a Claims Notice is given or litigation is commenced, on or prior to the following applicable dates: (i) with respect to Claims arising under Sections 3.1 through 3.5, 3.12(c), 3.18 and 3.24, and pursuant to Section 7.1(b), the applicable statute of limitations; (ii) with respect to all other Claims, the second anniversary of the Closing Date. 7.3 NOTICE OF INDEMNITY CLAIM. ------------------------- (a) In the event that any claim ("Claim") is hereafter asserted against or arises with respect to any United Indemnitee as to which such Indemnitee may be entitled to indemnification hereunder, the United Indemnitee shall notify the Shareholders (collectively, the "Indemnifying Party") in writing thereof (the "Claims Notice") within 60 days after (i) receipt of written notice of commencement of any third party litigation against such United Indemnitee, (ii) receipt by such United Indemnitee of written notice of any third party claim pursuant to an invoice, notice of claim or assessment, against such United Indemnitee, or (iii) such United Indemnitee becomes aware of the existence of any other event in respect of which indemnification may be sought from the Indemnifying Party (including, without limitation, any inaccuracy of any representation or warranty or breach of any covenant). The Claims Notice shall describe the Claim and the specific facts and circumstances in reasonable detail, and shall indicate the amount, if known, or an estimate, if possible, of the losses that have been or may be incurred or suffered by the United Indemnitee. (b) The Indemnifying Party may elect to defend any Claim for money damages where the cumulative total of all Claims (including such Claims) do not exceed the limit set forth in Section 7.2 at the time the Claim is made, by the Indemnifying Party's own counsel; provided, however, the Indemnifying Party may assume and undertake the defense of such a third party Claim only upon written agreement by the Indemnifying Party that the Indemnifying Party is obligated to fully indemnify the United Indemnitee with respect to such action. The United Indemnitee may participate, at the United Indemnitee's own expense, in the defense of any Claim assumed by the Indemnifying Party. Without the written approval of the United Indemnitee, which approval shall not be unreasonably withheld, the Indemnifying Party shall not agree to any compromise of a Claim defended by the Indemnifying Party. (c) If, within 30 days of the Indemnifying Party's receipt of a Claims Notice, the Indemnifying Party shall not have provided the written agreement required by Section 27 7.3(b) and elected to defend the Claims, the United Indemnitee shall have the right to assume control of the defense and/or compromise of such Claim, and the costs and expenses of such defense, including reasonable attorneys' fees, shall be added to the Claim. The Indemnifying Party shall promptly, and in any event within 30 days reimburse the United Indemnitee for the costs of defending the Claim, including attorneys' fees and expenses. (d) The party assuming the defense of any Claim shall keep the other party reasonably informed at all times of the progress and development of its or their defense of and compromise efforts with respect to such Claim and shall furnish the other party with copies of all relevant pleadings, correspondence and other papers. In addition, the parties to this Agreement shall cooperate with each other and make available to each other and their representatives all available relevant records or other materials required by them for their use in defending, compromising or contesting any Claim. The failure to timely deliver a Claims Notice or otherwise notify the Indemnifying Party of the commencement of such actions in accordance with this Section 7.3 shall not relieve the Indemnifying Party from the obligation to indemnify hereunder but only to the extent that the Indemnifying Party establishes by competent evidence that it has been prejudiced thereby. (e) In the event both the United Indemnitee and the Indemnifying Party are named as defendants in an action or proceeding initiated by a third party, they shall both be represented by the same counsel (on whom they shall agree), unless such counsel, the United Indemnitee, or the Indemnifying Party shall determine that such counsel has a conflict of interest in representing both the United Indemnitee and the Indemnifying Party in the same action or proceeding and the United Indemnitee and the Indemnifying Party do not waive such conflict to the satisfaction of such counsel. 7.4 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The ------------------------------------------------------ representations and warranties of the parties contained in this Agreement and in any certificate, Exhibit or Schedule delivered pursuant hereto, or in any other writing delivered pursuant to the provisions of this Agreement (the "Representations and Warranties") and the liability of the party making such Representations and Warranties for breaches thereof shall survive the consummation of the transactions contemplated hereby. The parties hereto in executing and delivering and in carrying out the provisions of this Agreement are relying solely on the representations, warranties, Schedules, Exhibits, agreements and covenants contained in this Agreement, or in any writing or document delivered pursuant to the provisions of this Agreement, and not upon any representation, warranty, agreement, promise or information, written or oral, made by any persons other than as specifically set forth herein or therein. 7.5 NO EXHAUSTION OF REMEDIES OR SUBROGATION; RIGHT OF SET OFF. The ---------------------------------------------------------- Shareholders waive any right to require any United Indemnitee to (i) proceed against the Corporations; (ii) proceed against any other person; or (iii) pursue any other remedy whatsoever in the power of any United Indemnitee. United may, but shall not be obligated to, set off against any and all payments due Shareholders pursuant to the Hold Back, any amount to which any United Indemnitee is entitled to be indemnified hereunder with respect to any Indemnity 28 Event. Such right of set off shall be separate and apart from any and all other rights and remedies that the Indemnities may have against Shareholders or their successors. 8. OTHER POST-CLOSING COVENANTS OF THE SHAREHOLDERS AND UNITED ----------------------------------------------------------- 8.1 RESTRICTIVE COVENANTS. The Shareholders and their Affiliates --------------------- acknowledge that (i) United, as the purchaser of the Corporations' Stock, is and will be engaged in the same business as the Corporations (the "Business"); (ii) the Shareholders and their Affiliates are intimately familiar with the Business; (iii) the Business is currently conducted in the State of California and United intends to continue the Business in California and intends, by acquisition or otherwise, to expand the Business into other geographic areas of California where it is not presently conducted; (iv) the Shareholders and their Affiliates have had access to trade secrets of, and confidential information concerning, the Business; (v) the agreements and covenants contained in this Section 8.1 are essential to protect the Business and the goodwill being acquired; and (vi) the Shareholders and their Affiliates have the means to support themselves and their dependents other than by engaging in a business substantially similar to the Business and the provisions of this Section 8 will not impair such ability. The Shareholders covenant and agree as set forth in (a), (b) and (c) below with respect to each Corporation: (a) NON-COMPETE. For a period commencing on the Closing Date and ----------- terminating five years thereafter (the "Restricted Period"), neither the Shareholders nor any of their Affiliates shall, anywhere in the counties of Monterey, Santa Cruz, San Benito, Santa Clara, Alameda, San Mateo and San Francisco, California where United or one of its subsidiaries owns or operates a business similar to the Business (the "Restricted Counties"), directly or indirectly, acting individually or as the owner, shareholder, partner, or employee of any entity, (i) engage in the operation of any equipment rental, sales or leasing business; (ii) enter the employ of, or render any personal services to or for the benefit of, or assist in or facilitate the solicitation of customers for, or receive remuneration in the form of salary, commissions or otherwise from, any business engaged in such activities; or (iii) receive or purchase a financial interest in, make a loan to, or make a gift in support of, any such business in any capacity, including, without limitation, as a sole proprietor, partner, shareholder, officer, director, principal, agent, trustee or lender; provided, however, that any of the Shareholders may own, directly or indirectly, solely as an investment, securities of any business traded on any national securities exchange or NASDAQ, provided none of the Shareholders is a controlling person of, or a member of a group which controls, such business and further provided that the Shareholders do not, in the aggregate, directly or indirectly, own 2% or more of any class of securities of such business. (b) CONFIDENTIAL INFORMATION. During the Restricted Period and ------------------------ thereafter, the Shareholders and their Affiliates shall keep secret and retain in strictest confidence, and shall not use for the benefit of themselves or others, all data and information relating to the Business ("Confidential Information"), including without limitation, know-how, trade secrets, customer lists, supplier lists, details of contracts, pricing policies, operational methods, marketing plans or strategies, bidding information, practices, 29 policies or procedures, product development techniques or plans, and technical processes; provided, however, that the term "Confidential Information" shall not include information that (i) is or becomes generally available to the public other than as a result of disclosure by the Shareholders, or (ii) is general knowledge in the equipment rental, sales and leasing business and not specifically related to the Business. (c) PROPERTY OF THE BUSINESS. All memoranda, notes, lists, records ------------------------ and other documents or papers (and all copies thereof) relating to the Business, including such items stored in computer memories, on microfiche or by any other means, made or compiled by or on behalf of the Shareholders or the Corporations or made available to them relating to the Business, but excluding any materials (other than the minute books of the Corporations) maintained by any attorneys for the Corporations or the Shareholders prior to the Closing, are and shall be the property of United and have been delivered or will be delivered or made available to United at the Closing. (d) NON-SOLICITATION. Without the consent of United, which may be ---------------- granted or withheld by United in its discretion, the Shareholders and their Affiliates shall not solicit any employees of the Corporations to leave the employ of the Corporations and join the Shareholders or any Affiliate in any business endeavor owned or pursued by the Shareholders. (e) NO DISPARAGEMENT. From and after the Closing Date, none of the ---------------- Shareholders shall, in any way to any customer or employee of the Corporations or United, denigrate or derogate United or any of its subsidiaries, or any officer, director or employee, or any product or service or procedure of any such company whether or not such denigrating or derogatory statements shall be true and are based on acts or omissions which are learned by the Shareholders from and after the date hereof or on acts or omissions which occur from and after the date hereof, or otherwise. A statement shall be deemed denigrating or derogatory to any person if it adversely affects the regard or esteem in which such person or entity is held by such person. Without limiting the generality of the foregoing, none of the Shareholders shall, directly or indirectly in any way in respect of any such company or any such directors or officers, communicate with, or take any action which is adverse to the position of any such company with any customer or employee of the Corporations or United. This paragraph does not apply to the extent that testimony is required by legal process, provided that United has received not less than five days' prior written notice of such proposed testimony. 8.2 RIGHTS AND REMEDIES UPON BREACH. If the Shareholders or any Affiliate ------------------------------- breaches, or threatens to commit a breach of, any of the provisions of Section 8.1 herein (the "Restrictive Covenants"), United shall have the following rights and remedies, each of which rights and remedies shall be independent of the others and severally enforceable, and each of which is in addition to, and not in lieu of, any other rights and remedies available to United at law or in equity: (a) SPECIFIC PERFORMANCE. The right and remedy to have the -------------------- Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed 30 that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to United and that money damages would not provide an adequate remedy to United. Accordingly, in addition to any other rights or remedies, United shall be entitled to injunctive relief to enforce the terms of the Restrictive Covenants and to restrain the Shareholders from any violation thereof. (b) ACCOUNTING. The right and remedy to require the Shareholders to ---------- account for and pay over to United all compensation, profits, monies, accruals, increments or other benefits derived or received by the Shareholders as the result of any transactions constituting a breach of the Restrictive Covenants. (c) SEVERABILITY OF COVENANTS. The Shareholders acknowledge and agree ------------------------- that the Restrictive Covenants are reasonable and valid in geographical and temporal scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect, without regard to the invalid portions. (d) BLUE-PENCILING. If any court determines that any of the -------------- Restrictive Covenants, or any part thereof, is unenforceable because of the duration or geographic scope of such provision, such court shall reduce the duration or scope of such provision, as the case may be, to the extent necessary to render it enforceable and, in its reduced form, such provision shall then be enforced. (e) ENFORCEABILITY IN JURISDICTION. United and the Shareholders ------------------------------ intend to and hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts of Santa Clara County, California, and of the County in California (other than San Francisco County) where United's regional office is located at the time such action is brought, or, if United has no such regional office at such time, of any other county in California (other than San Francisco County) where United or one of its subsidiaries transacts business. 9. GENERAL ------- 9.1 ASSIGNMENT. This Agreement shall be binding upon and shall inure to ---------- the benefit of the parties hereto, the successors or assigns of United and the heirs, legal representatives or assigns of the Shareholders; provided, however, that any such assignment shall be subject to the terms of this Agreement and shall not relieve the assignor of its or his responsibilities under this Agreement. 9.2 COUNTERPARTS. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. 9.3 NOTICES. All notices, requests, demands and other communications ------- hereunder shall be deemed to have been duly given if in writing and either delivered personally, sent by 31 facsimile transmission or by air courier service, or mailed by postage prepaid registered or certified U.S. mail, return receipt requested, to the addresses designated below or such other addresses as may be designated in writing by notice given hereunder, and shall be effective upon personal delivery or facsimile transmission thereof or upon delivery by registered or certified U.S. mail or one business day following deposit with an air courier service: If to the Shareholders: at their respective addresses set forth on Schedule 3.2 With a copy to: Michael Groom, Esq. Groom & Cave LLP 150 Almaden Blvd., Ste. 1375 San Jose, CA 95113 Facsimile: (408) 286-3423 If to United: United Rentals, Inc. Four Greenwich Office Park Greenwich, CT 06830 Attention: John Milne Facsimile: (203) 622-6080 With a copy to: Oscar D. Folger, Esq. 521 Fifth Avenue New York, NY 10175 Facsimile: (212) 697-7833 and Robert D. Evans, Esq. Shartsis, Friese & Ginsburg LLP One Maritime Plaza, 18th Floor San Francisco, CA 94111 Facsimile: (415) 421-2922 9.4 ATTORNEYS' FEES. In the event of any dispute or controversy between --------------- United on the one hand and the Corporations or the Shareholders on the other hand relating to the interpretation of this Agreement or to the transactions contemplated hereby, the prevailing party shall be entitled to recover from the other party reasonable attorneys' fees and expenses incurred by the prevailing party. Such award shall include post-judgment attorney's fees and costs. 9.5 APPLICABLE LAW. This Agreement shall be governed by and construed in -------------- accordance with the laws of the State of California without regard to its conflict of laws provisions. 9.6 PAYMENT OF FEES AND EXPENSES. Whether or not the transactions herein ---------------------------- contemplated shall be consummated, each party hereto will pay its own fees, expenses and 32 disbursements incurred in connection herewith and all other costs and expenses incurred in the performance and compliance with all conditions to be performed hereunder (including, in the case of the Shareholders, any such fees, expenses and disbursements paid or accrued by, or charged to, the Corporations). 9.7 INCORPORATION BY REFERENCE. All Schedules and Exhibits attached -------------------------- hereto are incorporated herein by reference as though fully set forth at each point referred to in this Agreement. 9.8 CAPTIONS. The captions in this Agreement are for convenience only and -------- shall not be considered a part hereof or affect the construction or interpretation of any provisions of this Agreement. 9.9 NUMBER AND GENDER OF WORDS; CORPORATION. Whenever the singular number --------------------------------------- is used herein, the same shall include the plural where appropriate, and shall apply to all of such number, and to each of them, jointly and severally, and words of any gender shall include each other gender where appropriate. 9.10 ENTIRE AGREEMENT. This Agreement (including the Schedules and ---------------- Exhibits hereto) and the other documents delivered pursuant hereto constitute the entire Agreement and understanding between the Corporations, the Shareholders and United and supersedes any prior agreement and understanding relating to the subject matter of this Agreement. This Agreement may be modified or amended only by a written instrument executed by the Corporations, the Shareholders and United acting through its officers, thereunto duly authorized by its Board of Directors. 9.11 WAIVER. No waiver by any party hereto at any time of any breach of, ------ or compliance with, any condition or provision of this Agreement to be performed by any other party hereto may be deemed a waiver of similar or dissimilar provisions or conditions at the same time or at any prior or subsequent time. 9.12 CONSTRUCTION. The language in all parts of this Agreement must be in ------------ all cases construed simply according to its fair meaning and not strictly for or against any party. Unless expressly set forth otherwise, all references herein to a "day" are deemed to be a reference to a calendar day. All references to "business day" mean any day of the year other than a Saturday, Sunday or a public or bank holiday in Connecticut or California. Unless expressly stated otherwise, cross-references herein refer to provisions within this Agreement and are not references to the overall transaction or to any other document. In the event of any conflict between the terms and provisions of the Leases and the terms and provisions of this Agreement, this Agreement shall control. 10. ARBITRATION AND DISPUTE RESOLUTION. THE PARTIES WAIVE THEIR RIGHT TO ---------------------------------- SEEK REMEDIES IN COURT, INCLUDING ANY RIGHT TO A JURY TRIAL, WITH RESPECT TO ANY DISPUTE CONCERNING DETERMINATION OF THE ADJUSTMENTS TO THE PURCHASE PRICE UNDER SECTIONS 1.3 AND 1.4 ONLY. The parties agree that in the event United and the Shareholders are unable to resolve a dispute concerning determination of the Adjustments to the Purchase Price, 33 such dispute shall be resolved exclusively by arbitration to be conducted only in Santa Clara, California in accordance with the rules of the Judicial Arbitration and Mediation Service ("JAMS") applying the laws of California. The parties agree that such arbitration shall be conducted by a retired judge who is experienced in dispute resolution regarding business acquisitions and accounting matters, that discovery shall not be permitted except as required by the rules of JAMS, that the arbitration award shall not include factual findings or conclusions of law, and that no punitive damages shall be awarded. The parties understand that any party's right to appeal or to seek modification of any ruling or award of the arbitrator is severely limited. Any award rendered by the arbitrator shall be final and binding, and judgment may be entered on it in any court of competent jurisdiction as otherwise provided by law. The preceding portion of this Section does not apply to any dispute relating to any other provision of the Agreement, or to any other aspect of the transactions contemplated herein, and such other disputes may be resolved by the parties by any means available, including without limitation court action and a jury trial. The parties expressly do not waive any right to pursue any remedy available with respect to any dispute other than one concerning determination of the Adjustments to the Purchase Price under Sections 1.3 and 1.4, and expressly do not waive the right to trial with respect any other dispute. 34 IN WITNESS WHEREOF, the parties hereto have executed this Agreement by persons thereunto duly authorized as of the date first above written. CORAN: Coran Enterprises, Inc. By: __________________________________ President MONTEREY: Monterey Bay Equipment Rentals, Inc. By: __________________________________ President THE SHAREHOLDERS: JAMES M. SHADE AND CAROL ANNE SHADE, TRUSTEES UNDER THE JAMES M. SHADE AND CAROL A. SHADE TRUST AGREEMENT DATED SEPTEMBER 14, 1982 -------------------------------------- James M. Shade, Trustee -------------------------------------- Carol A. Shade, Trustee -------------------------------------- James M. Shade -------------------------------------- Carol A. Shade -------------------------------------- Randall Shade -------------------------------------- Corey Shade 35 UNITED: UNITED RENTALS, INC. By: __________________________________ John Milne, Vice Chairman and Chief Acquisition Officer 36 EX-10.(N) 15 STOCK PURCHASE AGREEMENT RENT-IT CENTER EXHIBIT 10(n) STOCK PURCHASE AGREEMENT Dated as of October 24, 1997 by and among UNITED RENTALS, INC., a Delaware corporation, and THE SHAREHOLDERS OF RENT-IT CENTER, INC. TABLE OF CONTENTS -----------------
Page ---- SECTION 1. Certain Definitions................................................ 1 ------------------- SECTION 2. Transfer of Shares and Payment of Purchase Price................... 5 ------------------------------------------------ 2.1 Transfer of Shares................................................. 5 ------------------ 2.2 Amount of Purchase Price........................................... 6 ------------------------ 2.3 Payment of Purchase Price.......................................... 6 ------------------------- 2.4 Purchase Price Adjustment.......................................... 6 ------------------------- SECTION 3. Representations and Warranties of Rent-It and the Shareholders..... 11 -------------------------------------------------------------- 3.1 Organization and Authorization..................................... 11 ------------------------------ 3.2 Articles of Incorporation; By-Laws; Minute Books................... 11 ------------------------------------------------ 3.3 No Liens - No Violations........................................... 12 ------------------------ 3.4 Authorized Capitalization.......................................... 12 ------------------------- 3.5 Subsidiaries; Investments; Affiliate Notes......................... 12 ------------------------------------------ 3.6 Financial Statements............................................... 13 -------------------- 3.7 Records and Books of Account....................................... 13 ---------------------------- 3.8 Liabilities........................................................ 13 ----------- 3.9 Title to Assets; Liens and Encumbrances............................ 14 --------------------------------------- 3.10 Tangible Assets.................................................... 14 --------------- 3.11 Facilities......................................................... 15 ---------- 3.12 Leased Assets...................................................... 16 ------------- 3.13 Trademarks, Service Marks, Trade Names, Patents and Copyrights..... 16 -------------------------------------------------------------- 3.14 Contracts; Customers............................................... 17 -------------------- 3.15 Labor Relations; Employees......................................... 18 -------------------------- 3.16 Legal Proceedings.................................................. 19 ----------------- 3.17 Orders, Decrees, Etc............................................... 19 -------------------- 3.18 Compliance With Law; Permits and Licenses.......................... 19 ----------------------------------------- 3.19 Changes Since December 31, 1996.................................... 21 ------------------------------- 3.20 No Material Adverse Change......................................... 22 -------------------------- 3.21 Capital Projects and Expenditures.................................. 23 --------------------------------- 3.22 Employee Benefits.................................................. 23 ----------------- 3.23 Governmental Approvals............................................. 26 ---------------------- 3.24 Tax Matters........................................................ 26 ----------- 3.25 Insurance Coverage................................................. 27 ------------------ 3.26 Preservation of Property........................................... 28 ------------------------ 3.27 Accounts Receivable................................................ 28 ------------------- 3.28 Representations and Warranties..................................... 28 ------------------------------
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Page ---- SECTION 4. Representations and Warranties of Buyer............................ 29 --------------------------------------- 4.1 Good Standing...................................................... 29 ------------- 4.2 Authorization...................................................... 29 ------------- 4.3 Representations and Warranties..................................... 29 ------------------------------ 4.4 Governmental Approvals............................................. 29 ---------------------- SECTION 5. Conditions of Buyer's Obligations to Close......................... 30 ------------------------------------------ 5.1 Agreements and Conditions.......................................... 30 ------------------------- 5.2 Representations and Warranties..................................... 30 ------------------------------ 5.3 No Legal Proceeding................................................ 30 ------------------- 5.4 Deliveries......................................................... 30 ---------- 5.5 Legal Opinion...................................................... 31 ------------- SECTION 6. Conditions of Rent-It's and the Shareholders' Obligation to Close.. 31 ----------------------------------------------------------------- 6.1 Agreements and Conditions.......................................... 31 ------------------------- 6.2 Representations and Warranties..................................... 31 ------------------------------ 6.3 Deliveries......................................................... 31 ---------- 6.4 No Legal Proceeding................................................ 31 ------------------- 6.5 Legal Opinion...................................................... 32 ------------- SECTION 7. Deliveries of Rent-It and the Shareholders on the Closing Date..... 32 -------------------------------------------------------------- 7.1 Stock Certificates................................................. 32 ------------------ 7.2 Corporate Records.................................................. 32 ----------------- 7.3 Resignations....................................................... 32 ------------ 7.4 Consents........................................................... 32 -------- 7.5 Possession of Assets............................................... 32 -------------------- 7.6 Lease Agreement.................................................... 32 --------------- 7.7 Legal Opinion...................................................... 32 ------------- 7.8 Employment or Consulting Agreements................................ 33 ----------------------------------- SECTION 8. Deliveries of Buyer on the Closing Date............................ 33 --------------------------------------- SECTION 9. Additional Covenants............................................... 33 -------------------- 9.1 Cooperation of Buyer, Rent-It and the Shareholders................. 33 -------------------------------------------------- 9.2 Further Assurances of Rent-It, the Shareholders and Buyer.......... 34 --------------------------------------------------------- 9.3 Non-Competition Covenant........................................... 35 ------------------------ 9.4 No Disparagement................................................... 36 ---------------- SECTION 10. Indemnification.................................................... 37 --------------- 10.1 Indemnification by Rent-It and the Shareholders.................... 37 ----------------------------------------------- 10.2 Indemnification by Buyer........................................... 37 ------------------------
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Page ---- 10.3 Procedures for Third Party Indemnification......................... 38 ------------------------------------------ 10.4 Right of Set Off................................................... 38 ---------------- SECTION 11. Survival of Representations; Effect of Certificates................ 39 --------------------------------------------------- SECTION 12. Brokerage Indemnity................................................ 39 ------------------- SECTION 13. Notices............................................................ 39 ------- SECTION 14. Termination........................................................ 41 ----------- SECTION 15. Miscellaneous...................................................... 42 ------------- 15.1 Entire Agreement................................................... 42 ---------------- 15.2 Taxes.............................................................. 43 ----- 15.3 Governing Law...................................................... 43 ------------- 15.4 Arbitration........................................................ 43 ----------- 15.5 Representation by Counsel.......................................... 43 ------------------------- 15.6 Benefit of Parties; Assignment..................................... 44 ------------------------------ 15.7 Pronouns........................................................... 44 -------- 15.8 Headings........................................................... 44 -------- 15.9 Expenses........................................................... 45 -------- 15.10 Counterparts....................................................... 45 ------------
-iii- STOCK PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT, dated as of October 24, 1997 (this "Agreement"), is by and among UNITED RENTALS, INC., a Delaware corporation ("Buyer"), and the persons whose names are listed on the signature page of this Agreement (the "Shareholders"). RECITALS: -------- A. The Shareholders own, of record and beneficially, all of the issued and outstanding capital stock of Rent-It Center, Inc., a Utah corporation ("Rent-It"), which is engaged in the business of renting and selling equipment in the state of Utah. B. Buyer desires to purchase from the Shareholders, and the Shareholders desire to sell to Buyer, on the terms and conditions set forth herein, all of the issued and outstanding capital stock of Rent-It. AGREEMENT --------- NOW, THEREFORE, in consideration of the foregoing, and the mutual agreements, representations, warranties and covenants contained herein, and for other good and valuable consideration set forth herein, the parties hereto agree as follows: SECTION 1. Certain Definitions. For purposes of this Agreement, the ------------------- following terms shall have the respective meanings set forth below: "Actions" mean any claims, actions, suits, proceedings and investigations, whether at law or in equity, before any court, arbitrator, arbitration panel or Governmental Authority. "Affiliate" of a party means any Person that, directly or indirectly, controls, is controlled by, or is under common control with, such party. "Balance Sheet" has the meaning specified in Section 3.6 below. "Balance Sheet Date" means September 30, 1997. "Business" means Rent-It's equipment rental and sales business. "Buyer's Stock" means shares of common stock, $.001 par value, of Buyer. "Closing" means the closing of the transactions contemplated hereby, which shall take place at the office of Holme Roberts & Owen LLP, Salt Lake City, Utah, on the Closing Date commencing at 11:00 A.M., or at such other time or place as the parties may agree upon in writing, and shall be effective as of the close of business on the Closing Date. "Closing Date" means October 24, 1997, or such other date as the parties may agree upon in writing. "Code" means the Internal Revenue Code of 1986, as amended, and the rules and regulations thereunder. "Contracts" mean all contracts, agreements, indentures, licenses, leases, commitments, plans, arrangements, sales orders and purchase orders of every kind, whether written or oral. "Damages" mean losses, liabilities, obligations, penalties, costs, damages, claims and expenses (including reasonable costs of investigation and attorneys' fees and disbursements). "Equipment" means all of the furniture, fixtures, furnishings, machinery, automobiles, trucks, spare parts, tools, supplies, equipment and other tangible personal property owned by Rent-It and used in connection with the Business. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder. 2 "ERISA Affiliate" means Rent-It and each corporation, partnership or other trade or business, whether or not incorporated, which is or has been treated as a single employer or controlled group member with Rent-It pursuant to Code Section 414 or ERISA Section 4001. "Environmental Law" has the meaning given in Section 3.18(c). "Facilities" shall mean the rental yards, stores, offices, maintenance and storage facilities, shops, warehouses, improvements, other structures, and all real property and related facilities which are owned or leased by Rent-It and located at 955 West 2100 South and 980 West 2100 South, Salt Lake City, Utah. "Financial Statements" means those financial statements of Rent-It referred to in Section 3.6. "Governmental Authority" means any agency, instrumentality, department, commission, court, tribunal or board of any government, whether foreign or domestic and whether national, Federal, state, provincial or local. "Inventory" means all of Rent-It's inventory held for resale and all of Rent-It's new repair or replacement parts, supplies and packaging items and similar items with respect to the Business, in each case wherever the same may be located. "Laws" mean laws, rules, regulations, codes, orders, ordinances, judgments, injunctions, decrees and policies. "Liabilities" mean debts (including interest thereon and any prepayment penalties applicable thereto), liabilities, claims, obligations, duties and responsibilities of any kind and description, whether absolute or contingent, monetary or non-monetary, direct or indirect, known or unknown, matured or unmatured, or of any other nature. 3 "Lien" means any security interest, lien, mortgage, claim, charge, pledge, restriction, equitable interest or encumbrance of any nature. "Material" with respect to Rent-It means an event, change or effect substantially related to the condition (financial or otherwise), operations or prospects of the Business of Rent-It as currently conducted. "Material Adverse Effect" means an event, change or effect that substantially and adversely affects the condition (financial or otherwise), operations or prospects of the Business of Rent-It, as currently conducted. "Net Current Position" means with respect to Rent-It the difference between the current assets (including all accrued but unbilled revenues) and current liabilities (excluding the current portion of long-term debt) of Rent-It on the Closing Date. For purposes of calculating the Net Current Position, accounts receivable of Rent-It that are less than 90 days old on the Effective Date shall be valued at 100% of their face value, and accounts receivable that are over 89 days old shall be valued at 90% of their face value. "Permits and Licenses" mean those municipal, state and federal consents, orders, filings, franchisees, permits, licenses, agreements, waivers and authorizations used in Rent-It's Business, including those listed on Schedule 3.18. "Person" means any natural person, corporation, trust, business trust, joint venture, association, company, firm, partnership, limited liability company or other entity or Governmental Authority. "Plan" has the meaning given in Section 3.22. 