-----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, FIrzkbypmmBN/CZoSWXBUUBHSOiaO+1qAol+0Tmis+kjkeU97duBV6cDPzfwTleC uT5pYZFo1mfHPwGQ3K7/Fw== 0000950130-98-000497.txt : 19980205 0000950130-98-000497.hdr.sgml : 19980205 ACCESSION NUMBER: 0000950130-98-000497 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 19980204 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED RENTALS INC CENTRAL INDEX KEY: 0001047166 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 061493538 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-45605 FILM NUMBER: 98521793 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 FEBRUARY 4, 1998 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, ESQ. STEPHEN M. BESEN, ESQ. PHYLLIS G. KORFF, ESQ. EHRENREICH EILENBERG WEIL, GOTSHAL & MANGES LLP SKADDEN, ARPS, SLATE, KRAUSE & ZIVIAN LLP 767 FIFTH AVENUE MEAGHER & FLOM LLP 11 EAST 44TH STREET NEW YORK, NEW YORK 10153 919 THIRD AVENUE NEW YORK, NEW YORK 10017 (212) 310-8000 NEW YORK, NEW YORK 10022 (212) 986-9700 (212) 735-3000 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 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED PROPOSED TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF SECURITIES TO BE TO BE OFFERING AGGREGATE REGISTRATION REGISTERED REGISTERED(1) PRICE PER SHARE(2) OFFERING PRICE(2) FEE - ---------------------------------------------------------------------------------------------- Common Stock, par value $0.01 per share....... 6,325,000 Shares $23.88 $151,041,000 $41,537 - ----------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- (1) Includes 825,000 shares that the Underwriters have the option to purchase to cover over-allotments, if any. (2) Estimated solely for the purposes of calculating the registration fee pursuant to Rule 457 of the Securities Act of 1933, as amended, based on the average of the high and low sales prices of the Common Stock on the New York Stock Exchange on January 30, 1998. 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." ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS, DATED FEBRUARY 4, 1998 PROSPECTUS 5,500,000 SHARES [LOGO] UNITED RENTALS 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, 4,400,000 shares are being offered initially in the United States and Canada by the U.S. Underwriters (the "U.S. Offering"), and 1,100,000 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 public offering price and the underwriting discount per share are identical for each of the Offerings. See "Underwriting." The Common Stock is traded on the New York Stock Exchange under the symbol "URI". On February 3, 1998, the last sale price of the Common Stock as reported on the New York Stock Exchange was $24 5/16 per share. See "Price Range of Common Stock." 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. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO PUBLIC DISCOUNT(1) 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 $1,000,000. (3) The Company has granted the U.S. Underwriters and the International Managers options to purchase up to an additional 660,000 shares and 165,000 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 , 1998. ----------- MERRILL LYNCH & CO. DEUTSCHE MORGAN GRENFELL DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION SALOMON SMITH BARNEY ----------- The date of this Prospectus is , 1998. [Map Showing Rental Locations] 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." PROSPECTUS SUMMARY The following summary is qualified in its entirety by, 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, (i) the terms "United Rentals" and "the Company" refer collectively to United Rentals, Inc. and its subsidiaries and (ii) the term the "Acquired Companies" refers collectively to the 20 companies acquired by the Company since its formation in September 1997. All financial and operating data for the Company contained herein with respect to the year ended December 31, 1997 is on a pro forma basis giving effect to the acquisition of the Acquired Companies and the financing thereof as of January 1, 1997. Unless otherwise indicated, the information contained in this Prospectus assumes no exercise of the Underwriters' over-allotment options. THE COMPANY United Rentals was formed in September 1997 for the purpose of creating a large, geographically diversified equipment rental company in the United States and Canada. The Company commenced equipment rental operations in October 1997 by acquiring six established companies and acquired 14 additional companies in the first two months of 1998. 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 $186.8 million during the year ended December 31, 1997. United Rentals currently operates 67 rental locations in 16 states and Canada. The Company's locations are managed by experienced professionals who have extensive industry experience and substantial knowledge of the local markets served. These managers generally are former owners or 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 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 February 3, 1998, the Company's rental equipment included approximately 34,000 units (not including special event equipment), had an original purchase price of approximately $222 million and had a weighted average age (based on original purchase price) of approximately 3.6 years. THE INDUSTRY The Company estimates that the U.S. equipment rental industry (including used and new equipment sales by rental companies) generates annual revenues in excess of $20 billion. The combined equipment rental revenues of the 100 largest equipment rental companies have increased at an estimated compound annual rate of approximately 21% from 1992 through 1996 (based upon revenues reported for such period, the latest period for which data is available, by the Rental Equipment Register, an industry trade publication). The Company believes that this growth primarily 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. Based upon rental revenues reported by the Rental Equipment Register for 1996 (the latest year for which such revenues have been reported): (i) there were only five equipment rental companies that had 1996 equipment rental revenues in excess of $100 million (with the largest company having had 1996 equipment rental revenues of approximately $400 million), (ii) the largest 100 equipment rental companies combined had less than 3 a 20% share of the market based on 1996 equipment rental revenues and the Company's estimate of the size of the market (with the largest company having had a market share of less than 3%), and (iii) there were 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 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 six established equipment rental 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 ..... 5,500,000 shares(1) Common Stock to be outstanding after the Offerings ............ 30,218,808 shares(1)(2) Use of Proceeds ................. The net proceeds from the Offerings will be used (i) to repay approximately $120 million of outstanding indebtedness under the Company's $155 million revolving credit facility (the "Credit Facility") and (ii) for future acquisitions, capital expenditures and general corporate purposes. See "Use of Proceeds." New York Stock Exchange Symbol .. URI
- -------- (1) Assumes no exercise of the over-allotment options granted by the Company to the Underwriters. (2)Does not include (i) 6,519,058 shares issuable upon the exercise of outstanding warrants, which provide for a weighted average exercise price of $10.12 per share, (ii) 931,333 shares issuable upon the exercise of outstanding options granted pursuant to the Company's 1997 Stock Option Plan, which provide for exercise prices ranging from $10.00 to $30.00 per share, the weighted average exercise price being $13.06 per share, (iii) 4,068,667 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 of $16.20 per share. Also does not reflect adjustments which may change the number of shares issued as consideration for the acquisition of one of the Acquired Companies. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Consideration Paid for 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 and commenced equipment rental operations in October 1997 by acquiring six established rental companies. The Company acquired 14 additional companies in the first two months of 1998. The following unaudited pro forma income statement data for the year ended December 31, 1997 gives effect to the acquisition of each of the 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 such period. The following unaudited pro forma balance sheet data as of December 31, 1997 gives effect to the 14 acquisitions completed by the Company subsequent to such date and the financing of each such acquisition, 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 public offering price of $24.3125 per share (the last reported sale price of the Common Stock on February 3, 1998) 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 (INCEPTION) THROUGH YEAR ENDED DECEMBER 31, 1997 DECEMBER 31, 1997 ----------------------- ---------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Total revenues.......... $10,633 $186,760 Gross profit............ 3,811 69,276 Operating income........ 238 25,973 Interest expense ....... 454 8,889 Other (income) expense, net.................... (270) (1,699) ------- -------- Income before income taxes.................. 54 18,783 Income taxes............ 20 7,488 ------- -------- Net income.............. $ 34 $ 11,295 ======= ======== Basic earnings per share.................. $ 0.00 $ 0.46 ======= ======== Diluted earnings per share.................. $ 0.00 $ 0.43 ======= ======== Depreciation and amortization........... $ 1,301 $ 26,357 EBITDA(1)............... $ 1,539 $ 52,330 AS OF DECEMBER 31, 1997 ------------------------------------------------------ PRO FORMA HISTORICAL PRO FORMA AS ADJUSTED ---------- --------- ----------- (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents............ $ 68,608 $ 50 $18,334 Rental equipment, net... 33,408 138,890 138,890 Total assets............ 169,110 327,277 345,561 Debt.................... 1,074 117,246 9,831 Stockholders' equity.... 157,730 173,182 298,881
(1) As used herein, "EBITDA" means net income plus interest, non-operating income and expenses, income taxes, depreciation, amortization and other non-cash items. Management believes that EBITDA, as presented, represents a useful measure of assessing the performance of the Company's ongoing operating activities as it reflects the earnings trends of the Company without the impact of certain non-cash charges. EBITDA is not intended as an alternative to cash flow from operating activities as a measure of liquidity or as an alternative to net income as an indicator of the Company's operating performance. 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; LIMITED OPERATING HISTORY The Company was incorporated in August 1997 and commenced equipment rental and related operations in October 1997 by acquiring six established rental companies. The Company acquired 14 additional companies in the first two months of 1998. Due to the recent commencement of the Company's operations, the Company has a limited operating history upon which an evaluation of the Company and its prospects can be based. Furthermore, the Company's historical financial statements included herein, which cover the period from inception through December 31, 1997, do not fully reflect the Company's current operations in view of the fact that (i) the results of the six companies acquired in October 1997 are reflected in such financial statements for only a portion of the period covered thereby and (ii) the results of the 14 companies acquired in the first two months of 1998 are not reflected in such financial statements. ACQUIRED COMPANIES NOT HISTORICALLY OPERATED AS A COMBINED BUSINESS Although the Acquired Companies have been in existence an average of 22 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 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 integrate successfully or manage effectively the Acquired Companies could have a material adverse effect on the Company's results of operations and financial condition. 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 that the Company will successfully implement its growth strategy or that, if implemented, such strategy will result in continued profitability. In addition, under the terms of the Company's Credit Facility, the Company may not make acquisitions unless certain financial conditions are satisfied or the consent of the lenders is obtained. Furthermore, there can be no assurance that the Company's growth rate will be comparable to the past or future growth rate of the overall equipment rental industry or any segment thereof. 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 the reduction of 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. 7 Certain Risks Related to Start-up Locations. 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 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. 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 local managers who have extensive experience in the equipment rental industry and substantial knowledge of the local markets served. These managers are generally former owners or 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), did not have experience in the equipment rental industry prior to founding the Company. 8 NEED FOR INTEGRATED INFORMATION TECHNOLOGY SYSTEMS The Company is in the process of installing an integrated information technology system that will link all locations, integrate operating and financial data on a Company-wide basis, and enable the real-time tracking of rental transactions, equipment availability, inventory and other data. The Company expects that this system will become operational at substantially all the Company's existing locations in March 1998. The Company thereafter will be required to expand the system on an ongoing basis as it adds locations. Although the Company expects the system to become operational in March 1998, there can be no assurance that the Company will not encounter unexpected delays or that such system when operational will function in accordance with the Company's expectations. Failure of the system to become operational or to function as expected could negatively impact the Company's ability to implement its growth strategy. Until the new system is operational, each acquired business will continue to use the systems that it had in place at the time it was acquired. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and "Business--Information Technology System." 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 capital 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 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. The Company carries a broad range of insurance for the protection of its assets and operations. However, such coverage is subject to a deductible of $250,000 and limited to a maximum of $25 million per occurrence. In addition, the Company does not maintain insurance coverage for environmental liability, since the Company believes that the cost for such coverage is high relative to the benefit that it provides. Furthermore, 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 continue to be 9 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 relate to matters not covered by the Company's insurance (such as environmental liability), 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 and believes there are no existing material liabilities relating to non-compliance with environmental laws and regulations, there can be no assurance that there are no undiscovered potential liabilities relating to non-compliance with environmental laws and regulations, that historic or current operations have not resulted in undiscovered 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 13,262,414 shares of Common Stock, representing approximately 44% of the Company's outstanding Common Stock (including 10,000,100 shares, representing approximately 33% of the Company's outstanding Common Stock, beneficially owned by Bradley S. Jacobs, Chairman and Chief Executive Officer of the Company). Such share ownership may effectively give such persons the ability to elect the entire Board of Directors of the Company and to control the Company's management and affairs. VOLATILITY OF STOCK PRICE The market price of the Common Stock may experience significant volatility. The market price of the Common Stock could be subject to significant variation due to fluctuations in the Company's operating results, 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 securities in ways unrelated to the operating performance of the issuers of such securities, and such volatility may adversely affect the market price of the Common Stock. There can be no assurance that the market price of the Common Stock will not decline below the price at which the Common Stock is being offered hereby. 10 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. Under the terms of the Credit Facility, the Company is prohibited from paying dividends on the Common Stock. 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 the lock-up agreements described below. Subject to such agreements, upon completion of the Offerings, 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 either be freely tradeable without restriction under the Securities Act or eligible for sale pursuant to a shelf registration statement previously filed by the Company. The Company and all of its officers and directors (who hold an aggregate of 13,262,414 shares of Common Stock) 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 750,000 shares for acquisitions unless the recipients of any excess shares agree to be subject to the foregoing lock-up agreement with respect to such excess shares). In addition, the holder of 318,712 shares of Common Stock has agreed not to sell or otherwise dispose of such shares until June 1998 without the prior written consent of Merrill Lynch & Co. Furthermore, the Company has agreed not to waive any existing lock-up agreements between the Company and its stockholders 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. Such existing lock-up agreements prohibit the sale or transfer of an aggregate of 2,901,705 shares, without the prior written consent of the Company. Such existing lock-up agreements lapse in December 1998 (with respect to 733,670 shares), January 1999 (with respect to 400,584 shares), December 1999 (with respect to 728,671 shares) and December 2000 (with respect to 1,038,780 shares). In addition, an aggregate of 404,291 shares of Common Stock not subject to lock-up agreements and not covered by the Company's shelf registration statement are "restricted securities" under Rule 144 under the Securities Act and may not be sold except if registered pursuant to the Securities Act or if an exemption from registration is available. See "Shares Eligible For Future Sale" and "Underwriting." 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 $125.7 million ($144.7 million if the Underwriters' over-allotment options are exercised in full), based upon an assumed public offering price of 11 $24.3125 per share (the last reported sale price of the Common Stock on February 3, 1998) and after deduction of the estimated underwriting discount and offering expenses. The Company expects to use such net proceeds (i) to repay approximately $120 million of outstanding indebtedness under the Company's Credit Facility and (ii) for future acquisitions, capital expenditures and general corporate purposes. Under the terms of the Credit Facility, the Company may borrow on a revolving basis up to $155 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, at the Company's option, either 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 February 3, 1998, the weighted average interest rate on the outstanding 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 a portion 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 capital 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." PRICE RANGE OF COMMON STOCK The Company's Common Stock commenced trading on the New York Stock Exchange on December 18, 1997 under the symbol "URI." The following table sets forth, for the period indicated, the high and low sales prices for the Common Stock, as reported by the New York Stock Exchange.