4 "Proportionate Share" with respect to Rent-It means, for each Shareholder, that Shareholder's percentage interest in the capital stock of the Rent-It, determined by dividing the number of shares of capital stock of Rent-It held by that Shareholder by the number of Shares of Rent-It. "Proprietary Right" means any trade name, trademark, trade secret, know-how, service mark, patent or copyright and any application for any of the foregoing. "Rental Equipment" means all Equipment held by Rent-It for rental on a commercial or consumer basis. "Returns" mean all returns, declarations, reports, forms, estimates, information returns and statements required to be filed with or supplied to any Governmental Authority in connection with any Taxes. "Shares" mean all of the issued and outstanding shares of common stock of Rent-It. "Taxes" mean all taxes, charges, fees, levies, customs, duties or other assessments, including, without limitation, income, gross receipts, excise, real and personal property, sales, transfer, license, payroll and franchise taxes imposed by any Governmental Authority and shall include any interest, penalties or additions to tax attributable to any of the foregoing. As used in this Agreement, the terms "to the knowledge," "known to," and other phrases of like substance are to be broadly construed (i) to include the knowledge of Rent-It and the Shareholders, and (ii) to represent that Rent- It and the Shareholders have caused a thorough inquiry and investigation to be made into the matter represented to be true. 5 SECTION 2. Transfer of Shares and Payment of Purchase Price. ------------------------------------------------- 2.1 Transfer of Shares. Based upon and subject to the terms, ------------------ agreements, warranties, representations and conditions of this Agreement, the Shareholders hereby agree to sell, convey, transfer, assign and deliver to Buyer on the Closing Date, and Buyer hereby agrees to buy and accept on the Closing date, all of the Shares of Rent-It held by the Shareholders. 2.2 Amount of Purchase Price. The total consideration (the "Purchase ------------------------ Price") to be paid by Buyer for the Shares shall be $4,500,000 (plus or minus any Purchase Price adjustment as provided in paragraph 2.4). 2.3 Payment of Purchase Price. On the Closing Date, Buyer shall pay ------------------------- to the Shareholders in accordance with their Proportionate Share the Purchase Price described in Section 2.2 less $250,000 (which shall be held back subject to the provisions of Section 2.4) by means of a wire transfer of immediately available funds to the account number and depository previously designated by each Shareholder (or otherwise as directed by each Shareholder), except that Forrest Burnett, as trustee of the Forrest H. Burnett Trust, shall receive a convertible note in the principal amount of $300,000 in the form of Exhibit A attached in lieu of $300,000 of cash Purchase Price. 2.4 Purchase Price Adjustment. The Purchase Price described in Section -------------------------- 2.2 shall be adjusted as follows: (a) Long-Term Debt. The amount shall be reduced by the amount of the -------------- long-term debt (including the current portion and any prepayment penalties applicable thereto) of Rent-It on the Closing Date; 6 (b) Purchases and Sales. The amount shall be increased by the ------------------- purchase price of Equipment acquired by Rent-It after October 13, 1997, and reduced by the sales price of Equipment of Rent-It sold after October 13, 1997 (provided that no purchase or sale described in this paragraph (b) that exceeds, in the aggregate or individually, more than $25,000 shall have occurred unless approved in advance by Buyer); (c) Net Current Position. The amount shall be increased or decreased --------------------- as follows. Schedule 2.4 hereto sets out the projected Net Current Position of Rent-It at the Closing Date (the "Projected Net Current Position"), which the Shareholders represent has been prepared on a basis consistent with the Balance Sheet referred to in Section 3.6, other than as specifically set forth in this Agreement. The consideration to be paid to the Shareholders set out in Section 2.2 shall be increased by the amount shown as a positive balance on Schedule 2.4, or decreased by the amount shown as a negative balance on that schedule. Promptly following the Closing Date (but in any event no later than 90 days after the Closing Date) Rent-It shall prepare a schedule showing the actual Net Current Position of Rent-It at the Closing Date (the "Closing Net Current Position"). Buyer shall review the Closing Net Current Position and make any adjustments it considers appropriate. The Closing Net Current Position with such adjustments, if any, shall be given to the Shareholders. The Shareholders shall have a period of 30 days after receipt of the Closing Net Current Position to give to Buyer a notice (an "Objection Notice") specifying in reasonable detail any objections they may have to the Closing Net Current Position. If an Objection Notice is not given by the Shareholders within such 30-day period, then the Closing Net Current Position shall be accepted as final, binding and conclusive on the parties 7 hereto. If an Objection Notice is given by the Shareholders within such 30-day period, the Shareholders and Buyer shall attempt to reconcile such items as are in dispute. If the Shareholders and Buyer are unable to reconcile all such items within 30 days after the date on which the Objection Notice is given, then such items as remain in dispute shall be determined in accordance with the principles set forth in this Section 2.4 by a representative of a firm of independent public accountants designated by a representative of the Shareholders and a representative of Buyer. The determination of the items in dispute shall be final, binding and conclusive on the parties hereto. The fees and expenses of the designated accounting firm mentioned above shall be shared equally by the Shareholders and the Buyer. In the event that the Closing Net Current Position is greater than the Projected Net Current Position, the Buyer shall pay to the Shareholders the amount of such excess in accordance with their Proportionate Share. In the event that the Closing Net Current Position is less than the Projected Net Current Position, the amount of such shortfall shall be deducted from the amount withheld from the Purchase Price at Closing or, if such amount is insufficient, the Shareholders shall pay to the Buyer the amount of such shortfall (or the Buyer may offset amounts owed the Shareholders as provided in Section 10.4), all in accordance with the Shareholders' Proportionate Share. (d) Equipment Adjustment. Schedule 3.10(a) sets forth the asset -------------------- description, make, model, original cost and net book value of all Rental Equipment that Seller owns as of the Closing Date. On or prior to 45 days following the Closing Date, personnel of Seller and Buyer shall verify the existence and condition of the Rental Equipment listed on said schedule as necessary to inspect such Rental Equipment. Based on the physical inventory inspection, Buyer shall be entitled to reduce the Purchase Price for each item of Rental Equipment that is either 8 missing or unavailable for rental due to Seller's failure to perform preventive maintenance on said item of Rental Equipment in the ordinary course of business. The value of each piece of Rental Equipment that is missing and the cost to repair each piece of equipment that is unavailable for rental due to Seller's failure to perform preventive maintenance in the ordinary course of business shall be aggregated. If the aggregate value of all missing and unavailable Rental Equipment is less than $50,000, Buyer shall make no adjustment to the Purchase Price. If the aggregate value of said items exceeds $50,000, Buyer shall adjust the Purchase Price by an amount which equals the total aggregate cost of said items, less $50,000. Buyer shall make any adjustment no later than 90 days after the Closing Date, and shall be entitled to retain a portion of the amount held back under Section 2.3, above, equal to said adjustment. For purposes of valuing missing or unavailable Rental Equipment, the personnel of Buyer and Seller shall agree upon a value, or if they cannot agree, an independent third party mutually acceptable to both parties or an arbitrator, as provided by Section 15.4, shall determine the appropriate value to be used in computing any adjustment under this paragraph 2.4(d). (e) Timing. Purchase price adjustments under this Section 2.4 shall ------ be completed within 90 days after the Closing Date, and the amount held back under Section 2.3, reduced by amounts described in paragraphs (a) through (d), or the subject of indemnification claims under Section 10 hereof, shall be released to the Shareholders in accordance with their Proportionate Share on or before 180 days after the closing Date. Interest at an annual rate of seven percent shall be paid on all amounts paid to the Shareholders under this paragraph (e) from the Closing Date to the date such amounts are paid. Notwithstanding the foregoing, Buyer shall not be limited to the held back amount as its sole remedy in the event that any Purchase Price 9 adjustment or indemnification exceeds the held back amount. In such event, Buyer shall have the right to collect promptly from Shareholders, in cash, the amount of such excess. SECTION 3. Representations and Warranties of Rent-It and the ------------------------------------------------- Shareholders. The Shareholders hereby jointly and severally warrant and - ------------ represent to and agree with Buyer as follows: 3.1 Organization and Authorization. Rent-It is a corporation duly ------------------------------ organized, validly existing and in good standing under the laws of Utah, has full power and authority to own, lease and operate its properties and assets and to conduct its Business as now being conducted. Rent-It owns, leases and operates properties, and conducts business only in the State of Utah. Rent-It is qualified or licensed to do business only in the State of Utah. This Agreement has been, and the other agreements, documents required to be delivered by Rent-It and the Shareholders in accordance with the provisions hereof will be, duly executed and delivered on behalf of Rent-It and the Shareholders and constitute the valid and binding obligation of Rent-It and the Shareholders, enforceable against them in accordance with their respective terms. 3.2 Articles of Incorporation; By-Laws; Minute Books. True and ------------------------------------------------ complete copies of the Articles of Incorporation and By-Laws, as amended, to and including the date hereof, of Rent-It have been delivered to Buyer. The minute books, stock books and stock transfer records of Rent-It, true and complete copies of which have been delivered to Buyer, contain true and complete minutes and records of all issuances and transfers of Shares of Rent-It and of all minutes and records of all meetings, consents, proceedings and other actions of the Shareholders, board of directors and committees of the board of directors of Rent-It since the date of its incorporation. 10 3.3 No Liens - No Violations. Except as provided on Schedule 3.3, no ------------------------ consent of any lender, trustee or other Person is required for Rent-It or the Shareholders to enter into and deliver this Agreement or to consummate the transactions contemplated hereby, nor does any Contract, mortgage or other instrument to which Rent-It or any of the Shareholders is a party or by which Rent-It or any of the Shareholders is bound or affecting any of its or his properties conflicts with or restricts the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. The Shares are owned of record and beneficially by the Shareholders and are not subject to any Lien or to any restriction on their transfer. 3.4 Authorized Capitalization. The authorized capital stock of Rent- ------------------------- It consists solely of 500,000 shares of common stock, with $1.00 par value, of which 102,680 shares are issued and outstanding. All Shares of Rent-It are validly issued and outstanding, fully paid and nonassessable, and are owned beneficially and of record by the Shareholders. There are no outstanding warrants, options or rights (preemptive or otherwise) or other securities, plans or agreements that give the holder or any other Person the right to purchase or otherwise acquire (whether from Rent-It, the Shareholders, or an Affiliate of Rent-It or the Shareholders) any Shares of Rent-It or any securities convertible into, or exchangeable or exercisable for, Shares or under which any such warrant, option, right or security may be issued in the future. 3.5 Subsidiaries; Investments; Affiliate Notes. Rent-It has no ------------------------------------------ directly or indirectly owned subsidiaries and, except as set forth on Schedule 3.5 hereto, has made no advances to or investments in, and does not own any securities of or other interests in, any Person. Schedule 3.5 contains a list of all notes held by Rent-It issued by the Shareholders or any Affiliate of the Shareholders. 11 3.6 Financial Statements. Annexed hereto as Schedule 3.6 are (a) -------------------- unaudited financial statements of Rent-It for the three month period ended September 30, 1997, including the balance sheet of Rent-It as of the Balance Sheet Date (the "Balance Sheet") and (b) compiled financial statements of Rent- It as of and for the fiscal years ended June 30, 1995, 1996 and 1997. The financial statements referred to in the preceding sentence are referred to collectively as the "Financial Statements." The Financial Statements in each case have been prepared on an accrual basis of accounting consistently applied throughout the periods covered thereby and fairly present the financial condition, results of operations and cash flows of Rent-It as of, or for the period ended on, their respective dates (subject in the case of interim financial statements to normal year-end adjustments). Since the Balance Sheet Date, Rent-It has conducted its Business in a consistent manner without change of policy or procedure including, without limitation, its practices in connection with the treatment of revenue recognition, capitalization policies, reserves and expenses. 3.7 Records and Books of Account. Since January 1, 1996, the records ---------------------------- and books of account of Rent-It have been regularly kept and maintained on an accrual basis of accounting consistently applied. 3.8 Liabilities. On the Balance Sheet Date, there were no ----------- Liabilities of Rent-It that would have been required by an accrual basis of accounting to be included on the balance sheet of Rent-It as of such date other than those Liabilities (including, without limitation, product liabilities) disclosed or provided for on the Balance Sheet or those described in Schedule 3.8. To the knowledge of the Shareholders, there are no other Liabilities of Rent-It except (i) those incurred since the Balance Sheet Date in the ordinary course of business consistent with past 12 practice and not in violation of or in conflict with any of the terms, agreements, warranties, representations and conditions of the Shareholders contained in this Agreement, (ii) those set forth on Schedule 3.8 hereto and (iii) those which would not, individually or in the aggregate, have a Material Adverse Effect on Rent-It. 3.9 Title to Assets; Liens and Encumbrances. Rent-It is the owner --------------------------------------- of, and has good and marketable title to, or a valid leasehold interest in, or has the legally enforceable right to use in its Business, all of the assets, properties and rights currently used in the operation of the Business of Rent- It, free and clear of all Liens except for the Liens, if any, set forth on the Balance Sheet or on Schedule 3.9 hereto. The assets, properties and rights referred to in the preceding sentence include, without limitation, all assets, properties, rights and Business of Rent-It shown or reflected on the Balance Sheet or acquired by Rent-It since the Balance Sheet Date. Rent-It owns or has the legally enforceable right to use in its Business all of the assets used by it in the operation and conduct of its Business, or required by it for the normal conduct of its Business, except for those assets leased under leases specifically identified on Schedule 3.11 or 3.12 hereto. 3.10 Tangible Assets. Schedule 3.10(a) contains a list of all of the --------------- Equipment owned, leased or otherwise held by Rent-It and used in the Business, including its description, make, model, original cost and net book value, other than Equipment whose value is not material to Rent-It and for which the information described in this sentence is not reasonably available. Schedule 3.10(b) also contains a list of all of the Inventory owned, leased or otherwise held by Rent-It and used in the Business. Schedule 3.10(c) contains a list of all other tangible assets of Rent-It. All of the Inventory is located at the Facilities. The values at which the Equipment are 13 shown on the Balance Sheet have been determined on an accrual basis of accounting consistently applied throughout the periods covered by the Financial Statements. All tangible (other than real property) assets are listed on Schedule 3.10(a), (b), or (c) and are either owned by Rent-It or leased under an agreement reflected on Schedule 3.11 or 3.12. All Equipment, Inventory and other tangible assets are merchantable, fit for the purpose for which it was procured and are usable in the ordinary course of business, in good working order and condition, normal wear and tear excepted, and are in conformity with all applicable Laws. 3.11 Facilities. ---------- (a) Each parcel of real property owned or leased by Rent-It, including the legal description and address thereof, is listed on Schedule 3.11(a), and copies of all deeds, purchase documents, mortgages, other encumbrances and title insurance policies or lawyer's title opinions relating to such parcels have been provided to Buyer. Rent-It or its lessor, has good and marketable title to the real property, and such real property is subject only to normal easements and restrictions that do not interfere with Rent-It's current use and intended future use of the real estate. (b) Except for the lease of the Facility described on Schedule 3.11, Rent-It does not lease any real property. Rent-It enjoys peaceful and undisturbed possession of the leased premises. (c) The Facilities and the improvements thereon, including without limitation all Equipment (including all fixtures) and other tangible assets owned, leased or used by Rent-It at the Facilities are insured to the extent and manner customary in the industry, are sufficient for the operation of the Business as presently conducted and are in conformity, in all Material 14 respects, with all applicable laws, ordinances, orders, regulations and other requirements currently in effect. None of the improvements is subject to any commitment or other arrangement for their sale or use by any Affiliate of Rent- It or third parties. 3.12 Leased Assets. Schedule 3.12 sets forth a true and complete ------------- list of each lease of assets including, without limitation, motor vehicles, executed by or binding upon Rent-It as lessee or sublessee (the "Leased Assets"), setting forth in each case rental payable thereunder and the term (including any extensions available) thereof. Except as set forth on Schedule 3.12, each such lease is in full force and effect without any default or breach thereof by Rent-It or any other party thereto. Except as set forth on Schedule 3.12, no consent of any lessor or any other party is required under any such lease by reason of or in connection with the transfer of the Leased Assets to Buyer as provided for in this Agreement and to keep such lease in full force and effect after the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. True and complete copies of all leases required to be listed on Schedule 3.12, including all amendments, addenda, waivers and all other binding documents affecting the lessee's rights thereunder, have heretofore been provided to Buyer. 3.13 Trademarks, Service Marks, Trade Names, Patents and Copyrights. -------------------------------------------------------------- Schedule 3.13 hereto sets forth a true and complete list of all Proprietary Rights used by Rent-It in the conduct of its Business. Each such Proprietary Right is owned or licensed by Rent-It and is not subject to any royalty arrangement or dispute. To the knowledge of Rent-It and the Shareholders, no other Proprietary Rights are used in Rent-It's Business as now conducted. No claim has been asserted or, to the knowledge of Rent-It and the Shareholders, threatened, by any 15 Person with respect to the ownership, validity, license or use of, or any infringement resulting from, any of the Proprietary Rights used by Rent-It. 3.14 Contracts; Customers. Schedule 3.14(a) contains a list of all -------------------- distribution, agency, franchise, license, sales or commission contracts to which Rent-It is a party or by which it is bound. Schedule 3.7(b) contains a list of all other Contracts not made in the ordinary course of business of Rent-It, and other Contracts involving expenditures or Liability, actual or potential, in excess of $1,000 or otherwise Material to Rent-It to which Rent-It is a party or by which it is bound. Schedules 3.14(a) and (b) hereto contain a true and complete description of the terms and conditions of each Contract on each such schedule to which Rent-It is a party or to which it is subject or by which it is bound that is not in writing. A true and complete copy of all Contracts listed on Schedules 3.14(a) and (b) has heretofore been provided to Buyer by Rent-It. Except as set forth on Schedules 3.14(a) and (b), no Contract to which Rent-It is a party or to which it is subject or by which it is bound conflicts with, would be terminated by, would be breached as a result of, would be materially modified or changed by, or requires the consent of any other Person by reason of, the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, other than such Contracts the loss of which, individually or in the aggregate, would not have a Material Adverse Effect on Rent-It, or the loss of which would involve a loss of less than $1,000 ("Immaterial Contracts"). Each of the Contracts to which Rent-It is a party or to which it is subject or by which it is bound (including, without limitation, those set forth on Schedules 3.14(a) and (b) hereto) is a valid and subsisting Contract of all of the parties thereto in full force and effect without modification, other than Immaterial Contracts. Rent-It has performed all obligations 16 required to be performed by it and is not in default under any Contract, instrument or other document to which it is a party or to which it is subject or by which it is bound, and no event has occurred thereunder which, with or without the lapse of time or the giving of notice, or both, would constitute a default by it thereunder, other than Immaterial Contracts. Schedule 3.14(c) is a list of all Customers of Rent-It who have incurred charges of at least $1,000 in the last 12 months. None of such customers has canceled or substantially reduced service or has given notice that it intends to cancel or substantially reduce service. 3.15 Labor Relations; Employees. There are no labor strikes, -------------------------- disputes, slow downs, work stoppages or other labor troubles or grievances pending or, to the Shareholders' knowledge, threatened against Rent-It. No unfair labor practice complaint before the National Labor Relations Board, no charges pending before the Equal Employment Opportunity Commission and no complaint, charge or grievance of any nature before any similar or comparable Governmental Authority, in any case relating to Rent-It or the conduct of its business, is pending or, to the knowledge of the Shareholders, threatened. Rent-It has not received notice, nor has any knowledge, of the intent of any Governmental Authority responsible for the enforcement of labor or employment laws to conduct any investigation of or relating to such corporation or the conduct of its Business. To the knowledge of the Shareholders, no officer or key employee of Rent-It, other than Howard Burnett and Vera Burnett, has any plan to terminate his or her employment with Rent-It. Schedule 3.15 is a true and correct list of all employees of Rent-It as of Balance Sheet Date, by job classification, their respective rates of compensation and all perquisites provided to each such employee (i.e., company car, etc.). ---- 17 3.16 Legal Proceedings. Except as set forth on Schedule 3.16 hereto, ----------------- there are no Actions (whether or not purportedly on behalf of Rent-It) pending or, to the knowledge of the Shareholders, threatened against Rent-It or any of its properties, rights or Business. No Action involving negligence or strict liability has ever been instituted or, to the knowledge of the Shareholders, threatened against Rent-It. Rent-It is not in default with respect to any order, writ, injunction or decree of any Governmental Authority. None of the Actions referred to on Schedule 3.16, individually or in the aggregate, will have a Material Adverse Effect on Rent-It. 3.17 Orders, Decrees, Etc. There are no orders, decrees, -------------------- injunctions, rulings, publications, decisions, directives, consents, pronouncements or regulations of any court or any Governmental Authority issued against, or, to the knowledge of the Shareholders, binding on, Rent-It which do or may affect, limit or control Rent-It's method or manner of doing business, except for laws, statutes, ordinances, orders and regulations that affect all similarly situated businesses. 3.18 Compliance With Law; Permits and Licenses. ------------------------------------------ (a) Rent-It has complied and is in compliance with all Laws of any Governmental Authority applicable to it, and to its assets, property and its operations, including, without limitation, Laws relating to zoning, building codes, licensing, permits, antitrust, occupational safety and health, environmental protection and conservation, water or air pollution, toxic and hazardous waste and substance control, consumer product safety, product liability, hiring, wages, hours, employee benefit plans and programs, collective bargaining and withholding and social security taxes, other than any failure to comply that, individually or in the aggregate, will not result in any Material Liability or have a Material Adverse Effect on Rent-It. 18 (b) Rent-It presently holds all the permits, licenses and franchises that are necessary for or Material to its current and known future use, occupancy or operation of its assets or properties or the conduct of the Business; and no notice of violation of any applicable zoning regulations, ordinances or other similar Laws binding on Rent-It with respect to its assets, properties or business has been received by Rent-It, the Shareholders or any of their agents or affiliates. Schedule 3.18(b) lists all permits, licenses and franchises held by Rent-It. (c) Other than as set forth on Schedule 3.18(c) hereto, Rent-It has not violated nor is alleged to have violated, nor is in violation of, any Environmental Law, nor has released, treated, stored, disposed of or transported, or arranged or contracted for the release, treatment, storage, disposal or transportation of any Hazardous Substance in violation of any Environmental Law. There are no Hazardous Substances located at, in, on, within or under the surface of Rent-It's Assets, properties or Facilities in Material violation of applicable Environmental Law. Other than as set forth on Schedule 3.18(c) hereto, neither the Shareholders nor Rent-It has received, or has any knowledge of, any request for information, notice of claim, demand, lawsuit, action or other notification from any Governmental Authority or any third party that they or it may be responsible for any threatened or actual release of Hazardous Substances, or be in violation of or in noncompliance with any Environmental Law, and neither the Shareholders nor Rent-It is subject to any agreement, consent, decree, administrative order, notice or enforcement action brought under any Environmental Law. For purposes of this paragraph 3.18(c), "Environmental Law" means any applicable Federal, state, local or Indian law, rule, regulation, ordinance, program, permit, guidance, order, consent, decree or notice of violation pertaining to the protection of natural resources, the environment and the health and safety of employees and the 19 general public; and "Hazardous Substances" means any material, chemical, compound, mixture, substance or waste which is regulated by any Governmental Authority having jurisdiction over any premises, including, but not limited to (a) any oil or petroleum compounds, flammable substances, explosives, radioactive materials or any other materials or pollutants which pose a hazard to the premises or to any persons on or about the premises or which cause premises to be in violation of any legal requirements, (b) asbestos, (c) polychlorinated biphenyls, (d) and any materials or substance designated as hazardous substances, pursuant to Section 311 of the Clean Waters Act, 33 USC Section 1251, (e) economic poison as defined in the Federal Insecticide, Fungicide and Rodenticide Act. 7 USC Section 135, (f) new chemical substance or mixture pursuant to 3, 6, 7 of the Toxic Substance Control Act, 15 USC Section 2601, (g) hazardous substances pursuant to Section 101 of the Comprehensive Environmental Response, Compensation, and Liability Act 42 USC Section 9601 and (h) hazardous substances pursuant to section 1004 of Resource Conservation and Recovery Act, 42 USA Section 6901. (d) Except as set forth on Schedule 3.18(d), there is not now and has not been at any time in the past any underground or above-ground storage tank or pipeline at any Facility where the installation, use, maintenance, repair, testing, closure or removal of such tank or pipeline was not in compliance with all Environmental Laws and there has been no release from or rupture of any such tank or pipeline, including without limitation any release from or in connection with the filling or emptying of such tank. 3.19 Changes Since December 31, 1996. Except as set forth on ------------------------------- Schedule 3.19 hereto, since December 31, 1996, Rent-It has not (i) incurred any Liability, except current liabilities in the ordinary course of business consistent with past practice and Liabilities incurred under 20 Contracts entered into in the ordinary course of business consistent with past practice; (ii) discharged or satisfied any Lien or paid any Liability, other than current liabilities shown on the Balance Sheet and current liabilities incurred since the Balance Sheet Date in the ordinary course of business consistent with past practice; (iii) sold or transferred any Material Assets or written off any Accounts Receivable, except for the collection of Accounts Receivable in the ordinary course of business; (iv) mortgaged, pledged or subjected to any other Lien of its Assets or properties, other than Liens reflected on the Balance Sheet or as set forth on Schedule 3.9; (v) suffered any losses or waived any rights of substantial value; (vi) granted any bonuses or commissions or increased the compensation payable to any of its employees, directors or officers or increased the aggregate payment of any fees except for customary bonuses and regular salary increases made in accordance with Rent-It's past practices as summarized on Schedule 3.19 or in accordance with the employee benefit plans described on Schedule 3.22; (vii) made any loans to any individuals, firms, corporations or other entities; (viii) declared, made, set aside or paid any dividend, distribution or payment on, or any purchase or redemption of, any Shares or any commitment therefor, other than as described on Schedule 3.19; (ix) made any Material change in any method of accounting (for book or tax purposes), or (x) entered into any transaction not in the ordinary course of business or agreed (whether or not in writing) to do any of the foregoing. From January 1, 1997, the Business of Rent-It has been operated only in the regular and ordinary course consistent with past practice. 3.20 No Material Adverse Change. Since June 30, 1997, there has not -------------------------- been any Material adverse change in the condition (financial or otherwise), Business, prospects of the Business as currently conducted, or operations, of Rent-It, nor has there been any damage, 21 destruction or loss to property owned by Rent-It, whether or not covered by insurance, that, individually or in the aggregate, has or will have a Material Adverse Effect on the assets or Business of Rent-It. 3.21 Capital Projects and Expenditures. All capital expenditures of --------------------------------- Rent-It since June 30, 1997, are listed on Schedule 3.21 hereto. In addition, all capital projects and capital expenditures committed for or undertaken by Rent-It that have not been completed by the Closing Date as well as the terms of any and all financing arranged in connection therewith and details for payments, if any, made with respect thereto, are set forth on Schedule 3.21 hereto, which also describes all capital commitments of Rent-It that will survive the Closing. Except as set forth on such Schedule 3.21, from June 30, 1997, to the date hereof, Rent-It has not made any additional expenditures or additional commitments for capital expenditures. 3.22 Employee Benefits. ----------------- (a) Except for the plans of Rent-It set forth on Schedule 3.22 hereto (the "Plans"), neither Rent-It nor any of its ERISA Affiliates maintains or contributes to or has any liability with respect to any "employee benefit plan" as that term is defined in Section 3(3) of ERISA, or any other bonus, incentive, compensation, profit sharing, stock, severance, retirement, health, life, disability, group insurance, vacation, holiday, fringe benefit, employment, stock option, stock purchase, stock appreciation right, supplemental unemployment, layoff or consulting plan, agreement, policy or understanding (whether written or oral, qualified or nonqualified, currently effective or terminated). True and complete copies of all the Plan documents and summary plan descriptions have been furnished to Buyer (along with all related trust agreements, insurance contracts or other funding agreements which implement each Plan, 22 and all other documents, records or other materials related thereto reasonably requested by Buyer). (b) With respect to each Plan, the requirements of ERISA, the Code (including, without limitation Part 6 of Subtitle B of Title I of ERISA and Sections 105(h) and 4980B of the Code) and all other applicable laws have been fulfilled in all respects, and copies of all filings with the Internal Revenue Service and the Department of Labor or other applicable Governmental Authority for the three most recent plan years for the Plans have been furnished to Buyer. No written or oral representations have been made to any employee or former employee of Rent-It promising or guaranteeing any employer payment or funding for the continuation of medical, dental, life or disability coverage for any period of time beyond the end of the current plan year (except to the extent of coverage required under Section 4980B of the Code). (c) Neither Rent-It nor any ERISA Affiliate has ever (i) maintained or contributed to any plan subject to Section 412 of the Code and Section 302 of ERISA or (ii) contributed to any "multi-employer plan," as such term is defined in Section 3(37) of ERISA, and neither Rent-It nor any ERISA Affiliate has effected either a "complete withdrawal" or a "partial withdrawal," as those terms are defined in Sections 4203 and 4205, respectively, of ERISA, from any such multi-employer plan. (d) Except as set forth on Schedule 3.22 hereto, at the Balance Sheet Date and at the date hereof, there was no bonus, profit sharing, incentive, commission or other compensation of any kind with respect to work done prior to the Balance Sheet Date or the date hereof due to or expected by present or former employees of Rent-It not paid prior to such date 23 or, with respect to compensation for work done prior to the Balance Sheet Date, not fully accrued on the Balance Sheet. (e) Each Plan that is an "employee pension benefit plan" (as defined in Section 3(2) of ERISA) meets the requirements of a "qualified plan" under Section 401(a) of the Code in form and in operation, and such Plan, and each trust (if any) forming a part thereof, has received a favorable determination letter, or a favorable determination letter has been applied for, from the Internal Revenue Service as to the qualification under the Code of such Plan and the tax-exempt status of such related trust, and nothing has occurred since the date of such determination letter, or request therefor, that could reasonably be expected to adversely affect the qualification of such Plan or the tax-exempt status of such related trust. (f) There are no unfunded liabilities existing under any Plan, and, subject to compliance with applicable notice requirements under ERISA and state laws, each Plan could be terminated promptly following the Closing Date with no liability to Buyer, Rent-It, any ERISA Affiliate or any Person that is under common control, or is treated as a single employer, with Buyer under Section 414 of the Code or ERISA Section 4001. (g) With respect to each Plan (i) there have been no non-exempt prohibited transactions as defined in Section 406 of ERISA or Section 4975 of the Code, (ii) no fiduciary (as defined in Section 3(21) of ERISA) has liability for breaching of fiduciary duty or any other failure to act or comply in connection with the administration or investment of assets in such Plan, and (iii) no actions, investigations, suits or claims with respect to the assets thereof (other than routine claims for benefits) are pending or, to the knowledge of the Shareholders, 24 threatened, and the Shareholders have no knowledge of any facts that would give rise to or could reasonably be expected to give rise to any such actions, suits or claims. 3.23 Governmental Approvals. To the knowledge of the Shareholders, ---------------------- no governmental authorization, approval, order, license, permit, franchise or consent and no registration, declaration or filing by Rent-It or the Shareholders with any Governmental Authority is required in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. 