PRICE RANGE --------------- 1997 HIGH LOW - ---- ------ ----- Fourth Quarter (from December 18, 1997)..................... $19 5/16 $14 3/8 1998 - ---- First Quarter (through February 3, 1998).................... 25 17 1/4
On February 3, 1998, the last sale price of the Common Stock as reported on the New York Stock Exchange was $24.3125 per share. As of February 3, 1998, there were approximately 126 holders of record of the Common Stock. The Company believes that the number of beneficial owners is substantially greater than the number of record holders, because a large portion of the Common Stock is held of record in broker "street names." 12 CAPITALIZATION The following table sets forth (i) the capitalization of the Company as of December 31, 1997, on an historical basis, (ii) such capitalization on a pro forma basis giving effect to the 14 acquisitions completed by the Company subsequent to such date and the financing of each such acquisition, and (iii) such pro forma capitalization as adjusted to give effect to the sale of the 5,500,000 shares offered hereby at an assumed public offering price of $24.3125 per share (the last reported sale price of the Common Stock on February 3, 1998) and the application of a portion of the net proceeds therefrom 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 DECEMBER 31, 1997 ------------------------------ PRO FORMA ACTUAL PRO FORMA AS ADJUSTED -------- --------- ----------- (IN THOUSANDS) Debt: Credit facility............................... $ -- $107,415 $ -- Equipment notes............................... 574 9,331 9,331 Convertible debt.............................. 500 500 500 -------- -------- -------- Total debt.................................. 1,074 117,246 9,831 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; 23,899,119 shares issued and outstanding, 24,703,994 shares issued and outstanding pro forma, and 30,203,994 shares issued and outstanding pro forma as adjusted(1).................................. 239 247 302 Additional paid-in capital.................... 157,457 172,901 298,545 Retained earnings............................. 34 34 34 -------- -------- -------- Total stockholders' equity.................. 157,730 173,182 298,881 -------- -------- -------- Total capitalization............................ $158,804 $290,428 $308,712 ======== ======== ========
- -------- (1) Does not include (i) 6,519,058 shares issuable upon the exercise of outstanding warrants, which provide for a weighted average exercise price of $10.12 per share, (ii) 931,333 shares issuable upon the exercise of outstanding options which provide for exercise prices ranging from $10.00 to $30.00 per share, the weighted average exercise price being $13.06 per share, (iii) 4,068,667 shares reserved for possible future grants of options under the Company's 1997 Stock Option Plan, (iv) shares issuable upon conversion of a $300,000 convertible note which provides for a conversion price of $16.20 per share and (v) 14,814 shares issued subsequent to December 31, 1997, upon conversion of a $200,000 convertible note. Also does not reflect adjustments which may change the number of shares issued as consideration for the acquisition of one of the Acquired Companies. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Consideration Paid for Acquired Companies," "Management--Capital Contributions by Officers and Directors" and "Description of Capital Stock--Warrants, Options and Convertible Notes." 13 SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The Company commenced rental operations in October 1997 by acquiring six established rental companies (the "Initial Acquired Companies") and acquired 14 additional companies in the first two months of 1998. The following table presents (i) selected unaudited historical income statement and balance sheet data for the Initial Acquired Companies on a combined basis and (ii) selected historical and pro forma income statement and balance sheet data for the Company. The historical income statement and balance sheet data for the Company are derived from the audited Financial Statements of the Company included elsewhere in this Prospectus. The data presented below with respect to the Company 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 for the year ended December 31, 1997 gives effect to the acquisition of each of the 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 such period. The following unaudited pro forma balance sheet data as of December 31, 1997 gives effect to the 14 acquisitions completed by the Company subsequent to such date and the financing of each such acquisition, 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 period 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 public offering price of $24.3125 per share (the last reported sale price of the Common Stock on February 3, 1998) 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 --------------------------------------------------------------------------- ---------- COMBINED INITIAL ACQUIRED COMPANIES COMPANY COMPANY ------------------------------------------------------- ------------------- ---------- PERIOD FROM PERIOD FROM YEAR ENDED DECEMBER 31, JANUARY 1, AUGUST 14, 1997 YEAR ENDED ---------------------------------- 1997 THROUGH (INCEPTION) THROUGH DECEMBER 1993 1994 1995 1996 ACQUISITION DATE(1) DECEMBER 31, 1997 31, 1997 ------- ------- ------- ------- ------------------- ------------------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Total revenues.......... $32,549 $38,179 $44,159 $51,889 $49,200 $10,633 $186,760 Total cost of operations............. 22,961 24,829 28,563 34,737 32,677 6,822 117,484 ------- ------- ------- ------- ------- ------- -------- Gross profit............ 9,588 13,350 15,596 17,152 16,523 3,811 69,276 Selling, general and administrative expense................ 7,772 9,898 11,537 12,435 12,021 3,311 38,213 Non-rental depreciation and amortization....... 300 427 502 527 472 262 5,090 ------- ------- ------- ------- ------- ------- -------- Operating income........ 1,516 3,025 3,557 4,190 4,030 238 25,973 Interest expense........ 770 846 1,416 2,123 2,288 454 8,889 Other (income) expense.. (336) (412) (306) (412) (382) (270) (1,699) ------- ------- ------- ------- ------- ------- -------- Income before taxes..... 1,082 2,591 2,447 2,479 2,124 54 18,783 Pro forma income taxes(2)............... 433 1,036 979 992 850 20 7,488 ------- ------- ------- ------- ------- ------- -------- Pro forma net income(2).............. $ 649 $ 1,555 $ 1,468 $ 1,487 $ 1,274 $ 34 $ 11,295 ======= ======= ======= ======= ======= ======= ======== Basic earnings per share.................. $ 0.00 $ 0.46 ======= ======== Diluted earnings per $ 0.00 $ 0.43 share.................. ======= ======== Depreciation and amortization........... $ 4,207 $ 5,340 $ 6,630 $ 8,579 $ 7,344 $ 1,301 $ 26,357 EBITDA(3)............... $ 5,723 $ 8,365 $10,187 $12,769 $11,374 $ 1,539 $ 52,330 Dividends on Common Stock.................. -- --
PRO FORMA HISTORICAL PRO FORMA AS ADJUSTED ---------------------------------------- --------- ----------- COMBINED INITIAL ACQUIRED COMPANIES COMPANY COMPANY ------------------------------- -------- --------------------- AS OF DECEMBER 31, ---------------------------------------- AS OF DECEMBER 31, 1993 1994 1995 1996 1997 1997 ------- ------- ------- ------- -------- --------------------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents............ $ 2,374 $ 2,349 $ 4,193 $ 3,227 $ 68,608 $ 50 $ 18,334 Rental equipment, net... 10,730 14,270 20,244 27,145 33,408 138,890 138,890 Total assets............ 20,380 25,254 37,022 43,681 169,110 327,277 345,561 Debt.................... 10,104 12,608 21,267 25,959 1,074 117,246 9,831 Stockholders' equity.... 9,003 9,638 10,941 12,308 157,730 173,182 298,881
14 - -------- (1) Represents with respect to each Initial Acquired Company the date in October 1997 on which such Initial Acquired Company was acquired by the Company. (2) Certain of the Acquired Companies had elected to be treated as Subchapter S Corporations prior to being acquired by the Company. In general, the income or loss of a Subchapter S Corporation is passed through to its owners rather than being subjected to taxes at the entity level. Pro forma net income or loss for the Initial Acquired Companies reflects a provision for income taxes as if all such companies were liable for federal and state income taxes as taxable corporate entities for all periods presented. (3) As used herein, "EBITDA" means net income plus interest, non-operating income and expenses, income taxes, depreciation, amortization and other non-cash items. Management believes that EBITDA, as presented, represents a useful measure of assessing the performance of the Company's ongoing operating activities as it reflects the earnings trends of the Company without the impact of certain non-cash charges. EBITDA is not intended as an alternative to cash flow from operating activities as a measure of liquidity or as an alternative to net income as an indicator of the Company's operating performance. 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. GENERAL The Company was organized in August 1997 and commenced equipment rental operations in October 1997 by acquiring six established rental companies. The Company acquired 14 additional companies in the first two months of 1998. Each of the acquisitions completed by the Company to date has been accounted for as a purchase. The 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 66.9% of the Company's pro forma revenues during 1997. 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 2 to 10 years), after giving effect to an estimated salvage value of 0% to 10% of cost. 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. The Company's acquisition of the Acquired Companies changed the cost structures of these companies due to changes relating to depreciation and amortization, interest expense, compensation to former owners and lease expense for real estate. In view of these changes, the Company believes that the pre-acquisition historical results of the Acquired Companies are not indicative of future results. Therefore, the discussion below focuses on the historical and pro forma results of the Company rather than on pre-acquisition historical results of the Acquired Companies. CONSIDERATION PAID FOR THE ACQUIRED COMPANIES The aggregate consideration paid by the Company for the Acquired Companies was $174.1 million and consisted of approximately $154.5 million in cash, 1,123,587 shares of Common Stock, a convertible note in the principal amount of $300,000, and warrants to purchase an aggregate of 30,000 shares of Common Stock. In addition, the Company repaid or assumed outstanding indebtedness of the Acquired Companies in the aggregate amount of $120.2 million. The Company also agreed to pay the former owners of one of the Acquired Companies a percentage of such company's future revenues until an aggregate of $2.8 million has been paid. The purchase agreement relating to the acquisition of one of the Acquired Companies provides that the 318,712 shares of Common Stock that the Company issued in connection therewith (the "Stock Consideration") will be valued based upon the average daily closing price of the Common Stock during the 60- day period commencing on December 18, 1997. If the Stock Consideration as so valued is not equal to $3.8 million, the 16 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 $3.8 million. HISTORICAL RESULTS OF OPERATIONS The Company's historical financial statements included herein cover the period from August 14, 1997 (inception) through December 31, 1997. The Company believes that its historical results for such period do not fully reflect its current operations in view of the fact that (i) the results of the six companies acquired in October 1997 are reflected in such financial statements for only a portion of the period covered thereby and (ii) the results of the 14 companies acquired in the first two months of 1998 are not reflected in such financial statements. Revenues. Total revenues were $10.6 million for the period from August 14, 1997 through December 31, 1997. Equipment rental revenues accounted for 66.0% of such revenues. Gross Profit. For the period from August 14, 1997 through December 31, 1997, the gross profit margin was (i) 39.6% from equipment rentals, (ii) 47.8% from sales of rental equipment and (iii) 21.2% from sales of new equipment, merchandise and other revenues. Selling, General and Administrative Expense. For the period from August 14, 1997 through December 31, 1997, selling, general and administrative expense ("SG&A") was $3.3 million or 31.1% of total revenues. Non-rental Depreciation and Amortization. For the period from August 14, 1997 through December 31, 1997, non-rental depreciation and amortization was $262,000 or 2.5% of total revenues. Interest Expense. For the period from August 14, 1997 through December 31, 1997, interest expense was $454,000. Interest expense principally related to borrowings made under the Company's Credit Facility in order to fund a portion of the purchase price of the six acquisitions completed in 1997. Income Taxes. The Company's effective income tax rate for the period from August 14, 1997 through December 31, 1997 was 37.9%. PRO FORMA RESULTS OF OPERATIONS The Pro Forma Consolidated Financial Statements included herein with respect to 1997 give effect to the acquisition of each of the 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 3 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 Acquired Companies, (ii) the expenses that the Company may incur as it seeks to increase internal growth at the 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 additional compensation expense relating to the Company's senior management which would have been incurred had such compensation accrued commencing at the beginning of the year (rather than 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 Acquired Companies occurred at the beginning of period presented or of future results. Revenues. Total revenues were $186.8 million for the year ended December 31, 1997. Equipment rental revenues accounted for 66.9% of such revenues. Gross Profit. For the year ended December 31, 1997, the gross profit margin from equipment rentals was 43.4% and the gross profit margin from sales of equipment and merchandise and other revenues was 24.3%. 17 Selling, General and Administrative Expense. For the year ended December 31, 1997, SG&A was $38.2 million or 20.5% of total revenues. Non-rental Depreciation and Amortization. For the year ended December 31, 1997, non-rental depreciation and amortization was $5.1 million or 2.7% of total revenues. Interest Expense. Interest expense was $8.9 million for the year ended December 31, 1997. Interest expense principally related to borrowings made under the Company's Credit Facility in order to fund a portion of the purchase price of the Acquired Companies. Income Taxes. Pro forma income taxes was computed for the year ended December 31, 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 in private placements to the officers and directors of the Company for aggregate consideration of $46.8 million, (ii) other sales of Common Stock in private placements for aggregate consideration of $7.9 million, (iii) the sale of shares of Common Stock in the Company's initial public offering in December 1997 for aggregate consideration of $101.1 million (after deducting the underwriting discount) and (iv) 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 $155 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 February 3, 1998, there was approximately $120 million of outstanding indebtedness under the Credit Facility. The Company plans to use the net proceeds of the Offerings to repay a portion of such indebtedness as described under "Use of Proceeds." 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 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. 18 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. The Company estimates that equipment expenditures for its existing locations will be in the range of $25 million to $30 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, 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 three 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 $2.5 million to $3.5 million (including expenditures of approximately $346,000 incurred to date). The Company believes that cash generated from operations and borrowings under the Credit Facility will be sufficient to fund these costs without additional debt or equity financings. The Company is in the process of installing an integrated information technology system and expects that this system will become operational in March 1998 at substantially all the Company's existing locations. The Company estimates that the cost of installing such system at the Company's existing 67 locations and up to 23 additional locations will be approximately $6.5 million (including approximately $800,000 expended to date). The Company will be required to expand this system on an ongoing basis as it adds locations. The Company believes that the system will be year 2000 compliant. 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 19 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 capital 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. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company is required to adopt the provisions of these Statements in fiscal year 1998. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in a primary financial statement. The Company is currently evaluating the reporting formats recommended under this Statement. SFAS No. 131 establishes a new method by which companies will report operating segment information. This method is based on the manner in which management organizes the segments within a company for making operating decisions and assessing performance. The Company continues to evaluate the provisions of SFAS No. 131 and, upon adoption, the Company may report operating segments. 20 BUSINESS United Rentals was formed in September 1997 for the purpose of creating a large, geographically diversified equipment rental company in the United States and Canada. The Company commenced equipment rental operations in October 1997 by acquiring six established companies and acquired 14 additional companies in the first two months of 1998. 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 $186.8 million during the year ended December 31, 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 67 rental locations in 16 states and Canada. The Company's locations are managed by experienced professionals who have extensive industry experience and substantial knowledge of the local markets served. These managers are generally former owners or 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 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 February 3, 1998, the Company's rental equipment included approximately 34,000 units (excluding special event equipment), had an original purchase price of approximately $222 million and had a weighted average age (based on original purchase price) of approximately 3.6 years. INDUSTRY OVERVIEW The Company estimates that the U.S. equipment rental industry (including used and new equipment sales by rental companies) generates annual revenues in excess of $20 billion. The combined equipment rental revenues of the 100 largest equipment rental companies have increased at an estimated compound annual rate of approximately 21% from 1992 through 1996 (based upon revenues reported for such period, the latest period for which data is available, by the Rental Equipment Register, an industry trade publication). The Company believes that this growth primarily 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 by Merrill Lynch & Co. found that, on average, the percentage of contractor fleets that was rented increased from 7% in 1994 to 15% at the time of the survey. 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. 21 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. Based upon rental revenues reported by the Rental Equipment Register for 1996 (the latest year for which such revenues have been reported): (i) there were only five equipment rental companies that had 1996 equipment rental revenues in excess of $100 million (with the largest company having had 1996 equipment rental revenues of approximately $400 million), (ii) the largest 100 equipment rental companies combined had less than a 20% share of the market based on 1996 equipment rental revenues and the Company's estimate of the size of the market (with the largest company having had a market share of less than 3%), and (iii) there were 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 catego- ries 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 22 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 150 potential acquisition candidates and has conducted preliminary market studies or initiated due diligence on more than 50 of these candidates. The table below provides certain information concerning the 20 acquisitions completed by the Company to date:
NUMBER OF YEARS IN 1997 COMPANY LOCATIONS RENTAL SITES BUSINESS REVENUES - ------- ------------------------- ------------ -------- ------------- (IN MILLIONS) 1997 ACQUISITIONS: Mercer Equipment Company North Carolina 3 9 $18.5 A&A Tool Rentals and Sales, Inc. California 2 35 13.8 Coran Enterprises, Inc. California 4 33 9.5 (dba A-1 Rents) and affiliate J&J Rental Services Texas 1 19 8.7 Bronco Hi-Lift, Inc. Colorado 1 16 6.5 Rent-It Center, Inc. Utah 1 45 2.9 1998 ACQUISITIONS: Access Rentals, Inc. and affiliates Connecticut; Florida; 19 23 52.3 Indiana; Minnesota; New Jersey; New York; Pennsylvania; South Carolina; Tennessee; Washington; Ontario, Canada BNR Equipment Limited and affiliates New York; Ontario, Canada 8 23 24.0 Channel Equipment Holdings, Inc. and affiliates Texas 4 20 11.5 Mission Valley Rentals, Inc. California 4 22 8.6 Pro-Rentals, Inc. Washington 6 12 5.9 ASC Equipment Co., Inc. North Carolina 3 21 5.4 Nevada High Reach Equipment, Inc. and affiliate Nevada 3 13 4.5 Gene's Village Rental & Sales, Inc. South Carolina 2 24 3.6 Manchester Equipment Rental & Sales, Inc. Connecticut 1 11 3.3 San Leandro Equipment Rentals Service, Inc. California 1 36 3.2 Darien Rental Services, Inc. Connecticut 1 31 1.7 Salisbury Rental Center, Inc. North Carolina 1 10 1.3 Anchor Rental, Inc. Connecticut 1 15 1.0 A-1 Rents of Galveston, Inc. Texas 1 16 0.6
23 The aggregate consideration paid by the Company for the Acquired Companies was $174.1 million and consisted of approximately $154.5 million in cash, 1,123,587 shares of Common Stock (subject to possible adjustment with respect to 318,712 of such shares as described under "Management's Discussion and Analysis of Financial Condition and Results of Operations--Consideration Paid for Acquired Companies"), a convertible note in the principal amount of $300,000, and warrants to purchase an aggregate of 30,000 shares of Common Stock. In addition, the Company repaid or assumed outstanding indebtedness of the Acquired Companies in the aggregate amount of approximately $120.2 million. The Company also agreed to pay the former owners of one of the Acquired Companies a percentage of such company's future revenues until an aggregate of $2.8 million has been paid. The Company at present is not party to any definitive agreements relating to future acquisitions. However, the Company is continually investigating and evaluating potential acquisition candidates and is currently a party to nine non-binding letters of intent relating to the possible acquisition by the Company of nine additional companies having an aggregate of 24 rental locations. Based upon information provided to the Company in connection with its preliminary investigation of these businesses, the Company estimates that the aggregate annualized revenues of these companies is approximately $50 million. However, in view of the preliminary nature of this estimate, there can be no assurance that actual revenues will not differ. Furthermore, in view of the fact that these letters of intent are non-binding and that the Company has not completed its due diligence investigations with respect thereto, the Company cannot predict whether these letters of intent will lead to definitive agreements, whether the terms of any such definitive agreements will be the same as the terms contemplated by the letters of intent or whether any transaction contemplated by such letters of intent will be consummated. START-UP LOCATIONS The Company is in the process of developing three start-up locations (one in Florida and two in Texas). These projects were commenced by certain of the Acquired Companies, prior to their having been acquired by the Company, and are being continued by the Company. The Company expects that the Florida location will open in the first quarter of 1998 and that the two Texas locations will open in the second quarter of 1998. OPERATIONS The Company currently operates 67 rental locations in 16 states and Canada. The Company offers for rent a broad array of equipment including light to heavy construction and industrial equipment, general tools and equipment, and 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 offers for rent: 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. Special Event: barbecue grills, china and flatware, fountains, lighting, staging and dance floors, tables and chairs, tents and canopies. 24 As of February 3, 1998, the Company's rental equipment included approximately 34,000 units (excluding special event equipment) and had an original purchase price of approximately $222 million and a weighted average age (based on original purchase price) of approximately 3.6 years. The Company estimates that (based on original purchase price) construction and industrial equipment represents approximately 94% of the Company's rental equipment, general tools and equipment represents approximately 5%, and 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 47% of the Company's rental equipment and accounted for approximately 34% of the Company's pro forma revenues in 1997. 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 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 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), Kubota (earthmoving equipment), Multiquip, Inc. (compaction equipment and compressors), Milwaukee Electric Tool Corporation (power tools), Trak International (loaders and forklifts), Stihl, Inc. (surface preparation equipment) and Wacker (compaction equipment). In general, such manufacturers may terminate the Company's distribution rights at any time. 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 154,000 customers in 1997. No single customer accounted for more than 1% of the Company's pro forma revenues in 1997, and the Company's top 10 customers accounted for less than 2.5% of the Company's pro forma revenues in 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 in 1997 (a) sales to construction industry participants accounted for 25 approximately 75% of the Company's pro forma revenues, (b) sales to industrial companies accounted for approximately 17% of the Company's pro forma revenues, and (c) sales to homeowners and others accounted for approximately 8% of the Company's pro forma revenues. The Company markets its products and services through a sales force consisting of approximately 137 store-based salespeople and 113 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 purchasing 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 is in the process of installing an integrated information technology system and expects that this system will become operational at substantially all the Company's existing locations in March 1998. This system will link all the Company's locations, integrate operating and financial data on a Company-wide basis, and enable the real-time tracking of rental transactions, equipment availability, inventory and other data. The Company expects that this system will enable management to monitor and analyze a wide range of operating and financial data, including (i) price and sales trends by store, region, salesperson, equipment category, or customer, (ii) fleet utilization by individual asset or asset class and (iii) financial results by store or region. Until the new system is operational, each acquired business will continue using the systems that it had in place at the time it was acquired. The Company will be required to expand this system on an ongoing basis as it adds locations. 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 67 rental locations (59 in the United States and 8 in Canada). The rental locations in the United States are in the following 16 states: California (11), Colorado (1), Connecticut (4), Florida (2), Indiana (1), Minnesota (2), New York (7), New Jersey (1), Nevada (3), North Carolina (7), Pennsylvania (1), South Carolina (3), Tennessee (2), Texas (6), Utah (1), and Washington (7). The rental locations in Canada are all in Ontario. The Company's rental locations generally include facilities for displaying equipment and, depending on the location, may include separate equipment service areas and storage areas. The Company leases each of its rental locations under leases providing for various terms, including (i) 32 leases that provide for a remaining term of more than five years (of which 25 provide for a renewal option), (ii) 23 leases that provide for a remaining term of between one and five years (of which 13 provide for a renewal option), (iii) four leases that provide for a remaining term of less than one year (of which two provide for a renewal option) and (iv) eight leases that are on a month-to-month basis. Many of these leases were entered into in connection with the acquisitions of the Acquired Companies and most of the lessors are the former owners of these companies. The Company believes that its leases generally reflect market terms. 26 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 February 3, 1998, this fleet included 572 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 and believes there are no existing material liabilities relating to non-compliance with environmental laws and regulations, there can be no assurance that there are no undiscovered potential liabilities relating to non-compliance with environmental laws and regulations, that historic or current operations have not resulted in undiscovered 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 February 3, 1998, the Company employed 1,187 persons, including 31 corporate and regional management employees, 906 operational employees and 250 sales people. Of these employees, 344 are salaried personnel and 843 are hourly personnel. Collective bargaining agreements relating to nine separate locations cover approximately 83 of the Company's employees. 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. 27 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 table below identifies, and provides certain information concerning, the officers, directors and certain key managers of the Company. The Company expects that an additional independent director will be appointed prior to May 1998. The Company also expects that Mr. Hicks, the Company's President and Chief Operating Officer, will be appointed a director concurrently with the appointment of such additional independent director.
NAME AGE POSITIONS(1)(2) ---- --- --------------- OFFICERS AND DIRECTORS Bradley S. Jacobs....... 41 Chairman, Chief Executive Officer and Director Wayland R. Hicks........ 55 President and Chief Operating Officer John N. Milne........... 38 Vice Chairman, Chief Acquisition Officer, Secretary and Director Michael J. Nolan........ 37 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..... 55 Vice President, Acquisitions Ronald M. DeFeo......... 45 Director Richard J. Heckmann..... 54 Director Gerald Tsai, Jr. ....... 68 Director KEY MANAGERS Joseph E. Bloodworth.... 46 Manager, District Operations Joseph A. DiFrancesco... 38 Manager, District Operations Joseph E. Doran......... 57 Manager, District Operations William M. Rigsbee...... 41 Manager, District Operations
- -------- (1) Each officer and director in the table has served in the position(s) indicated since either September 1997 (in the case of the eight founders), October 1997 (in the case of Messrs. Barker, Imig, DeFeo and Heckmann), November 1997 (in the case of Mr. Hicks) or December 1997 (in the case of Mr. Tsai). 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." 28 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. Wayland R. Hicks served in various senior executive positions at Xerox Corporation where he worked for 28 years (1966-1994). His positions at Xerox Corporation included Executive Vice President, Corporate Operations (1993- 1994), Executive Vice President, Corporate Marketing and Customer Support Operations (1989-1993) and Executive Vice President, Engineering and Manufacturing--Xerox Business Products and Systems Group (1987-1989). Mr. Hicks served as Vice Chairman and Chief Executive Officer of Nextel Communications Corp. (1994-1995) and as Chief Executive Officer and President of Indigo N.V. (1996-1997). He is also a director of Maytag Corporation. 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 executive 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 an 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. 29 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. 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. Gerald Tsai, Jr. served as Chairman, Chief Executive Officer and President of Delta Life Corporation, an insurance company, from 1993 until the sale of the company in October 1997. Mr. Tsai was Chairman of the Executive Committee of the Board of Directors of Primerica Corporation, a diversified financial services company, from December 1988 until April 1991, and served as Chief Executive Officer of Primerica Corporation from April 1986 until December 1988. Mr. Tsai is currently a private investor and serves as a director of Meditrust Corporation, Proffitt's, Inc., Rite Aid Corporation, Sequa Corporation, Triarc Companies, Inc. and Zenith National Insurance Corp. He also serves as a trustee of Boston University and New York University Medical Center. 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 A. DiFrancesco served as General Manager of Access Rentals, Inc. from 1989 until the acquisition of the company by United Rentals in January 1998 and as Controller of Access Rentals from 1985 until 1989. Mr. DiFrancesco is a Certified Public Accountant. 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 $46.8 million (excluding amounts paid by certain officers and directors in respect of shares of Common Stock purchased by them in the Company's initial public offering in December 1997). Such capital contributions were made in connection with the sale to such officers and directors in private placements of an aggregate of 13,150,714 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 Messrs. Barker and Tsai purchased only Common Stock at a price of $3.50 per share and Messrs. Hicks, Imig and Heckmann purchased only Common 30 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 (excluding shares purchased in the Company's initial public offering) 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 Wayland R. Hicks................... 100,000 -- 1,000,000 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 Daniel E. Imig..................... 5,000 -- 50,000 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 Gerald Tsai, Jr. .................. 240,000 -- 840,000
- -------- (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 comprised of Mr. Tsai) 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." COMMITTEES OF THE BOARD The Board of Directors has three standing committees: the Audit Committee, the Compensation/Stock Option Committee, and the Special Stock Option Committee. 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 members of this committee are Messrs. DeFeo, Heckmann and Tsai. The responsibilities of the Compensation/Stock Option Committee include making recommendations with respect to the compensation to be paid to officers and directors, administering the Company's Stock Option Plan, and approving the grant of options. The members of this committee are Messrs. DeFeo, Heckmann and Tsai. The responsibilities of the Special Stock Option Committee include approving the grant of options to persons other than officers and directors of the Company. The authority of this committee to approve the grant of options to such persons is concurrent with the authority of the Compensation/Stock Option Committee to approve such grants. The members of this committee are Messrs. Jacobs and Milne. COMPENSATION OF DIRECTORS Each director of the Company is paid up to $2,500 per day for each Board of Directors' meeting such director attends, together with an expense reimbursement. Messrs. DeFeo, Heckmann and Tsai have each been granted options to purchase an aggregate of 20,000 shares of Common Stock at an exercise price of $15.00 per share. 31 COMPENSATION OF CERTAIN OFFICERS The Company's executive officers are being compensated, and each has been compensated since joining the Company, in accordance with the terms of the Employment Agreements described below. The following table sets forth information concerning the compensation of the Chief Executive Officer of the Company and each of the other executive officers of the Company during the period August 14, 1997 (inception) through December 31, 1997. SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION AWARDS ------------ SECURITIES UNDERLYING NAME AND PRINCIPAL POSITION SALARY($) OPTIONS(#) - --------------------------- --------- ------------ Bradley S. Jacobs...................................... $97,039 -- Chief Executive Officer Wayland R. Hicks....................................... 47,692(1) 450,000 President and Chief Operating Officer John N. Milne.......................................... 63,577 -- Chief Acquisition Officer Michael J. Nolan....................................... 58,558 -- Chief Financial Officer Robert P. Miner........................................ 50,192 -- Vice President, Finance