3.24 Tax Matters. ----------- (a) Rent-It (the "Taxpayer") has duly and timely filed all Returns required to be filed by it. Rent-It is not currently the beneficiary of any extension of time within which to file any Return. No claim has ever been made by an authority in a jurisdiction where Rent-It does not file Returns that it is or may be subject to taxation by that jurisdiction. All Returns filed by the Taxpayer were correct and complete in all material respects. The Taxpayer has paid in full all Taxes (whether or not shown on a Return) required to be paid by the Taxpayer before such payment became delinquent. Rent-It has made adequate provision in the Financial Statements, in conformity with an accrual method of accounting, for the payment of all accrued Taxes not yet payable as of the respective dates of such Financial Statements. All Taxes that the Taxpayer has been required to collect or withhold have been duly collected or withheld and, to the extent required when due, have been or will be duly and timely paid to the proper taxing authority. (b) There are no audits, inquiries, investigations or examinations relating to any of the Taxpayer's Returns pending or threatened, and there are no claims that have been or may be asserted relating to any of the Taxpayer's Returns filed for any year which if determined 25 adversely would result in the assertion by any Governmental Authority of any Tax deficiency against the Taxpayer. There have been no waivers or extensions of statutes of limitations with respect to Taxes by the Taxpayer, or any agreements to extend the time with respect to a Tax assessment or deficiency. (c) Rent-It is not a party to any tax-sharing Contract or similar arrangement with any Person. Rent-It has not made a disclosure on a Return pursuant to Code Section 6662(d)(2)(B)(ii) and the Regulations thereunder. (d) Rent-It has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, Shareholders or other third party. (e) Rent-It has not been a member of an affiliated group filing consolidated Federal income tax returns, or has any liability for Taxes of any other person under Treasury Regulation section 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract, or otherwise. (f) Rent-It has not filed a consent under Code Section 341(f) concerning collapsible corporations. (g) Rent-It is not obligated to make any payments and is not a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Code Section 280G. 3.25 Insurance Coverage. Schedule 3.25 hereto describes each ------------------ insurance policy (specifying the insured, the insurer, the amount of coverage, the type of insurance, the policy number, the expiration date, the annual premium, and any pending claims thereunder) maintained 26 by Rent-It. Rent-It is not in default in any Material respect with respect to any provisions contained in any such insurance policy, and has not failed to give any notice or present any presently existing Material claims under any such insurance policy in due and timely fashion. 3.26 Preservation of Property. Between October 13, 1997 and the ------------------------ Closing Date, without Buyer's express prior written consent, Rent-It shall not sell, assign, transfer, mortgage, hypothecate, or otherwise dispose of or encumber any of the assets of Rent-It except for the disposition of Inventory in the ordinary course of business. Buyer agrees that Buyer will not unreasonably withhold written consent to a particular change and/or replacement of property necessary for Rent-It either (i) to perform Rent-It's obligations under this Agreement, or (ii) to conduct the operation of the Business between October 13, 1997 and the Closing Date, provided that such change or replacement does not adversely affect the nature or quality or value of the Assets being purchased by Buyer hereunder. 3.27 Accounts Receivable. Schedule 3.27 lists an aging report for ------------------- Accounts Receivables (not including any accrued but unbilled revenues) as of October 24, 1997. Accounts Receivable reflected in the Balance Sheet, and all Accounts Receivable arising since the Balance Sheet Date, represent bona fide claims of Rent-It against debtors for sales, services performed or other charges arising on or before the date hereof, and all the goods delivered and services performed which gave rise to said Accounts Receivable were delivered or performed in accordance with the applicable orders, Contracts or customer requirements. 3.28 Investment Representations. -------------------------- (a) Each Shareholder who has elected to acquire a convertible note in the form of Exhibit A (the "Notes"), and who will acquire the Buyer's Stock upon conversion of the Notes, 27 is making such acquisitions for his or her own account for investment and not for distribution, assignment or resale to others; (b) Each such Shareholder understands that the issuance of the Notes and the Buyer's Stock has not been registered under the Securities Act of 1933 (the "Act") in reliance upon an exemption therefrom for nonpublic offerings, understands that the Notes and the Buyer's Stock may not be sold or otherwise transferred unless such sale or other transfer is registered under the Act or an exemption form registration is available (and a legend evidencing such restrictions will be placed on the Notes and the Buyer's Stock), and understands that Buyer is under no obligation to register the sale or other transfer of the Notes or the Buyer's Stock; (c) Each such Shareholder has sufficient knowledge and experience to evaluate the merits and bear the economic risks of an investment in the Notes and the Buyer's Stock; (d) Each such Shareholder has been given the opportunity to ask questions about Buyer's business and has had any such questions answered to his satisfaction; and (e) Each such Shareholder is an "accredited investor" as that term is defined in Regulation D promulgated under the Act. 3.29 Representations and Warranties. The representations and ------------------------------ warranties contained in this Section 3 do not contain any untrue statement of a fact or, to the knowledge of the Shareholders, omit to state a fact necessary in order to make the statements made not misleading. There are no other facts or circumstances known to the Shareholders not disclosed herein that may materially and adversely affect the value of Rent-It's Assets or Business prospects. 28 SECTION 4. Representations and Warranties of Buyer. Buyer warrants --------------------------------------- and represents to and agrees with Rent-It and the Shareholders as follows: 4.1 Good Standing. Buyer is a corporation duly organized, validly ------------- existing and in good standing under the laws of Delaware. 4.2 Authorization. The execution and delivery of this Agreement and ------------- the consummation of the transactions contemplated hereby have been duly authorized by the Board of Directors of Buyer, and all other corporate action of Buyer, including all authorizations and ratifications, necessary to authorize the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, have been taken. This Agreement constitutes a binding obligation of enforceable against Buyer in accordance with its terms. No consent of any lender, trustee or security holder of Buyer, Buyer or any other Person is required for Buyer to enter into and deliver this Agreement and to consummate the transactions contemplated hereby. 4.3 Representations and Warranties. The representations and ------------------------------ warranties of Buyer contained in this Agreement do not contain any untrue statement of a fact or omit to state a fact necessary in order to make the statements made not misleading. 4.4 Governmental Approvals. No governmental authorization, approval, ---------------------- order, license, permit, franchise or consent and no registration, declaration or filing by Buyer with any Governmental Authority is required in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. 29 SECTION 5. Conditions of Buyer's Obligations to Close. The ------------------------------------------ obligations of Buyer under this Agreement are, at the option of Buyer, subject to the conditions set forth below, which conditions may be waived by Buyer without releasing or waiving any of its rights hereunder. 5.1 Agreements and Conditions. On or before the Closing Date, Rent- ------------------------- It and the Shareholders shall have complied with and duly performed all agreements and conditions on their part to be complied with and performed pursuant to or in connection with this Agreement on or before the Closing Date. 5.2 Representations and Warranties. The representations and ------------------------------ warranties of Rent-It and the Shareholders contained in this Agreement, or otherwise made in writing in connection with the transactions contemplated hereby, shall be true and correct on and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of the Closing Date. 5.3 No Legal Proceeding. No Action shall have been instituted or ------------------- threatened to restrain or prohibit the acquisition by Buyer, and on the Closing Date there are no Actions pending or threatened against the Shareholders or Rent-It that involve a demand for any judgment or Liability, whether or not covered by insurance, and that may result in any Material Adverse Effect on Rent-It. 5.4 Deliveries. Buyer shall have received the deliveries to be made ---------- by Rent-It and the Shareholders pursuant to Section 7. 5.5 Legal Opinion. Buyer shall have received the favorable opinion ------------- of Van Cott, Bagley, Cornwall & McCarthy substantially in the form of Exhibit A attached hereto. 30 SECTION 6. Conditions of Rent-It's and the Shareholders' Obligation -------------------------------------------------------- to Close. The obligations of Rent-It and the Shareholders under this Agreement - -------- are, at the option of Rent-It and the Shareholders, subject to the following express conditions, which conditions may be waived by Rent-It and the Shareholders without releasing or waiving any of the rights hereunder. 6.1 Agreements and Conditions. On or before the Closing Date, Buyer ------------------------- shall have complied with and duly performed all of the agreements and conditions on its part required to be complied with or performed pursuant to this Agreement on or before the Closing Date. 6.2 Representations and Warranties. The representations and ------------------------------ warranties of Buyer contained in this Agreement, or otherwise made in writing in connection with the transactions contemplated hereby, shall be true and correct on and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of the Closing Date. 6.3 Deliveries. The Shareholders shall have received the deliveries to ----------- be made by Buyer pursuant to Section 8. 6.4 No Legal Proceeding. No action shall have been initiated or ------------------- threatened to restrain or prohibit the acquisition by Buyer and on the Closing Date there are no actions pending or threatened against or affecting Buyer that involve a demand for any judgment or liability, whether or not covered by insurance, and that may result in any Material Adverse Effect on Buyer. 6.5 Legal Opinion. The Shareholders shall have received the ------------- favorable opinion of Holme Roberts & Owen LLP, dated the Closing Date, and in form and substance reasonably satisfactory to the Shareholders, to the effect that the execution and delivery of this Agreement 31 and the consummation of the transactions contemplated hereby have been duly and validly authorized by Buyer, that this Agreement constitutes the valid and binding obligation of Buyer and that Buyer is duly organized, validly existing and in good standing under the laws of the State of Delaware. SECTION 7. Deliveries of Rent-It and the Shareholders on the Closing --------------------------------------------------------- Date. Rent-It and the Shareholders agree to deliver to Buyer on the Closing - ---- Date the following: 7.1 Stock Certificates. Certificates representing all of the Shares ------------------ being acquired by Buyer hereunder, duly endorsed in blank for transfer or with appropriate stock powers duly executed in blank. 7.2 Corporate Records. The stock books, minute books and corporate ------------------ seal of Rent-It. 7.3 Resignations. Written resignations of Rent-It's directors and ------------- officers. 7.4 Consents. All consents required in connection with the execution -------- and delivery of this Agreement and the transactions contemplated hereby. 7.5 Possession of Assets. Possession of the Assets and properties of --------------------- Rent-It held by the Shareholders. 7.6 Lease Agreement. The Lease Agreement in the form attached as ---------------- Exhibit B. 7.7 Legal Opinion. The legal opinion of Van Cott, Bagley, Cornwall & -------------- McCarthy, as described in Section 5.5. 7.8 Employment or Consulting Agreements. The Employment or ----------------------------------- Consulting Agreements for Messrs. Burnett, Jensen, Guernsey and Johnson in the forms of Exhibits C, D, E and F hereto. 7.9 Payoff Letters. Payoff letters from the creditors listed on --------------- Schedule 7.6. 32 7.10 Revenue Agreement. The Revenue Agreement in the form of Exhibit ----------------- G. SECTION 8. Deliveries of Buyer on the Closing Date. Buyer agrees to --------------------------------------- deliver to the Shareholders, on the Closing Date the Purchase Price described in Section 2.2, the Notes described in Section 2.2, the Employment Agreements in the forms of Exhibits C, D, E and F, the Lease Agreement in the form of Exhibit B, and the legal opinion of Holme Roberts & Owen LLP as described in Section 6.5 and the Revenue Agreement in the form of Exhibit G.. SECTION 9. Additional Covenants. -------------------- 9.1 Cooperation of Buyer, Rent-It and the Shareholders. Rent-It and -------------------------------------------------- the Shareholders shall cooperate with Buyer, and Rent-It and the Shareholders shall use all reasonable efforts to have the officers, directors and other employees of Rent-It cooperate with Buyer, at Buyer's request and expense, after the Closing, in furnishing information, evidence, testimony and other assistance in connection with any Actions involving the Shareholders and Rent-It and based upon Contracts or acts of Rent-It which were in effect or occurred on or prior to the Closing. Buyer, Rent-It and the Shareholders shall each cooperate fully, as and to the extent reasonably requested by the other party, in connection with any audit, litigation or other Action, or the preparation of Returns with respect to Taxes or other matters relating to the period prior to the Closing Date, at the Shareholders' cost. Such cooperation shall include the retention and (upon the other party's reasonable request) the provision of records and information, including work papers of Rent-It and its independent auditors, but excluding records and information that are protected by recognized professional privilege, related to tax periods on or prior to the Closing Date, which are reasonably relevant to any such audit, litigation or other Action, or any Returns, and making employees available on a mutually convenient basis to provide additional 33 information and explanation of any material provided hereunder. Buyer, Rent-It and the Shareholders agree (i) to retain all books and records with respect to Tax matters pertinent to Rent-It relating to the six-year period (or portion thereof) prior to the Closing, and (ii) to give the other party reasonable written notice prior to destroying or discarding any such books and records and, if the other party so requests, Buyer, Rent-It or the Shareholders, as the case may be, shall allow the other party to take possession of such books and records. Rent-It and the Shareholders agree that for a period of three months after the Closing Date they will, upon the written request of Buyer and at Buyer's expense, visit (either alone or with a representative of Buyer, at Buyer's option), any of Rent-It's customers who have declined or ceased, or whom Buyer concludes may decline or cease, to rent or buy Equipment or Inventory formerly provided by the Rent-It and attempt to persuade any such customer to continue to rent or buy from Buyer. 9.2 Further Assurances of Rent-It, the Shareholders and Buyer. Rent- --------------------------------------------------------- It and the Shareholders agree at any time and from time to time after the Closing, upon the request of Buyer, to do, execute, acknowledge and deliver, or to cause to be done, executed, acknowledged and delivered, all such further acts, assignments, transfers, powers of attorney and assurances as may be required and to carry out the terms and conditions of this Agreement. The Shareholders shall cause to be prepared, at their sole cost and expense, all short year federal, state and local Returns required by law for Rent-It for the short year ending with the day of the Closing. Each such return shall be prepared by Rent-It's accountants, and shall be delivered to Buyer, together with all necessary supporting schedules, within 75 days following the Closing, for its approval 34 (but such approval shall not relieve the Shareholders of their responsibility for the Taxes and other amounts that may be assessed under these returns). Buyer shall cause such returns to be timely filed with the appropriate authorities. Rent-It shall be entitled to receive all refunds shown on such returns and any such refunds received by Rent-It shall be remitted to the Shareholders within five days of receipt unless otherwise previously credited to the Shareholders. The Shareholders shall be responsible for any and all assessments or deficiencies that may be due or become due in connection with the short period set forth above or prior taxable years of Rent-It, unless any such assessments or deficiencies are caused by changes in Rent-It's financial accounting made at the request of Buyer. The Shareholders shall have the right to examine all of the books and records of Rent-It necessary to determine the items of income, loss, deduction and credit accrued or paid allocable to such short year return period. Buyer shall provide to each Shareholder who elects to acquire a Note any opinion of issuer's counsel necessary for such Shareholder to sell Buyer's Stock in compliance with Rule 144. 9.3 Non-Competition Covenant. Rent-It and the Shareholders covenant ------------------------ for itself and themselves, and its or any of their Affiliates that neither it nor they nor any of its or their Affiliates shall engage, directly or indirectly (whether as owner, partner, shareholder or investor (other than a holder of less than 5% of the shares of a public company), or joint venturer, manager, investor (which shall include any gift), advisor, consultant or otherwise), in the business of equipment rental or sales and any related businesses for a period of five years after the Closing Date in the State of Utah except as an employee of Buyer or any Affiliate of Buyer, 35 or such other manner as Buyer shall consent to in writing. Rent-It and the Shareholders covenant for itself and themselves and its and any of their Affiliates that for a period of five years from and after the Closing Date neither it nor they nor any of its or their Affiliates shall directly or indirectly induce or solicit, or directly or indirectly aid or assist any other Person to induce or solicit, any Person who is (or within the prior twelve months had been) an employee, salesman, agent, consultant, distributor, representative, advisor, customer or supplier of Rent-It to terminate that Person's employment or business relations with such corporation. If any provision of this covenant is deemed invalid in whole or in part, it shall be curtailed, whether as to time, geographical area, scope of activity or otherwise, as and to the extent required for its validity under applicable law and, as so curtailed, shall be enforceable. Rent-It and the Shareholders acknowledge that this Section 9.3 and its, their and its or their Affiliates', obligations hereunder are a material inducement and condition to Buyer's entering into this Agreement. In the event of a breach or threatened breach of this paragraph, Buyer shall be entitled to an injunction restraining such breach; however, nothing herein shall be construed as prohibiting Buyer from pursuing any remedy available to Buyer as a result of such breach or threatened breach. 9.4 No Disparagement. For the period of the covenant not to compete ---------------- set out in Section 9.3, Rent-It and the Shareholders covenant for itself and themselves and its or any of their Affiliates, and Buyer covenants for itself and its Affiliates, that neither party nor its Affiliates shall disparage the other party or its Affiliates. As used in this section "disparage" shall include, in addition to its common law meaning, negative comments concerning Buyer's or any of its Affiliates', Rent-It's or any of its Affiliates', or the Shareholders' or their Affiliates', 36 past, present or future business ethics or management decisions, or the quality or effectiveness of their goods or services. SECTION 10. Indemnification. --------------- 10.1 Indemnification by Rent-It and the Shareholders. Rent-It and ----------------------------------------------- the Shareholders agree to indemnify Buyer and every Affiliate of Buyer against and hold them harmless from any and all Damages that Buyer or any Affiliate of Buyer may sustain at any time by reason of: (a) the breach or inaccuracy (or alleged breach or inaccuracy) of, or failure to comply with (or alleged failure to comply with), any of the warranties, representations, covenants or agreements of Rent-It or the Shareholders contained in this Agreement or in the exhibits or schedules hereto. As used in this Agreement, the terms "alleged breach or inaccuracy" or "alleged failure to comply with" shall only apply to allegations by parties other than Buyer or its Affiliates as to such matters; (b) any abatement order, compliance order, consent order, remediation order, clean-up order or exhumation order, potentially responsible party notification or Action against Rent-It arising out of any act or omission of Rent-It or any shareholder, officer, director, employee, predecessor, consultant or agent of Rent-It occurring on or prior to the Closing Date, or any requirements related to remediation of the Facilities based on conditions existing on the Closing Date, including, in each case, any such matter described in any schedule hereto; (c) any act or omission of Rent-It, or any shareholder, officer, director, employee, predecessor, consultant or agent of Rent-It, occurring on or prior to the Closing Date. 10.2 Indemnification by Buyer. Buyer agrees to indemnify and hold ------------------------ Rent-It and the Shareholders and every Affiliate of Rent-It and the Shareholders harmless from and against any 37 and all Damages that Rent-It or the Shareholders or any Affiliate of Rent-It or the Shareholders may sustain at any time by reason of the breach or inaccuracy (or alleged breach or inaccuracy) of, or failure to comply with (or alleged failure to comply with) any warranties, representations, conditions, covenants or agreements of Buyer contained in this Agreement or in any exhibit or schedule hereto, or for any acts or omissions of Buyer after the Closing Date. 10.3 Procedures for Third Party Indemnification. In those instances ------------------------------------------ in which a third party claim is asserted against any party hereto, or any party hereto is made a party defendant in any action or proceeding, and such claim, action or proceeding involves a matter that is the subject of this indemnification, then such party (an "Indemnified Party") shall give written notice to the other party hereto (the "Indemnifying Party") of such claim, action or proceeding, and such Indemnifying Party shall have the right to join in the defense of said claim, action or proceeding at such Indemnifying Party's cost and expense and, if the Indemnifying Party agrees in writing to be bound by and to promptly pay the full amount of any final judgment from which no further appeal may be taken, and if the Indemnified Party is reasonably assured of the Indemnifying Party's ability to satisfy such agreement, then at the option of the Indemnifying Party, such Indemnifying Party may take over the defense of such claim, action or proceeding, except that, in such case, the Indemnified Party shall have the right to join in the defense of said claim, action or proceeding at its own cost and expense. 10.4 Right of Set Off. In addition to any other rights Buyer has ---------------- under this paragraph 10 or elsewhere in this Agreement to indemnification or recoupment, the Shareholders agree that Buyer is entitled to set off any amounts it may owe the Shareholders under this Agreement or any Exhibits hereto, or any other amounts owed to the Shareholders by Buyer, including amounts 38 owed under Section 2.2, against such claims for indemnity or recoupment. Such right of set off may be exercised by Buyer at the time a claim for indemnity or recoupment is made by Buyer. In the event such claim is contested by the Shareholders, and the final resolution of the claim results in a reduction or elimination of such claim, Buyer shall pay to the Shareholders the amount by which the claim is reduced (limited by the amount of the set off applied against such claim) plus interest on such amount at an annual rate equal to the prime rate as announced from time to time by Buyer's primary lender. SECTION 11. Survival of Representations; Effect of Certificates. The --------------------------------------------------- parties hereto agree that, subject to the restrictions on Buyer's indemnification rights under Section 10 hereof, all representations, warranties, covenants and agreements contained herein or in any instrument or other document delivered pursuant to this Agreement or in connection with the transactions contemplated hereby shall survive the consummation of the transactions contemplated hereby. SECTION 12. Brokerage Indemnity. Buyer, on the one hand, and Rent-It ------------------- and the Shareholders, on the other hand, each represent to the other that no broker or finder has been involved with any of the transactions relating to this Agreement except that the Shareholders have engaged Grand Teton Acquisitions to advise them. In the event of a claim by any other broker or finder that such broker or finder represented or was retained by Rent-It and the Shareholders on the one hand, or Buyer, on the other hand, in connection herewith, (or in the event Grand Teton Acquisitions makes any claim against Buyer) Rent-It and the Shareholders or Buyer, as the case may be, agree to indemnify and hold the other harmless from and against any and all loss, liability, cost, damage, claim and expense, including, without limitation, attorneys' fees and disbursements, which may be incurred in connection with such claim. 39 SECTION 13. Notices. All notices, requests, demands and other ------- communications provided for by this Agreement shall be in writing and shall be deemed to have been given when hand delivered, when received if sent by telecopier or by same day or overnight recognized commercial courier service or three business days after being mailed in any general or branch office of the United States Postal Service, enclosed in a registered or certified postpaid envelope, addressed to the address of the parties stated below or to such changed address as such party may have fixed by notice: To Rent-It or the Shareholders: Forrest Burnett 8867 Alta Canyon Drive Sandy, Utah 84093 Telecopier: - copy to - Van Cott, Bagley, Cornwall & McCarthy 50 South Main Street, #1600 Salt Lake City, Utah 84144 Attention: James F. Wood, Esq. Telecopier: (801) 534-0058 To Buyer: United Rentals, Inc. Four Greenwich Office Park Greenwich, Connecticut 06830 Attention: John N. Milne, Vice Chairman Telecopier: (203) 622-6080 - copy to - Oscar D. Folger, Esq. 521 Fifth Avenue New York, New York 10175 Telecopier: (212) 697-9570 40 - and - Holme Roberts & Owen LLP 1700 Lincoln, Suite 4100 Denver, Colorado 80203 Attention: Thomas A. Richardson, Esq. Telecopier: (303) 866-0200 provided, that any notice of change of address shall be effective only upon receipt. SECTION 14. Termination. ----------- 14.1 This Agreement may be terminated at any time prior to the Closing by any of the following: (a) By mutual written agreement of Buyer and the Shareholders; (b) By either Buyer or the Shareholders, if the Closing has not occurred by 11.59:00 p.m., October 31, 1997, upon written notice by such terminating party, provided that at the time such notice is given a material breach of this Agreement by such terminating party shall not be the reason for the Closing's failure to occur; (c) Subject to the provisions of Section 14.2, by Buyer, by written notice to the Shareholders, if there has been a material violation or breach of any of the Shareholders' covenants or agreements made herein or in connection herewith or if any representation or warranty of the Shareholders made herein or in connection herewith proves to be materially inaccurate or misleading with respect to Rent-It, taken as a whole; or (d) Subject to the provisions of Section 14.2, by the Shareholders, by written notice to Buyer, if there has been a material violation or breach of any of Buyer's covenants or agreements made herein or in connection herewith or if any representation or warranty of Buyer made herein or in connection herewith proves to be materially inaccurate or misleading. 41 14.2 If this Agreement is terminated as provided in Section 14.1, then there shall be no liability or obligation on the part of any party hereto (or any of their respective officers, directors or employees) except that if Buyer terminates this Agreement pursuant to clause 14.1(c) or the Shareholders terminates this Agreement pursuant to clause 14.1(d), the non-terminating party shall remain liable for any breach hereof, but any damages shall be limited to the out of pocket costs of the terminating party. SECTION 15. Miscellaneous. ------------- 15.1 Entire Agreement. This Agreement, including the Exhibits and ---------------- Schedules hereto, sets forth the entire agreement and understanding among the parties and merges and supersedes all prior discussions, agreements and understandings of every kind and nature among them as to the subject matter hereof, and no party shall be bound by any condition, definition, warranty or representation other than as expressly provided for in this Agreement or as may be on a date on or subsequent to the date hereof duly set forth in writing signed by each party that is to be bound thereby. Unless otherwise expressly defined, terms defined in this Agreement shall have the same meanings when used in any Exhibit or Schedule and terms defined in any Exhibit or Schedule shall have the same meanings when used in this Agreement or in any other Schedule. This Agreement (including the Exhibits and Schedules hereto) shall not be changed, modified or amended except by a writing signed by each party to be charged and this Agreement may not be discharged except by performance in accordance with its terms or by a writing signed by each party to be charged. 42 15.2 Taxes. Any Taxes in the nature of a sales or transfer tax, and ----- any stock transfer tax, payable on the sale or transfer of the Shares or the consummation of any other transaction contemplated hereby shall be paid by the Shareholders. 15.3 Governing Law. This Agreement and its validity, construction ------------- and performance shall be governed in all respects by the laws of the State of Utah without giving effect to principles of conflicts of law. 15.4 Arbitration. Any controversy arising after the Closing out of ----------- or relating to Section 2.3 of this Agreement shall be settled by arbitration conducted in Salt Lake City, Utah in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect (except as otherwise expressly provided in this Agreement). The award rendered by the arbitrator(s) shall be final and judgment upon the award rendered by the arbitrator(s) may be entered upon it in any court having jurisdiction thereof. The arbitrator(s) shall possess the powers to issue mandatory orders and restraining orders in connection with such arbitration. The expenses of the arbitration shall be borne by the losing party unless otherwise allocated by the arbitrator(s). The agreement to arbitrate shall be specifically enforceable under the prevailing arbitration law. During the continuance of any arbitration proceedings, the parties shall continue to perform their respective obligations under this Agreement. 15.5 Representation by Counsel. Each party hereto represents and ------------------------- agrees with the other that it has been represented by independent counsel of its own choosing; it has had the full right and opportunity to consult with its respective attorneys and other advisors and has availed itself of this right and opportunity; its authorized officers have carefully read and fully understand this Agreement in its entirety and have had it fully explained to them by such party's 43 counsel; it is fully aware of the contents hereof and the meaning, intent and legal effect thereof; and its authorized officer is competent to execute this Agreement and has executed this Agreement free from coercion, duress or undue influence. Each party and its counsel cooperated in the drafting and preparation of this Agreement and the documents referred to herein. Accordingly, any rule of law or any legal decision that would require interpretation of any ambiguities in this Agreement against the party that drafted it is of no application and is hereby expressly waived. The provisions of this Agreement shall be interpreted in a reasonable manner to effect the intentions of the parties and this Agreement. 15.6 Benefit of Parties; Assignment. This Agreement shall be binding ------------------------------ upon and shall inure to the benefit of the parties hereto and their respective successors, legal representatives and permitted assigns. The Agreement may not be assigned by either Buyer or the Shareholders except with the prior written consent of the other party or parties. Nothing herein contained shall confer or is intended to confer on any third party or entity that is not a party to this Agreement any rights under this Agreement. 15.7 Pronouns. Whenever the context requires, the use in this -------- Agreement of a pronoun of any gender shall be deemed to refer also to any other gender, the use of the singular shall be deemed to refer also to the plural and the use of the plural shall be deemed to refer also to the singular. 15.8 Headings. The headings in the sections, paragraphs and -------- Schedules of this Agreement are inserted for convenience of reference only and shall not constitute a part hereof. The words "herein," "hereof," "hereto" and "hereunder," and other words of similar import refer to this Agreement as a whole and not to any particular provision of this Agreement. 44 15.9 Expenses. The parties hereto shall pay all of their own -------- expenses relating to the transactions contemplated by this Agreement, including, without limitation, the fees and expenses of their respective counsel, accountants and financial advisors. 15.10 Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document. 45 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed on the day and year first written above. UNITED RENTALS, INC., a Delaware corporation By:/s/ John N. Milne ----------------- Name: John N. Milne Title: Vice Chairman No. of Shares owned Shareholders: 5,300 /s/ Howard W. Burnett --------------------- Howard W. Burnett 25,480 /s/ Vera E. Burnett ------------------- Vera E. Burnett 71,900 /s/ Forrest H. Burnett ---------------------- Forrest H. Burnett, as Trustee of the Forrest H. Burnett Trust