- -------- (1)Mr. Hicks' employment with the Company commenced on November 14, 1997. The following tables summarize the options granted in 1997 to Mr. Hicks, the potential value of these options at the end of the option term (assuming certain levels of appreciation of the Company's Common Stock), and the total number of options held by such executive officer as of December 31, 1997. None of the other executive officers of the Company named in the Summary Compensation Table above has been granted options. OPTION GRANTS IN 1997
INDIVIDUAL GRANTS -------------------------------------------------------- POTENTIAL REALIZABLE VALUE NUMBER OF % OF TOTAL AT ASSUMED RATE OF STOCK SECURITIES OPTIONS EXERCISE APPRECIATION FOR OPTION UNDERLYING GRANTED TO PRICE TERM(1) OPTIONS EMPLOYEES PER EXPIRATION --------------------------- NAME GRANTED IN 1997 SHARE DATE 5% 10% - ---- ---------- ---------- -------- ---------- ------------- ------------- Wayland R. Hicks........ 350,000(2) 38.7% $10.00 11/13/07 $ 2,201,131 $ 5,578,099 50,000(2) 5.5% $15.00 11/13/07 64,447 546,871 50,000(2) 5.5% $20.00 11/13/07 -- 296,871
- -------- (1) These amounts are based on calculations at hypothetical 5% and 10% compounded annual appreciation rates prescribed by the Securities and Exchange Commission and, therefore, are not intended to forecast possible future appreciation, if any, of the Company's Common Stock price. (2) These options are not currently vested. These options will vest one-third in November 1998, one-third in November 1999 and one-third in November 2000. These options were granted pursuant to the Company's 1997 Stock Option Plan. 32 VALUE OF OPTIONS AT DECEMBER 31, 1997
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE- UNEXERCISED OPTIONS AT MONEY OPTIONS AT NAME DECEMBER 31, 1997 DECEMBER 31, 1997 - ---- ------------------------------- -------------------------------- EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE -------------- ----------------- ------------- ----------------- Wayland R. Hicks........ -- 450,000 -- $ 3,475,000
EMPLOYMENT AGREEMENTS The Company has entered into employment agreements with each of the executive officers of the Company. Certain information with regard to these agreements 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. Hicks ($400,000), Mr. Milne ($190,000), Mr. Nolan ($175,000), and Mr. Miner ($150,000). The base salary payable to Mr. Hicks is payable 50% in cash and 50% in Common Stock (valued at the average closing sales price of the Common Stock during all trading days in the calendar quarter preceding the quarter in which the payment is made). Shares of Common Stock issued to Mr. Hicks are subject to certain restrictions on transfer as described under "Principal Stockholders--Certain Agreements Relating to Securities Held by Officers." 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 each such executive to receive an automobile allowance of at least $700 per month. The agreement with Mr. Hicks provides for the Company to reimburse him for certain relocation expenses up to a maximum of $100,000. 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). The employment agreement with Mr. Hicks provides for a term extending until November 2000. 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 agreement with Mr. Hicks provides that the executive is entitled to a severance payment in the amount of $1 million in the event that his employment agreement is terminated by the Company without Cause (as defined in the employment agreement) or he terminates his employment for Good Reason (as defined in the employment agreement). The employment agreements with the other officers provide that the executive 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 33 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). Pursuant to the employment agreement with Mr. Hicks, Mr. Hicks has been granted options to purchase an aggregate of 450,000 shares of Common Stock. For information concerning these options, see "--Compensation of Certain Officers." The agreement with Mr. Hicks provides that at each annual meeting of the stockholders of the Company, which occurs during the term of the agreement and at which Mr. Hicks' term as director would be scheduled to expire, the Company will nominate Mr. Hicks for re-election as a director. 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 931,333 shares of Common Stock (including the options granted to Mr. Hicks as described under "--Employment Agreements"). These options have a weighted average exercise price of $13.06 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. 34 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 under the Securities Exchange 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, the Company does not know of any stockholder that 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 the exercise of all 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........ 15,000,100(3)(4) 50.5% 42.6% Wayland R. Hicks......... 100,000(5) * * John N. Milne............ 2,142,857(6) 8.4% 6.9% Michael J. Nolan......... 857,244(7) 3.4% 2.8% Robert P. Miner.......... 428,571(8) 1.7% 1.4% Ronald M. DeFeo.......... 22,000(9) * * Richard J. Heckmann...... 40,000(10) * * Gerald Tsai, Jr.......... 310,000(11) 1.3% 1.0% All executive officers and directors as a group (8 persons)............. 18,900,772(12) 61.1% 51.9%
- -------- *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 10,000,100 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 19,128,672 shares of Common Stock (comprised of 12,785,814 outstanding shares and 6,342,858 shares issuable upon the exercise of outstanding Warrants). (5) Does not include 450,000 shares issuable upon the exercise of options (which are not currently exercisable) granted to Mr. Hicks. See "Management--Compensation of Certain Officers." Also does not include any shares that the Company is required to pay Mr. Hicks as part of his base salary as described under "Management--Employment Agreements." 35 (6) Consists of 1,428,571 outstanding shares and 714,286 shares issuable upon the exercise of currently exercisable Warrants. (7) Consists of 571,529 outstanding shares and 285,715 shares issuable upon the exercise of currently exercisable Warrants. (8) Consists of 285,714 outstanding shares and 142,857 shares issuable upon the exercise of currently exercisable Warrants. (9) Consists of 2,000 outstanding shares and 20,000 shares issuable upon the exercise of currently exercisable options. (10) Consists of 20,000 outstanding shares and 20,000 shares issuable upon the exercise of currently exercisable options. (11) Consists of 290,000 outstanding shares and 20,000 shares issuable upon exercise of outstanding options. (12) Consists of 12,697,914 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 60,000 shares issuable upon the exercise of currently exercisable options. CERTAIN AGREEMENTS RELATING TO SECURITIES HELD BY OFFICERS Prior to the Company's initial public offering, the officers of the Company purchased Common Stock (and in certain cases Warrants) from the Company in private placements, as described under "Management--Capital Contributions by Officers of Directors." All shares of Common Stock and Warrants purchased by the officers of the Company prior to the Company's initial public offering (and any shares of Common Stock acquired upon exercise of such Warrants) are referred to as the "Private Placement Securities." Each officer of the Company (other than Mr. Jacobs and Mr. Hicks) has entered into an agreement with the Company and Mr. Jacobs that provides that (i) if Mr. Jacobs sells any Private Placement Securities 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 Private Placement Securities 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 Private Placement Securities 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 (other than Mr. Jacobs and Mr. Hicks) has also agreed pursuant to such agreements that the Company, in its sole discretion, may (i) prior to September 1, 2005, repurchase the Private Placement Securities owned by such officer 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 Private Placement 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 Private Placement Securities owned by them. Mr. Hicks has agreed that (i) he will not transfer any Private Placement Securities purchased by him until November 1998 and (ii) he will not transfer any shares of Common Stock that are hereafter issued to him as compensation pursuant to his employment agreement for a one-year period following the date of issuance. See "Management--Employment Agreements." 36 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 24,718,808 shares of Common Stock outstanding. After giving effect to the Offerings, there will be 30,218,808 shares of Common Stock outstanding (31,043,808 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 provisions 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 up to 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 NOTE There are currently outstanding warrants to purchase an aggregate of 6,519,058 shares of Common Stock. Such warrants provide for a weighted average exercise price of $10.12 per share. 37 There are currently outstanding options to purchase an aggregate of 931,333 shares of Common Stock. These options provide for exercise prices ranging from $10.00 to $30.00 per share, with the weighted average exercise price being $13.06 per share. Of these options, options to purchase an aggregate of 60,000 shares of Common Stock are currently exercisable and options to purchase 871,333 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 Acquired Companies consisted of a $300,000 convertible note, which note is convertible into Common Stock at a conversion price equal to $16.20 per share. TRANSFER AGENT AND REGISTRAR American Stock Transfer & Trust Company serves 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, 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 38 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 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) 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 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 39 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 foregoing 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 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 so amended. 40 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 directors, 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 the lock-up agreements described below. Subject to such agreements, upon completion of the Offerings, 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 either be freely tradeable without restriction under the Securities Act or pursuant to a shelf registration statement previously filed by the Company. The Company and all of its officers and directors (who hold an aggregate of 13,262,414 shares of Common Stock) 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 750,000 shares for acquisitions unless the recipients of any excess shares agree to be subject to the foregoing lock-up agreement with respect to such excess shares). In addition, the holder of 318,712 shares of Common Stock has agreed not to sell or otherwise dispose of such shares until June 1998 without the prior written consent of Merrill Lynch & Co. Furthermore, the Company has agreed not to waive any existing lock-up agreements between the Company and its stockholders, 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. Such existing lock-up agreements prohibit the sale or transfer of an aggregate of 2,901,705 shares, without the prior written consent of the Company. Such existing lock-up agreements lapse in December 1998 (with respect to 733,670 shares), January 1999 (with respect to 400,584 shares), December 1999 (with respect to 728,671 shares), and December 2000 (with respect to 1,038,780 shares). In addition, an aggregate of 404,291 shares of Common Stock not subject to lock-up agreements and not covered by the Company's shelf registration statement are "restricted securities" under Rule 144 under the Securities Act and may not be sold except if registered pursuant to the Securities Act or if an exemption from registration is available. See "Underwriting." 41 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. 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. 42 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 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 43 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. 44 UNDERWRITING Subject to the terms and conditions set forth in a U.S. purchase agreement (the "U.S. Purchase Agreement") among the Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Deutsche Morgan Grenfell Inc., Donaldson, Lufkin & Jenrette Securities Corporation and Smith Barney Inc. (together, the "U.S. Underwriters") and concurrently with the sale of 1,100,000 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 at the public offering price less the underwriting discount set forth on the cover page of this Prospectus.
U.S. UNDERWRITER NUMBER OF SHARES ---------------- ---------------- Merrill Lynch, Pierce, Fenner & Smith Incorporated................................... Deutsche Morgan Grenfell Inc. .......................... Donaldson, Lufkin & Jenrette Securities Corporation..... Smith Barney Inc. ...................................... --------- Total.............................................. 4,400,000 =========
The Company has also entered into an international purchase agreement (the "International Purchase Agreement") with Merrill Lynch International, Donaldson, Lufkin & Jenrette International, Morgan Grenfell & Co. Limited and Smith Barney Inc. (the "International Managers" and, together with the U.S. Underwriters, the "Underwriters"). Subject to the terms and conditions set forth in the International Purchase Agreement, and concurrently with the sale of 4,400,000 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 1,100,000 shares of Common Stock. The 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. Underwriters have advised the Company that they propose initially to offer the shares of Common Stock to the public at the 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 shares of Common Stock are released for sale to the public, 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 660,000 additional shares of Common Stock at the 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 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 165,000 additional shares of Common Stock to cover over-allotments, if any, on terms similar to those granted to the U.S. Underwriters. 45 The Company and all its executive officers and directors (who hold an aggregate of 13,262,414 shares of Common Stock) 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 & Co. 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) issue shares as consideration for acquisitions (provided that the Company may not issue in excess of 750,000 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 lock-up 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 existing lock-up agreements between the Company and its stockholders, 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 the holders of an aggregate of 2,901,705 shares of Common Stock 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. See "Shares Eligible For Future Sale." 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 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. The Company has agreed to indemnify the U.S. Underwriters and the International Managers against certain liabilities, including certain liabilities under the Securities Act. Certain of the Underwriters have from time to time provided, and may in the future provide, certain investment banking and advisory services to the Company for which services such Underwriters received customary compensation. The Underwriters may in the future provide additional investment banking and advisory services to the Company. 46 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. Underwriters 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. Underwriters may reduce that short position by purchasing Common Stock in the open market. The U.S. Underwriters may also elect to reduce any short position by exercising all or part of the over-allotment option described above. The U.S. Underwriters may also impose a penalty bid on certain Underwriters and selling group members. This means that if the U.S. Underwriters 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. Underwriters will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice. 47 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 Eilenberg Krause & Zivian LLP, 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 December 31, 1997 and for the period from August 14, 1997 (Inception) to December 31, 1997, the financial statements of J&J Rental Services, Inc. at December 31, 1996 and October 22, 1997 and for each of the two years in the period ended December 31, 1996, the six months ended June 30, 1997 and for the period from July 1, 1997 to October 22, 1997, the financial statements of Bronco Hi-Lift, Inc. at December 31, 1996 and October 24, 1997 and for each of the two years in the period ended December 31, 1996 and for the period from January 1, 1997 to October 24, 1997, and the financial statements of Mission Valley Rentals, Inc. at June 30, 1996 and 1997 and for the years then ended, appearing in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their 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 consolidated financial statements of A&A Tool Rentals & Sales, Inc. and subsidiary as of October 19, 1997, October 31, 1996, and 1995, and for the period from November 1, 1996 to October 19, 1997 and for the years ended October 31, 1996 and 1995, have been included herein and in the Registration Statement 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. The combined financial statements of BNR Group of Companies as of March 31, 1996 and 1997 and for the years ended March 31, 1996 and 1997, have been included herein and in the Registration Statement in reliance upon the report of KPMG, independent chartered accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The audited financial statements of Access Rentals, Inc., and Subsidiary and Affiliate included in this Registration Statement have been included herein in reliance on the report of Battaglia, Andrews & Moag, P.C., independent certified public accountants, 210 East Main Street, Batavia, New York 14020, for the periods indicated, given on the authority of that firm as experts in auditing and accounting. 48 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 and copied at the public reference facilities maintained by the Commission 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. The Company is subject to the informational and periodic reporting requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith, files periodic reports, proxy statements, and other information with the Commission. Such periodic reports, proxy statements, and other information may be inspected and copied at the public reference facilities maintained by the Commission at the principal office of the Commission in Washington, D.C., and at the Commission's regional offices at the addresses stated above. Copies of such material may be obtained at prescribed rates from the Public Reference Section of the Commission at the address stated above. The Common Stock is listed on the New York Stock Exchange (the "NYSE"), and the Registration Statement and such reports, proxy statements and other information can also be inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005. 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. 49 INDEX TO FINANCIAL STATEMENTS