46 EX-10.(O) 16 STOCK PURCHASE AGREEMENT A & A TOOL EXHIBIT 10(o) STOCK PURCHASE AGREEMENT Dated as of October 20, 1997, by and among United Rentals, Inc. A & A Tool Rentals & Sales, Inc. Joseph E. Doran Patrick J. Doran A & A Tool Rentals & Sales, Inc. Employee Stock Ownership Plan TABLE OF CONTENTS Page ---- 1. PURCHASE OF CORPORATION'S STOCK........................... 1 ------------------------------- 1.1 SHARES TO BE PURCHASED.................................... 1 ---------------------- 1.2 PURCHASE PRICE............................................ 1 -------------- 1.3 ADJUSTMENTS TO PURCHASE PRICE............................. 2 ----------------------------- 1.4 HOLD BACK................................................. 3 --------- 1.5 EXCLUDED ASSETS........................................... 5 --------------- 2. CLOSING TIME AND PLACE........................................... 5 ---------------------- 3. REPRESENTATIONS AND WARRANTIES OF THE ------------------------------------- CORPORATION AND THE SHAREHOLDERS................................. 5 -------------------------------- 3.1 ORGANIZATION, STANDING AND QUALIFICATION.................... 5 ---------------------------------------- 3.2 CAPITALIZATION.............................................. 5 -------------- 3.3 ALL STOCK BEING ACQUIRED.................................... 5 ------------------------ 3.4 AUTHORITY FOR AGREEMENT..................................... 6 ----------------------- 3.5 NO BREACH OR DEFAULT........................................ 6 -------------------- 3.6 SUBSIDIARIES................................................ 6 ------------ 3.7 FINANCIAL STATEMENTS........................................ 6 -------------------- 3.8 LIABILITIES................................................. 7 ----------- 3.9 RENTAL ASSET LISTING........................................ 8 -------------------- 3.10 PERMITS AND LICENSES........................................ 8 -------------------- 3.11 CERTAIN RECEIVABLES......................................... 9 ------------------- 3.12 FIXED ASSETS AND REAL PROPERTY.............................. 9 ------------------------------ 3.13 ACQUISITION/DISPOSAL OF ASSETS.............................. 10 ------------------------------ 3.14 CONTRACTS AND AGREEMENTS; ADVERSE RESTRICTIONS.............. 11 ---------------------------------------------- 3.15 INSURANCE................................................... 11 --------- 3.16 PERSONNEL................................................... 11 --------- 3.17 BENEFIT PLANS AND UNION CONTRACTS........................... 12 --------------------------------- 3.18 TAXES....................................................... 13 ----- 3.19 COPIES COMPLETE............................................. 14 --------------- 3.20 PRODUCT QUALITY, WARRANTY CLAIMS, PRODUCT LIABILITY......... 14 --------------------------------------------------- 3.21 NO CHANGE WITH RESPECT TO CORPORATION....................... 14 ------------------------------------- 3.22 CLOSING DATE DEBT; CLOSING DATE CURRENT ASSETS AND CLOSING ---------------------------------------------------------- DATE CURRENT LIABILITIES.................................... 16 ------------------------ 3.23 BANK ACCOUNTS............................................... 16 ------------- 3.24 COMPLIANCE WITH LAWS........................................ 16 -------------------- 3.25 POWERS OF ATTORNEY.......................................... 17 ------------------ 3.26 UNDERGROUND STORAGE TANKS................................... 17 ------------------------- 3.27 PATENTS, TRADEMARKS, TRADE NAMES, ETC....................... 18 ------------------------------------- 3.28 ASSETS, ETC., NECESSARY TO BUSINESS......................... 18 ----------------------------------- 3.29 CONDEMNATION................................................ 18 ------------ 3.30 MANUFACTURERS, SUPPLIERS AND CUSTOMERS...................... 18 -------------------------------------- i Page ---- 3.31 ABSENCE OF CERTAIN BUSINESS PRACTICES...................... 19 ------------------------------------- 3.32 RELATED PARTY TRANSACTIONS................................. 19 -------------------------- 3.33 DISCLOSURE SCHEDULES....................................... 19 -------------------- 3.34 NO MISLEADING STATEMENTS................................... 19 ------------------------ 3.35 ACCURATE AND COMPLETE RECORDS.............................. 19 ----------------------------- 3.36 KNOWLEDGE.................................................. 19 --------- 3.37 BROKERS; FINDERS........................................... 20 ---------------- 3.38 NO ESOP LOANS; NO ESOP ASSETS HELD IN SUSPENSE ACCOUNT...... 20 ------------------------------------------------------ 4. REPRESENTATIONS AND WARRANTIES OF UNITED......................... 20 ---------------------------------------- 4.1 EXISTENCE AND GOOD STANDING................................. 20 --------------------------- 4.2 NO CONTRACTUAL RESTRICTIONS................................. 20 --------------------------- 4.3 AUTHORIZATION OF AGREEMENT.................................. 20 -------------------------- 4.4 NO MISLEADING STATEMENTS.................................... 21 ------------------------ 4.5 BROKERS; FINDERS............................................ 21 ---------------- 4.6 DISCLOSURE SCHEDULES........................................ 21 -------------------- 5. CLOSING DELIVERIES............................................... 21 ------------------ 5.1 UNITED DELIVERIES........................................... 21 ----------------- 5.2 SHAREHOLDERS DELIVERIES..................................... 21 ----------------------- 6. ADDITIONAL COVENANTS OF UNITED, THE CORPORATION ----------------------------------------------- AND THE SHAREHOLDERS............................................. 22 -------------------- 6.1 FURTHER ASSURANCES AND ADDITIONAL CONVEYANCES............... 22 --------------------------------------------- 6.2 RELEASE OF GUARANTIES....................................... 22 --------------------- 6.3 CONFIDENTIALITY............................................. 23 --------------- 6.4 BROKERS AND FINDERS FEES.................................... 23 ------------------------ 6.5 TAXES....................................................... 23 ----- 6.6 SHORT YEAR TAX RETURNS...................................... 23 ---------------------- 6.7 CONTINUED EMPLOYMENT BY JOE AND PAT......................... 24 ----------------------------------- 6.8 SHAREHOLDERS' REPRESENTATIVE................................ 24 ---------------------------- 6.9 GENERAL RELEASE BY SHAREHOLDERS............................. 25 ------------------------------- 7. INDEMNIFICATION.................................................. 25 --------------- 7.1 INDEMNITY BY THE SHAREHOLDERS............................... 25 ----------------------------- 7.2 LIMITATIONS ON SHAREHOLDERS' INDEMNITIES.................... 27 ---------------------------------------- 7.3 NOTICE OF INDEMNITY CLAIM................................... 27 ------------------------- 7.4 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS...... 28 ------------------------------------------------------ 7.5 NO EXHAUSTION OF REMEDIES OR SUBROGATION; RIGHT OF SET OFF.. 29 ---------------------------------------------------------- 8. OTHER POST-CLOSING COVENANTS OF THE SHAREHOLDERS AND UNITED...... 29 ----------------------------------------------------------- 8.1 RESTRICTIVE COVENANTS....................................... 29 --------------------- 8.2 RIGHTS AND REMEDIES UPON BREACH............................. 31 ------------------------------- ii Page ---- 9. GENERAL.......................................................... 32 ------- 9.1 ASSIGNMENT.................................................. 32 ---------- 9.2 COUNTERPARTS................................................ 32 ------------ 9.3 NOTICES..................................................... 32 ------- 9.4 ATTORNEYS' FEES............................................. 33 --------------- 9.5 APPLICABLE LAW.............................................. 33 -------------- 9.6 PAYMENT OF FEES AND EXPENSES................................ 33 ---------------------------- 9.7 INCORPORATION BY REFERENCE.................................. 33 -------------------------- 9.8 CAPTIONS.................................................... 33 -------- 9.9 NUMBER AND GENDER OF WORDS; CORPORATION..................... 33 --------------------------------------- 9.10 ENTIRE AGREEMENT............................................ 33 ---------------- 9.11 WAIVER...................................................... 34 ------ 9.12 CONSTRUCTION................................................ 34 ------------ 10. ARBITRATION AND DISPUTE RESOLUTION............................... 34 ---------------------------------- iii STOCK PURCHASE AGREEMENT ------------------------ STOCK PURCHASE AGREEMENT, dated as of October 20, 1997, is entered into by and among United Rentals, Inc., a Delaware corporation ("United"), A & A Tool Rentals and Sales, Inc., a California corporation (the "Corporation"), Joseph E. Doran ("Joe"), Patrick J. Doran ("Pat"), and A & A Tool Rentals and Sales, Inc. Employee Stock Ownership Plan (the "ESOP"), (collectively, the "Shareholders"). WHEREAS, the Corporation is engaged in the equipment, rental, sales and service business in the Central Valley region of Northern California; WHEREAS, the Shareholders own all of the issued and outstanding capital stock of the Corporation (the "Corporation's Stock") in the amount set forth on Schedule 3.2; WHEREAS, United wishes to acquire from the Shareholders all of the issued and outstanding capital stock of the Corporation owned by the Shareholders; WHEREAS, concurrent with the execution of this Agreement, the Corporation, as lessee, and Joe and Pat, collectively as lessor, will enter into a Lease Termination Agreement (the "Lease Termination Agreement") to terminate that certain Lease dated June 1, 1973, amended on August 1, 1974, June 1, 1978, February 1, 1980, January 1, 1981, May 31, 1983 and May 31, 1993. WHEREAS, concurrent with the execution of this Agreement, the Corporation will enter into a Lease (the "Lease") with Joe and Thelma Doran (husband and wife) and Pat and Christina Doran (husband and wife), as tenants-in-common (collectively, "Lessor"), of certain real estate located in Stockton, California, used by the Corporation; NOW, THEREFORE, in consideration of the premises and of the mutual agreements, representations, warranties, provisions and covenants herein contained, the parties hereto, each intending to be bound hereby, agree as follows: 1. PURCHASE OF CORPORATION'S STOCK ------------------------------- 1.1 SHARES TO BE PURCHASED. At the Closing (as hereinafter defined), the ---------------------- Shareholders sold and delivered to United all of the issued and outstanding Corporation's Stock, being the number of shares of the Corporation set forth on Schedule 3.2 opposite each Shareholder's name. At the Closing, United purchased the Corporation's Stock and in exchange therefor delivered to the Shareholders at the Closing or shall deliver thereafter as provided by this Agreement the purchase price described in Section 1.2 (the "Purchase Price"). 1.2 PURCHASE PRICE. The Purchase Price is ten million seven hundred fifty -------------- thousand dollars ($10,750,000), subject to adjustment as provided in Section The Purchase Price, as so adjusted, less the Hold Back (as defined in Section 1.4) was paid in cash at the Closing by wire transfer to the accounts of the Shareholders as set forth on Schedule 3.2. 1 1.3 ADJUSTMENTS TO PURCHASE PRICE. The Purchase Price was or shall be ----------------------------- adjusted as follows: (a) The Closing Date Debt was subtracted from the Purchase Price. The Closing Date Debt is set forth on Schedule 1.3(a) and includes: (i) the amount of the aggregate debt (excluding trade payables) of the Corporation outstanding on the Closing Date to be repaid by United at or immediately after the Closing Date and all prepayment penalties incurred or to be incurred by United in connection with the repayment of any such debt; (ii) the amount of the aggregate debt (excluding trade payables) of the Corporation outstanding on the Closing Date which will remain outstanding obligations of the Corporation after the Closing Date, including in each case all interest accrued through and including the Closing Date; and (iii) the aggregate amount of the present value of all capitalized lease obligations (determined in accordance with generally accepted accounting principals) of the Corporation. Schedule 1.3(a) includes wire transfer instructions for creditors whose Closing Date Debt will be repaid by United, and attached to Schedule 1.3(a) are pay-off letters or instructions from such creditors. (b) The amount by which the Closing Date Working Capital was greater or less than zero was added to or subtracted from the Purchase Price, as the case may be. The Closing Date Working Capital was determined by subtracting the Closing Date Current Liabilities from the Closing Date Current Assets. The Closing Date Current Assets consist of the amount of the aggregate current assets of the Corporation as of the Closing Date, including cash, prepaid expenses and other inventory, plus the accounts receivable of the Corporation earned prior to the Closing Date and collectible (valued as set forth below) on or after the Closing Date, plus any earned but unbilled rental revenue existing on the Closing Date minus the Inventory Value of the fuel and merchandise set forth on Schedule 1.3(c) and plus promotional and buying group rebates. The Closing Date Current Liabilities consist of the amount of the aggregate current liabilities (including any reserve for unpaid taxes and excluding the current portion of long-term debt to the extent such current portion is included in Closing Date Debt) and trade payables of the Corporation as of the Closing Date. The Closing Date Working Capital, the Closing Date Current Assets and the Closing Date Current Liabilities are set forth on Schedule 1.3(b). (c) There was added to the Purchase Price the Inventory Value (as defined below) of the fuel and merchandise held for sale, which is set forth on Schedule 1.3(c). (d) There was added to the Purchase Price the invoice value of any new Equipment listed on Schedule 1.3(d), which Equipment was not included in the Rental Asset Listing described in Section 1.4(b) because it was acquired by the Corporation after the date of the Rental Asset Listing with United's consent. 2 1.4 HOLD BACK. --------- (a) United held back from the Purchase Price the sum of one million dollars ($1,000,000) (the "Hold Back"), which amount will be deposited by United with First Trust of California (the "Escrow Agent") to be held pursuant to an Escrow Agreement (the "Escrow Agreement") for later distribution pending the determination of the amount of the Equipment Adjustment, Inventory Adjustment and Working Capital Adjustment pursuant to Sections 1.4(b), 1.4(c) and 1.4(d), respectively. United and the Shareholders' Representative will use reasonable efforts to complete the Equipment Adjustment, the Inventory Adjustment and the Working Capital Adjustment within 90 days after the Closing Date, whereupon United shall notify the Shareholders' Representative of the amount of such Adjustments. If there is no disagreement between United and the Shareholders' Representative regarding the Equipment Adjustment, the Inventory Adjustment and the Working Capital Adjustment, United will adjust the Hold Back by the amount of such Adjustments and will instruct the Escrow Agent to release the Hold Back, as adjusted, to the Shareholders 120 days after the Closing Date. In the event of any disagreement between United and Shareholders' Representative regarding the dollar amount of any such adjustment, United shall nevertheless adjust the Hold Back by the amount of such Adjustments not in dispute and will instruct the Escrow Agent to release to the Shareholders any portion of the Hold Back, as adjusted, that is not in dispute. Promptly upon resolution of any such disagreement in accordance with the terms hereof, United shall adjust the remaining portion of the Hold Back and shall instruct the Escrow Agent to release to the Shareholders any remaining portion of the Hold Back, as adjusted, to which the Shareholders are entitled. Notwithstanding the foregoing, United shall not be limited to the Hold Back as a sole remedy in the event that any Purchase Price adjustment exceeds the Hold Back. (b) The Rental Asset Listing attached as Schedule 1.4(b) sets forth the asset description, make, model, original cost and net book value of all equipment held for rent to customers as of September 30, 1997. The Equipment is Rental Ready (as defined below). Within 30 days following the Closing Date, United and the Shareholders' Representative jointly shall complete a physical inventory of each item of Equipment on the Rental Asset Listing, including by visiting renters' locations as necessary to inspect such Equipment. The Purchase Price shall be reduced (the "Equipment Adjustment") for each item of Equipment listed on the Rental Asset Listing which has been sold, is missing, is not Rental Ready, or is otherwise not available for rent to customers by the Corporation, but only to the extent the aggregate fair market value of all such Equipment exceeds $75,000. The reduction in the Purchase Price shall be calculated by the aggregate fair market value (as determined by United and the Shareholders' Representative) of all missing, non-Rental Ready or unavailable Equipment, and by the net proceeds to the Corporation received from the sale of Equipment sold. In the event of a Purchase Price reduction due to an Equipment Adjustment, United shall be entitled to retain a portion of the Hold Back equal to such reduction. For purposes of this Agreement, an item of Equipment is "Rental Ready" only if all required maintenance has been performed and it does not require any repairs in excess of $200 per item for those items having a net book value of $5,000 or greater and $100 per item for those items 3 having a net book value less than $5,000 per item. Any disputes as to the physical count, fair market value or Rental Readiness of any item of Equipment will, if possible, be resolved while the physical inventory of such Equipment is being taken. Any disputes not so resolved will be resolved by arbitration in accordance with Section 10. (c) The Purchase Price shall be adjusted (the "Inventory Adjustment") on a dollar-for-dollar basis pursuant to the procedures set forth below by the amount, if any, by which the Inventory Value of the fuel and merchandise included on Schedule 1.3(c) as of the Closing Date is greater or less than the amount set forth on Schedule 1.3(c) plus or minus, as the case may be, the lesser of $10,000 or two percent (2%) of the Inventory Value. "Inventory Value" shall mean the lower of (x) vendor cost as last received (including all freight) and (y) market value (excluding any non-salable or obsolete merchandise, parts or supplies) as of the Closing Date, as determined in accordance with generally accepted accounting principles. Inventory Value shall be determined pursuant to a physical inventory to be taken promptly following the Closing Date, and shall be finalized within 90 days following the Closing Date. Any disputes as to the physical condition, salability or obsolescence of any item of Inventory will, if possible, by representatives of United and the Shareholders' Representative be resolved while such physical inventory is being taken. Any disputes regarding the foregoing not so resolved will be resolved by arbitration in accordance with Section 10. (d) The adjustment made to the Purchase Price wired on the Closing Date pursuant to Section 1.3(b) is based on Schedule 1.3(b) as delivered at the Closing, which the parties understand includes only an estimate of the Closing Date Working Capital. Within 90 days after the Closing Date, United will determine the actual Closing Date Working Capital and will advise the Shareholders' Representative of such actual amount. If the Purchase Price increases, United will promptly pay any additional amount due to the Shareholders within 120 days after the Closing Date; if the Purchase Price declines, United may deduct the amount by which the Purchase Price declines from the Hold Back. To the extent the parties disagree on such amount, United and the Shareholders' Representative will attempt to resolve such dispute and, if they are unable to do so, such dispute shall be decided by arbitration in accordance with Section 10. The Purchase Price shall also be reduced 120 days after the Closing, on a dollar-for-dollar basis, by the value of all accounts receivable included in Closing Date Current Assets that have not been collected within 120 days after the Closing Date. United will cause the Corporation to use reasonable efforts to collect all such accounts receivable within 120 days after the Closing Date. All such uncollected receivables shall then be assigned by the Corporation to the Shareholders' Representative, who shall hold and attempt to collect them for the benefit of the Shareholders. The Corporation shall have no right to receive any of such collections. Payments received within 120 days after the Closing Date on accounts receivable for customers who generate accounts receivable before and after the Closing Date shall be credited to the oldest receivables first until the payments have been fully credited. The adjustments pursuant to this Section 1.4(d) are herein called the "Working Capital Adjustment." 4 1.5 EXCLUDED ASSETS. The Assets of the Corporation listed on --------------- Schedule 1.5 (the "Excluded Assets") shall be distributed to the Shareholders prior to the Closing, and United shall acquire no interest in or claim to any of the Excluded Assets. 2. CLOSING TIME AND PLACE ---------------------- The closing of the transactions contemplated herein (the "Closing") took place simultaneous with the execution of this Agreement (the "Closing Date"). The Closing took place at the Law Offices of Shartsis, Friese & Ginsburg LLP, One Maritime Plaza, Suite 1800, San Francisco, California 94111. At the Closing, United and the Shareholders delivered to each other the documents, instruments and other items described in Section 5 of this Agreement. 3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION AND THE SHAREHOLDERS ---------------------------------------------------------------------- The Corporation and the Shareholders, other than the ESOP except with respect to Section 3.38, and the ESOP, with respect to Section 3.38, jointly and severally, (i) represent and warrant that each of the following representations and warranties is true as of the Closing Date with respect to the Shareholders and the Corporation, as the case may be, and (ii) agree that such representations and warranties shall survive the Closing. 3.1 ORGANIZATION, STANDING AND QUALIFICATION. The Corporation is duly ---------------------------------------- organized, validly existing and in good standing under the laws of the State of California. The Corporation has full corporate power and authority to own and lease its properties and to carry on its business as now conducted. The Corporation is not required to be qualified or licensed to conduct business as a foreign corporation in any other jurisdiction. 3.2 CAPITALIZATION. Schedule 3.2 sets forth, as of the Closing Date, the -------------- authorized and outstanding capital stock of the Corporation, the name, addresses and social security numbers or taxpayer identification numbers of the record and beneficial owners thereof, and the number of shares so owned, and wire transfer instructions for each Shareholder relating to the bank account to which the Purchase Price should be sent. On the Closing Date, all of the issued and outstanding shares of the capital stock of the Corporation were owned of record and beneficially by the Shareholders, as set forth in Schedule 3.2, and were free and clear of all liens, security interests, encumbrances and claims of every kind. Each share of the capital stock of the Corporation is validly authorized and issued, fully paid and nonassessable, and was not issued in violation of any preemptive rights of any past or present shareholder of the Corporation. Except as disclosed on Schedule 3.5, no option, warrant, call, conversion right or commitment of any kind (including any of the foregoing created in connection with any indebtedness of the Corporation) exists which obligates the Corporation to issue any of its authorized but unissued capital stock or other equity interest, or which obligates any Shareholder to transfer any Corporation's Stock to any person. 3.3 ALL STOCK BEING ACQUIRED. The Corporation's Stock being acquired by ------------------------ United hereunder constitutes all of the outstanding capital stock of the Corporation. 5 3.4 AUTHORITY FOR AGREEMENT. The Corporation and each of the Shareholders ----------------------- has full right, power and authority to enter into this Agreement and to perform its or his obligations hereunder. The execution and delivery of this Agreement by the Corporation has been duly authorized by its Board of Directors. This Agreement has been duly and validly executed and delivered by the Corporation and each of the Shareholders and, subject to the due authorization, execution and delivery by United, constitutes the legal, valid and binding obligation of the Corporation and each of the Shareholders enforceable against the Corporation and each of the Shareholders in accordance with its terms. 3.5 NO BREACH OR DEFAULT. Except as disclosed on Schedule 3.5, the -------------------- execution and delivery by the Corporation and the Shareholders of this Agreement, and the consummation by the Shareholders of the transactions contemplated hereby, do not and will not: (a) result in the breach of any of the terms or conditions of, or constitute a default under, or allow for the acceleration or termination of, in any manner release any party from any obligation under, require any consent under, or will result in any lien, claim, or encumbrance on the Corporation's Stock or the assets of the Corporation under, any mortgage, lease, note, bond, indenture, or material contract, agreement, license or other instrument or obligation of any kind or nature to which the Corporation or any of the Shareholders is a party, or by which the Corporation, or any of its assets, is or may be bound or affected; or (b) violate any law or any order, writ, injunction or decree of any court, administrative agency or governmental authority, or require the approval, consent or permission of any governmental or regulatory authority; or (c) violate the Articles of Incorporation or Bylaws of the Corporation. 3.6 SUBSIDIARIES. Schedule 3.6 lists as of the Closing Date any and all ------------ subsidiaries of the Corporation and any securities of any other corporation or any securities or other interest in any other business entity owned by the Corporation or any of its subsidiaries. 3.7 FINANCIAL STATEMENTS. The Corporation has delivered to United, as -------------------- Schedule 3.7, copies of the following financial statements ("Financial Statements"): financial statements for the fiscal year ended October 31, 1995 and 1996, reviewed by KPMG Peat Marwick LLP and unaudited interim Financial Statements for the Corporation for the period ended August 31, 1997 (the "Balance Sheet Date"). To the knowledge of the Corporation and the Shareholders, the Financial Statements are true and correct and fairly present (i) the financial position of the Corporation as of the respective dates of the balance sheets included in said statements, and (ii) the results of operations for the respective periods indicated. To the knowledge of the Corporation and the Shareholders, the Financial Statements have been prepared in accordance with generally accepted accounting principles, applied consistently with prior periods. Except to the extent reflected or reserved against in the Corporation's balance sheet as of the Balance Sheet Sate, or as disclosed on Schedule 3.7 or Schedule 3.8, the Corporation had as of the Balance Sheet Date, and had, as of the Closing Date, no liabilities of any nature, whether accrued, absolute, contingent or otherwise, including, without limitation, tax liabilities due. 6 3.8 LIABILITIES. Schedules 3.8(a), (b), (c) and (d), are accurate lists ----------- and descriptions of all liabilities of the Corporation required to be described below in the format set forth below. (a) Schedule 3.8(a) lists, as of the Closing Date, other than with respect to trade payables and as of the end of the month prior to the Closing Date with respect to trade payables, all indebtedness for money borrowed and all other fixed and uncontested liabilities of any kind, character and description (excluding all real and personal property leasehold interests included in Schedule 3.8 (d)), whether reflected or not reflected on the Financial Statements and whether accrued or absolute, and states as to each such liability the amount of such liability and to whom payable. From the date as of which trade payables are listed through the Closing Date, trade payables have been incurred only in the ordinary course of business consistent with comparable prior periods. (b) Schedule 3.8(b) lists, as of the Closing Date, all claims, suits and proceedings which are pending against the Corporation and, to the knowledge of the Corporation and the Shareholders, all contingent liabilities and all claims, suits and proceedings threatened or anticipated against the Corporation. For each such liability, the following is provided in Schedule 3.8(b): (i) a summary description of such liability together with copies of all material documents, reports and other records relating thereto; (ii) all amounts claimed or relief sought with respect to such liability and the identity of the claimant; and (iii) without limitation of the foregoing, (A) the name of each court, agency, bureau, board or body before which any such claim, suit or proceeding is pending, (B) the date such claim, suit or proceeding was instituted, (C) the parties to such claim, suit or proceeding, (D) a description of the factual basis alleged to underlie such claim, suit or proceeding, including the date or dates of all material occurrences, (E) the amount claimed and other relief sought, and (F) all material pleadings, briefs and other documents relating thereto to the extent the same are in the possession or under the control of the Corporation or the Shareholders. (c) Schedule 3.8(c) lists, as of the Closing Date and to the extent not otherwise included in Schedule 3.8(a), all liens, claims and encumbrances secured by or otherwise affecting any asset of the Corporation (including any Corporate Property, as hereafter defined), including a description of the nature of such lien, claim or encumbrance, the amount secured if it secures a liability, the nature of the obligation secured, and the party holding such lien, claim or encumbrance. (d) Schedule 3.8(d) lists, as of the Closing Date and to the extent not otherwise included in Schedules 3.8(a) and (c), all real and personal property leasehold interests or to which a Corporation is a party as lessor or lessee or, to the knowledge of the Corporation or the Shareholders, affecting or relating to any Corporate Property, 7 including a description of the nature and principal terms of such leasehold interest and the identity of the other party thereto. Except as described on Schedules 3.8(a), (b), (c) and (d), neither the Corporation nor any of the Shareholders has made any payment or committed to make any payment since the Balance Sheet Date on or with respect to any of the liabilities or obligations listed on Schedule 3.8(a), (b), (c) and (d) except, in the case of liabilities and obligations listed on Schedule 3.8(a), (c) and (d), periodic payments required to be made under the terms of the agreements or instruments governing such obligations or liabilities. 3.9 RENTAL ASSET LISTING. The Rental Asset Listing attached as Schedule -------------------- 1.4(b) lists all of the Equipment owned by the Corporation for lease or rent to customers, other than Equipment acquired after the date of the Rental Asset Listing and included on Schedule 1.3(d) or disposed of since the date of the Rental Asset Listing. 3.10 PERMITS AND LICENSES. -------------------- (a) Schedule 3.10(a) is a full and complete list, and includes copies, of all material permits, licenses, titles (including motor vehicle titles and current registrations), fuel permits, zoning and land use approvals and authorizations, including, without limitation, any conditional or special use approvals or zoning variances, occupancy permits, and any other similar documents constituting a material authorization or entitlement or otherwise material to the operation of the business of the Corporation (collectively the "Governmental Permits") owned by, issued to, held by or otherwise benefiting the Corporation or the Shareholders as of the Closing Date. Any material conditions to the Governmental Permits to and, if applicable, the expiration dates thereof, are also described in Schedule 3.10(a). Schedule 3.10(a) also sets forth the name of any third party from whom the Shareholders, the Corporation or United must obtain consent (the "Required Governmental Consents") in order to effect a direct or indirect transfer of the Governmental Permits required as a result of the consummation of the transactions contemplated by this Agreement. Except as set forth on Schedule 3.10(a), all of Governmental Permits enumerated and listed on Schedule 3.10(a) are adequate for the operation of the business of the Corporation and of each Corporate Property as presently operated and are valid and in full force and effect. All of said Governmental Permits and agreements have been duly obtained and are in full force and effect, and there are no proceedings pending or, to the knowledge of the Corporation or the Shareholders, threatened which may result in the revocation, cancellation, suspension or adverse modification of any of the same. Neither the Corporation nor any of the Shareholders has any knowledge of any reason why all such Governmental Permits and agreements will not remain in effect after consummation of the transactions contemplated hereby. (b) Schedule 3.10(b) lists, as of the Closing Date, each facility owned, leased, operated or otherwise used by the Corporation, the ownership, lease, operation or use of which is being transferred to, assumed by or otherwise acquired directly or indirectly by United pursuant to this Agreement (each, a "Facility" and collectively, the "Facilities"). Except as otherwise disclosed on Schedule 3.10(b): 8 (i) Each Facility is fully licensed, permitted and authorized to carry on its current business under all applicable federal, state and local statutes, orders, approvals, zoning or land use requirements, rules and regulations and no Facility is a non-conforming use or otherwise subject to any restrictions regarding reconstruction. (ii) All activities and operations at each Facility are being and have been conducted in compliance in all material respects with the requirements, criteria, standards and conditions set forth in all applicable federal, state and local statutes, orders, approvals, permits, zoning or land use requirements and restrictions, variances, licenses, rules and regulations. (iii) Each Facility is located on real property owned or leased by the Corporation (each a "Facility Property") and each Facility Property owned by the Corporation is legally described on the surveys or site plans attached to Schedule 3.10(b) (the "Facility Surveys/Site Plans"), each of which when delivered will accurately depict the respective Facility Property. (iv) There are no circumstances, conditions or reasons which are likely to be the basis for revocation or suspension of any Facility's site assessments, permits, licenses, consents, authorizations, zoning or land use permits, variances or approvals relating to any Facility owned by the Corporation or owned by any of the Shareholders or an Affiliate (as hereinafter defined) of any of the Shareholders and leased to the Corporation, and to the knowledge of the Corporation and the Shareholders there are no circumstances, conditions or reasons which are likely to be the basis for revocation or suspension of any site assessment, permits, licenses, consents, authorizations, zoning or land use permits, variances or approvals relating to any Facility. 3.11 CERTAIN RECEIVABLES. Schedule 3.11 is an accurate list as of the ------------------- Closing Date of the accounts and notes receivable of the Corporation from and advances to employees, former employees, officers, directors, the Shareholders and Affiliates of the foregoing. For purposes of this Agreement, the term "Affiliate" means, with respect to any person, any person that directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with such person, and in the case of the Corporation includes directors and officers, in the case of individuals includes the individual's spouse, father, mother, grandfather, grandmother, brothers, sisters, children and grandchildren and in the case of a trust includes the grantors, trustees and beneficiaries of the trust. 3.12 FIXED ASSETS AND REAL PROPERTY. ------------------------------ (a) Schedule 3.12(a) lists, as of the Closing Date, substantially all the fixed assets (other than real estate, inventory subject to the Inventory Adjustment and Equipment included in the Rental Asset Listing or on Schedule 1.3(d)) of the Corporation, including, without limitation, identification of each vehicle by description and serial number, identification of machinery, equipment and general descriptions of 9 parts, supplies and inventory. Except as shall be described on Schedule 3.12(a), all of the Corporation's vehicles, machinery and equipment necessary for the operation of its business and all of the Equipment listed on Schedule 1.3(d) and the Rental Asset Listing are substantially free of known defects that would cause them to fail. All leases of fixed assets are in full force and effect and binding upon the parties thereto; neither the Corporation nor any other party to such leases is in breach of any of the material provisions thereof. (b) Each parcel of real property leased, owned or being purchased by the Corporation as of the Closing Date (the "Corporate Property"), including the street address and, in the case of Corporate Property owned or being purchased, the legal description thereof, is listed on Schedule 3.12(b) and attached to said Schedule 3.12(b) are copies of all leases, deeds, outstanding mortgages, other encumbrances and existing title insurance policies relating to each Corporate Property, as well as a current commitments for title insurance issued by a title insurance company satisfactory to United with respect to each Corporate Property owned or being purchased by the Corporation together with copies of all of the title exceptions referred to in said commitments. All leases listed on Schedule 3.12(b) are and shall be in full force and effect and binding on the parties thereto. Except as described on Schedule 3.12(b) there are and shall be as of the Closing Date no material physical or mechanical defects in or any Facility located on any Corporate Property and each such Facility is in good condition and repair. (c) The Corporation has good, valid and marketable title to all properties and assets, real, personal, and mixed, tangible and intangible, actually used or necessary for the conduct of its business, free of any encumbrance or charge of any kind except: (i) liens for current taxes not yet due; (ii) minor imperfections of title and encumbrances, if any, that are not substantial in amount, do not materially detract from the value of the property subject thereto, do not materially impair the value of the Corporation, and have arisen only in the ordinary course of business and consistent with past practice; and (iii) the liens identified on Schedule 3.8(c) (collectively, the "Permitted Liens"). Except as described on Schedule 3.12(b) there are and as of the Closing Date will be no leases, occupancy agreements, options, rights of first refusal or any other agreements or arrangements, either oral or written, that create or confer in any person or entity the right to acquire, occupy or possess, now or in the future, any Facility, any Corporate Property, or any portion thereof, or create in or confer on any person or entity any right, title or interest therein or in any portion thereof. 3.13 ACQUISITION/DISPOSAL OF ASSETS. Except as indicated on Schedule 3.13, ------------------------------ since the date of the Rental Asset Listing attached as Schedule 1.4(b), the Corporation has not acquired or sold or otherwise disposed of any properties or assets which have a value in excess of $7,500 with respect to any single asset and $75,000 in the aggregate, or which are material to the operation of the Corporation's business as presently conducted, without the prior written consent of United. 10 CONTRACTS AND AGREEMENTS; ADVERSE RESTRICTIONS. ---------------------------------------------- (a) Schedule 3.14(a) lists, as of the Closing Date, and includes copies of, all material contracts and agreements (other than standard rental agreements with customers, leases included with Schedule 3.12(b) and documents included with Schedule 3.12(b)) to which the Corporation is a party or by which it or any of its property is bound (including, but not limited to, joint venture or partnership agreements, contracts with any labor organizations, promissory notes, loan agreements, bonds, mortgages, deeds of trust, liens, pledges, conditional sales contracts or other security agreements). Except as disclosed on Schedule 3.14(a), all such contracts and agreements included in Schedule 3.14(a) are in full force and effect and binding upon the parties thereto. Except as described or cross referenced on Schedule 3.14(a), neither the Corporation nor, to any of the Shareholders' knowledge, any other parties to such contracts and agreements is in breach thereof, and none of the parties has threatened to breach any of the material provisions thereof or notified the Corporation or any of the Shareholders of a default thereunder, or exercised any options thereunder. None of such contracts, agreements and licenses requires notice to, or consent or approval of, any third party to any of the transactions contemplated hereby, except such consents and approvals as are listed on Schedule 3.14(a). (b) Except as set forth on Schedule 3.14(b), there is no outstanding judgment, order, writ, injunction or decree against the Corporation, the result of which could materially adversely affect the Corporation or its business or any of the Corporate Properties, nor has the Corporation been notified that any such judgment, order, writ, injunction or decree has been requested. 3.15 INSURANCE. Schedule 3.15 is a complete list and includes copies, as --------- of the Closing Date, of all insurance policies in effect on the Closing Date or, with respect to "occurrence" policies that were in effect, carried by the Corporation in respect of the Facilities, the Corporate Properties or any other property used by the Corporation specifying, for each policy, the name of the insurer, the type of risks insured, the deductible and limits of coverage, and the annual premium therefor. During the last five years, there has been no lapse in any material insurance coverage of the Corporation. For each insurer providing coverage for any of the contingent or other liabilities listed on Schedule 3.8(b), except to the extent otherwise set forth in Schedule 3.8(b), each such insurer, if required, has been properly and timely notified of such liability, no reservation of rights letters have been received by the Corporation and the insurer has assumed defense of each suit or legal proceeding. 3.16 PERSONNEL. Schedule 3.16 is a complete list, as of the Closing Date, --------- of all officers, directors and employees (by type or classification) of each Corporation and their respective rates of compensation, including (i) the portions thereof attributable to bonuses, (ii) any other salary, bonus, stock option, equity participation, or other compensation arrangement made with or promised to any of them, and (iii) copies of all employment agreements with non- union officers, directors and employees. Schedule 3.16 shall also lists the driver's license number for each driver of the Corporation's motor vehicles who is required to have a 11 commercial, chauffeur's, or other special class of drivers license in order to operate commercial or heavy vehicles used in the Corporation's business. 3.17 BENEFIT PLANS AND UNION CONTRACTS. --------------------------------- (a) Schedule 3.17(a) is a complete list as of the Closing Date, and includes complete copies (or, in the case of oral arrangements, descriptions), of all employee benefit plans and agreements (written or oral) currently maintained or contributed to by the Corporation, including employment agreements and any other agreements containing "golden parachute" provisions, retirement plans, welfare benefit plans and deferred compensation agreements, together with copies of such plans, agreements and any trusts related thereto, and classifications of employees covered thereby as of the Closing Date. Except for the employee benefit plans described on Schedule 3.17(a), the Corporation has no other pension, retirement, welfare, profit sharing, deferred compensation, stock option, employee stock purchase or other employee benefit plans or arrangements with any party. Except as disclosed on Schedule 3.17(a), all employee benefit plans listed on Schedule 3.17(a) are fully funded and in substantial compliance with all applicable federal, state and local statutes, ordinances and regulations. All such plans that are intended to qualify under Section 401(a) of the Internal Revenue Code have been determined by the Internal Revenue Service to be so qualified, and copies of such determination letters are included as part of Schedule 3.17(a). Except as disclosed on Schedule 3.17(a), all reports and other documents required to be filed with any governmental agency or distributed to plan participants or beneficiaries (including, but not limited to, actuarial reports, audits or tax returns) have been timely filed or distributed, and copies thereof are included as part of Schedule 3.17(a). All employee benefit plans listed on such Schedule have been operated in accordance with the terms and provisions of the plan documents and all related documents and policies. The Corporation has not incurred any liability for excise tax or penalty due to the Internal Revenue Service or U.S. Department of Labor nor any liabilit Guaranty Corporation for any employee benefit plan, nor has the Corporation, nor party-in-interest or disqualified person, engaged in any transaction or other activity which would give rise to such liability. The Corporation has not participated in or made contributions to any "multi-employer plan" as defined in the Employee Retirement Income Security Act of 1974 ("ERISA"), nor would the Corporation or any affiliate be subject to any withdrawal liability with respect to such a plan if any such employer withdrew from such a plan immediately prior to the Closing Date. No employee pension benefit plan is under funded on a termination basis as of the date of this Agreement. (b) Schedule 3.17(b) is a complete list, as of the Closing Date, and includes complete copies of all union contracts and agreements between the Corporation and any collective bargaining group. The Corporation is in compliance in all material respects with all applicable federal and state laws respecting employment and employment practices, terms and conditions of employment, wages and hours, and nondiscrimination in employment, and is not engaged in any unfair labor practice. Except as disclosed in Schedule 3.8(b), there is no charge pending or, to the Corporation's or the Shareholders' knowledge, threatened, against the Corporation before any court or agency and alleging 12 unlawful discrimination in employment practices and there is no charge of or proceeding with regard to any unfair labor practice against it pending before the National Labor Relations Board. There is no labor strike, dispute, slow down or stoppage as of the Closing Date, existing or threatened against the Corporation; no union organizational activity exists respecting employees of the Corporation not currently subject to a collective bargaining agreement; the union contracts or other agreements delivered as part of Schedule 3.17(b) constitute all agreements with the unions or other collective bargaining groups, and there are no other arrangements or established practices relating to the employees covered by any collective bargaining agreement; and Schedule 3.17(b) will contain as of the date it is delivered a list of all arbitration or grievance proceedings that have occurred since the Balance Sheet Date. No one has petitioned within the last five years, and no one is now petitioning, for union representation of any employees of the Corporation. The Corporation has not experienced any labor strike, slow-down, work stoppage, labor difficulty or other job action during the last five years. (c) No payment made to any employee, officer, director or independent contractor of the Corporation (the "Recipient") pursuant to any employment contract, severance agreement or other arrangement (the "Golden Parachute Payment") will be nondeductible by the Corporation because of the application of Sections 280G and 4999 of the Code to the Golden Parachute Payment, nor will a Corporation be required to compensate any Recipient because of the imposition of an excise tax (including any interest or penalties related thereto) on the Recipient by reason of Sections 280G and 4999 of the Code. 3.18 TAXES. ----- (a) The Corporation has timely filed all requisite federal, state, local and other tax and information returns due for all fiscal periods ended on or before the Closing Date. All such returns are accurate and complete. Except as set forth on Schedule 3.18, there are no open years, examinations in progress, extensions of any statute of limitations or claims against the Corporation relating to federal, state, local or other taxes (including penalties and interest) for any period or periods prior to and including the Closing Date and no notice of any claim for taxes has been received. Copies of (i) any tax examinations, (ii) extensions of statutory limitations and (iii) the federal income, and state franchise, income and sales tax returns of the Corporation for its last three fiscal years are attached as part of Schedule 3.18. Copies of all other federal, state, local and other tax and information returns for all prior years of the Corporation's existence have been made available to United and are among the records of the Corporation which will accrue to United at the Closing. The Corporation has not been contacted by any federal, state or local taxing authority regarding a prospective examination. (b) Except as set forth on Schedule 3.18 (which schedule also includes the amount due with respect to such Corporation) the Corporation has duly paid all taxes and other related charges required to be paid prior to the Closing Date. The reserves for taxes contained in the Financial Statements of the Corporation are adequate to cover their tax liability as of the Closing Date. 13 (c) The Corporation has withheld all required amounts from its employees for all pay periods in full and complete compliance with the withholding provisions of applicable federal, state and local laws. All required federal, state and local and other returns with respect to income tax withholding, social security, and unemployment taxes have been duly filed by the Corporation for all periods for which returns are due, and the amounts shown on all such returns to be due and payable have been paid in full. 3.19 COPIES COMPLETE. Except as disclosed on Schedule 3.19, the certified --------------- copies of the Articles of Incorporation and Bylaws of the Corporation, both as amended to the Closing Date, and the copies of all standard form rental agreements, leases, instruments, agreements, licenses, permits, certificates or other documents that have been delivered to United in connection with the transactions contemplated hereby are complete and accurate as of the Closing Date and are true and correct copies of the originals thereof. Except as specifically disclosed on Schedule 3.19, the rights and benefits of the Corporation will not be adversely affected by the transactions contemplated hereby, and the execution of this Agreement and the performance of the obligations hereunder will not violate or result in a breach or constitute a default under any of the terms or provisions thereof. None of such leases, instruments, agreements, licenses, permits, site assessments, certificates or other documents requires notice to, or consent or approval of, any governmental agency or other third party to any of the transactions contemplated hereby, except such consents and approvals as are listed on Schedule 3.19 and which have been given or obtained prior to the Closing. 3.20 PRODUCT QUALITY, WARRANTY CLAIMS, PRODUCT LIABILITY. All products and --------------------------------------------------- services sold, rented, leased, provided or delivered by the Corporation to customers on or prior to the Closing Date conform to applicable contractual commitments, express and implied warranties, product and service specifications and quality standards, and, to the knowledge of the Corporation and the Shareholders, the Corporation has no liability (and there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against the Corporation giving rise to any liability) for replacement or repair thereof or other damages in connection therewith. No product or service sold, leased, rented, provided or delivered by the Corporation to customers on or prior to the Closing Date is subject to any guaranty, warranty or other indemnity beyond the applicable standard terms and conditions of sale, rent or lease. Except as set forth on Schedule 3.20, the Corporation has no liability (and there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against the Corporation which might give rise to any liability) arising out of any injury to a person or property as a result of the ownership, possession, provision or use of any Equipment, product or service sold, rented, leased, provided or delivered by the Corporation on or prior to the Closing Date. All product liability claims that have been asserted against the Corporation since January 1, 1991, whether covered by insurance or not and whether litigation has resulted or not, are listed and summarized on Schedule 3.20. 3.21 NO CHANGE WITH RESPECT TO CORPORATION. Except as set forth on ------------------------------------- Schedule 3.21, since the Balance Sheet Date, the business of the Corporation has been conducted only in the ordinary course there has been no change in the condition (financial or otherwise) of the assets, liabilities or operations of the Corporation other than changes in the ordinary course of business, none of which either singly or in the aggregate has been materially adverse. Specifically, and 14 without limiting the generality of the foregoing, except as set forth on Schedule 3.21, with respect to the Corporation, since the Balance Sheet Date, there has not been: (a) any change in its financial condition, assets, liabilities (contingent or otherwise), income, operations or business which would have a material adverse effect on the financial condition, assets, liabilities (contingent or otherwise), income, operations or business of the Corporation, taken as a whole; (b) any damage, destruction or loss (whether or not covered by insurance) adversely affecting any material portion of its properties or business; (c) any change in or agreement to change (i) its shareholders, (ii) ownership of its authorized capital or outstanding securities, or (iii) its securities; (d) any declaration or payment of, or any agreement to declare or pay, any dividend or distribution in respect of its capital stock or any direct or indirect redemption, purchase or other acquisition of any of its capital stock; (e) any increase or bonus or promised increase or bonus in the compensation payable or to become payable by it, in excess of usual and customary practices, to any of its directors, officers, employees or agents, or any accrual or arrangement for or payment of any bonus or other special compensation to any employee or any severance or termination pay paid to any of its present or former officers or other key employees; (f) any labor dispute or any other event or condition of any character, materially adversely affecting its business or future prospects; (g) any sale or transfer, or any agreement to sell or transfer, any of its material assets, property or rights to any other person, including, without limitation, the Shareholders and their Affiliates, other than in the ordinary course of business; (h) any cancellation, or agreement to cancel, any material indebtedness or other material obligation owing to it, including, without limitation, any indebtedness or obligation of any of the Shareholders or any Affiliate thereof; (i) any plan, agreement or arrangement granting any preferential rights to purchase or acquire any interest in any of its assets, property or rights or requiring consent of any party to the transfer and assignment of any such assets, property or rights; (j) any purchase or acquisition of, or any agreement, plan or arrangement to purchase or acquire, any of its property, rights or assets outside the ordinary course of its business; (k) any waiver of any of its material rights or claims; 15 (l) any new or any amendment or termination of any existing material contract, agreement, license, permit or other right to which it is a party; (m) any decline in the stockholders equity of the Corporation of more than $25,000 from the stockholders equity of the Corporation as of the Balance Sheet Date other than a decline resulting from normal year end accounting adjustments consistent with prior practices; (n) any increase in the amount of indebtedness owed by the Shareholders or their Affiliates to any person other than the Corporation and secured by one or more Corporate Properties; (o) any increase in the amount of aggregate indebtedness owed by the Shareholders or their Affiliates to the Corporation; or (p) any other transaction outside the ordinary course of its business. 3.22 CLOSING DATE DEBT; CLOSING DATE CURRENT ASSETS AND CLOSING DATE --------------------------------------------------------------- CURRENT LIABILITIES. Schedule 1.3(a) accurately sets forth the Closing Date - ------------------- Debt of the Corporation. Schedule 1.3(b) accurately sets forth the Closing Date Current Assets and Closing Date Current Liabilities of the Corporation. 3.22 BANK ACCOUNTS. Schedule 3.23 is a complete and accurate list, as of ------------- the Closing Date, of: (a) the name of each bank in which the Corporation has accounts or safe deposit boxes; (b) the name(s) in which the accounts or boxes are held; (c) the type of account; and (d) the name of each person authorized to draw thereon or have access thereto. 3.24 COMPLIANCE WITH LAWS. Except as disclosed on Schedule 3.24, the -------------------- Corporation has materially complied with, and the Corporation is presently in material compliance with, federal, state and local laws, ordinances, codes, rules, regulations, Governmental Permits, orders, judgments, awards, decrees, consent judgments, consent orders and requirements applicable to it (collectively "Laws"), including, but not limited to, the Americans with Disabilities Act, the Federal Occupational Safety and Health Act, and Laws relating to the public health, safety or protection of the environment (collectively, "Environmental Laws"). Except as disclosed on Schedule 3.24, there has been no assertion by any party that the Corporation is in material violation of any Laws. Specifically and without limiting the generality of the foregoing, except as disclosed on Schedule 3.24: except as permitted under Environmental Laws, the Corporation has not processed, handled, transferred, generated, treated, stored or disposed of any Hazardous Material (as defined below),(ii) no Hazardous Material, other than 16 that allowed under Environmental Laws has been disposed of, or otherwise released on any Corporate Property, and no Corporate Property has ever been subject to or received any notice of any private, administrative or judicial action, or notice of any intended private, administrative or judicial action relating to the presence or alleged presence of Hazardous Material in, under, upon or emanating from any Corporate Property or any real property now or previously owned or leased by the Corporation. As used in this Agreement, "Hazardous Material" shall mean the substances defined as "Hazardous Waste" in 40 CFR 261, substances defined in any comparable California statute or regulation and any substance the presence of which requires remediation pursuant to any Environmental Laws. 3.25 POWERS OF ATTORNEY. The Corporation has not granted any power of ------------------ attorney (except routine powers of attorney relating to representation before governmental agencies) or entered into any agency or similar agreement whereby a third party may bind or commit the Corporation in any manner. 3.26 UNDERGROUND STORAGE TANKS. Except as set forth on Schedule 3.26, no ------------------------- underground storage tanks containing petroleum products or wastes or other hazardous substances regulated by 40 CFR 280 or Environmental Laws are currently or have been located on any Corporate Property. Except as set forth on Schedule 3.26, the Corporation has never owned or leased any real property not included in the Corporate Property having any underground storage tanks containing petroleum products or wastes or other hazardous substances regulated by 40 CFR 280. As to each such underground storage tank ("UST") identified on Schedule 3.26, the Corporation has provided to United, on Schedule 3.26: (a) the location of the UST, information and material, including any available drawings and photographs, showing the location, and whether the Corporation currently owns or leases the property on which the UST is located (and if the Corporation does not currently own or lease such property, the dates on which it did and the current owner or lessee of such property); (b) the date of installation and specific use or uses of the UST; (c) copies of tank and piping tightness tests and cathodic protection tests and similar studies or reports for each UST; (d) a copy of each notice to or from a governmental body or agency relating to the UST; (e) other material records with regard to the UST, including, without limitation, repair records, financial assurance compliance records and records of ownership; and (f) to the extent not otherwise set forth pursuant to the above, a summary description of instances, past or present, in which, to the Corporation's, or the Shareholders' knowledge, the UST failed to meet applicable standards and regulations for tightness or otherwise and the extent of such failure, and any other operational or 17 environmental problems with regard to the UST, including, without limitation, spills, including spills in connection with delivery of materials to the UST, releases from the UST and soil contamination. Except to the extent set forth on Schedule 3.26, the Corporation has complied with Environmental Laws regarding the installation, use, testing, monitoring, operation and closure of any UST described on Schedule 3.26. 3.27 PATENTS, TRADEMARKS, TRADE NAMES, ETC. Schedule 3.27 lists all -------------------------------------- patents, tradenames, fictitious business names, trademarks, service marks, and copyrights owned by the Corporation or which it is licensed to use (other than licenses to use software for personal computer operating systems that were provided when the computer was purchased and licenses to use software for personal computers that are granted to retail purchasers of such software). No patents, trade secrets, know-how, intellectual property, trademarks, trade names, assumed names, copyrights, or designations used by the Corporation in its business infringe on any patents, trademarks, or copyrights, or any other rights of any person. Neither the Corporation nor any of the Shareholders knows or has any reason to believe that there are any claims of third parties to the use of any such names or any similar name, or knows of or has any reason to believe that there exists any basis for any such claim or claims. 3.28 ASSETS, ETC., NECESSARY TO BUSINESS. The Corporation owns or leases ----------------------------------- all properties and assets, real, personal, and mixed, tangible and intangible, and, except as disclosed on Schedules 3.5, 3.10(a), 3.10(b), 3.14(a) and 3.19, is a party to all Governmental Permits and other agreements necessary to permit it to carry on its business as presently conducted. All of said Governmental Permits and agreements have been duly obtained and, except as disclosed on Schedules 3.5, 3.8(b), 3.10(a), 3.10(b), 3.14(a) and 3.19, are in full force and effect and there are no proceedings pending or threatened which may result in the revocation, cancellation, suspension or adverse modification of any of the same. Neither the Corporation nor any of the Shareholders has any knowledge of any reason why all such Governmental Permits and agreements will not remain in effect after consummation of the transactions contemplated hereby. 3.29 CONDEMNATION. No Corporate Property owned or leased by the ------------ Corporation is the subject of, or would be affected by, any pending condemnation or eminent domain proceedings, and, to the knowledge of the Corporation and the Shareholders, no such proceedings are threatened. 3.30 MANUFACTURERS, SUPPLIERS AND CUSTOMERS. The relations between the -------------------------------------- Corporation and its customers are good. Neither the Corporation nor any of the Shareholders has knowledge of any fact (other than general economic and industry conditions) which indicates that any of the manufacturers or suppliers supplying products, components or materials to the Corporation intends to cease providing such items to the Corporation, nor does the Corporation or any of the Shareholders have knowledge of any fact (other than general economic and industry conditions) which indicates that any of the customers of a Corporation intends to terminate, limit or reduce its business relations with the Corporation. 18 3.31 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Corporation nor ------------------------------------- any of the Shareholders has directly or indirectly within the past five years given or agreed to give any gift or similar benefit to any customer, supplier, governmental employee or other person who is or may be in a position to help or hinder the business of the Corporation in connection with any actual or proposed transaction which (a) might subject the Corporation to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (b) if not given in the past, might have had an adverse effect on the financial condition, business or results of operations of the Corporation, or (c) if not continued in the future, might adversely affect the financial condition, business or operations of the Corporation or which might subject the Corporation to suit or penalty in any private or governmental litigation or proceeding. 3.32 RELATED PARTY TRANSACTIONS. Except as disclosed in the Financial -------------------------- Statements, none of the Shareholders nor their Affiliates owns any direct or indirect interest of any kind in, or controls or is a director, officer, employee, shareholder or partner of, or consultant to or lender to or borrower from or has the right to participate in the profits of, any Person which is a competitor, supplier, customer, landlord, tenant, creditor or debtor of the Corporation. 3.33 DISCLOSURE SCHEDULES. Any matter disclosed on any Schedule to this -------------------- Agreement shall be deemed to have been disclosed on every other Schedule that refers to such Schedule by cross reference so long as the nature of the matter disclosed is obvious from a fair reading of the Schedule on which the matter is disclosed. 3.34 NO MISLEADING STATEMENTS. The representations and warranties of the ------------------------ Corporation and the Shareholders contained in this Agreement, the Exhibits and Schedules hereto and all other documents and information furnished to United and its representatives pursuant hereto are complete and accurate in all material respects and do not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements made and to be made not misleading. 3.35 ACCURATE AND COMPLETE RECORDS. The corporate minute books, stock ----------------------------- ledgers, books, ledgers, financial records and other records of the Corporation: (a) have been made available to United and its agents at the Corporation's offices or at the offices of United's attorneys or the Corporation's attorneys; (b) have been, in all material respects, maintained in accordance with all applicable laws, rules and regulations; and (c) are accurate and complete, reflect all material corporate transactions required to be authorized by the Boards of Directors and/or shareholders of the Corporation and do not contain or reflect any material discrepancies. 3.36 KNOWLEDGE. Wherever reference is made in this Agreement to the --------- "knowledge" of the Shareholders, such term means the actual knowledge of the Shareholders or any knowledge which should have been obtained by the Shareholders upon reasonable inquiry by a reasonable business person. Wherever reference is made in this Agreement to the "knowledge" 19 of the Corporation, such term means the actual knowledge of any management employee, officer or director of the Corporation or any knowledge which should have been obtained by any such person upon reasonable inquiry by a reasonable business person. Wherever reference is made in this Agreement to the "knowledge" of the ESOP, such term means the actual knowledge of the Trustees, or of either of them, or any knowledge which should have been obtained by such person upon reasonable inquiry by a reasonable person in the position of Trustee of an employee stock ownership plan. 3.37 BROKERS; FINDERS. Except as set forth on Schedule 3.37, no person has ---------------- acted directly or indirectly as a broker, finder or financial advisor for the Corporation or the Shareholders in connection with the transactions contemplated by this Agreement and no person is entitled to any broker's, finder's, financial advisory or similar fee or payment in respect thereof based in any way on any agreement, arrangement or understanding made by or on behalf of the Corporation or the Shareholders. 3.38 NO ESOP LOANS; NO ESOP ASSETS HELD IN SUSPENSE ACCOUNT. The ESOP has ------------------------------------------------------ not at any time engaged in any loan transaction, either in the form of an "exempt loan" within the meaning of Treas. Reg. 54.4975-7(b) or in any other form, and has not acquired any assets with the proceeds of any loan. The ESOP has not held any assets in a "suspense account" within the meaning of Treas. Reg. 54.4975-11(c). 4. REPRESENTATIONS AND WARRANTIES OF UNITED ---------------------------------------- United represents and warrants to the Shareholders that each of the following representations and warranties is true as of the date of this Agreement and will be true as of the Closing Date, and agrees that such representations and warranties shall survive the Closing: 4.1 EXISTENCE AND GOOD STANDING. United is a Corporation duly organized, --------------------------- validly existing and in good standing under the laws of the State of Delaware. 4.2 NO CONTRACTUAL RESTRICTIONS. No provisions exist in any article, --------------------------- document or instrument to which United is a party or by which it is bound which would be violated by consummation of the transactions contemplated by this Agreement. 4.3 AUTHORIZATION OF AGREEMENT. This Agreement has been duly authorized, -------------------------- executed and delivered by United and, subject to the due authorization, execution and delivery by the Shareholders, constitutes a legal, valid and binding obligation of United. United has full corporate power, legal right and corporate authority to enter into and perform its obligations under this Agreement and to carry on its business as presently conducted. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and the fulfillment of and compliance with the terms and conditions hereof do not and will not, after the giving of notice, or the lapse of time or otherwise: (a) violate any provisions of any judicial or administrative order, award, judgment or decree applicable to United; (b) conflict with any of the provisions of the Certificate of Incorporation or Bylaws of United; or (c) conflict with, result in a breach of or constitute a default under any material agreement or instrument to which United is a party or by which it is bound. 20 4.4 NO MISLEADING STATEMENTS. The representations and warranties of ------------------------ United contained in this Agreement, the Exhibits and Schedules hereto and all other documents and information furnished to the Shareholders pursuant hereto are materially complete and accurate, and do not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements made and to be made not misleading as of the Closing Date. 4.5 BROKERS; FINDERS. No person has acted directly or indirectly as a ---------------- broker, finder or financial advisor for United in connection with the transactions contemplated by this Agreement and no person is entitled to any broker's, finder's, financial advisory or similar fee or payment in respect thereof based in any way on any agreement, arrangement or understanding made by or on behalf of United. 4.6 DISCLOSURE SCHEDULES. Any matter disclosed by United on any Schedule -------------------- to this Agreement shall be deemed to have been disclosed on every other Schedule that refers to such Schedule by cross reference so long as the nature disclosed is obvious from a fair reading of the Schedule on which the matter is disclosed. 5. CLOSING DELIVERIES ------------------ 5.1 At the Closing, the respective parties made the deliveries indicated: UNITED DELIVERIES. ----------------- (a) United delivered to the Shareholders the portion of the Purchase Price required to be delivered on the Closing Date pursuant to Section 1.2. (b) United executed and delivered a Software License (the "Software License") with Operation Management Systems, Inc. (c) The Corporation executed and delivered the Lease. (d) United delivered to the Shareholders an opinion of United's counsel, dated as of the Closing Date. (e) United executed and delivered the Escrow Agreement. (f) Joe and Pat and the Corporation executed and delivered the Lease Termination Agreement. 5.2 SHAREHOLDERS DELIVERIES. ----------------------- (a) The Shareholders delivered to United the certificates representing the outstanding Corporation's Stock, free and clear of all liens, security interests, claims and encumbrances, accompanied by stock powers duly executed in blank. 21 (b) The Shareholders delivered to United an opinion of counsel for the ESOP, dated as of the Closing Date. (c) The Shareholders delivered to United an opinion of counsel for the Shareholders, dated as of the Closing Date. (d) The Lessor executed and delivered the Lease. (e) Except as provided in Section 6.7, the Corporation delivered to United evidence satisfactory to United showing that all written employment contracts and all oral employment contracts other than those that are terminable "at will" without payment of severance (other than normal severance benefits approved by United) or other benefits with non-union employees of the Corporation (including, without limitation, stock options or other rights to obtain equity in the Corporation) have been terminated, effective on or before the Closing Date. (f) The Shareholders caused each officer and director of the Corporation to deliver a resignation as an officer and/or director of the corporation together with a general release releasing the Corporation from all obligations under any indemnification agreements, the charter documents of the Corporation, or otherwise, arising out of or relating to this Agreement or the consummation of the transactions contemplated thereby, other than obligations arising after the Closing Date under this Agreement. (g) Joe and Pat executed and delivered the Software License. (h) The Shareholders caused David G. Wallace ("Wallace"), as lessor, to execute and deliver a Consent to Assignment of Lease relating to that certain Lease dated March 12, 1993, between Wallace and the Corporation, as lessee, for certain real property in Modesto, California, used by the Corporation. (i) The Shareholders executed and delivered the Escrow Agreement. 6. ADDITIONAL COVENANTS OF UNITED, THE CORPORATION AND THE SHAREHOLDERS -------------------------------------------------------------------- 6.1 FURTHER ASSURANCES AND ADDITIONAL CONVEYANCES. Following the Closing, --------------------------------------------- the Shareholders and United shall each deliver or cause to be delivered at such times and places as shall be reasonably agreed upon such additional instruments as United or the Shareholders may reasonably request for the purpose of carrying out this Agreement. The Shareholders will cooperate with United and/or the Corporation on and after the Closing Date in furnishing information, evidence, testimony and other assistance in connection with any actions, proceedings or disputes of any nature with respect to matters pertaining to all periods prior to the Closing Date. 6.2 RELEASE OF GUARANTIES. United shall use reasonable efforts to obtain --------------------- the termination and release promptly after the Closing Date of the personal guaranties of the 22 Shareholders listed on Schedule 6.2, all of which relate to indebtedness of the Corporation included in the Financial Statements as of the Balance Sheet Date. United shall indemnify the Shareholders and hold them harmless from and against all losses, expenses or claims by third parties to enforce or collect indebtedness owed by the Corporation as of the Closing Date which is personally guaranteed by the Shareholders pursuant to such guaranties. The Shareholders may notify the obligees under such guaranties that they have terminated their obligations under such guaranties. The Shareholders shall cooperate with United in obtaining such releases. 6.3 CONFIDENTIALITY. Neither the Corporation nor any of the Shareholders --------------- shall disclose or make any public announcements of the transactions contemplated by this Agreement without the prior written consent of United, unless required to make such disclosure or announcement by law, in which event the party making the disclosure or announcement shall notify United at least 24 hours before such disclosure or announcement is expected to be made. 6.4 BROKERS AND FINDERS FEES. Each party shall pay and be responsible for ------------------------ any broker's, finder's or financial advisory fee incurred by such party in connection with the transactions contemplated by this Agreement. 