PAGE ---- I. Pro Forma Consolidated Financial Statements of United Rentals, Inc. Introduction......................................................................... F-4 Pro Forma Consolidated Balance Sheets--December 31, 1997 (unaudited)................. F-5 Pro Forma Consolidated Statements of Operations for the Year Ended December 31, 1997 (unaudited)....................................................................... F-6 Notes to Pro Forma Consolidated Financial Statements................................. F-7 II. Consolidated Financial Statements of United Rentals, Inc. Report of Independent Auditors....................................................... F-9 Consolidated Balance Sheet--December 31, 1997........................................ F-10 Consolidated Statement of Operations for the period from August 14, 1997 (Inception) to December 31, 1997.................................................... F-11 Consolidated Statement of Stockholders' Equity for the period from August 14, 1997 (Inception) to December 31, 1997.................................................... F-12 Consolidated Statement of Cash Flows for the period from August 14, 1997 (Inception) to December 31, 1997.................................................... F-13 Notes to Consolidated Financial Statements........................................... F-14 III. Consolidated and Combined Financial Statements of Access Rentals, Inc. and subsidiary and affiliate Report of Independent Accountants.................................................... F-21 Consolidated and Combined Balance Sheets--March 31, 1996 and 1997 and December 31, 1997 (unaudited).................................................................... F-22 Consolidated and Combined Statements of Income for the Years Ended September 30, 1994 and 1995, for the Six Months Ended March 31, 1996, for the Year Ended March 31, 1997 and for the Nine Months Ended December 31, 1996 and 1997 (unaudited)................ F-23 Consolidated and Combined Statement of Stockholders' Equity for the Years Ended September 30, 1994 and 1995, for the Six Months Ended March 31, 1996, for the Year Ended March 31, 1997 and for the Nine Months Ended December 31, 1997 (unaudited).... F-24 Consolidated and Combined Statements of Cash Flows for the Years Ended September 30, 1994 and 1995, for the Six Months Ended March 31, 1996, for the Year Ended March 31, 1997 and for the Nine Months Ended December 31, 1996 and 1997 (unaudited)........... F-25 Notes to Financial Statements........................................................ F-26 IV. Combined Financial Statements of BNR Group of Companies Report of Independent Auditors....................................................... F-35 Combined Balance Sheets--March 31, 1996 and 1997 and December 31, 1997 (unaudited)... F-36 Combined Statements of Earnings for the Years Ended March 31, 1996 and 1997 and for the Nine Months Ended December 31, 1996 and 1997 (unaudited)........................ F-37 Combined Statements of Stockholders' Equity for the Years Ended March 31, 1996 and 1997 and for the Nine Months Ended December 31, 1997 (unaudited).................... F-38 Combined Statements of Cash Flows for the Years Ended March 31, 1996 and 1997 and for the Nine Months Ended December 31, 1996 and 1997 (unaudited)........................ F-39 Notes to Combined Financial Statements............................................... F-40
F-1
PAGE ---- V. Financial Statements of Mission Valley Rentals, Inc. Report of Independent Auditors...................................... F-49 Balance Sheets--June 30, 1996 and 1997 and December 31, 1997 (unaudited)........................................................ F-50 Statements of Operations for the Years Ended June 30, 1996 and 1997 and for the Six Months Ended December 31, 1996 and 1997 (unaudited)........................................................ F-51 Statements of Stockholders' Equity for the Years Ended June 30, 1996 and 1997 and for the Six Months Ended December 31, 1997 (unaudited)........................................................ F-52 Statements of Cash Flows for the Years Ended June 30, 1996 and 1997 and the Six Months Ended December 31, 1996 and 1997 (unaudited).... F-53 Notes to Financial Statements....................................... F-54 VI. Financial Statements of MERCER Equipment Company Independent Auditor's Report........................................ F-60 Balance Sheets--December 31, 1996 and October 24, 1997.............. F-61 Statements of Income and Retained Earnings for the Years Ended December 31, 1995 and 1996 and for the period from January 1, 1997 to October 24, 1997................................................ F-62 Statements of Cash Flows for the Years Ended December 31, 1995 and 1996 and for the period from January 1, 1997 to October 24, 1997... F-63 Notes to Financial Statements....................................... F-64 VII. Consolidated Financial Statements of A&A Tool Rentals & Sales, Inc. and subsidiary Report of Independent Auditors...................................... F-69 Consolidated Balance Sheets--October 31, 1995 and 1996 and October 19, 1997 and July 31, 1997 (unaudited)............................. F-70 Consolidated Statements of Operations for the Years Ended October 31, 1995 and 1996 and for the period from November 1, 1996 to October 19, 1997 and for the Nine Months Ended July 31, 1996 and 1997 (unaudited)................................................... F-71 Consolidated Statements of Stockholders' Equity for the Years Ended October 31, 1995 and 1996 and for the period from November 1, 1996 to October 19, 1997 ............................................... F-72 Consolidated Statements of Cash Flows for the Years Ended October 31, 1995 and 1996 and for the period from November 1, 1996 to October 19, 1997 and for the Nine Months Ended July 31, 1996 and 1997 (unaudited)................................................... F-73 Notes to Consolidated Financial Statements.......................... F-74 VIII. Financial Statements of J&J Rental Services, Inc. Report of Independent Auditors...................................... F-81 Balance Sheets--December 31, 1996 and October 22, 1997 ............. F-82 Statements of Income for the Years Ended December 31, 1995 and 1996, for the Six Months Ended June 30, 1997 and for the period from July 1, 1997 to October 22, 1997........................................ F-83 Statements of Stockholders' Equity and Partners' Capital for the Years Ended December 31, 1995 and 1996 and for the Six Months Ended June 30, 1997 and for the period from July 1, 1997 to October 22, 1997............................................................... F-84 Statements of Cash Flows for the Years Ended December 31, 1995 and 1996, for the Six Months Ended June 30, 1997 and for the period from July 1, 1997 to October 22, 1997.............................. F-85 Notes to Financial Statements....................................... F-86
F-2
PAGE ----- IX. Combined Financial Statements of Coran Enterprises, Inc. dba A-1 Rents and Monterey Bay Equipment Rental, Inc. Report of Independent Certified Public Accountants.................. F-93 Combined Statements of Earnings for the Years Ended December 31, 1995 and 1996 and for the period from January 1, 1997 to October 24, 1997 .......................................................... F-94 Combined Statements of Stockholders' Equity for the Years Ended De- cember 31, 1995 and 1996 and for the period from January 1, 1997 to October 24, 1997 .................................................. F-95 Combined Statements of Cash Flows for the Years Ended December 31, 1995 and 1996 and for the period from January 1, 1997 to October 24, 1997 .......................................................... F-96 Notes to Combined Financial Statements.............................. F-97 X. Financial Statements of Bronco Hi-Lift, Inc. Report of Independent Auditors...................................... F-99 Balance Sheets--December 31, 1996 and October 24, 1997 ............. F-100 Statements of Income for the Years Ended December 31, 1995 and 1996 and for the period from January 1, 1997 to October 24, 1997........ F-101 Statements of Stockholders' Equity for the Years Ended December 31, 1995 and 1996 and for the period from January 1, 1997 to October 24, 1997........................................................... F-102 Statements of Cash Flows for the Years Ended December 31, 1995 and 1996 and for the period from January 1, 1997 to October 24, 1997... F-103 Notes to Financial Statements....................................... F-104
F-3 UNITED RENTALS, INC. PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The accompanying unaudited pro forma consolidated balance sheets of the Company as of December 31, 1997 give effect to the 14 acquisitions completed by the Company subsequent to such date and the financing of each such acquisition, as if all such transactions had occurred on December 31, 1997. The accompanying unaudited pro forma consolidated statements of operations of the Company for the year ended December 31, 1997 give effect to the acquisition of each of the 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. 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-4 UNITED RENTALS, INC. PRO FORMA CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 (UNAUDITED)
UNITED ACCESS BNR GROUP MISSION VALLEY OTHER PRO FORMA PRO FORMA RENTALS, INC. RENTALS, INC. OF COMPANIES RENTALS, INC. ACQUISITIONS ADJUSTMENTS CONSOLIDATED ------------- ------------- ------------ -------------- ------------ ------------ ------------ ASSETS Cash and cash equiva- lents................. $ 68,607,528 $ 362,817 $ 25,306 $ 505,541 $ 790,724 $(70,241,916)(a) $ 50,000 Accounts receivable, net................... 7,494,636 10,557,474 5,096,644 721,252 4,845,519 28,715,525 Inventory............. 3,827,446 2,511,326 1,593,190 88,965 3,195,914 11,216,841 Rental equipment, net................... 33,407,561 63,636,491 9,246,449 5,667,659 23,446,880 3,484,574 (b) 138,889,614 Property and equipment, net........ 2,272,683 5,386,167 738,032 138,343 2,173,323 (1,458,522)(c) 9,250,026 Intangible assets, net................... 50,533,736 2,212,368 765,841 2,537 78,113,841 (d) 131,628,323 Prepaid expenses and other assets.......... 2,966,822 3,934,801 60,147 165,599 399,387 7,526,756 ------------ ----------- ----------- ---------- ----------- ------------ ------------ Total Assets....... $169,110,412 $88,601,444 $16,759,768 $8,053,200 $34,854,284 $ 9,897,977 $327,277,085 ============ =========== =========== ========== =========== ============ ============ LIABILITIES AND STOCK- HOLDERS' EQUITY Liabilities Accounts payable..... $ 5,697,830 $ 7,160,756 $ 1,456,996 $ 805,462 $ 2,307,716 $ 17,428,760 Debt................. 1,074,474 51,505,595 7,575,767 5,536,280 20,884,135 $(77,318,869)(e) 117,245,829 107,988,447 (f) Accrued expenses and other liabilities.......... 4,608,077 7,821,732 5,016,579 181,461 1,792,387 19,420,236 ------------ ----------- ----------- ---------- ----------- ------------ ------------ Total liabilities.. 11,380,381 66,488,083 14,049,342 6,523,203 24,984,238 30,669,578 154,094,825 ------------ ----------- ----------- ---------- ----------- ------------ ------------ Stockholders' equity Common stock......... 238,991 10,000 58,315 1,000 40,837 (110,152)(g) 247,039 8,048 (h) Additional paid-in capital.............. 157,457,418 (1,101,494) 223,824 877,670 (g) 172,901,599 15,444,181 (h) Retained earnings (deficit)............ 33,622 23,204,855 2,652,111 1,528,997 9,605,385 (36,991,348)(g) 33,622 ------------ ----------- ----------- ---------- ----------- ------------ ------------ Total stockholders' equity............. 157,730,031 22,113,361 2,710,426 1,529,997 9,870,046 (20,771,601) 173,182,260 ------------ ----------- ----------- ---------- ----------- ------------ ------------ Total liabilities and stockholders' equity............. $169,110,412 $88,601,444 $16,759,768 $8,053,200 $34,854,284 $ 9,897,977 $327,277,085 ============ =========== =========== ========== =========== ============ ============
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, 1997 (UNAUDITED)
UNITED MERCER A&A TOOL CORAN RENTALS, EQUIPMENT RENTALS AND J & J RENTAL ENTERPRISES, BRONCO ACCESS BNR GROUP INC. COMPANY SALES, INC. SERVICES, INC. INC. HI-LIFT, INC. RENTALS, INC. OF COMPANIES ----------- ----------- ----------- -------------- ------------ ------------- ------------- ------------ Revenues Equipment rentals........... $ 7,018,564 $ 6,891,972 $ 6,022,196 $6,368,023 $6,743,497 $4,330,000 $42,316,423 $ 9,402,842 Sales of equipment and merchandise and other revenue..... 3,614,834 8,181,440 5,424,246 703,413 974,713 1,091,176 9,942,738 14,612,355 ----------- ----------- ----------- ---------- ---------- ---------- ----------- ----------- Total revenues.. 10,633,398 15,073,412 11,446,442 7,071,436 7,718,210 5,421,176 52,259,161 24,015,197 Cost of revenues Cost of equipment rentals, excluding depreciation...... 3,203,009 2,300,062 2,583,884 2,992,384 3,764,346 374,845 12,415,655 4,662,325 Rental equipment depreciation...... 1,038,947 1,428,312 1,465,586 1,531,357 1,328,193 660,598 8,480,016 1,588,710 Cost of sales and other operating expenses.......... 2,580,162 6,602,793 4,775,637 373,500 257,838 673,163 8,861,832 10,360,520 ----------- ----------- ----------- ---------- ---------- ---------- ----------- ----------- Total cost of revenues........ 6,822,118 10,331,167 8,825,107 4,897,241 5,350,377 1,708,606 29,757,503 16,611,555 ----------- ----------- ----------- ---------- ---------- ---------- ----------- ----------- Gross profit....... 3,811,280 4,742,245 2,621,335 2,174,195 2,367,833 3,712,570 22,501,658 7,403,642 Selling, general and administrative expenses........... 3,311,669 3,245,256 2,178,383 1,500,395 1,768,439 2,353,924 10,439,727 5,402,206 Non-rental depreciation and amortization....... 262,102 114,654 124,648 86,272 15,370 85,707 1,354,639 104,486 ----------- ----------- ----------- ---------- ---------- ---------- ----------- ----------- Operating income... 237,509 1,382,335 318,304 587,528 584,024 1,272,939 10,707,292 1,896,950 Interest expense... 454,072 686,512 642,478 559,000 170,183 229,154 3,700,559 501,428 Other (income) expense, net....... (270,701) (147,362) (120,047) (37,724) 0 (29,938) (809,146) 0 ----------- ----------- ----------- ---------- ---------- ---------- ----------- ----------- Income before provision for income taxes....... 54,138 843,185 (204,127) 66,252 413,841 1,073,723 7,815,879 1,395,522 Provision for income taxes....... 20,516 15,270 98,000 276,383 2,744,691 458,302 ----------- ----------- ----------- ---------- ---------- ---------- ----------- ----------- Net income......... $ 33,622 $ 843,185 $ (219,397) $ (31,748) $ 137,458 $1,073,723 $ 5,071,188 $ 937,220 =========== =========== =========== ========== ========== ========== =========== =========== Basic Earnings per share.............. $ 0.00 =========== Diluted Earnings per share.......... $ 0.00 =========== MISSION VALLEY OTHER PRO FORMA PRO FORMA RENTALS, INC. ACQUISITIONS ADJUSTMENTS CONSOLIDATED -------------- ------------- --------------- ------------ Revenues Equipment rentals........... $7,852,751 $27,969,883 $124,916,151 Sales of equipment and merchandise and other revenue..... 764,920 16,534,376 61,844,211 -------------- ------------- ------------ Total revenues.. 8,617,671 44,504,259 186,760,362 Cost of revenues Cost of equipment rentals, excluding depreciation...... 3,436,601 13,661,213 49,394,324 Rental equipment depreciation...... 1,746,340 6,095,559 $(4,096,853)(a) 21,266,765 Cost of sales and other operating expenses.......... 517,661 11,877,557 (57,068)(b) 46,823,595 -------------- ------------- --------------- ------------ Total cost of revenues........ 5,700,602 31,634,329 (4,153,921) 117,484,684 -------------- ------------- --------------- ------------ Gross profit....... 2,917,069 12,869,930 4,153,921 69,275,678 Selling, general and administrative expenses........... 3,062,607 9,067,353 (4,840,243)(c) 38,212,809 723,093 (d) Non-rental depreciation and amortization....... 31,695 420,339 2,490,386 (e) 5,090,298 -------------- ------------- --------------- ------------ Operating income... (177,233) 3,382,238 5,780,685 25,972,571 Interest expense... 433,972 1,839,226 (8,210,984)(f) 8,888,757 7,883,157 (g) Other (income) expense, net....... (61,269) (222,768) 0 (1,698,955) -------------- ------------- --------------- ------------ Income before provision for income taxes....... (549,936) 1,765,780 6,108,512 18,782,769 Provision for income taxes....... (72,801) 645,613 3,301,860 (h) 7,487,834 -------------- ------------- --------------- ------------ Net income......... $ (477,135) $ 1,120,167 $ 2,806,652 $ 11,294,935 ============== ============= =============== ============ Basic Earnings per share.............. $ 0.46 ============ Diluted Earnings per share.......... $ 0.43 ============
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 formed in September 1997 for the purpose of creating a large geographically diversified equipment rental company in the United States and Canada. The Company commenced equipment rental operations in October 1997 by acquiring six established companies and acquired 14 additional companies in the first two months of 1998. 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 (i) the Company as of December 31, 1997 and for the period from inception to December 31, 1997 and (ii) the 14 acquisitions completed by the Company subsequent to December 31, 1997, as of and for the year ended December 31, 1997. The results of operations for the year ended December 31, 1997 also includes the results of operations of each Initial Acquired Company for the period from January 1, 1997 through the date in October 1997 on which such Initial Acquired Company was acquired by the Company. Such data is derived from the respective financial statements of such companies. The historical financial statements of the BNR Group of Companies are stated in Canadian dollars and prepared in accordance with Canadian generally accepted accounting principles. The historical financial data for the BNR Group of Companies presented in these pro forma consolidated financial statements reflect the translation of these statements into US dollars and have been adjusted to conform to US generally accepted accounting principles. 3. ACQUISITIONS Since its formation, the Company has completed a total of 20 acquisitions. These include the acquisition of the six Initial Acquired Companies in October 1997 and the acquisition of 14 additional companies (the "1998 Acquired Companies") in the first two months of 1998. The aggregate consideration paid by the Company for the Initial Acquired Companies (the "1997 Acquisition Consideration") was $57.7 million and consisted of approximately $53.6 million in cash, 318,712 shares of Common Stock (subject to possible adjustment as described under "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Consideration Paid for Acquired Companies") and a $300,000 convertible note. The aggregate consideration paid by the Company for the 1998 Acquired Companies (the "1998 Acquisition Consideration") was $116.4 million and consisted of approximately $100.9 million in cash, 804,875 shares of Common Stock, and warrants to purchase an aggregate of 30,000 shares of Common Stock. Based upon management's preliminary estimates, it is estimated that the carrying value of the assets and liabilities of the 1998 Acquired Companies approximates fair value, with the exception of rental equipment and other property and equipment, which required adjustments to reflect fair market value. The following table presents the allocation of purchase prices of each of the 1998 Acquired Companies:
ACCESS BNR GROUP RENTALS, OF MISSION VALLEY OTHER COMBINED INC. COMPANIES RENTALS, INC. ACQUISITIONS TOTAL ----------- ----------- -------------- ------------ ------------ Purchase price.......... $46,488,114 $15,490,704 $16,695,545 $37,689,360 $116,363,723 Net assets acquired..... 22,113,361 2,710,426 1,529,997 9,870,046 36,223,830 Fair value adjustments: Rental equipment...... (909,859) 1,061,690 (299,048) 3,631,791 3,484,574 Property and equipment............ (1,136,167) (38,032) 11,657 (295,980) (1,458,522) ----------- ----------- ----------- ----------- ------------ Intangibles recognized.. $26,420,779 $11,756,620 $15,452,939 $24,483,503 $78,113,841 =========== =========== =========== =========== ============
F-7 4. PRO FORMA ADJUSTMENTS Balance sheet adjustments: a. Records the portion of the 1998 Acquisition Consideration and debt repayment paid from available cash on hand. b. Adjusts the carrying value of rental equipment to fair market value. c. Adjusts the carrying value of property and equipment to fair market value. d. Records the excess of the 1998 Acquisition Consideration over the estimated fair value of net assets acquired. e. Records the repayment of certain indebtedness of the 1998 Acquired Companies. f. Records the portion of the 1998 Acquisition Consideration and debt repayment funded by borrowing under the Company's Credit Facility. g. Records the elimination of the stockholders' equity of the 1998 Acquired Companies. h. Records the portion of the 1998 Acquisition Consideration paid in the form of Common Stock and warrants. 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 salvage value ranging from 0 to 10%): Rental equipment.............................................. 2-9 years Other property and equipment.................................. 2-15 years
b. Adjusts the method of accounting for inventory at one of the Acquired Companies from the LIFO method to the FIFO method. c. Adjusts the compensation to former owners and executives of the Acquired Companies to current levels of compensation. d. Adjusts the lease expense for real estate utilized by the 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 Acquired Companies using an estimated life of 40 years. f. Eliminates interest expense related to the outstanding indebtedness of the Acquired Companies which was repaid by the Company. g. Records interest expense relating to the portion of the 1997 Acquisition Consideration and 1998 Acquisition Consideration funded through borrowing under the Company's Credit Facility using a rate per annum of 7.3%. 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 shares outstanding during the period. The weighted average outstanding shares during the period is calculated as follows: Basic: Shares outstanding at December 31, 1997....................... 23,899,119 Shares issued for acquisitions................................ 804,875 ---------- 24,703,994 ========== Dilutive: Shares outstanding at December 31, 1997....................... 23,899,119 Shares issued for acquisitions................................ 804,875 Common stock equivalents (based on the initial public offering price of $13.50 per share)................................... 1,792,942 ---------- 26,496,936 ==========
F-8 REPORT OF INDEPENDENT AUDITORS Board of Directors United Rentals, Inc. We have audited the accompanying consolidated balance sheet of United Rentals, Inc. as of December 31, 1997 and the related consolidated statements of operations, stockholders' equity and cash flows from August 14, 1997 (Inception) to December 31, 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Rentals, Inc. at December 31, 1997, and the results of its operations and its cash flows from August 14, 1997 (Inception) to December 31, 1997, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP MetroPark, New Jersey January 30, 1998 F-9 UNITED RENTALS, INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 ASSETS Cash and cash equivalents......................................... $ 68,607,528 Accounts receivable, net of allowance for doubtful accounts of $1,161,000....................................................... 7,494,636 Inventory......................................................... 3,827,446 Prepaid expenses and other assets................................. 2,966,822 Rental equipment, net............................................. 33,407,561 Property and equipment, net....................................... 2,272,683 Intangible assets, net of accumulated amortization of $241,000.... 50,533,736 ------------ $169,110,412 ============ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable................................................ $ 5,697,830 Debt............................................................ 1,074,474 Deferred taxes.................................................. 198,249 Accrued expenses and other liabilities.......................... 4,409,828 ------------ Total liabilities............................................. 11,380,381 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, 23,899,119 shares issued and outstanding....................... 238,991 Additional paid-in capital...................................... 157,457,418 Retained earnings............................................... 33,622 ------------ Total stockholders' equity.................................... 157,730,031 ------------ $169,110,412 ============
See accompanying notes. F-10 UNITED RENTALS, INC. CONSOLIDATED STATEMENT OF OPERATIONS AUGUST 14, 1997 (INCEPTION) TO DECEMBER 31, 1997 Revenues: Equipment rentals............................................... $ 7,018,564 Sales of rental equipment....................................... 1,011,071 Sales of new equipment, merchandise and other revenues.......... 2,603,763 ----------- Total revenues.................................................... 10,633,398 Cost of revenues: Cost of equipment rentals, excluding depreciation............... 3,203,209 Depreciation of rental equipment................................ 1,038,747 Cost of rental equipment sales.................................. 527,523 Cost of new equipment and merchandise sales and other operating costs.......................................................... 2,052,639 ----------- Total cost of revenues............................................ 6,822,118 ----------- Gross profit...................................................... 3,811,280 Selling, general and administrative expenses...................... 3,311,669 Non-rental depreciation and amortization.......................... 262,102 ----------- Operating income.................................................. 237,509 Interest expense.................................................. 454,072 Other (income) expense............................................ (270,701) ----------- Income before provision for income taxes.......................... 54,138 Provision for income taxes........................................ 20,516 ----------- Net income........................................................ $ 33,622 =========== Basic earnings per share.......................................... $ 0.00 =========== Diluted earnings per share........................................ $ 0.00 ===========
See accompanying notes. F-11 UNITED RENTALS, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AUGUST 14, 1997 (INCEPTION) TO DECEMBER 31 , 1997
COMMON STOCK ------------------- ADDITIONAL NUMBER PAID-IN RETAINED OF SHARES AMOUNT CAPITAL EARNINGS ---------- -------- ------------ -------- Balance, August 14, 1997 (Incep- tion)............................... -- $ -- $ -- $ -- Issuance of common stock and war- rants............................. 23,899,119 238,991 157,457,418 Net income......................... 33,622 ---------- -------- ------------ ------- Balance, December 31, 1997........... 23,899,119 $238,991 $157,457,418 $33,622 ========== ======== ============ =======
See accompanying notes. F-12 UNITED RENTALS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS AUGUST 14, 1997 (INCEPTION) TO DECEMBER 31, 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net income....................................................... $ 33,622 Adjustments to reconcile net income to net cash provided by oper- ating activities: Depreciation and amortization.................................. 1,300,849 Gain on sale of rental equipment............................... (483,548) Deferred taxes................................................. (2,204) Changes in operating assets and liabilities: Accounts receivable.......................................... 609,529 Inventory.................................................... 631,484 Prepaid expenses and other assets............................ (755,545) Accounts payable............................................. 281,056 Accrued expenses and other liabilities....................... (512,507) ------------ Net cash provided by operating activities.................. 1,102,736 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of rental equipment.................................... (1,886,533) Purchases of property and equipment.............................. (819,557) Proceeds from sales of rental equipment.......................... 1,011,071 In-process acquisition costs..................................... (128,523) Purchase of other companies...................................... (51,451,634) ------------ Net cash used in investing activities...................... (53,275,176) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stock and warrants, net of issuance costs.................................................. 154,788,110 Proceeds from debt............................................... 35,000,000 Repayment of debt................................................ (68,222,252) Payment of debt financing costs.................................. (785,890) ------------ Net cash provided by financing activities.................. 120,779,968 ------------ Net increase in cash and cash equivalents........................ 68,607,528 Cash and cash equivalents at beginning of period................. -- ------------ Cash and cash equivalents at end of period................. $ 68,607,528 ============ Supplemental disclosure of cash flow information: Cash paid for interest......................................... $ 446,559 ============ Supplemental schedule of non cash investing and financing activities: The Company acquired the net assets and assumed certain liabilities of other companies as follows: Assets, net of cash acquired................................. $ 98,876,932 Liabilities assumed.......................................... (43,300,749) Less: Amounts paid in common stock............................... (3,824,549) Amount paid through issuance of convertible note........... (300,000) ------------ Net cash paid.................................................. $ 51,451,634 ============
See accompanying notes. F-13 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 1. ORGANIZATION AND BASIS OF PRESENTATION United Rentals, Inc. (together with its subsidiaries the "Company") was incorporated in August 1997 for the purpose of creating a large, geographically diversified equipment rental company in the United States and Canada. The Company rents a broad array of equipment to a diverse customer base that includes construction industry participants, industrial companies, homeowners and others. The Company also engages in related activities such as selling used rental equipment, acting as a distributor for certain new equipment and selling related merchandise and parts. The nature of the Company's business is such that short-term obligations are typically met by cash flow generated from long-term assets. Consequently, consistent with industry practice, the accompanying balance sheet is presented on an unclassified basis. The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. 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. Inventory Inventory consists of equipment, tools, parts, fuel and related supply items. Inventory is stated at the lower of average weighted cost or market. Rental Equipment Rental equipment is recorded at cost and depreciated over the estimated useful lives of the equipment using the straight-line method. The range of useful lives estimated by management for rental equipment is two to ten years. Rental equipment is depreciated to a salvage value of zero to ten percent of cost. Rental equipment having a cost of $500 or less is expensed at the time of purchase. Ordinary maintenance and repair costs are charged to operations as incurred. Revenue Recognition Revenue related to the sale of equipment is recognized at the point of sale. Revenue related to rental equipment is recognized over the contract term. Property and Equipment Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. The range of useful lives estimated by management for property and equipment is two to ten years. Ordinary maintenance and repair costs are charged to operations as incurred. Intangible Assets Intangible assets consist of the excess of cost over the value of identifiable net assets of businesses acquired and are being amortized on a straight line basis over their estimated useful lives of forty years. Fair Value of Financial Instruments The carrying amounts reported in the balance sheet for accounts receivable, accounts payable, accrued expenses and other liabilities approximate fair value due to the immediate to short-term maturity of these financial instruments. The fair value of notes payable is determined using current interest rates for similar instruments as of December 31, 1997 and approximates the carrying value of these notes due to the fact that the underlying instruments include provisions to adjust note balances and interest rates to approximate fair market value. Advertising Expense The Company expenses the cost of advertising as incurred. The Company incurred $146,000 in advertising costs for the period August 14, 1997 (Inception) to December 31, 1997. F-14 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 and accounts receivable. The Company maintains cash and cash equivalents with high quality financial institutions. Concentrations of credit risk with respect to accounts receivable are limited because a large number of geographically diverse customers make up the Company's customer base. No single customer represents greater than 10% of total accounts receivable. The Company controls credit risk through credit approvals, credit limits, and monitoring procedures. 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 Earnings Per Share Earnings per share is calculated under the provisions of recently issued Statement 128, Earnings Per Share. Common Stock issued for consideration below the initial public offering price ("IPO price") of $13.50 per share at which shares were sold in the Company's initial public offering (the "IPO"), and stock options and warrants granted with exercise prices below the IPO price per share during the twelve months preceding the date of the initial filing of the registration statement for the IPO are included in the calculation of common equivalent shares at the IPO price per share. Impact of Recently Issued Accounting Standards In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company is required to adopt the provisions of these Statements in fiscal year 1998. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in a primary financial statement. The Company is currently evaluating the reporting formats recommended under this Statement. SFAS No. 131 establishes a new method by which companies will report operating segment information. This method is based on the manner in which management organizes the segments within a company for making operating decisions and assessing performance. The Company continues to evaluate the provisions of SFAS No. 131 and, upon adoption, the Company may report operating segments. F-15 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 3. ACQUISITIONS During October 1997, the Company purchased all of the outstanding stock of the following six equipment rental companies for the indicated consideration:
COMPANY CONSIDERATION ------- ------------- A & A Tool Rentals and Sales, Inc........................... $ 8,593,520 Bronco High-Lift, Inc....................................... 7,949,568 Coran Enterprises, Inc...................................... 15,264,337 J & J Rental Services, Inc.................................. 3,824,549 Mercer Equipment Company.................................... 14,933,242 Rent-It Center, Inc......................................... 6,400,000
All of the consideration paid for the acquisitions was in cash, with the exception of Rent-It Center, Inc. which included a $300,000 convertible note and J & J Rental Services, Inc. where all of the consideration was paid through the issuance of 318,712 shares of the Company's Common Stock. These shares are subject to adjustment so that their value will equal $3.8 million based upon the average daily closing price of the Company's Common Stock during the 60 day period beginning December 18, 1997. Contingent consideration is due on the J & J Rental Services, Inc. acquisition based upon a percentage of revenues up to a maximum of $2.8 million. These acquisitions have been accounted for as purchases and, accordingly, the results of their operations have been included in the Company's results of operations from their respective acquisition dates. The purchase prices have been allocated to the assets acquired and liabilities assumed based on their respective fair values at their respective acquisition dates. Contingent purchase price is capitalized when earned and amortized over the remaining life of the related asset. The Company has not completed its valuation of the 1997 purchases and the purchase price allocations are subject to change when additional information concerning asset and liability valuations are completed. The following table summarizes, on an unaudited pro forma basis, the combined results of operations of the Company for the years ended December 31, 1997 and 1996 as though each acquisition described above was made on January 1, for each of the periods.