6.5 TAXES. United shall reasonably cooperate, at the expense of the ----- Shareholders, with the Shareholders with respect to any matters involving the Shareholders arising out of the Shareholders' ownership of the Corporation prior to the Closing, including matters relating to tax returns and any tax audits, appeals, claims or litigation with respect to such tax returns or the preparation of such tax returns. In connection therewith, United shall make available to the Shareholders such files, documents, books and records of the Corporation for inspection and copying as may be reasonably requested by the Shareholders and shall cooperate with the Shareholders with respect to retaining information and documents which relate to such matters. 6.6 SHORT YEAR TAX RETURNS. After the Closing Date, the Shareholders ---------------------- shall prepare at their sole cost and expense, all short year federal, state, county, local and foreign tax returns required by law for the period beginning with the first day of the Corporation's fiscal year in which the Closing occurs and ending with the Closing Date. Each such return shall be prepared in a financially responsible and conservative manner and shall be delivered to United together with all necessary supporting schedules within 90 days following the Closing Date for its approval (but such approval shall not relieve the Shareholders of their responsibility for the taxes assessed under these returns). The Shareholders shall be responsible for the payment of all taxes (including without limitation any taxes arising as a result of the conversion of the Corporation from a cash to an accrual basis of reporting) shown to be due or that may come to be due on such returns or otherwise relating to the period prior to the Closing Date in excess of the amount of any reserve for taxes included in Closing Date Current Liabilities and, at the time of the delivery of the returns, shall contemporaneously deliver to United checks payable to the respective taxing authorities in amounts equal to that shown as being due on the returns. United shall sign tax returns and cause such returns to be timely filed with the appropriate authorities. The Shareholders shall be entitled to receive all refunds shown on said returns and any such refunds received by the Corporation or United shall be remitted to the Shareholders. 23 6.7 CONTINUED EMPLOYMENT BY JOE AND PAT. Joe and Pat shall continue their ----------------------------------- employment by the Company for a period of 90 days after the Closing Date on the same terms and conditions as they are presently employed. At the expiration of that period, Joe and Pat's employment shall terminate without further liability of the Corporation. 6.8 SHAREHOLDERS' REPRESENTATIVE. ---------------------------- (a) In order to administer efficiently the rights and obligations of the Shareholders under this Agreement, the Shareholders hereby designate and appoint Joe as the Shareholders' Representative, to serve as the Shareholders' agent and attorney-in-fact for the limited purposes set forth in this Agreement. (b) Each of the Shareholders hereby appoints the Shareholders' Representative as such Shareholder's agent, proxy and attorney-in-fact, with full power of substitution, for all purposes set forth in this Agreement, including, without limitation, the full power and authority on such Shareholder's behalf (i) to consummate the transactions contemplated by this Agreement, (ii) to disburse any funds received hereunder to the Shareholders, (iii) to execute and deliver on behalf of each Shareholder any amendment or waiver under this Agreement, and to agree to resolution of all Adjustments pursuant to Section 1.4 or 10, and of all Claims hereunder, (iv) to retain legal counsel and other professional services, at the expense of the Shareholders, in connection with the performance by the Shareholders' Representative of this Agreement, and (v) to do each and every act and exercise any and all rights which such Shareholder or Shareholders are permitted or required to do or exercise under this Agreement and the other agreements, documents and certificates executed in connection herewith. Each of the Shareholders agrees that such agency and proxy are coupled with an interest, are therefore irrevocable without the consent of the Shareholders' Representative and shall survive the death, bankruptcy or other incapacity of any Shareholder. (c) Each of the Shareholders hereby agrees that any amendment or waiver under this Agreement, and any action taken on behalf of the Shareholders to enforce the rights of the Shareholders under this Agreement, and any action taken with respect to any Adjustment or Claim (including any action taken to object to, defend, compromise or agree to the payment of such Adjustment or Claim), shall be effective if approved in writing by the Shareholders' Representative and the holders of a majority of the Corporation's Stock (including any Corporation's Stock held by the Shareholders' Representative), or, in the case of any amendment or waiver made or given or action taken after the Closing, if so approved by persons who were the holders of a majority of the Corporation's Stock immediately prior to the Closing, and that each and every action so taken shall be binding and conclusive on every Shareholder, whether or not such Shareholder had notice of, or approved, such amendment or waiver. (d) Joe shall serve as the Shareholders' Representative until he resigns or is otherwise unable or unwilling to serve. In the event that a Shareholders' Representative resigns from such position or is otherwise unable or unwilling to serve, the remaining Shareholders shall select, by the vote of the holders of a majority of the 24 Corporation's Stock immediately prior to the Closing, a successor representative to fill such vacancy, shall provide prompt written notice to United of such change and such substituted representative shall then be deemed to be the Shareholders' Representative for all purposes of this Agreement. 6.9 GENERAL RELEASE BY SHAREHOLDERS. Each Shareholder hereby fully ------------------------------- releases and discharges the Corporation and its directors, officers, agents and employees from all rights, claims and actions, known or unknown, of any kind whatsoever, which such Shareholder now has or may hereafter have against the Corporation and its directors, officers, agents and employees, arising out of or relating to events arising prior to or on the Closing Date, except (a) as may be described in written contracts disclosed in Schedule 6.9 and expressly described and specifically excepted from this release in Schedule 6.9, (b) in the case of Shareholders who are employees of the Corporation, compensation for current periods expressly described and excepted from such releases, and (c) for the obligations of the Corporation arising after the Closing Date under this Agreement. Specifically, but not by way of limitation, each Shareholder waives any right of indemnification, contribution or other recourse against the Corporation which it now has or may hereafter have against each Corporation with respect to representations, warranties or covenants made in this Agreement by the Corporation. Each Shareholder hereby waives and relinquishes all rights and benefits afforded by Section 1542 of the California Civil Code, which states as follows: "A general release does not extend to claims to which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor ." Each Shareholder understands and acknowledges the significance and consequence of this waiver of Section 1542 and nevertheless elects to, and does, release those claims described in this Section 6.9, known or unknown, that it may have now or in the future arising out of or relating to any event arising on or prior to the date of this Agreement. 7. INDEMNIFICATION --------------- 7.1 INDEMNITY BY THE SHAREHOLDERS. The Shareholders other than the ESOP, ----------------------------- jointly and severally, subject to the limitations set forth in Section 7.2, covenant and agree that they will indemnify and hold harmless United, the Corporation and their respective directors, officers and agents and their respective successors and assigns (collectively the "United Indemnitees"), from and after the date of this Agreement, against any and all losses, damages, assessments, fines, penalties, adjustments, liabilities, claims, deficiencies, costs, expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation), expenditures, including, without limitation, any "Environmental Site Losses" (as such term is hereinafter defined) identified by a United Indemnitee in a Claims Notice (as defined in Section 7.3(a)), or asserted by a United Indemnitee in litigation commenced against the Shareholders other than the ESOP provided that in either case any -------- such Claims Notice shall be given or the litigation commenced prior to the expiration of the periods set forth in 25 Section 7.2(c) (irrespective of the date of discovery), with respect to each of the following contingencies (all, the "Indemnity Events"): (a) Any misrepresentation, breach of warranty, or nonfulfillment of any agreement or covenant on the part of the Shareholders or the Corporation pursuant to the terms of this Agreement or any misrepresentation in or omission from any Exhibit, Schedule, list, certificate, or other instrument furnished or to be furnished to United pursuant to the terms of this Agreement, regardless of whether, in the case of a breach of a representation or a warranty, United relied on the truth of such representation or warranty or had any knowledge of any breach thereof. (b) "Environmental Site Losses," which shall mean any and all losses, damages (including exemplary damages and penalties), liabilities, claims, deficiencies, costs, expenses, and expenditures (including, without limitation, expenses in connection with site evaluations, risk assessments and feasibility studies) arising out of or required by an interim or final judicial or administrative decree, judgment, injunction, mandate, interim or final permit condition or restriction, cease and desist order, abatement order, compliance order, consent order, clean-up order, exhumation order, reclamation order or any other remedial action that is required to be undertaken under federal, state or local law in respect of operating activities on or affecting any Facility, any UST or any other site, including, but not limited to (i) any actual or alleged violation of any law or regulation respecting the protection of the environment, or any other law or regulation respecting the protection of the air, water and land occurring prior to the Closing Date and (ii) any remedies or violations, whether by a private or public action, alleged or sought to be assessed as a consequence, directly or indirectly, of any Release of pollutants (including odors) or Hazardous Materials from any Facility, any UST or any other environmental site resulting from activities thereat occurring prior to the Closing Date, whether such Release is into the air, water (including groundwater) or land and whether such Release occurring before, during or after the Closing Date. The term "Release" as used herein means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the ambient environment. (c) Any liability arising from the Corporation's repurchase of shares of its capital stock from Gary Covey, Ken Rivera and William Fitch. (d) Any liability arising from the matters described on Schedule 3.8(b). (e) Any and all liabilities and obligations of Operational Management Systems, Inc., a former subsidiary of the Corporation ("OMS") that was sold to Joe and Pat immediately prior to the Closing. (f) All actions, suits, proceedings, demands, assessments, adjustments, costs and expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) incident to any of the foregoing. 26 7.2 LIMITATIONS ON SHAREHOLDERS' INDEMNITIES. ---------------------------------------- (a) The obligations of the Shareholders other than the ESOP to indemnify the United Indemnitees as provided in Section 7.1 shall be equal to the amount by which the cumulative amount of all such liabilities, claims, damages deficiencies, actions, suits, proceedings, demands, assessments, adjustments, costs and expenses, expenditures and Environmental Site Losses with respect to any or all Indemnity Events exceed $150,000 (the "General Deductible Amount"); provided, that the -------- amount of any obligation of indemnity arising pursuant to Section 7.1 with respect to any representation, warranty or covenant contained in Sections 3.1 through 3.5; and 3.12(c) hereof shall not be subject to the General Deductible Amount and the amount of any indemnity obligation arising pursuant to Section 3.9 or 3.22 with respect to Claims based on the Inventory Value and the Equipment included on the Rental Asset Listing shall be subject to the applicable amounts set forth in Sections 1.4(b) and 1.4(c) in lieu of the General Deductible Amount. (b) The maximum amount which United can recover as a result of one or more Indemnity Events pursuant to the provisions hereof for Claims shall not in the aggregate exceed the Purchase Price. (c) The obligations of the Shareholders other than the ESOP under Section 7.1 shall expire, unless a Claims Notice is given or litigation is commenced, on or prior to the following applicable dates: with respect to Claims arising under Sections 3.1 through 3.5, 3.12(c), 3.18 and 3.24, and pursuant to Section 7.1(b), the applicable statute of limitations; with respect to all other Claims, the fifth anniversary of the Closing Date. 7.3 NOTICE OF INDEMNITY CLAIM. ------------------------- (a) In the event that any claim ("Claim") is hereafter asserted against or arises with respect to any United Indemnitee as to which such Indemnitee may be entitled to indemnification hereunder, the United Indemnitee shall notify the Shareholders other than the ESOP (collectively, the "Indemnifying Party") in writing thereof (the "Claims Notice") within 10 days after (i) receipt of written notice of commencement of any third party litigation against such United Indemnitee, (ii) receipt by such United Indemnitee of written notice of any third party claim pursuant to an invoice, notice of claim or assessment, against such United Indemnitee, or (iii) such United Indemnitee becomes aware of the existence of any other event in respect of which indemnification may be sought from the Indemnifying Party (including, without limitation, any inaccuracy of any representation or warranty or breach of any covenant). The Claims Notice shall describe the Claim and the specific facts and circumstances in reasonable detail, and shall indicate the amount, if known, or an estimate, if possible, of the losses that have been or may be incurred or suffered by the United Indemnitee. (b) The Indemnifying Party may elect to defend any Claim for money damages where the cumulative total of all Claims (including such Claims) do not exceed the limit set forth in Section 7.2 at the time the Claim is made, by the Indemnifying Party's own 27 counsel; provided, however, the Indemnifying Party may assume and undertake the defense of such a third party Claim only upon written agreement by the Indemnifying Party that the Indemnifying Party is obligated to fully indemnify the United Indemnitee with respect to such action. The United Indemnitee may participate, at the United Indemnitee's own expense, in the defense of any Claim assumed by the Indemnifying Party. Without the written approval of the United Indemnitee, which approval shall not be unreasonably withheld, the Indemnifying Party shall not agree to any compromise of a Claim defended by the Indemnifying Party. (c) If, within 30 days of the Indemnifying Party's receipt of a Claims Notice, the Indemnifying Party shall not have provided the written agreement required by Section 7.3(b) and elected to defend the Claim, the United Indemnitee shall have the right to assume control of the defense and/or compromise of such Claim, and the costs and expenses of such defense, including reasonable attorneys' fees, shall be added to the Claim. The Indemnifying Party shall promptly, and in any event within 30 days reimburse the United Indemnitee for the costs of defending the Claim, including attorneys' fees and expenses. (d) The party assuming the defense of any Claim shall keep the other party reasonably informed at all times of the progress and development of its or their defense of and compromise efforts with respect to such Claim and shall furnish the other party with copies of all relevant pleadings, correspondence and other papers. In addition, the parties to this Agreement shall cooperate with each other and make available to each other and their representatives all available relevant records or other materials required by them for their use in defending, compromising or contesting any Claim. The failure to timely deliver a Claims Notice or otherwise notify the Indemnifying Party of the commencement of such actions in accordance with this Section 7.3 shall not relieve the Indemnifying Party from the obligation to indemnify hereunder but only to the extent that the Indemnifying Party establishes by competent evidence that it has been prejudiced thereby. (e) In the event both the United Indemnitee and the Indemnifying Party are named as defendants in an action or proceeding initiated by a third party, they shall both be represented by the same counsel (on whom they shall agree), unless such counsel, the United Indemnitee, or the Indemnifying Party shall determine that such counsel has a conflict of interest in representing both the United Indemnitee and the Indemnifying Party in the same action or proceeding and the United Indemnitee and the Indemnifying Party do not waive such conflict to the satisfaction of such counsel. 7.4 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The ------------------------------------------------------ representations and warranties of the parties contained in this Agreement and in any certificate, Exhibit or Schedule delivered pursuant hereto, or in any other writing delivered pursuant to the provisions of this Agreement (the "Representations and Warranties") and the liability of the party making such Representations and Warranties for breaches thereof shall survive the consummation of the transactions contemplated hereby. The parties hereto in executing and delivering and in carrying out the provisions of this Agreement are relying solely on the representations, warranties, 28 Schedules, Exhibits, agreements and covenants contained in this Agreement, or in any writing or document delivered pursuant to the provisions of this Agreement, and not upon any representation, warranty, agreement, promise or information, written or oral, made by any persons other than as specifically set forth herein or therein. 7.5 NO EXHAUSTION OF REMEDIES OR SUBROGATION; RIGHT OF SET OFF. The ---------------------------------------------------------- Shareholders waive any right to require any United Indemnitee to (i) proceed against the Corporation; (ii) proceed against any other person; or (iii) pursue any other remedy whatsoever in the power of any United Indemnitee. United may, but shall not be obligated to, set off against any and all payments due Shareholders pursuant to the Hold Back, any amount to which any United Indemnitee is entitled to be indemnified hereunder with respect to any Indemnity Event. Such right of set off shall be separate and apart from any and all other rights and remedies that the Indemnities may have against Shareholders or their successors. 8. OTHER POST-CLOSING COVENANTS OF THE SHAREHOLDERS AND UNITED ----------------------------------------------------------- 8.1 RESTRICTIVE COVENANTS. As to the Corporation, the Shareholders and --------------------- their Affiliates acknowledge that (i) United, as the purchaser of the Corporation's Stock, is and will be engaged in the same business as the Corporation (the "Business"); (ii) the Shareholders and their Affiliates are intimately familiar with the Business; (iii) the Business is currently conducted in the State of California and United intends to continue the Business in California and intends, by acquisition or otherwise, to expand the Business into other geographic areas of California where it is not presently conducted; (iv) the Shareholders and their Affiliates have had access to trade secrets of, and confidential information concerning, the Business; (v) the agreements and covenants contained in this Section 8.1 are essential to protect the Business and the goodwill being acquired; and (vi) the Shareholders and their Affiliates have the means to support themselves and their dependents other than by engaging in a business substantially similar to the Business and the provisions of this Section 8 will not impair such ability. The Shareholders covenant and agree as set forth in (a), (b) and (c) below with respect to the Corporation: (a) NON-COMPETE. For a period commencing on the Closing Date and ----------- terminating five years thereafter (the "Restricted Period"), neither the Shareholders nor any of their Affiliates shall, anywhere in the counties of San Joaquin, Stanislaus, Merced, Tuolumne, Amador, Calaveras, Sacramento, Solano, Alameda, Santa Clara and Contra Costa, California where United or one of its subsidiaries owns or operates a business similar to the Business (the "Restricted Counties"), directly or indirectly, acting individually or as the owner, shareholder, partner, or employee of any entity, (i) engage in the operation of any equipment rental, sales or leasing business; (ii) enter the employ of, or render any personal services to or for the benefit of, or assist in or facilitate the solicitation of customers for, or receive remuneration in the form of salary, commissions or otherwise from, any business engaged in such activities; or (iii) receive or purchase a financial interest in, make a loan to, or make a gift in support of, any such business in any capacity, including, without limitation, as a sole proprietor, partner, shareholder, officer, director, principal, agent, trustee or lender; provided, however, that any of the Shareholders may own, directly or indirectly, solely as an investment, securities of any 29 business traded on any national securities exchange or NASDAQ, provided none of the Shareholders is a controlling person of, or a member of a group which controls, such business and further provided that the Shareholders do not, in the aggregate, directly or indirectly, own 2% or more of any class of securities of such business and provided further that nothing herein shall prevent Joe and Pat from engaging, as directors, officers and/or shareholders of OMS, in the business in which OMS was engaged on the Closing Date and any other activities contemplated by the Software License. (b) CONFIDENTIAL INFORMATION. During the Restricted Period and ------------------------ thereafter, the Shareholders and their Affiliates shall keep secret and retain in strictest confidence, and shall not use for the benefit of themselves or others, all data and information relating to the Business ("Confidential Information"), including without limitation, know-how, trade secrets, customer lists, supplier lists, details of contracts, pricing policies, operational methods, marketing plans or strategies, bidding information, practices, policies or procedures, product development techniques or plans, and technical processes; provided, however, that the term "Confidential Information" shall not include information that (i) is or becomes generally available to the public other than as a result of disclosure by the Shareholders, or (ii) is general knowledge in the equipment rental, sales or leasing business and not specifically related to the Business. (c) PROPERTY OF THE BUSINESS. All memoranda, notes, lists, records ------------------------ and other documents or papers (and all copies thereof) relating to the Business, including such items stored in computer memories, on microfiche or by any other means, made or compiled by or on behalf of the Shareholders or the Corporation or made available to them relating to the Business, but excluding any materials (other than the minute books of the Corporation) maintained by any attorneys for the Corporation or the Shareholders prior to the Closing, are and shall be the property of United and have been delivered or will be delivered or made available to United at the Closing. (d) NON-SOLICITATION. Without the consent of United, which may be ---------------- granted or withheld by United in its discretion, the Shareholders and their Affiliates shall not solicit any employees of the Corporation to leave the employ of the Corporation and join the Shareholders or any Affiliate in any business endeavor owned or pursued by the Shareholders. (e) NO DISPARAGEMENT. From and after the Closing Date, none of the ---------------- Shareholders shall, in any way or to any person or entity or governmental or regulatory body or agency, denigrate or derogate United or any of its subsidiaries, or any officer, director or employee, or any product or service or procedure of any such company whether or not such denigrating or derogatory statements shall be true and are based on acts or omissions which are learned by the Shareholders from and after the date hereof or on acts or omissions which occur from and after the date hereof, or otherwise. A statement shall be deemed denigrating or derogatory to any person or entity if it adversely affects the regard or esteem in which such person or entity is held by investors, lenders or licensing, rating, or regulatory entities. Without limiting the generality of the foregoing, none of the Shareholders shall, directly or indirectly in any way in respect of 30 any such company or any such directors or officers, communicate with, or take any action which is adverse to the position of any such company with any person, entity or governmental or regulatory body or agency who or which has dealings or prospective dealings with any such company or jurisdiction or prospective jurisdiction over any such company. This paragraph does not apply to the extent that testimony is required by legal process, provided that United has received not less than five days' prior written notice of such proposed testimony. 8.2 RIGHTS AND REMEDIES UPON BREACH. If the Shareholders or any Affiliate ------------------------------- breaches, or threatens to commit a breach of, any of the provisions of Section 8.1 herein (the "Restrictive Covenants"), United shall have the following rights and remedies, each of which rights and remedies shall be independent of the others and severally enforceable, and each of which is in addition to, and not in lieu of, any other rights and remedies available to United at law or in equity: (a) SPECIFIC PERFORMANCE. The right and remedy to have the -------------------- Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to United and that money damages would not provide an adequate remedy to United. Accordingly, in addition to any other rights or remedies, United shall be entitled to injunctive relief to enforce the terms of the Restrictive Covenants and to restrain the Shareholders from any violation thereof. (b) ACCOUNTING. The right and remedy to require the Shareholders to ---------- account for and pay over to United all compensation, profits, monies, accruals, increments or other benefits derived or received by the Shareholders as the result of any transactions constituting a breach of the Restrictive Covenants. (c) SEVERABILITY OF COVENANTS. The Shareholders acknowledge and ------------------------- agree that the Restrictive Covenants are reasonable and valid in geographical and temporal scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect, without regard to the invalid portions. (d) BLUE-PENCILING. If any court determines that any of the -------------- Restrictive Covenants, or any part thereof, is unenforceable because of the duration or geographic scope of such provision, such court shall reduce the duration or scope of such provision, as the case may be, to the extent necessary to render it enforceable and, in its reduced form, such provision shall then be enforced. (e) ENFORCEABILITY IN JURISDICTION. United and the Shareholders ------------------------------ intend to and hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographic scope of the Restrictive Covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants unenforceable by reason of the breadth of such scope or otherwise, it is the intention of United and the 31 Shareholders that such determination not bar or in any way affect United's right to the relief provided above in the courts of any other jurisdiction within the geographic scope of the Restrictive Covenants as to breaches of such covenants in such other respective jurisdictions, such covenants as they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants. 9. GENERAL ------- 9.1 ASSIGNMENT. This Agreement shall be binding upon and shall inure to ---------- the benefit of the parties hereto, the successors or assigns of United and the heirs, legal representatives or assigns of the Shareholders; provided, however, that any such assignment shall be subject to the terms of this Agreement and shall not relieve the assignor of its or his responsibilities under this Agreement. 9.2 COUNTERPARTS. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. 9.3 NOTICES. All notices, requests, demands and other communications ------- hereunder shall be deemed to have been duly given if in writing and either delivered personally, sent by facsimile transmission or by air courier service, or mailed by postage prepaid registered or certified U.S. mail, return receipt requested, to the addresses designated below or such other addresses as may be designated in writing by notice given hereunder, and shall be effective upon personal delivery or facsimile transmission thereof or upon delivery by registered or certified U.S. mail or one business day following deposit with an air courier service: If to the Shareholders: at their respective addresses set forth on Schedule 3.2 With a copy to: David L. Grilli, Esq. Nomellini, Grilli & McDaniel P.O. Box 1461 Stockton, CA 95201-1461 FAX: (209) 465-3956 or 235 E. Weber Avenue Stockton, CA 95202 If to United: United Rentals, Inc. Four Greenwich Office Park Greenwich, CT 06830 Attention: John Milne FAX: (203) 622-6080 32 With a copy to: Oscar D. Folger, Esq. 521 Fifth Avenue New York, NY 10175 FAX: (212) 697-7833 and Robert D. Evans, Esq. Shartsis, Friese & Ginsburg LLP One Maritime Plaza, 18th Floor San Francisco, CA 94111 FAX: (415) 421-2922 9.4 ATTORNEYS' FEES. In the event of any dispute or controversy between --------------- United on the one hand and the Corporation or the Shareholders on the other hand relating to the interpretation of this Agreement or to the transactions contemplated hereby, the prevailing party shall be entitled to recover from the other party reasonable attorneys' fees and expenses incurred by the prevailing party. Such award shall include post-judgment attorney's fees and costs. 9.5 APPLICABLE LAW. This Agreement shall be governed by and construed in -------------- accordance with the laws of the State of California without regard to its conflict of laws provisions. 9.6 PAYMENT OF FEES AND EXPENSES. Whether or not the transactions herein ---------------------------- contemplated shall be consummated, each party hereto will pay its own fees, expenses and disbursements incurred in connection herewith and all other costs and expenses incurred in the performance and compliance with all conditions to be performed hereunder (including, in the case of the Shareholders, any such fees, expenses and disbursements paid or accrued by, or charged to, the Corporation). 9.7 INCORPORATION BY REFERENCE. All Schedules and Exhibits attached -------------------------- hereto are incorporated herein by reference as though fully set forth at each point referred to in this Agreement. 9.8 CAPTIONS. The captions in this Agreement are for convenience only and -------- shall not be considered a part hereof or affect the construction or interpretation of any provisions of this Agreement. 9.9 NUMBER AND GENDER OF WORDS; CORPORATION. Whenever the singular number --------------------------------------- is used herein, the same shall include the plural where appropriate, and shall apply to all of such number, and to each of them, jointly and severally, and words of any gender shall include each other gender where appropriate. 9.10 ENTIRE AGREEMENT. This Agreement (including the Schedules and ---------------- Exhibits hereto) and the other documents delivered pursuant hereto constitute the entire Agreement and understanding between the Corporation, the Shareholders and United and supersedes any prior 33 agreement and understanding relating to the subject matter of this Agreement. This Agreement may be modified or amended only by a written instrument executed by the Corporation, the Shareholders and United acting through its officers, thereunto duly authorized by its Board of Directors. 9.11 WAIVER. No waiver by any party hereto at any time of any breach of, ------ or compliance with, any condition or provision of this Agreement to be performed by any other party hereto may be deemed a waiver of similar or dissimilar provisions or conditions at the same time or at any prior or subsequent time. 9.12 CONSTRUCTION. The language in all parts of this Agreement must be in ------------ all cases construed simply according to its fair meaning and not strictly for or against any party. Unless expressly set forth otherwise, all references herein to a "day" are deemed to be a reference to a calendar day. All references to "business day" mean any day of the year other than a Saturday, Sunday or a public or bank holiday in Connecticut or California. Unless expressly stated otherwise, cross-references herein refer to provisions within this Agreement and are not references to the overall transaction or to any other document. 10. ARBITRATION AND DISPUTE RESOLUTION. THE PARTIES WAIVE THEIR RIGHT TO ---------------------------------- SEEK REMEDIES IN COURT, INCLUDING ANY RIGHT TO A JURY TRIAL, WITH RESPECT TO ANY DISPUTE CONCERNING DETERMINATION OF THE ADJUSTMENTS TO THE PURCHASE PRICE UNDER SECTIONS 1.3 AND 1.4 ONLY. The parties agree that in the event United and the Shareholders are unable to resolve a dispute concerning determination of the Adjustments to the Purchase Price, such dispute shall be resolved exclusively by arbitration to be conducted only in San Francisco, California in accordance with the rules of the Judicial Arbitration and Mediation Service ("JAMS") applying the laws of California. The parties agree that such arbitration shall be conducted by a retired judge who is experienced in dispute resolution regarding business acquisitions and accounting matters, that discovery shall not be permitted except as required by the rules of JAMS, that the arbitration award shall not include factual findings or conclusions of law, and that no punitive damages shall be awarded. The parties understand that any party's right to appeal or to seek modification of any ruling or award of the arbitrator is severely limited. Any award rendered by the arbitrator shall be final and binding, and judgment may be entered on it in any court of competent jurisdiction as otherwise provided by law. The preceding portion of this Section does not apply to any dispute relating to any other provision of the Agreement, or to any other aspect of the transactions contemplated herein, and such other disputes may be resolved by the parties by any means available, including without limitation court action and a jury trial. The parties expressly do not waive any right to pursue any remedy available with respect to any dispute other than one concerning determination of the Adjustments to the Purchase Price under Sections 1.3 and 1.4, and expressly do not waive the right to trial with respect any other dispute. 34 IN WITNESS WHEREOF, the parties hereto have executed this Agreement by persons thereunto duly authorized as of the date first above written. THE CORPORATION: A & A Tool Rentals and Sales, Inc. By: -------------------------- Joseph E. Doran President THE SHAREHOLDERS: -------------------------------------- Joseph E. Doran -------------------------------------- Patrick J. Doran -------------------------------------- Joseph E. Doran, Trustee of the A & A Tool Rentals and Sales, Inc. Employee Stock Ownership Plan -------------------------------------- Patrick J. Doran, Trustee of the A & A Tool Rentals and Sales, Inc. Employee Stock Ownership Plan UNITED: UNITED RENTALS, INC. By: John Milne, Vice Chairman and Chief Acquisition Officer 35 EX-10.