1997 1996 ----------- ----------- Revenues............................................ $59,832,952 $51,889,258 Net income.......................................... 2,607,127 3,462,371 Basic earnings per share............................ $ 0.16 $ 0.22 Diluted earnings per share.......................... $ 0.14 $ 0.20
The unaudited pro forma results are based upon certain assumptions and estimates which are subject to change. These results 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. 4. RENTAL EQUIPMENT Rental equipment and related accumulated depreciation consists of the following: Rental equipment................................................ $34,444,129 Less accumulated depreciation................................... (1,036,568) ----------- Rental equipment, net........................................... $33,407,561 ===========
F-16 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 5. PROPERTY AND EQUIPMENT A summary of property and equipment is as follows: Furniture, fixtures and office equipment........................ $2,294,277 Less accumulated depreciation................................... (21,594) ---------- Property and equipment, net..................................... $2,272,683 ========== 6. DEBT Debt consists of the following: Subordinated convertible notes.................................. $ 500,000 Equipment notes, interest at 7.0% to 10.6%, payable in various monthly installments through 2001, secured by equipment........ 574,474 ---------- Total debt...................................................... $1,074,474 ==========
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 $155 million on a revolving basis (the "Credit Facility"). 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 December 31, 1997, there was no outstanding indebtedness under the Credit Facility. 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 certain of its executive officers 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 subordinated convertible notes consists of two notes; $300,000 in principal bearing interest at 7% per annum and $200,000 in principal bearing interest at 7 1/2% per annum. The $200,000 note was converted into 14,814 shares of Common Stock during January 1998. The $300,000 note is repayable in equal quarterly installments of principal and interest through October, 2002, is convertible into the Company's Common Stock at a conversion rate of $16.20 per share and is subordinated to the Company's Credit Facility. F-17 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Maturities of the Company's debt for each of the next five years at December 31, 1997 are as follows: 1998.............................................................. $ 244,260 1999.............................................................. 340,916 2000.............................................................. 239,020 2001.............................................................. 181,676 2002.............................................................. 68,602 ---------- $1,074,474 ==========
7. INCOME TAXES The provision for federal and state income taxes is as follows: Current State....................................................... $22,720 Deferred State...................................................... 3,041 Deferred Federal.................................................... (5,245) ------- $20,516 =======
A reconciliation of the provision for income taxes and the amount computed by applying the statutory federal income tax rate of 34% to income before provision for income taxes is as follows: Computed tax benefit at statutory tax rate.......................... $18,407 Increase in tax benefit: Tax-exempt interest income........................................ (91,971) Non-deductible expense............................................ 77,078 State income taxes, net of Federal benefit........................ 17,002 ------- $20,516 =======
The components of deferred income tax assets are as follows: Accrual liabilities.............................................. $ 957,619 Net operating loss carryforward.................................. 313,719 Property & equipment............................................. 43,908 ---------- $1,315,246 ==========
The components of deferred income tax liabilities are as follows: Intangibles and other............................................... $633,132 ========
The Company has net short-term deferred tax assets in the amount of $880,363, which are reported in the balance sheet in prepaid expenses and other assets. The Company has net operating loss carryforwards ("NOLs") of $845,681 for income tax purposes that expire in 2012. F-18 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 8. CAPITAL STOCK Preferred Stock: The Company's board of directors has the authority to designate 5,000,000 shares of $.01 par value preferred stock in series, to establish as to each series the designation and number of shares to be issued and the rights, preferences, privileges and restrictions of the shares of each series, and to determine the voting powers, if any, of such shares. At December 31, 1997, the Company's Board of Directors had not designated any shares. As of December 31, 1997 there are outstanding warrants to purchase an aggregate of 6,344,058 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). During 1997, 904,583 options to purchase shares of the Company's Common Stock were granted and remain outstanding at December 31, 1997. The weighted average exercise price per share of such options was $12.76. Such options had exercise prices ranging from $10 to $30 per share. Of such options, 818,583 provided for an exercise price per share in the range of $10.00 to $19.99 (the weighted average exercise price and weighted average remaining life of the options in this range being $11.84 and 9.9 years, respectively) and 86,000 provided for an exercise price per share in the range of $20.01 to $30.00 (the weighted average exercise price and weighted average remaining life of the options in this range being $21.51 and 9.9 years, respectively). The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting for stock-based employee compensation arrangements whereby no compensation cost related to stock options is deducted in determining net income. Had compensation cost for the Company's stock option plans been determined pursuant to Financial Accounting Standards Board Statement No. 123 ("SFAS No. 123"), "Accounting for Stock- Based Compensation," the Company's net income and earnings per share would have differed. The Black-Scholes option pricing model estimates fair value of options using subjective assumptions which can materially affect fair value estimates and, therefore, do not necessarily provide a single measure of fair value of options. Using the Black-Scholes option pricing model and a risk-free interest rate of 5.8%, a volatility factor for the market price of the Company's Common Stock of .315 and a weighted-average expected life of options of approximately three years, the Company's net loss, basic earnings per share and diluted earnings per share would have been $(43,731), $0.00 and $0.00, respectively. For purposes of these pro forma disclosures, the estimated fair value of options is amortized over the options' vesting period. Since the number of options granted and their fair value may vary significantly from year to year, the pro forma compensation expense in future years may be materially different. At December 31, 1997 there are 6,344,058 shares of Common Stock reserved for the exercise of warrants, 5,000,000 shares of Common Stock reserved for issuance pursuant to options granted, and that may be granted in the future, under the Company's 1997 Stock Option Plan and 33,332 shares of Common Stock reserved for the future conversion of convertible debt. F-19 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 9. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share: Numerator: Net income....................................................... $ 33,622 =========== Denominator: Denominator for basic earnings per share--weighted-average shares.......................................................... 16,319,193 Effect of dilutive securities: Employee stock options.......................................... 116,061 Warrants........................................................ 1,736,899 ----------- Dilutive potential common shares Denominator for diluted earnings per share--adjusted weighted- average shares................................................. 18,172,173 =========== Basic earnings per share........................................... $ 0.00 =========== Diluted earnings per share......................................... $ 0.00 ===========
10. COMMITMENTS AND CONTINGENCIES Operating Leases The Company leases rental equipment, real estate and certain office equipment under operating leases. Certain real estate leases require the Company to pay maintenance, insurance, taxes and certain other expenses in addition to the stated rentals. Future minimum lease payments, by year and in the aggregate, for noncancellable operating leases with initial or remaining terms of one year or more are as follows at December 31, 1997: 1998.............................................................. $2,676,494 1999.............................................................. 1,860,615 2000.............................................................. 1,213,003 2001.............................................................. 1,155,995 2002.............................................................. 816,400 Thereafter........................................................ 1,929,430 ---------- $9,651,937 ==========
Rent expense under non-cancellable operating leases for the period August 14, 1997 (Inception) to December 31, 1997 was $524,752. 11. SUBSEQUENT EVENTS Subsequent to December 31, 1997, the Company completed the acquisition of 14 equipment rental companies (the "Acquisitions") and the aggregate consideration paid by the Company for the Acquisitions was $116.4 million and consisted of approximately $100.9 million in cash, 804,875 shares of Common Stock and warrants to purchase 30,000 shares of Common Stock. The Company funded a portion of the cash consideration for these acquisitions with cash on hand and the balance with borrowings under the Credit Facility. F-20 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholder of Access Rentals, Inc. We have audited the accompanying consolidated balance sheet of Access Rentals, Inc., and subsidiary as of March 31, 1996, and the related consolidated statements of income, stockholders' equity and cash flows for the years ended September 30, 1994 and 1995, and the six months ended March 31, 1996. We have also audited the combined balance sheet of Access Rentals, Inc., and subsidiary and affiliate as of March 31, 1997, and the related combined statements of income, stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our 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 and combined financial statements referred to above present fairly, in all material respects, the financial position of Access Rentals, Inc., and subsidiary and affiliate as of March 31, 1996 and 1997, and results of their operations and cash flows for the years ended September 30, 1994 and 1995, the six months ended March 31, 1996 and the year ended March 31, 1997 in conformity with generally accepted accounting principles. /s/ Battaglia, Andrews & Moag, P.C. Batavia, New York January 22, 1998 F-21 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE CONSOLIDATED AND COMBINED BALANCE SHEETS
MARCH 31, MARCH 31, DECEMBER 1996 1997 31, 1997 ----------- ----------- ----------- (UNAUDITED) ASSETS ------ Cash.................................... $ 284,228 $ 399,196 $ 362,817 Accounts receivable, net................ 3,319,859 5,173,046 9,482,265 Unbilled receivables.................... -- -- 1,075,209 Inventory............................... 2,013,125 1,835,687 2,511,326 Rental equipment, net................... 30,865,058 49,551,170 63,636,491 Property and equipment, net............. 2,625,564 4,599,576 5,386,167 Due from related party.................. 1,121,814 1,860,102 2,071,971 Prepaid expenses and other assets....... 1,221,482 1,896,518 1,286,100 Deferred tax asset...................... 458,908 937,585 576,730 Intangibles............................. -- 1,375,005 2,212,368 ----------- ----------- ----------- Total assets........................ $41,910,038 $67,627,885 $88,601,444 =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Liabilities: Accounts payable, accrued expenses and other liabilities.................... $ 3,128,407 $ 3,601,707 $ 7,160,756 Deferred tax liability................ 4,675,199 6,350,541 7,821,732 Debt.................................. 19,109,094 39,782,237 51,505,595 ----------- ----------- ----------- Total liabilities................... 26,912,700 49,734,485 66,488,083 Commitments and contingencies Stockholders' equity: Common stock, $1 par value; 10,000 shares authorized, 300, 300 and 10,000 shares issued and outstanding for each respective year............. 300 300 10,000 Additional paid-in capital............ 4,500 4,500 4,500 Note receivable from stockholder...... (420,040) (515,606) (1,105,994) Retained earnings..................... 15,426,922 18,411,049 23,278,389 Equity adjustment for foreign currency translation.......................... (14,344) (6,843) (73,534) ----------- ----------- ----------- Total stockholders' equity.......... 14,997,338 17,893,400 22,113,361 ----------- ----------- ----------- Total liabilities and stockholders' equity............................. $41,910,038 $67,627,885 $88,601,444 =========== =========== ===========
See accompanying notes. F-22 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
YEAR ENDED SIX MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED YEAR ENDED DECEMBER 31, ------------------------ MARCH 31, MARCH 31, ------------------------ 1994 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) Revenues: Equipment rentals...... $15,804,754 $18,382,243 $10,405,814 $30,615,602 $21,391,478 $33,092,299 Sales of equipment and parts................. 4,731,889 9,426,936 3,629,373 8,963,128 9,279,272 10,258,882 ----------- ----------- ----------- ----------- ----------- ----------- Total revenues......... 20,536,643 27,809,179 14,035,187 39,578,730 30,670,750 43,351,181 Cost of revenues: Cost of rentals excluding depreciation.......... 4,867,059 6,129,103 3,870,961 9,937,663 7,341,151 9,819,143 Depreciation, equipment rentals............... 2,825,381 3,405,797 2,139,726 6,509,012 4,701,737 6,672,741 Cost of equipment and parts................. 3,468,073 7,115,826 2,703,494 6,494,156 5,200,774 7,568,450 ----------- ----------- ----------- ----------- ----------- ----------- Total cost of revenues. 11,160,513 16,650,726 8,714,181 22,940,831 17,243,662 24,060,334 ----------- ----------- ----------- ----------- ----------- ----------- Gross profit............ 9,376,130 11,158,453 5,321,006 16,637,899 13,427,088 19,290,847 Selling, general and administrative expenses............... 4,414,362 5,394,286 2,329,997 8,747,215 6,261,115 7,953,627 Non-rental depreciation. 489,084 532,659 283,206 946,382 658,899 1,067,156 ----------- ----------- ----------- ----------- ----------- ----------- Operating income....... 4,472,684 5,231,508 2,707,803 6,944,302 6,507,074 10,270,064 Interest expense........ 673,532 1,147,616 682,394 2,604,066 1,821,607 2,918,100 Other (income), net..... (220,289) (250,421) (295,443) (605,215) (363,828) (567,759) ----------- ----------- ----------- ----------- ----------- ----------- Income before provision for income taxes and cumulative effect of change in accounting principle............. 4,019,441 4,334,313 2,320,852 4,945,451 5,049,295 7,919,723 Provision for income taxes.................. 1,661,994 1,819,455 1,122,851 1,786,724 2,016,066 2,974,033 ----------- ----------- ----------- ----------- ----------- ----------- Income before cumulative effect of change in accounting principle............. 2,357,447 2,514,858 1,198,001 3,158,727 3,033,229 4,945,690 Cumulative effect of change in method of accounting for taxes... 46,325 -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Net income............. $ 2,403,772 $ 2,514,858 $ 1,198,001 $ 3,158,727 $ 3,033,229 $ 4,945,690 =========== =========== =========== =========== =========== ===========
See accompanying notes. F-23 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE CONSOLIDATED AND COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