(P) 17 AGREEMENT AND PLAN OF MERGER ----------------------------------------------------------------------- AGREEMENT AND PLAN OF MERGER BY AND AMONG UNITED RENTALS, INC., UR ACQUISITION SUBSIDIARY, INC. AND J & J RENTAL SERVICES, INC. ----------------------------------------------------------------------- DATED OCTOBER 23, 1997 ----------------------------------------------------------------------- AGREEMENT AND PLAN OF MERGER ---------------------------- AGREEMENT AND PLAN OF MERGER (THIS "AGREEMENT"), made and entered into as of this 23rd day of October, 1997, by and among J & J RENTAL SERVICES, INC., a Texas corporation (the "Company"), UNITED RENTALS, INC., a Delaware corporation ("Buyer") and UR ACQUISITION SUBSIDIARY, INC., a Texas corporation and a wholly- owned subsidiary of Buyer ("Merger Sub"). As used in this Agreement, the "Company Shareholders" shall refer to Joe Bloodworth, Brady F. Carruth, William Leslie Doggett, Frank Erwin and Equus II Incorporated, a Delaware corporation. WHEREAS, the respective Boards of Directors of Buyer, the Company and Merger Sub have approved the acquisition of the Company pursuant to the terms of this Agreement; WHEREAS, to effect such transaction, the respective Boards of Directors of Buyer, the Company and Merger Sub have each duly approved the merger of the Company with and into Merger Sub (the "Merger") in accordance with applicable laws of the State of Texas, upon the terms and subject to the conditions set forth below; WHEREAS, the Board of Directors of the Company has determined to recommend to the shareholders of the Company that it is advisable and in the best interests of the Company and its shareholders to approve the Merger; WHEREAS, this transaction is intended to comply with the provisions of Section 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code"); and WHEREAS, the parties hereto desire to make certain representations, warranties, covenants and agreements in connection with the Merger. NOW, THEREFORE, in consideration of the premises and the representations, warranties and agreements herein contained, the parties hereto agree as follows: ARTICLE I - THE MERGER AND RELATED MATTERS ------------------------------------------ 1.1 THE MERGER ---------- (a) Subject to the terms and conditions of this Agreement, at the Effective Time (as hereinafter defined), the Company shall be merged with and into Merger Sub, the separate existence of the Company shall cease (except as may be continued by operation of law) and Merger Sub shall continue as the surviving corporation (the "Surviving Corporation"). (b) From and after the Effective Time, (i) the Articles of Incorporation of Merger Sub in effect immediately prior to the Effective Time shall be the Articles of Incorporation of the Surviving Corporation until thereafter amended; (ii) the Bylaws of Merger Sub in effect immediately prior to the Effective Time shall be the Bylaws of the Surviving Corporation until thereafter amended; (iii) the directors and officers of Merger Sub as constituted immediately prior to the Effective Time shall be the directors and officers of the Surviving Corporation, and shall serve until the next meeting of shareholders of the Surviving Corporation following the Effective Time; and (iv) the name of the Surviving Corporation shall be the name of the Company in effect immediately prior to the Effective Time. (c) At and after the Effective Time, all of the rights, privileges, powers, immunities and franchises of both Merger Sub and the Company, all property, real, personal and mixed, of and all debts due to either Merger Sub or the Company on whatever account, and all other interests or actions belonging to Merger Sub or the Company shall be vested in the Surviving Corporation. At and after the Effective Time, the Surviving Corporation shall be responsible and liable for all the liabilities and obligations of Merger Sub and the Company. 1.2 EFFECTIVE TIME OF THE MERGER. Subject to the provisions of this ---------------------------- Agreement, the Company and Merger Sub will file, or cause to be filed, articles of merger with the Secretary of State of Texas which articles of merger shall be in the form required by and executed in accordance with the applicable provisions of Texas law. The Merger shall become effective at the time the articles of merger are filed with the Secretary of State of Texas (the "Effective Time"). 1.3 EFFECT ON CAPITAL STOCK; PRICE. At the Effective Time, by virtue of ------------------------------ the Merger and without any action on the part of the holder of any shares of stock of the Company or Merger Sub, all of the issued and outstanding shares of the Company's common stock ("Company Common Stock") shall be exchanged for the consideration set forth in Sections 1.3(a) and 1.3(b) herein. (a) Shares of common stock of Buyer which have an aggregate value of $3,250,000, subject to the adjustments provided for in Section 1.5 herein (the "Buyer Shares"). The value per share of the Buyer Shares shall be the projected price at which Buyer intends to offer its stock in its planned Initial Public Offering (the "IPO"). The actual number of the Buyer Shares will be increased or decreased 60 days following the closing of the IPO to reflect a number determined by dividing the sum of $3,250,000 by the average daily closing price of Buyer's common stock on the public market during the 60-day period immediately following the closing of the IPO. In the event Buyer does not successfully complete the IPO on or before July 5, 1998, the Company Shareholders will be entitled to require that Buyer redeem the Buyer Shares for the price of $3,250,000, pursuant to a Rescission Agreement to be signed at the Closing (as hereinafter defined). The Buyer Shares shall be issued to the Company Shareholders in the percentages and at the addresses set forth on Schedule 1.3(a); provided, however, that 35% of the Buyer Shares shall be placed in escrow on the Closing Date (as hereinafter defined) at Southwest Bank of Texas, Houston, Texas, pursuant to an Escrow Agreement to be signed at the Closing. (b) Cash amounts determined pursuant to the provisions of this Section 1.3(b) (the "Contingent Consideration"). Commencing with the partial quarter beginning one day after the Closing Date and ending on December 31, 1997, and for each calendar quarter thereafter, Buyer will cause the Surviving Corporation to pay to the Company Shareholders, and the Company Shareholders have the right to receive from the Surviving Corporation, an amount equal to 30% of the Surviving Corporation's gross revenues for such quarter derived from the Qualified Territory (as hereinafter defined), until such time as the aggregate Contingent Consideration has totalled $2,800,000. The Contingent Consideration shall be payable within 45 days after the end of each such quarter and shall be payable to the Company Shareholders in the percentages and 2 at the addresses set forth on Schedule 1.3(a). The term "Qualified Territory" shall mean (a) Harris County, Texas, or any county located within 75 miles of Harris County, Texas, (b) Travis County, Texas, or any county located within 75 miles of Travis County, Texas, and (c) Southeast Texas and Southwest Louisiana, as set forth on Schedule 1.3(b). Buyer agrees to cause the Surviving Corporation to operate in accordance with an Operating Agreement to be signed at the Closing. 1.4 EXCHANGE OF CERTIFICATES. ------------------------ (a) At the Closing, the Company Shareholders will deliver to Merger Sub the certificates representing all of the issued and outstanding shares of Company Common Stock. In exchange therefor, Merger Sub will deliver the certificates representing the Buyer Shares issuable pursuant to Section 1.3(a) herein, subject to the escrow provision provided for in Section 1.3(a) herein and the adjustments provided for in Section 1.5 herein. (b) The Buyer Shares issued upon the surrender of and in exchange for shares of Company Common Stock in accordance with the terms of this Agreement shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Company Common Stock, and there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the shares of the Company Common Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, certificates representing shares of Company Common Stock are presented to the Surviving Corporation for any reason, they shall be entitled to no rights with respect to the Surviving Corporation or otherwise. (c) With respect to the Buyer Shares to be issued to the Company Shareholders hereunder, except as provided in the Registration Rights Agreement attached hereto as Exhibit 2.1(h): (i) the Company Shareholders understand that the Buyer Shares will not be registered as of the Closing under the Securities Act of 1933, as amended, or any state securities laws; (ii) the Company Shareholders have had access to information about the business and financial condition of Buyer and have had the opportunity to ask questions of, and receive answers from, the management of Buyer as to the business and financial condition of Buyer; (iii) the Company Shareholders have been advised by Buyer that as to the Buyer Shares, the Company Shareholders must bear the economic risk of the investment until the Buyer Shares have been registered under the Securities Act of 1933, as amended, and cannot be sold unless such registration is completed or unless an exemption from such registration is available; (iv) the Company Shareholders have sufficient business and financial experience and have the capacity to protect their own interests; 3 (v) each Company Shareholder is an "accredited investor" as defined in the rules issued under the Securities Act of 1933, as amended; and (vi) the Company Shareholders agree that Buyer will place a legend on the certificate representing the Buyer Shares to reflect the restrictions described in this Section 1.4(c) and may place stop- transfer restrictions on the Buyer Shares, which legend shall be in substantially the following form: The securities represented by the within certificate have not been registered under the Securities Act of 1933, as amended, or the securities laws of any state. The securities have been acquired for investment and may not be sold, transferred, pledged, hypothecated or otherwise encumbered unless pursuant to an effective registration of them under the Securities Act of 1933, as amended, and applicable securities laws of any state, or there is presented to the corporation an opinion of counsel, acceptable to counsel for the corporation, to the effect that such registration is not required. 1.5 ADJUSTMENTS TO BUYER SHARES. ---------------------------- (a) At the Closing, the Buyer Shares shall either be increased by the amount by which the current assets (including cash and accounts receivable) of the Company as of the Closing Date exceed $3,000,000, or be decreased by the amount by which the current assets of the Company as of the Closing Date are less than $3,000,000. Schedule 1.5(a) lists the estimated current assets used for purposes of this adjustment. For purposes of the adjustment provided for in this Section 1.5(a), the increase or decrease in the number of the Buyer Shares shall be determined as provided in Section 1.3(a) herein. (b) The Company's debt as of the Closing Date is set forth on Schedule 1.5(b) and includes: (i) the amount of the aggregate debt (excluding trade payables) of the Company outstanding on the Closing Date to be repaid by Buyer at or immediately after the Closing Date and all prepayment penalties incurred or to be incurred by Buyer in connection with the repayment of any such debt; (ii) the amount of the aggregate debt (excluding trade payables) of the Company outstanding on the Closing Date, if any, which will remain outstanding obligations of the Company after the Closing Date, including in each case all interest accrued through and including the Closing Date; (iii) the aggregate amount of the present value of all capitalized lease obligations (determined in accordance with generally accepted accounting principles) of the Company; (iv) the aggregate amount of the present value, discounted at the lease rate factor, if known, inherent in the lease or, if the lease rate factor is not known, at the rate charged to the Company by a third party lender in connection with its most recent borrowing to finance equipment, of all personal property lease obligations of the Company that are not capitalized 4 lease obligations (excluding the leases provided for in Section 2.1(f) herein) and (v) the amount of the current liabilities (including trade accounts payable and accrued expenses and excluding the current portion of long-term debt to the extent such current portion is already accounted for in the foregoing provisions) of the Company as of the Closing Date; provided, however, that the Company's debt shall not include any amounts owing to, assumed by or paid by Buyer at Closing to Latek Capital Corp. Schedule 1.5(b) includes wire transfer instructions for creditors who will be repaid by Buyer, and attached to Schedule 1.5(b) are pay-off letters or instructions from such creditors. At the Closing, the Buyer Shares shall either be decreased by the amount by which the Company's debt as of the Closing Date exceeds $15,000,000 as of the Closing Date, or be increased by the amount by which the Company's debt is less than $15,000,000 as of the Closing Date. For purposes of the adjustment provided for in this Section 1.5(b), the increase or decrease in the number of the Buyer Shares shall be determined as provided in Section 1.3(a) herein. 1.6 ADJUSTMENT TO CONTINGENT CONSIDERATION. --------------------------------------- (a) Buyer and the Company Shareholders will use reasonable efforts to complete the Equipment Adjustment (as hereinafter defined) and the Working Capital Adjustment (as hereinafter defined) within 60 days after the Closing Date, whereupon Buyer shall notify the Company Shareholders of the amount of such Adjustments. If there is no disagreement between Buyer and the Company Shareholders regarding the dollar amount, if any, of the Equipment Adjustment and the Working Capital Adjustment, Buyer shall have the right to set-off the dollar amount of such adjustments against the Contingent Consideration due, or expected to become due, to the Company Shareholders pursuant to Section 1.3(b) herein. In the event of any disagreement between Buyer and the Company Shareholders regarding the dollar amount of any such adjustments, Buyer shall nevertheless deduct or increase the Contingent Consideration payment due, or expected to become due, to the Company Shareholders, by the dollar amount, as adjusted, that is not in dispute. Any reductions in the Contingent Consideration pursuant to this Section 1.6 will be deducted from the last payment of such Contingent Consideration due to the Company Shareholders to be made pursuant to the payment provisions of Section 1.3(b) herein. (b) Schedule 1.6(b) sets forth the asset description, make, model, original cost and net book value of all the Company's equipment held for rent to customers as used in the preparation of the Interim Statements (as defined in Section 3.6 herein) (the "Rental Asset Listing"). All of the equipment is Rental Ready (as defined below). Within 45 days following the Closing Date, Buyer and the Company Shareholders jointly shall complete a physical inventory of each item of equipment on the Rental Asset Listing, including by visiting renters' locations as necessary to inspect such equipment. The Contingent Consideration due to the Company Shareholders, or expected to become due to the Company Shareholders, shall be reduced for each item of equipment listed on the Rental Asset Listing which is missing (to the extent of the fair market value thereof), not Rental Ready (to the extent of the value of the necessary repairs), or otherwise not available for rent to customers by the Company (to the extent of the value of the non-availability), but only to the extent that the aggregate amount of 5 such reductions exceeds $50,000 (the "Equipment Adjustment"). For purposes of this Agreement, an item of equipment is "Rental Ready" only if all required maintenance (except for customary cleaning, fueling and lubrication) has been performed and it does not require any repairs in excess of: (i) $5,000 per item for those items having a net book value of $100,000 or greater, (ii) $2,500 per item for those items having a net book value of $50,000 or greater and less than $100,000, (iii) $1,000 per item for those items having a net book value of $10,000 or greater and less than $50,000, and (iv) $500 per item for those items having a net book value of $2,500 or greater and less than $10,000. Any disputes as to the physical count, fair market value or Rental Readiness of any item of equipment will, if possible, be resolved while the physical inventory of such equipment is being taken. Any disputes not so resolved will be resolved by arbitration in accordance with Section 1.6(d) herein. (c) The adjustments made pursuant to Section 1.5 to the Buyer Shares issued to the Company Shareholders at Closing are based in part on Schedules 1.5(a) and 1.5(b) as delivered at the Closing, which the parties understand include only estimates of the current assets and current liabilities of the Company as of the Closing Date. Within 60 days after the Closing Date, Buyer will determine the actual Closing Date current assets less current liabilities of the Company ("Net Current Position") and will advise the Company Shareholders of such result. If the Net Current Position results in an increase compared to the estimated current assets of the Company set forth on Schedule 1.5(a), less the estimated current liabilities of the Company set forth on Schedule 1.5(b), Buyer will increase the Contingent Consideration due, or expected to become due, to the Company Shareholders by the dollar amount of such difference within 75 days after the Closing Date; if the Net Current Position results in a decrease compared to the estimated current assets of the Company set forth on Schedule 1.5(a), less the estimated current liabilities of the Company set forth on Schedule 1.5(b), Buyer shall have the right to set-off against the Contingent Consideration due, or expected to become due, to the Company Shareholders the dollar amount of such difference (the "Working Capital Adjustment"). To the extent the parties disagree on the result of the Working Capital Adjustment, Buyer and the Company Shareholders will attempt to resolve such dispute and, if they are unable to do so, such dispute will be resolved by arbitration in accordance with Section 1.6(d) herein. For purposes of valuing the accounts receivable of the Company in determining the current assets of the Company as of the Closing Date for the Working Capital Adjustment, all accounts receivable that have not been collected within 60 days after the Closing Date shall, at Buyer's option, be valued at zero. Buyer will cause the Surviving Corporation to use reasonable efforts to collect all such accounts receivable. All such accounts receivable that are valued at zero by Buyer shall be assigned to the Company Shareholders upon completion of the Working Capital Adjustment. (d) In the event a dispute arises with respect to any of the provisions of Section 1.6 herein and Buyer and the Company Shareholders are unable to resolve the dispute, Buyer and/or the Company Shareholders (by a majority vote) shall have the right to elect to arbitrate the dispute. Within 30 days of either Buyer's or the Company Shareholders' election to arbitrate, Buyer shall select an arbitrator and the Company Shareholders (by a majority vote) shall select an arbitrator. The two arbitrators shall then select a third arbitrator. In the event the two arbitrators cannot agree on the selection of a third arbitrator, the Chief Judge of the Harris 6 County, Texas, District Court shall select the third arbitrator. The arbitration shall be conducted in Houston, Texas, and pursuant to the rules of the American Arbitration Association. The parties to the arbitration shall be bound by the decision of the arbitrators, and agree that a judgment on any award rendered may be entered in any court having jurisdiction. ARTICLE II - CLOSING PLACE AND ACTIONS AT CLOSING 2.1 CLOSING TIME AND PLACE. The consummation of the transactions ---------------------- contemplated herein (the "Closing") shall take place on October 23, 1997 (the "Closing Date"), at the offices of Cokinos, Bosien & Young, in Houston, Texas. At the Closing: (a) The Company Shareholders shall deliver to Buyer the certificates representing the Company Common Stock, free and clear of all liens, security interests, claims and encumbrances, accompanied by a stock power duly executed in blank. (b) Buyer shall direct its transfer agent to prepare and deliver to the Company Shareholders the certificates representing the Buyer Shares, subject to the escrow provision provided for in Section 1.3(a) herein and the adjustments provided for in Section 1.5 herein. (c) The Company Shareholders shall deliver to Buyer Uniform Commercial Code security interest searches from the State of Texas, showing all of the security interests, judgments, taxes, other liens or encumbrances outstanding against the Company or its assets. (d) Each party shall deliver to the other party an opinion of counsel for such party, dated as of the Closing Date, in substantially the form of the opinions attached hereto as Exhibit 2.1(d-1) and Exhibit 2.1 (d-2). (e) Buyer and the Company Shareholders shall enter into Non- competition Agreements, in substantially the forms attached hereto as Exhibits 2.1(e-1) through (e-4). (f) Buyer will enter into three Lease Agreements with J & J Realty, Inc., in substantially the forms attached hereto as Exhibits 2.1(f-1) through 2.1(f-3). (g) The Company Shareholders shall deliver a commitment of title insurance on the Real Property (as hereinafter defined) issued by a title insurance company (the "Title Commitment"), and evidencing fee title in J & J Realty, Inc. (h) Buyer and the Company Shareholders shall enter into a Registration Rights Agreement, in substantially the form attached hereto as Exhibit 2.1(h). (i) Buyer and the Company Shareholders will enter into a Rescission Agreement, in substantially the form attached hereto as Exhibit 2.1(i). 7 (j) Buyer and the Company Shareholders shall enter into an Escrow Agreement, in substantially the form attached hereto as Exhibit 2.1(j). (k) Buyer and the Company Shareholders will enter into an Operating Agreement, in substantially the form attached hereto as Exhibit 2.1(k). (l) Buyer and Joe Bloodworth will enter into an Employment Agreement, in substantially the form attached hereto as Exhibit 2.1(l). (m) The Company Shareholders shall deliver to Buyer all of the books and records of the Company, including but not limited to the corporate minute books. (n) The Company Shareholders shall deliver to Buyer certified copies of corporate resolutions whereby the directors and shareholders of the Company unanimously approve this Agreement. (o) Buyer shall deliver to the Company Shareholders certified copies of corporate resolutions whereby the directors and shareholder of Merger Sub unanimously approve this Agreement and whereby the directors of Buyer approve this Agreement. (p) The Company and Merger Sub shall sign the appropriate Articles of Merger and file the same with the Secretary of State of Texas. (q) The Buyer, Merger Sub and the Company Shareholders shall enter into a Shareholders' Agreement, in substantially the form attached hereto as Exhibit 2.1(q). ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company makes the following representations and warranties to Buyer, each of which is true and correct on the date hereof and shall remain true and correct up to and including the Closing Date, and the Company agrees that such representations and warranties shall survive the Closing for the period provided in Section 5.6 of this Agreement. 3.1 ORGANIZATION, STANDING AND QUALIFICATION. The Company is duly ---------------------------------------- organized, validly existing and in good standing under the laws of the State of Texas. The Company has full corporate power and authority to own and lease all its properties and assets and to carry on its business as now conducted and is duly qualified and in good standing in every jurisdiction in which the nature of the business conducted by it or the character or location of the properties owned or leased by it makes such qualification necessary. The Company has heretofore delivered to Buyer complete and correct copies of its Articles of Incorporation and Bylaws, as amended to date. The Company is not in violation of any of the provisions of its Articles of Incorporation or Bylaws. 8 3.2 CAPITALIZATION. All of the issued and outstanding shares of the -------------- Company Common Stock will be owned by the Company Shareholders on the Closing Date free and clear of all liens, security interests, encumbrances and claims of every kind. Each share of the Company Common Stock is duly and validly authorized and issued, fully paid and nonassessable, and was not issued in violation of the preemptive rights of any past or present shareholder of the Company. No option, warrant, call, conversion right or commitment of any kind exists which obligates the Company to issue any of its authorized but unissued capital stock or other equity interest. 3.3 AUTHORITY FOR AGREEMENT. The Company has full right, power and ----------------------- authority to enter into this Agreement and to perform its obligations hereunder. This Agreement has been duly and validly executed and delivered by the Company and, subject to the due authorization, execution and delivery by Buyer and Merger Sub, constitutes the valid and binding obligation of the Company enforceable against the Company in accordance with its terms. 3.4 NO BREACH OR DEFAULT. Except as set forth on Schedule 3.4, the -------------------- execution and delivery by the Company of this Agreement, and the consummation by the Company of the transactions contemplated hereby, will not: (a) result in the breach of any of the terms or conditions of, or constitute a default under, or in any manner release any party from any obligation under, any mortgage, lease, note, bond, indenture, or material contract, agreement, license or other instrument or obligation of any kind or nature to which the Company is a party, or by which the Company or any of the assets or the business of the Company is or may be bound or affected; or (b) violate any law or any order, writ, injunction, or decree of any court, administrative agency or governmental authority, or require the approval, consent or permission of any governmental or regulatory authority; or (c) violate the Articles of Incorporation or Bylaws of the Company. 3.5 SUBSIDIARIES. The subsidiaries of the Company, if any, are disclosed ------------ on Schedule 3.5. Each subsidiary of the Company is duly organized, validly existing and in good standing under the laws of the state of its incorporation, and each subsidiary of the Company is duly qualified to transact business and is in good standing in each jurisdiction where the ownership of its properties or the conduct of its business requires such qualification. As used in this Agreement, the term "the Company" shall include the Company and its subsidiaries unless the context otherwise indicates. 3.6 FINANCIAL STATEMENTS. The Company has delivered to Buyer, as Schedule -------------------- 3.6, copies of the unaudited financial statements of the Company's predecessors for the years ended December 31, 1994, December 31, 1995 and December 31, 1996 ("Financial Statements") and the audited interim statements of the Company for the period ended on September 30, 1997 ("Interim Statements"). The Financial Statements and Interim Statements are true and correct and fairly present the financial position of the Company and its predecessors as of the respective 9 dates of the balance sheets included in said statements, and the results of operations for the respective periods indicated, except as disclosed on Schedule 3.6. Except as disclosed on Schedule 3.6, the Financial Statements and Interim Statements have been prepared in accordance with generally accepted accounting principles. The Company, except to the extent reflected or reserved against on its Interim Statements, and except as reflected on any Schedule to this Agreement, had as of the Closing Date, no liabilities of any nature, whether accrued, absolute, contingent or otherwise, including, without limitation, tax liabilities due or to become due, with respect to any period prior to the Closing Date. 3.7 LIABILITIES. The Company has delivered to Buyer, as Schedule 3.7, an ----------- accurate list and description of all liabilities of the Company in the format set forth below. (a) Part I of Schedule 3.7 lists, as of the date of this Agreement, all material fixed and uncontested liabilities of any kind, character and description, whether reflected or not reflected on the Interim Statements and whether accrued or absolute, and states as to each such liability, the amount of such liability and to whom payable. (b) Part II of Schedule 3.7 lists, as of the date of this Agreement, all claims, suits and proceedings which are pending against the Company or its predecessors and, to the knowledge of the Company, all contingent liabilities and all claims, suits and proceedings threatened or anticipated against the Company or its predecessors. For each such liability, the Company has provided the following in Part II of Schedule 3.7: (i) a summary description of such liability together with copies of all material documents, reports and other records relating thereto; (ii) all amounts claimed or relief sought with respect to such liability and the identity of the claimant; and (iii) without limitation of the foregoing, (a) the name of each court, agency, bureau, board or body before which any such claim, suit or proceeding is pending, including, without limitation, those arising under Environmental Laws (as defined in Section 3.22 herein), those relating to personal injury or property damage (including all workers' compensation and occupational disease and injury claims, suits and proceedings) and those citations arising under the federal or any state Occupational Safety and Health Act, (b) the date such claim, suit or proceeding was instituted, (c) the parties to such claim, suit or proceeding, (d) a description of the factual basis alleged to underlie such claim, suit or proceeding, including the date or dates of all material occurrences, (e) the amount claimed and other relief sought, and (f) all material pleadings, briefs and other documents relating thereto. 3.8 CONDUCT OF BUSINESS. Since September 30, 1997, (a) the business of ------------------- the Company has been conducted only in the ordinary course; and (b) there has been no change in the condition (financial or otherwise) of the assets, liabilities or operations of the business other 10 than changes in the ordinary course of business, none of which either singly or in the aggregate has been materially adverse. 3.9 PERMITS AND LICENSES. The Company has delivered as part of Schedule -------------------- 3.9 all the material permits, licenses, franchises, titles and any other similar documents material to the operation of the business (the "Permits"). The Company represents and warrants that it can and will obtain any third party consent from whom consent must be obtained in order to effect a transfer of the Permits acquired as a result of the transactions contemplated in this Agreement. The Permits are adequate for the operation of the business as presently constituted and are valid and in full force and effect. 3.10 RECEIVABLES. The Company has delivered to Buyer, as Schedule 3.10, an ----------- accurate list, as of the Closing Date, of the accounts and notes receivable of the Company, including receivables from and advances to employees, officers, directors and shareholders. The Company also has provided Buyer with an aging of all accounts and notes receivable as of the Closing Date, showing amounts due in 30-day aging categories. 3.11 FIXED ASSETS AND REAL PROPERTY. ------------------------------ (a) The Company has delivered to Buyer, as Schedule 3.11(a), a list as of the Closing Date, of substantially all the assets (other than the Real Property) of the Company, including, without limitation, identification of each vehicle and item of machinery and equipment by description and serial number, and general descriptions of parts, supplies and inventory. Except as described on Schedule 3.11(a), all of the Company's vehicles, machinery and equipment necessary for the operation of the business are in satisfactory operating condition, normal wear and tear excepted, and all of the vehicles, equipment and inventory of the Company are in material compliance with all applicable laws, rules and regulations. All leases of fixed assets are in full force and effect and binding upon the parties thereto. Neither the Company nor any other parties to such leases are in breach of any of the material provisions thereof. All fixed assets (other than the Real Property) are listed on Schedule 3.11(a) and are either owned by the Company or leased under an agreement reflected on Schedule 3.11(a). (b) Each parcel of real property used, leased, owned, being purchased by or useful in the business of the Company as of the date of this Agreement (the "Real Property"), including the legal description and address thereof, is listed on Schedule 3.11(b), and attached to said Schedule 3.11(b) are copies of all leases, deeds, purchase documents, mortgages, other encumbrances and title insurance policies or lawyer's title opinions relating to such parcels. 3.12 ACQUISITION/DISPOSAL OF ASSETS. Except as indicated on Schedule 3.12, ------------------------------ since September 30, 1997, the Company has not acquired or sold or otherwise disposed of any properties or assets which, singly or in the aggregate, have a value in excess of $25,000, or are material to the operation of the Company's business as presently constituted. 3.13 CONTRACTS AND AGREEMENTS; ADVERSE RESTRICTIONS. ---------------------------------------------- 11 (a) The Company has delivered to Buyer, as Schedule 3.13(a), as of the date of this Agreement, a listing of and copies of all material contracts and agreements (other than leases included with Schedule 3.11(a) and documents included with Schedule 3.11(b)) to which the Company is a party or by which it or any of its property is bound (including, but not limited to, rental contracts, joint venture or partnership agreements, non-competition or non- solicitation agreements, confidentiality agreements, agreements relating to intellectual property, contracts with any labor organizations, promissory notes, loan agreements, bonds, mortgages, deeds of trust, liens, pledges, conditional sales contracts or other security agreements). Material contracts and agreements shall not include agreements (oral or written) with a value of $500 or less and a term not exceeding 12 months. All such contracts and agreements included in Schedule 3.13(a) are in full force and effect and binding upon the parties thereto. Neither the Company nor any other parties to such contracts and agreements are in breach thereof, and none of the parties has given a termination notice. Schedule 3.13(a) discloses as to all loan agreements, capital leases, promissory notes, deeds of trust or security agreements, the full pay off amount of all underlying indebtedness evidenced and/or secured thereby as of the Closing Date. (b) Except as set forth on Schedule 3.13(b), there is no outstanding judgment, order, writ, injunction or decree against the Company, the result of which could materially adversely affect the Company or the business, nor has the Company been notified that any such judgment, order, writ, injunction or decree has been requested. 3.14 INSURANCE. The Company has delivered to Buyer, as Schedule 3.14, a --------- list and copies, as of the date of this Agreement, of all insurance policies (including expired "occurrences" policies) carried by the Company and its predecessors for the last three years and/or currently in effect, specifying, for each policy, the name of the insurer, a summary description of the property or interest insured and the type of risks insured, the deductible and limits of coverage, and the annual premium therefor. During the last five years, there has been no gap in any material insurance coverage of the Company and its predecessors. For each insurer providing coverage for any of the contingent or other liabilities listed on Schedule 3.7, except to the extent otherwise set forth in Part II of Schedule 3.7, each such insurer, if required, has been properly and timely notified of such liability, no reservation of rights letters have been received by the Company or its predecessors and the insurer has assumed defense of each suit or legal proceeding. 3.15 PERSONNEL. The Company has delivered to Buyer, as Schedule 3.15, a --------- list, as of the date of this Agreement, of all officers, directors and employees (by type or classification) of the Company and their respective rates of compensation, including (i) the portions thereof attributable to bonuses, (ii) any other salary, bonus or other payment arrangement made with or promised to any of them, and (iii) copies of all employment agreements with non-union officers, directors and employees. 3.16 BENEFIT PLANS AND UNION CONTRACTS. --------------------------------- (a) The Company has delivered to Buyer, as Schedule 3.16(a), a list and complete 12 copies, as of the date of this Agreement, of all employee benefit plans and agreements currently maintained or contributed to by the Company, including employment agreements and any other agreements containing "golden parachute" provisions, retirement plans, welfare benefit plans and deferred compensation agreements, together with copies of such plans, agreements and any trusts related thereto, and classifications of employees covered thereby as of the date of this Agreement. Except for the employee benefit plans, if any, described on Schedule 3.16(a), the Company has no other pension, profit sharing, deferred compensation, stock option, employee stock purchase or other employee benefit plans or arrangements. Except as disclosed on Schedule 3.16, all employee benefit plans listed on Schedule 3.16(a) are fully funded and in substantial compliance with all applicable federal, state and local statutes, ordinances and regulations. All such plans that are intended to qualify under Section 401(a) of the Internal Revenue Code have been determined by the Internal Revenue Service to be so qualified, and copies of such determination letters are included as part of Schedule 3.16(a). Except as disclosed on Schedule 3.16(a), all reports and other documents required to be filed with any governmental agency or distributed to plan participants or beneficiaries (including, but not limited to, actuarial reports, audits or tax returns) have been timely filed or distributed, and copies thereof are included as part of Schedule 3.16(a). The Company has incurred no liability for excise tax or penalty due to the Internal Revenue Service or U.S. Department of Labor nor any liability to the Pension Benefit Guaranty Corporation for any employee benefit plan. The Company has not participated in or made contributions to any "multi-employer plan" as defined in the Employee Retirement Income Security Act of 1974 ("ERISA"), nor would the Company or any affiliate be subject to any withdrawal liability with respect to such a plan if any such employer withdrew from such a plan immediately prior to the date of this Agreement. No employee pension benefit plan is under funded on a termination basis as of the date of this Agreement. (b) The Company has delivered to Buyer, as Schedule 3.16(b), a list and complete copies, as of the date of this Agreement, of all union contracts and agreements between the Company or its predecessors, and any collective bargaining group. There is no labor strike, dispute, slow down or stoppage as of the date of this Agreement, or, to the Company's knowledge, threatened against the Company; and, to the Company's knowledge, no union organizational activity exists respecting employees of the Company not currently subject to a collective bargaining agreement; except as set forth on Schedule 3.16(b), neither the Company nor its predecessors have experienced any material work stoppage or labor difficulty since 1991; the union contracts or other agreements delivered as part of Schedule 3.16(b) constitute all agreements with the unions or other collective bargaining groups, and there are no other arrangements or established practices relating to the employees covered by the collective bargaining agreement; and Schedule 3.16(b) contains a list of all arbitration or grievance proceedings that have involved the Company or its predecessors since 1991. 3.17 TAXES. The Company and its predecessors have accurately prepared and ----- filed, on a timely basis, all requisite federal, state, local and other tax and information returns (including, without limitation, sales tax returns) due for all fiscal periods ended on or before the date of this Agreement; the Company and its predecessors have paid all taxes that have or may 13 become due pursuant to such returns or otherwise or pursuant to any assessment received or which may be received by the Company or its predecessors; except as set forth on Schedule 3.17, there are no open years, examinations in progress or claims against the Company or its predecessors for federal, state, local or other taxes (including penalties and interest) for any period or periods prior to and including the date of this Agreement; and no notice of any claim, whether pending or threatened, for taxes has been received or, if so, such claims have been settled or resolved prior to the date of this Agreement. Copies of (a) any tax examinations, (b) extensions of statutory limitations and (c) the federal income, and state franchise, income and sales tax returns of the Company and its predecessors for the last three years have been delivered to Buyer by the Company Shareholders and are attached as part of Schedule 3.17. Copies of all other federal, state, local and other tax and information returns for prior years have been made available to Buyer. Except as set forth on Part II of Schedule 3.7, (i) the Company and its predecessors have not agreed to any extensions of any statutes of limitations in connection with a federal, state or local income, franchise or sales tax examination, (ii) there are no federal, state or local income, franchise or sales tax examinations currently in progress, and (iii) the Company and its predecessors have not been contacted by any federal, state or local taxing authority regarding a prospective examination. 3.18 COPIES COMPLETE. Except as disclosed on Schedule 3.18, the copies of --------------- the Articles of Incorporation and Bylaws of the Company, both as amended to the date of this Agreement, and the copies of all leases, agreements, licenses, permits, certificates or other documents which have been delivered to Buyer in connection with the transactions contemplated hereby are complete and accurate in all material respects and are true and correct copies of the originals thereof. Except as disclosed on Schedule 3.18, the rights and benefits of the Company thereunder will not be adversely affected by the transactions contemplated hereby and the execution of this Agreement and the performance of the obligations hereunder will not violate or result in a breach or constitute a default under any of the terms or provisions thereof. 3.19 SUPPLIER AND CUSTOMER RELATIONSHIP. Schedule 3.19 lists all of the ---------------------------------- suppliers and customers of the Company that the Company serves, or is serviced by, on an ongoing basis, including name, location and current billing rate, as of the date of this Agreement. Except as disclosed on Schedule 3.19, none of the customers or suppliers, as of the date of this Agreement, have cancelled or substantially reduced service or are currently attempting or threatening to cancel or substantially reduce service. The Company is not aware of problems with its commercial working relationships with its customers and suppliers and, to the best of the Company's knowledge, the consummation of the transactions contemplated hereby will not adversely affect the relationship of the Company with any of its material customers or suppliers. 3.20 NO CHANGE. Except as disclosed on Schedule 3.20, since the inception --------- of the business of the Company, there has not been: (a) any material adverse change in its financial condition, assets, liabilities (contingent or otherwise), income, operations or business; 14 (b) any damage, destruction or loss (whether or not covered by insurance) adversely affecting any material portion of its properties or business; (c) any change in or agreement to change (i) its shareholders, (ii) ownership of its authorized capital or outstanding securities, or (iii) its securities; (d) any declaration or payment of, or any agreement to declare or pay, any dividend or distribution in respect of the Company Common Stock or any direct or indirect redemption, purchase or other acquisition of any of the Company Common Stock; (e) any increase or bonus or promised increase or bonus in the compensation payable or to become payable by it, in excess of usual and customary practices, to any of its directors, officers, employees or agents, or any accrual or arrangement for or payment of any bonus or other special compensation to any employee or any severance or termination pay paid to any of its present or former officers or other key employees other than in the ordinary course of business and other than the bonuses paid or payable to employees as fully described on Schedule 3.20; (f) any labor dispute or any other event or condition of any character, materially adversely affecting its business or future prospects; (g) any sale or transfer, or any agreement to sell or transfer, any of its material assets, property or rights to any other person, including, without limitation, the Company Shareholders and their respective affiliates, other than in the ordinary course of business; (h) any cancellation, or agreement to cancel, any material indebtedness or other material obligation owing to it, including, without limitation, any indebtedness or obligation of the Company Shareholders or any affiliates thereof; (i) any plan, agreement or arrangement granting any preferential rights to purchase or acquire any interest in any of its assets, property or rights or requiring consent of any party to the transfer and assignment of any such assets, property or rights; (j) any purchase or acquisition of, or any agreement, plan or arrangement to purchase or acquire, any of its property, rights or assets outside the ordinary course of its business; (k) any waiver of any of its material rights or claims; (l) any amendment or termination of any material contract, agreement, license, permit or other right to which it is a party; or (m) any other transaction outside the ordinary course of its business. 15 3.21 BANK ACCOUNTS. The Company has delivered to Buyer, as Schedule 3.21, ------------- a list, as of the date of this Agreement, of (i) the name of each bank in which the Company has accounts or safe deposit boxes, (ii) the name(s) in which the accounts or boxes are held, (c) the type of account and (iv) the name of each person authorized to draw thereon or have access thereto. 3.22 COMPLIANCE WITH LAWS. Except as disclosed on Schedule 3.22 or on -------------------- Schedule 3.7, 3.23 or 3.24, as of the date of this Agreement, the Company and its predecessors have materially complied with, and are presently in material compliance with, federal, state and local laws, ordinances, rules, regulations, Governmental Permits, orders, judgments, awards, decrees, consent judgments, consent orders and requirements applicable to the Company and its predecessors (collectively "Laws"), including, but not limited to, Laws relating to the public health, safety or protection of the environment (collectively, "Environmental Laws"), except for such minor noncompliances which, to the Company's knowledge, do not adversely affect the Company. Except as disclosed on Schedule 3.22 or on Schedule 3.7, 3.23 or 3.24, there has been no assertion by any party that the Company and its predecessors have violated any Laws. Specifically and without limiting the generality of the foregoing, except as disclosed on Schedule 3.22 or on Schedule 3.7, 3.23 or 3.24: (a) Except as permitted under applicable laws and regulations, including, without limitation, the federal Resource Conservation Recovery Act, 42 USC (S)6901 et seq. ("RCRA"), the Company and its predecessors have not accepted, generated, stored or disposed of any Hazardous Material (as defined in Section 3.22(e) below). (b) During the Company's and its predecessors' ownership or use of the Real Property, and, prior to the Company's and its predecessors' ownership or use of the Real Property, no Hazardous Material, other than that allowed under Environmental Laws, including, without limitation, RCRA, has been disposed of, or otherwise released on the Real Property. (c) The Company and its predecessors have never been subject to nor received any notice of, any private, administrative or judicial action, or notice of any intended private, administrative or judicial action relating to the presence or alleged presence of Hazardous Material in, under, upon or emanating from the Real Property. There are no pending and no threatened actions or proceedings from any governmental agency or any other entity involving remediation of any condition of the Real Property, including, without limitation, petroleum contamination, pursuant to Environmental Laws. (d) Except as allowed under Environmental Laws, the Company and its predecessors have not sent, transported or arranged for the transportation or disposal of any Hazardous Material, to any site, location or facility. (e) As used in this Agreement, "Hazardous Material" shall mean the substances (i) defined as "Hazardous Waste" in 40 CFR 261, and substances defined in any comparable Texas statute or regulation; (ii) any substance, the presence of which, 16 requires remediation pursuant to any Environmental Laws; and (iii) any substance disposed of in a manner not in compliance with Environmental Laws. 3.23 NO EMPLOYEE EXPOSURE TO HAZARDOUS WASTE. Except as disclosed on --------------------------------------- Schedule 3.23, the Company and its predecessors have not received a notice or claim relating to the exposure of employees to Hazardous Waste, in the course and scope of their respective employments with the Company or its predecessors. 3.24 UNDERGROUND STORAGE TANKS. Except as set forth on Schedule 3.24, no ------------------------- underground storage tanks containing petroleum products or wastes or other hazardous substances regulated by 40 CFR 280 or environmental laws are currently or have been located on the Real Property or other real estate or facilities during the Company's or its predecessors' ownership or use thereof. Except to the extent set forth on Schedule 3.24, the Company has complied with Environmental Laws regarding the installation, use, testing, monitoring, operation and closure of any underground storage tank described on Schedule 3.24. 3.25 NO MISLEADING STATEMENTS. The representations and warranties of the ------------------------ Company contained in this Agreement, the exhibits and schedules hereto and all other documents and information furnished to Buyer and its representatives pursuant hereto are, taken as a whole, complete and accurate in all material respects and do not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements made and to be made not misleading as of the date of this Agreement. 3.26 ACCURATE AND COMPLETE RECORDS. The corporate minute books, stock ----------------------------- ledgers, books, ledgers, financial records and other records of the Company and its predecessors: (a) have been or will be made available to Buyer and its agents; (b) to the Company's knowledge, have been, in all material respects, maintained in accordance with all applicable laws, rules and regulations; and (c) to the Company's knowledge, are accurate and complete and do not contain or reflect any material discrepancies. 3.27 PRODUCT QUALITY AND WARRANTY CLAIMS. All products and services sold, ----------------------------------- rented, leased provided or delivered by the Company and its predecessors to customers on or prior to the Closing Date conform or will conform to applicable contractual commitments, express and implied warranties, product and service specifications and quality standards, and, to the knowledge of the Company, the Company and its predecessors have no liability (and there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against the Company or its predecessors giving rise to any liability) for replacement or repair thereof or other damages in connection therewith. No product or service sold, leased, rented, provided or delivered by the Company and its predecessors to customers on or prior to the Closing Date is subject to any guaranty, warranty or other indemnity beyond the applicable standard terms and conditions of sale, rent or lease. Except as set forth on Schedule 3.7, the Company and its predecessors have no liability (and there is 17 no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against the Company or its predecessors giving rise to any liability) arising out of any injury to a person or property as a result of the ownership, possession, provision or use of any equipment, product or service sold, rented, leased, provided or delivered by the Company or its predecessors on or prior to the Closing Date. 3.28 KNOWLEDGE. Wherever reference is made in this Agreement to the --------- "knowledge" of the Company, such term means the actual knowledge of the officers, directors or shareholders of the Company or any knowledge which should have been known by the officers, directors or shareholders of the Company upon reasonable inquiry by a reasonable business person. 4. REPRESENTATIONS AND WARRANTIES OF BUYER --------------------------------------- Buyer represents and warrants to the Company and the Company Shareholders that each of the following representations and warranties is true as of the date of this Agreement and will be true as of the Closing Date, and agrees that such representations and warranties shall survive the Closing for the period provided in Section 5.6 below: 4.1 EXISTENCE AND GOOD STANDING. Buyer and Merger Sub are corporations --------------------------- duly organized, validly existing and in good standing under the laws of their jurisdiction of organization or incorporation. Buyer and Merger Sub have full corporate power and authority to own and lease their properties and to carry on their business as now conducted. Buyer and Merger Sub are duly qualified to transact business and are in good standing in each jurisdiction where the ownership of their properties or the conduct of their business requires such qualification. 4.2 AUTHORIZATION OF AGREEMENT. This Agreement has been duly authorized, -------------------------- executed and delivered by Buyer and Merger Sub and, subject to the due authorization, execution and delivery by the Company Shareholders, constitutes a legal, valid and binding obligation of Buyer and Merger Sub. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and the fulfillment of and compliance with the terms and conditions hereof do not and will not, after the giving of notice, or the lapse of time or otherwise: (a) violate any provisions of any judicial or administrative order, award, judgment or decree applicable to Buyer or Merger Sub; or (b) conflict with any of the provisions of the Articles of Incorporation or Bylaws of Buyer or Merger Sub; or (c) conflict with, result in a breach of or constitute a default under any material agreement or instrument to which Buyer or Merger Sub are a party or by which they are bound. 4.3 ISSUANCE OF SHARES. The Buyer Shares to be issued to the Company ------------------ Shareholders at the Closing or thereafter will be validly issued, fully paid and nonassessable. 5. INDEMNIFICATION --------------- 5.1 COMPANY'S INDEMNITIES. Subject to the provisions of Section 5 herein, --------------------- the Company covenants and agrees that it will indemnify and hold harmless the Company, the Surviving Corporation and Buyer and their respective shareholders, directors, officers, agents, 18 parents, subsidiaries, successors and assigns (singularly "Buyer Indemnitee" and plural "Buyer Indemnitees"), from and after the date of this Agreement, against any and all losses, damages, assessments, adjustments, liabilities, claims, deficiencies, fines, penalties, costs, expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) (hereinafter collectively referred to as "Buyer Losses") arising out of or with respect to either of the following: (a) Any misrepresentation, breach of warranty or nonfulfillment of any agreement or covenant on the part of the Company under this Agreement or any misrepresentation in or omission from any exhibit, schedule, list, certificate or other instrument furnished or to be furnished to Buyer pursuant to the terms of this Agreement, regardless of whether, in the case of a breach of a representation or a warranty, Buyer relied on the truth of such representation or warranty. (b) Any claim for payment of fees and/or expenses by a broker or finder in connection with the origin, negotiation, execution or consummation of this Agreement based upon any alleged agreement between the claimant and the Company or the Company Shareholders, except for the agreement between the Company and Latek Capital Corp. (c) Any abatement order, compliance order, consent order, clean-up order or exhumation order or PRP notification against the Company arising out of any act of the Company or any shareholder, officer, director, employee, consultant, predecessor or agent of the Company occurring on or prior to the Closing Date. (d) Any act or omission of the Company, or any shareholder, officer, director, employee, consultant, predecessor or agent of the Company, occurring on or prior to the Closing Date, including, without limitation, any act or omission which causes or contributes to a release of any materials, pollutants, heat, smoke, fire, odors or fumes into the environment (including air, surface water, groundwater and land) (the term "release" as used herein means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the environment). 5.2 LIMITATION ON COMPANY'S INDEMNITIES. The obligation of the Company to ----------------------------------- indemnify the Buyer Indemnitees as provided in Section 5.1 herein shall be equal to the amount by which the cumulative amount of all Buyer Losses exceeds the sum of $75,000 (the "Deductible Amount"); provided, however, that there shall be no Deductible Amount with respect to Buyer Losses based on breaches of representations and warranties contained in Sections 3.7, 3.15 (to the extent of any severance pay liability), 3.16 and 3.17 herein, and there shall be no Deductible Amount with respect to Buyer Losses arising out of Section 5.1(b); provided further, however, the obligation of the Company to indemnify the Buyer Indemnitees shall not exceed, in the aggregate, $3,250,000 as adjusted pursuant to Section 1.3(a) plus the maximum Contingent Consideration provided for in Section 1.3(b) as adjusted pursuant to 19 Section 1.6 herein. 5.3 BUYER'S INDEMNITIES. Subject to Section 5.4 herein, Buyer covenants ------------------- and agrees to indemnify and hold harmless the Company and its shareholders, directors, officers, agents, parents, subsidiaries, successors and assigns (singularly "Company Indemnitee" and plural "Company Indemnitees"), from and after the date of this Agreement, against any and all losses, damages, assessments, adjustments, liabilities, claims, deficiencies, fines, penalties, costs, expenses (including specifically, but without limitation, reasonable attorneys' fees and expenses of investigation) (herein collectively referred to as "Company Losses") arising out of or with respect to any of the following: (a) Any breach of representation or warranty or post-closing covenant by Buyer under this Agreement; or (b) Any claim for payment of fees and/or expenses as a broker or finder in connection with the origin, negotiation, execution or consummation of this Agreement based upon any alleged agreement between the claimant and Buyer. 5.4 NOTICE OF INDEMNITY CLAIM. ------------------------- (a) In the event that any claim ("Claim") is hereafter asserted against any party hereto as to which such party may be entitled to indemnification hereunder, such party (the "Indemnitee") shall notify the party required by the terms of this Agreement to indemnify the Indemnitee (the "Indemnifying Party") in writing thereof (the "Claims Notice") within 30 days after (i) receipt of written notice of commencement of any third party litigation against such Indemnitee, (ii) receipt by such Indemnitee of written notice of any third party claim pursuant to an invoice, notice of claim or assessment, against such Indemnitee, or (iii) such Indemnitee becomes aware of the existence of any other event, in respect of which indemnification may be sought from the Indemnifying Party, or as to which the Buyer Indemnitee intends to apply or has applied the amount of the Buyer Losses (as defined in Section 5.1 herein) incurred by such Buyer Indemnitee as a result of such event toward reduction of the applicable Deductible Amount. The Claims Notice shall describe the Claim and the specific facts and circumstances in reasonable detail, and shall indicate the amount, if known, or an estimate, if possible, of the Buyer Losses or the Company Losses, as the case may be, that have been or may be incurred or suffered by the Buyer Indemnitee(s) or the Company's Indemnitee(s), as the case may be. (b) The Indemnifying Party may elect to defend and/or compromise any Claim, at its or his own expense and by its or his own counsel (who shall be reasonably acceptable to the Indemnitee), provided that the Indemnifying Party acknowledges that it or he has an obligation to indemnify the Indemnitee. The Indemnitee may participate, at its or his own expense, in the defense of any Claim assumed by the Indemnifying Party. Without the written approval of the Indemnitee, which approval shall not be unreasonably withheld, the Indemnifying Party shall not agree to any compromise of a Claim defended by the Indemnifying Party which would require the Indemnitee 20 to perform or take any action or to refrain from performing or taking any action, other than the payment of money. (c) If, within 30 days of the Indemnifying Party's receipt of a Claim Notice, the Indemnifying Party shall not have notified the Indemnitee of its or his election to assume the defense, the Indemnitee shall have the right to assume control of the defense and/or compromise of such Claim, and the costs and expenses of such defense, including reasonable attorneys' fees, shall be added to the Claim. If the Indemnitee does not elect to assume the defense of any Claim, it or he may give written notice to the Indemnifying Party of its or his intent not to do so, in which event the Indemnifying Party shall assume control of the defense and/or compromise of such Claim, subject to the right of the Indemnitee to participate, at its or his expense, in the defense against or compromise of such Claim. (d) The party assuming the defense of any Claim shall keep the other party reasonably informed at all times of the progress and development of its or his defense of and compromise efforts with respect to such Claim and shall furnish the other party with copies of all relevant pleadings, correspondence and other papers. In addition, the parties to this Agreement shall cooperate with each other, and make available to each other and their representatives all available relevant records or other materials required by them for their use in defending, compromising or contesting any Claim. The failure to timely notify the Indemnifying Party of the commencement of such actions in accordance with this Section 5.4 shall relieve the Indemnifying Party from the obligation to indemnify under Section 5 herein, but only to the extent the Indemnifying Party establishes by competent evidence that it or he is prejudiced thereby. 5.5 RIGHT OF SET-OFF. In the event that any Buyer Indemnitee is entitled ---------------- to indemnification as provided in Section 5 herein, Buyer shall have the right to set-off the entire amount thereof against the amounts, if any, which Buyer shall owe at such time or from time to time thereafter to the Company or any of the Company Shareholders; provided, however, such set-off shall be made first against the Contingent Consideration due at the time of such set-off, or expected to become due quarterly thereafter, to the Company Shareholders. 5.6 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The ------------------------------------------------------ representations and warranties of the parties contained in this Agreement and in any certificate, exhibit or schedule delivered pursuant hereto, or in any other writing delivered pursuant to the provisions of this Agreement (the "Representations and Warranties") and the liability of the party making such Representations and Warranties for breaches thereof, and the liability of the parties, respectively, arising under Sections 5.1(b), (c), and (d) herein and Section 5.3(b) herein (the "Section 5 Liabilities") shall survive the consummation of the transactions contemplated hereby for the duration of applicable statutes of limitations with respect to any matter giving rise to Buyer Losses or Company Losses; provided, however, that the Representations and Warranties and the liability of the party making such Representations and Warranties for breaches thereof and the Section 5 Liabilities shall also survive until the resolution of any litigation timely commenced by the Buyer Indemnitee(s) or the Company's Indemnitee(s) to recover indemnity therefor. 21 6. POST-CLOSING COVENANTS OF THE COMPANY. ------------------------------------- 6.1 TAX RETURNS OF THE COMPANY. The Company Shareholders agree that they -------------------------- will cause the income tax returns and sales tax returns of the Company for a stub year running from the inception of its existence through the Closing Date to be prepared, at their expense, and timely filed with the appropriate federal and state authorities, subject to any extensions of time to file granted by such authorities; provided, however, that said tax returns shall be filed not later than February 28, 1997. The Company Shareholders further agree that they shall promptly pay, when due, all taxes due and owing for the stub period ended as of the Closing Date, including any taxes arising from a change of accounting method from "cash" to "accrual" effective on the Closing Date, all as reflected on said tax returns. The Company Shareholders shall be entitled to any refunds reflected on said tax returns. 7. POST-CLOSING COVENANTS OF BUYER. ------------------------------- 7.1 TAX AND OTHER RECORDS. After the Closing, Buyer shall cooperate with --------------------- the Company Shareholders with respect to any matters involving the Company Shareholders arising out of their ownership of the Company prior to the Closing, including matters relating to tax returns and any tax audits, appeals, claims or litigation with respect to such tax returns or the preparation of such tax returns. In connection therewith, Buyer shall make available to the Company Shareholders such Company files, documents, books and records for inspection and copying as may be reasonably requested by the Company Shareholders and shall cooperate with the Company Shareholders with respect to retaining information and documents which relate to such matters. 7.2 COSTS OF TRANSACTION. Buyer will pay the accounting expenses incurred -------------------- by the Company with Ernst & Young and the Company's other accountants, relating to any audit or review of the Company in connection with the transaction contemplated in this Agreement. Buyer will also pay the legal or other accounting expenses incurred by the Company in connection with the transactions contemplated in this Agreement, up to a maximum aggregate amount of $75,000. 7.3 OPERATION OF THE SURVIVING CORPORATION. Buyer agrees that, following -------------------------------------- the Closing, it will cause the Surviving Corporation to conduct the historic business operations of the Company for a period of 12 months, and to not issue additional shares of its stock that would result in Buyer losing control of the Surviving Corporation. Buyer represents and warrants that: (a) At the Effective Time, Buyer will be in control of Merger Sub within the meaning of Internal Revenue Code (S) 368(c). (b) Buyer has no plan or intention to reacquire any of the Buyer Shares, except as may be required pursuant to the Rescission Agreement. (c) Neither Buyer nor Merger Sub is an investment company as defined in Internal 22 Revenue Code (S) 368(a)(2)(F)(iii) and (iv). (d) No shares of stock of Merger Sub will be used in this transaction for purposes of Internal Revenue Code (S) 368(a)(2)(D)(i). (e) Buyer has no plan or intention to liquidate the Surviving Corporation. (f) Buyer has no plan or intention to sell or otherwise dispose of the stock of the Surviving Corporation. (g) Buyer has no plan or intention to cause the Surviving Corporation to sell or otherwise dispose of the assets of the Company, except in the ordinary course of business or as described in Internal Revenue Code (S) 368(a)(2)(C). (h) Buyer has no plan or intention to merge Merger Sub with and into another corporation. In the event that Buyer defaults in its performance of the foregoing obligations, or breaches the foregoing representations and warranties, and in the event that such default or breach causes the transaction provided for in this Agreement to be determined by the Internal Revenue Service to be other than a tax free reorganization, Buyer will reimburse the Company Shareholders for any tax liabilities incurred by them over and above the long-term capital gain taxes normally due upon sale by them, respectively, of the portion of the Buyer Shares received by them. 23 8. GENERAL. ------- 8.1 ADDITIONAL CONVEYANCES. Following the Closing, the Company ---------------------- Shareholders and Buyer shall each deliver or cause to be delivered at such times and places as shall be reasonably agreed upon such additional instruments as Buyer or the Company Shareholders may reasonably request for the purpose of carrying out this Agreement. The Company Shareholders will cooperate with Buyer and/or the Surviving Corporation on and after the Closing Date in furnishing information, evidence, testimony and other assistance in connection with any actions, proceedings or disputes of any nature with respect to matters pertaining to all periods prior to the date of this Agreement. 8.2 ASSIGNMENT. This Agreement shall be binding upon and shall inure to ---------- the benefit of the parties hereto, the successors or assigns of Buyer and the successors or assigns of the Company Shareholders; provided, however, that any such assignment shall be subject to the terms of this Agreement and shall not relieve the assignor of its responsibilities under this Agreement. 8.3 PUBLIC ANNOUNCEMENTS. Except as required by law, no party shall make -------------------- any public announcement or filing with respect to the transactions provided for herein prior to Closing without the prior consent of the other parties hereto. 8.4 COUNTERPARTS. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. 8.5 NOTICES. All notices, requests, demands and other communications ------- hereunder shall be deemed to have been duly given if in writing and either delivered personally, sent by facsimile transmission or by air courier service, or mailed by postage prepaid registered or certified U.S. mail, return receipt requested, to the addresses designated below or such other addresses as may be designated in writing by notice given hereunder, and shall be effective upon personal delivery or facsimile transmission thereof or upon delivery by registered or certified U.S. mail or one business day following deposit with an air courier service: If to the Company or the Company Shareholders: Joe Bloodworth 7667 Mosely Houston, Texas 77017 With a copy to: Brian K. Bosien, Esq. Cokinos, Bosien & Young 1500 Liberty Tower 2919 Allen Parkway Houston, Texas 77019 If to Buyer or the Surviving United Rentals, Inc. Corporation: Four Greenwich Office Park 24 Greenwich, CT 06830 Attn. John N. Milne With a copy to: Roger V. Stageberg, Esq. Lommen, Nelson, Cole & Stageberg, P.A. 1800 IDS Center 80 South Eighth Street Minneapolis, MN 55402 8.6 APPLICABLE LAW. This Agreement shall be construed in accordance with -------------- the laws of the State of Texas without regard to its conflict of laws provisions. 8.7 PAYMENT OF FEES AND EXPENSES. Whether or not the transactions herein ---------------------------- contemplated shall be consummated, each party hereto will pay its own fees, expenses and disbursements incurred in connection herewith and all other costs and expenses incurred in the performance and compliance with all conditions to be performed hereunder, except as provided pursuant to Section 7.2 herein. 8.8 INCORPORATION BY REFERENCE. All schedules and exhibits attached -------------------------- hereto are incorporated by reference as though fully set forth at each point referred to in this Agreement. 8.9 CAPTIONS. The captions are for convenience only and shall not be -------- considered a part hereof or affect the construction or interpretation of any provisions of this Agreement. 8.10 NUMBER AND GENDER OF WORDS. Whenever the singular number is used -------------------------- herein, the same shall include the plural where appropriate, and shall apply to all of such number, and to each of them, jointly and severally, and words of any gender shall include each other gender where appropriate. 8.11 ENTIRE AGREEMENT. This Agreement (including the schedules and ---------------- exhibits hereto) and the other documents delivered pursuant hereto constitute the entire Agreement and understanding among the Company, Buyer and Merger Sub and supersedes any prior agreement and understanding relating to the subject matter of this Agreement. This Agreement may be modified or amended only by a written instrument executed by the Company, Buyer and Merger Sub acting through their respective officers, thereunto duly authorized by their respective Boards of Directors. IN WITNESS WHEREOF, the parties hereto have executed this Agreement by persons thereunto duly authorized as of the date first above written. J & J RENTAL SERVICES, INC. UNITED RENTALS, INC. By:________________________ By:________________________ John N. Milne, Vice Chairman 25 UR ACQUISITION SUBSIDIARY, INC. By:___________________________ John N. Milne, President 26 EX-21 18 SUBSIDIARY OF REGISTRANT EXHIBIT 21 SUBSIDIARIES OF UNITED RENTALS, INC. Mercer Equipment Company, a North Carolina corporation A & A Tool Rentals & Sales, Inc., a California corporation J & J Rental Services, Inc., a Texas corporation Coran Enterprises, Inc. (d/b/a A-1 Rents), a California corporation Monterey Bay Equipment Rental, Inc., a California corporation Bronco Hi-Lift Inc., a Colorado corporation Rent-It Center, Inc., a Utah corporation EX-23.(C) 19 CONSENT OF INDEPENDENT AUDITORS ERNST & YOUNG EXHIBIT 23(C) CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated October 8, 1997, except for Note 7 as to which the date is October 28, 1997, with respect to the financial statements of United Rentals, Inc. in the Registration Statement (Form S-1 No. 333-XXXXX) and the related Prospectus of United Rentals, Inc. for the registration of XXXXXX shares of its common stock filed with the Securities and Exchange Commission on October 30, 1997. /s/ Ernst & Young LLP MetroPark, New Jersey October 30, 1997 EX-23.(D) 20 CONSENT OF INDEPENDENT AUDITORS ERNST & YOUNG EXHIBIT 23(D) CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated October 29, 1997, with respect to the financial statements of J&J Rental Services, Inc. in the Registration Statement (Form S- 1 No. 333-XXXXX) and the related Prospectus of United Rentals, Inc. for the registration of XXXXXX shares of its common stock filed with the Securities and Exchange Commission on October 30, 1997. /s/ Ernst & Young LLP MetroPark, New Jersey October 30, 1997 EX-23.(E) 21 CONSENT OF INDEPENDENT AUDITORS ERNST & YOUNG EXHIBIT 23(E) CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated October 21, 1997, except for Note 10 as to which the date is October 24, 1997, with respect to the financial statements of Bronco Hi-Lift, Inc., in the Registration Statement (Form S-1 No. 333-XXXXX) and the related Prospectus of United Rentals, Inc. for the registration of XXXXX shares of its common stock filed with the Securities and Exchange Commission on October 30, 1997. /s/ Ernst & Young LLP MetroPark, New Jersey October 30, 1997 EX-23.(F) 22 CONSENT OF KPMG PEAT MARWICK EXHIBIT 23(F) The Board of Directors A&A Tool Rentals & Sales, Inc.: We consent to the use of our report included herein and to the reference to our firm under the heading "Experts" in the prospectus. KPMG Peat Marwick LLP Sacramento, California October 30, 1997 EX-23.(G) 23 CONSENT OF WEBSTER DUKE & CO EXHIBIT 23(G) CONSENT OF INDEPENDENT AUDITORS We have included our report dated January 31, 1997, accompanying the financial statements of MERCER Equipment Company contained in the Registration Statement and Prospectus. We consent to the use of the aforementioned report in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption "Experts." /s/ Webster, Duke & Co. PA Charlotte, North Carolina October 30, 1997 EX-23.(H) 24 CONSENT OF GRANT THORNTON EXHIBIT 23(h) CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated October 24, 1997, except for note F as to which the date is October 28, 1997, accompanying the combined financial statements of Coran Enterprises, Inc., dba A-1 Rents, and Monterey Bay Equipment Rental, Inc. contained in the Registration Statement and Prospectus. We consent to the use of the aforementioned report in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption "Experts." /s/ Grant Thornton LLP San Jose, California October 29, 1997 EX-27 25 FINANCIAL DATA SCHEDULE
5 OTHER DEC-31-1997 AUG-14-1997 SEP-30-1997 54,637,568 0 0 0 0 114,200 101,248 1,542 54,851,474 152,527 0 0 0 157,146 54,541,801 54,851,470 0 0 0 348,055 (74,598) 0 0 (273,457) 0 (273,457) 0 0 0 (273,457) 0 0
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