NOTE COMMON STOCK ADDITIONAL RECEIVABLE FOREIGN -------------- PAID-IN FROM TREASURY RETAINED CURRENCY SHARES AMOUNT CAPITAL STOCKHOLDER STOCK EARNINGS TRANSLATION ------ ------- ---------- ----------- --------- ----------- ----------- Balance at October 1, 1993................... 6 $ 4,800 $ -- $ (128,069) $(200,000) $ 9,775,310 $ -- Prior period adjustment............ (265,019) ------ ------- ------ ----------- --------- ----------- -------- Balance, October 1, as restated............... 6 4,800 -- (128,069) (200,000) 9,510,291 -- Retroactive retirement of treasury stock..... 200,000 (200,000) Retroactive effect of stock split........... 294 (4,500) 4,500 Advances on note receivable from stockholder, net...... (199,179) Net income............. 2,403,772 ------ ------- ------ ----------- --------- ----------- -------- Balance at September 30, 1994................... 300 300 4,500 (327,248) -- 11,714,063 -- Advances on note receivable from stockholder, net...... (44,180) Net income............. 2,514,858 (5,557) ------ ------- ------ ----------- --------- ----------- -------- Balance at September 30, 1995................... 300 300 4,500 (371,428) -- 14,228,921 (5,557) Advances on note receivable from stockholder, net...... (48,612) Net income............. 1,198,001 (8,787) ------ ------- ------ ----------- --------- ----------- -------- Balance at March 31, 1996................... 300 300 4,500 (420,040) -- 15,426,922 (14,344) Advances on note receivable from stockholder, net...... (105,566) Affiliate owner contributions......... 10,000 Affiliate owner distributions......... (174,600) Net income............. 3,158,727 7,501 ------ ------- ------ ----------- --------- ----------- -------- Balance at March 31, 1997................... 300 300 4,500 (515,606) -- 18,411,049 (6,843) Issuance of common stock (unaudited)..... 9,700 9,700 (9,700) Advances on note receivable from stockholder, net (unaudited)........... (590,388) Affiliate owner distributions (unaudited)........... (68,650) Net income (unaudited). 4,945,690 (66,691) ------ ------- ------ ----------- --------- ----------- -------- Balance at December 31, 1997 (unaudited)....... 10,000 $10,000 $4,500 $(1,105,994) $ -- $23,278,389 $(73,534) ====== ======= ====== =========== ========= =========== ========
See accompanying notes. F-24 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED NINE MONTHS ENDED SEPTEMBER 30, SIX MONTHS YEAR ENDED DECEMBER 31, ------------------------ ENDED MARCH MARCH 31, -------------------------- 1994 1995 31, 1996 1997 1996 1997 ----------- ----------- ----------- ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income............. $ 2,403,772 $ 2,514,858 $ 1,198,001 $ 3,158,727 $ 3,033,229 $ 4,945,690 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......... 3,314,465 3,938,456 2,422,932 7,583,689 5,446,164 7,898,802 Deferred income taxes.. 672,080 676,782 667,412 1,151,456 1,048,873 1,835,040 Gain on sales of equipment............. (778,327) (1,274,170) (533,974) (1,543,192) (1,064,927) (1,767,358) Cumulative effect of change in method of accounting for income taxes................. (46,325) -- -- -- -- -- Change in assets and liabilities: Increase (decrease) in: Accounts receivable, net................. (1,163,341) (43,024) 670,789 (1,853,187) (3,004,185) (4,309,219) Unbilled receivables. -- -- -- -- -- (1,075,209) Inventory............ (91,367) (357,333) (741,329) 177,438 (393,457) (675,639) Prepaid expenses and other assets........ (740,966) (92,290) 179,547 (584,753) 111,402 560,606 Increase (decrease) in: Accounts payable, accrued expenses and other liabilities... 213,105 949,842 402,186 473,300 129,992 3,559,049 ----------- ----------- ----------- ------------ ------------ ------------ Total adjustments... 1,379,324 3,798,263 3,067,563 5,404,751 2,273,862 6,026,072 Net cash provided by operating activities......... 3,783,096 6,313,121 4,265,564 8,563,478 5,307,091 10,971,762 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from the sale of property and equipment............. 2,715,240 4,498,860 3,511,441 5,223,214 3,662,918 6,076,640 Purchase of property and equipment......... (2,497,803) (4,978,090) (3,789,714) (3,146,679) (333,516) (5,572,825) Advances on loan receivable-- stockholder........... (304,436) (248,462) (99,555) (389,594) (293,310) (697,153) Repayments on loan receivable-- stockholder........... 105,257 204,282 50,943 284,028 158,829 106,765 Advances on loan receivable--related party................. (13,000) -- (531,466) (759,690) (358,798) (246,543) Repayments on loan receivable--related party................. 10,174 7,128 3,673 21,402 15,401 34,674 Advances on note receivable............ -- (48,322) -- (77,851) -- -- Repayments on note receivable............ (126,668) 3,283 2,554 6,255 4,632 31,128 Acquisition of subsidiary............ -- (866,700) -- -- -- -- Payments for intangibles........... -- -- -- (1,521,984) (1,521,984) (977,583) ----------- ----------- ----------- ------------ ------------ ------------ Net cash provided by (used by) investing activities.......... (111,236) (1,428,021) (852,124) (360,899) 1,334,172 (1,244,897) CASH FLOWS FROM FINANCING ACTIVITIES: Affiliate owner distributions......... -- -- -- (174,600) -- (68,650) Affiliate owner contributions......... -- -- -- 10,000 10,000 -- Borrowings on debt obligations........... 161,297 736,330 2,083,097 23,048,203 16,018,625 22,959,059 Principal payments on debt obligations...... (3,932,202) (5,601,158) (5,234,451) (30,978,715) (22,599,866) (32,586,962) ----------- ----------- ----------- ------------ ------------ ------------ Net cash used by financing activities.......... (3,770,905) (4,864,828) (3,151,354) (8,095,112) (6,571,241) (9,696,553) Equity translation...... -- (5,557) (8,787) 7,501 7,569 (66,691) ----------- ----------- ----------- ------------ ------------ ------------ Net increase (decrease) in cash................ (99,045) 14,715 253,299 114,968 77,591 (36,379) CASH--BEGINNING OF PERIOD................. 115,259 16,214 30,929 284,228 284,228 399,196 ----------- ----------- ----------- ------------ ------------ ------------ CASH--END OF PERIOD..... $ 16,214 $ 30,929 $ 284,228 $ 399,196 $ 361,819 $ 362,817 =========== =========== =========== ============ ============ ============
See accompanying notes. F-25 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1995, AND AS OF AND FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND AS OF AND FOR THE YEAR ENDED MARCH 31, 1997 (THE INFORMATION AS OF DECEMBER 31, 1997 AND FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION AND COMBINATION The accompanying financial statements include the financial statements of Access Rentals, Inc. (the "Parent"), Access Lift Equipment, Inc. (the "Subsidiary") which was acquired in February 1995 and Reinhart Leasing LLC (the "Affiliate"). The Affiliate, which has common ownership to the Parent, was formed on June 26, 1996. The accompanying financial statements include the financial statements of the Parent for the years ended September 30, 1994 and 1995, as of and for the six months ended March 31, 1996, as of and for the year ended March 31, 1997 and as of December 31, 1997 and for the nine months ended December 31, 1996 and 1997 and the financial statements of the Subsidiary for the seven months ended September 30, 1995, as of and for the three months ended December 31, 1995 (included in the financial statements for the six months ended March 31, 1996), as of and for the year ended December 31, 1996 (included in the financial statements for the year ended March 31, 1997) and the nine months ended December 31, 1996 and 1997. The consolidated financial statements have been combined with the financial statements of the Affiliate for the six months ended December 31, 1996 (included in the financial statements for the nine months ended December 31, 1996) as of and for the nine months ended March 31, 1997 and as of and for the nine months ended December 31, 1997. All material intercompany transactions and balances have been eliminated in consolidation and combination. BUSINESS Access Rentals, Inc. and Subsidiary (the Company) rents, sells and repairs aerial personnel lift equipment primarily to companies in the manufacturing and construction industries. Sales and rentals primarily occur in areas where the Company maintains offices, such as the states of New York, Minnesota, Tennessee, Indiana, New Jersey, Pennsylvania, Connecticut, South Carolina, Florida, Washington and in and around Toronto, Canada. 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 sheet is presented on an unclassified basis. Reinhart Leasing, LLC rents and sells aerial personnel lift equipment solely to Access Rentals, Inc. INTERIM FINANCIAL STATEMENTS The accompanying balance sheet at December 31, 1997, and the statements of income, stockholders' equity and cash flows for the nine month periods ended December 31, 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 consists solely of normal recurring adjustments. The results of operations for such interim periods are not necessarily indicative of results for the full year. ACCOUNTS RECEIVABLE It is the Company's policy to present accounts receivable net of an allowance for uncollectible accounts. At March 31, 1996 and 1997 and December 31, 1997, the balance of the allowance for uncollectible accounts amounted to $103,028, $228,885 and $380,000, respectively. INVENTORY Inventory consists of equipment and vehicles purchased for resale and equipment parts purchased for repairs and resale. Equipment is valued at the lower of cost or market, based on specific identification, and parts are valued using the average cost method. F-26 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Inventory amounted to:
MARCH 31, ----------------------- DECEMBER 1996 1997 31, 1997 ----------- ----------- ----------- (UNAUDITED) Equipment for resale.................. $ 1,371,741 $ 368,723 $ 842,295 Parts................................. 641,384 1,466,964 1,669,031 ----------- ----------- ----------- Total............................... $ 2,013,125 $ 1,835,687 $ 2,511,326 =========== =========== ===========
RENTAL EQUIPMENT Rental equipment is recorded at cost. Depreciation for rental equipment is computed using the straight-line method over an estimated six-year useful life with a 10% salvage value. PROPERTY AND EQUIPMENT Property and equipment is stated at cost and is being depreciated using the straight-line and declining balance methods over the estimated useful lives of the respective assets. The cost of normal maintenance and repairs is charged to expense as incurred, whereas expenditures which materially extend property lives are capitalized. When depreciable property is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in income. 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 $7,706, $11,349, $6,717, $10,395, $6,454 and $26,982, for the years ended September 30, 1994 and 1995, six months ended March 31, 1996, year ended March 31, 1997, and nine months ended December 31, 1996 and 1997, respectively. OTHER ASSETS/AMORTIZATION During the year ended March 31, 1997 and the nine months ended December 31, 1997, the Company acquired assets of two companies. The acquisitions resulted in goodwill and covenants not-to-compete amounting to approximately $1,777,500 and $700,000, respectively, which are being amortized using the straight-line method over 15 years and 5 years, respectively. Total amortization expense amounted to $128,295, $85,528 and $158,905 for the year ended March 31, 1997 and the nine months ended December 31, 1996 and 1997, respectively. INCOME TAXES The provision for income tax is based on earnings reported for financial statement purposes, adjusted for transactions that do not enter into the computation of income taxes payable. The Parent, Subsidiary and Affiliate file separate tax returns. The Parent files tax returns in the United States and the Subsidiary files tax returns in Canada. The Affiliate is a limited liability company taxed as a partnership; therefore the members are taxed individually on the income of the Affiliate and a provision for taxes has not been made in the financial statements. F-27 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE NOTES TO FINANCIAL STATEMENTS--(CONTINUED) CONCENTRATION OF CREDIT RISK Credit is granted to substantially all of the Parent's customers throughout the United States and the Subsidiary's customers throughout Canada. Management feels that adequate reserves for potential credit losses are maintained. FOREIGN CURRENCY TRANSLATION The Company conducts business through a subsidiary located in Canada. The Company regards the local currency of the subsidiary to be its functional currency; consequently, translation gains and losses of the foreign subsidiary are accumulated and reported as a separate component of stockholders' equity. Transaction gains and losses that arise from exchange rate fluctuations on the transactions denominated in a currency other than the local functional currency are included in the results of operations. USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. This affects the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. NOTE 2--RENTAL EQUIPMENT RENTAL EQUIPMENT Rental equipment and related accumulated depreciation consisted of the following:
MARCH 31, ----------------------- DECEMBER 1996 1997 31, 1997 ----------- ----------- ----------- (UNAUDITED) Rental equipment........................... $43,896,291 $66,007,890 $84,098,558 Less accumulated depreciation.............. 13,031,233 16,456,720 20,462,067 ----------- ----------- ----------- Rental equipment, net...................... $30,865,058 $49,551,170 $63,636,491 =========== =========== ===========
PROPERTY AND EQUIPMENT Property and equipment and related accumulated depreciation consisted of the following:
MARCH 31, --------------------- DECEMBER 31, 1996 1997 1997 ---------- ---------- ------------ (UNAUDITED) Land......................................... $ 182,969 $ 182,969 $ 182,969 Buildings and improvements................... 949,741 1,346,619 1,779,975 Office and shop equipment.................... 833,209 1,341,605 1,387,020 Transportation equipment..................... 2,573,492 4,425,156 5,393,695 Less accumulated depreciation................ 1,913,847 2,696,773 3,357,492 ---------- ---------- ---------- Property and equipment, net.................. $2,625,564 $4,599,576 $5,386,167 ========== ========== ==========
F-28 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 3--NET INVESTMENT IN SALES-TYPE LEASES The Company leases some of its rental equipment to customers under sales- type leases. The following summarizes the net investment in sales-type leases which are included in prepaid and other assets on the balance sheet:
MARCH 31, ------------------- DECEMBER 31, 1996 1997 1997 --------- --------- ------------ (UNAUDITED) Total minimum lease payments to be received.... $ 418,679 $ 573,127 $ 716,961 Less unearned interest income.................. 26,950 38,773 39,627 --------- --------- --------- Net investment in sales-type leases............ $ 391,729 $ 534,354 $ 677,334 ========= ========= =========
NOTE 4--DEBT Debt consists of the following:
MARCH 31, ----------------------- DECEMBER 31, 1996 1997 1997 ----------- ----------- ------------ (UNAUDITED) Lines-of-credit.......................... $ 2,130,195 $ 3,788,341 $ 3,828,370 Present value of capital lease obligations............................. 3,436,191 8,465,249 16,104,886 Various installment obligations collateralized by rental and transportation equipment. These notes bear interest ranging from 6%-9.8%, with repayment periods ranging from two to five years.............................. 12,030,127 18,913,002 23,965,117 Term loan payable to a bank, monthly payments of $50,500 including interest at 7.84%, maturing July, 2006. Collateralized by rental equipment...... 270,413 2,217,572 1,887,211 Term loan payable to a bank, requiring monthly principle payments of $79,511, plus interest at the prime rate plus 1.75%, or the sum of the LIBOR on the request day plus 1.75% (7.3125% at March 31, 1997), maturing July 2002. The loan is collateralized by rental equipment of the Affiliate.............. -- 5,088,735 4,325,469 Term loan payable to a bank, quarterly principal payments of $46,021, plus interest at 6%, maturing July 1999. Collateralized by rental equipment of the Parent.............................. 598,268 414,186 276,124 Subsidiary revolving term loan payable to a bank, monthly principal payments totaling Canadian $39,455, plus interest at Canadian prime rate plus 0.5%, (5.25% at March 31, 1997), maturing June 2000. Collateralized by equipment of Subsidiary and guaranteed by the Parent.................................. 608,502 878,339 1,116,680 Mortgage payable to third-party lender, monthly payments of $1,750 including interest at 9%, maturing January 1998. Collateralized by real property at 45 Center Street, Batavia, New York........ 35,398 16,813 1,738 ----------- ----------- ----------- Total debt........................... $19,109,094 $39,782,237 $51,505,595 =========== =========== ===========
F-29 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE NOTES TO FINANCIAL STATEMENTS--(CONTINUED) BANK LINES-OF-CREDIT The Parent has revolving bank lines-of-credit amounting to $5,000,000 (increased to $6,000,000 on September 1, 1997), which are payable on demand, with interest due monthly at rates varying from 7.50% to 8.00% as of March 31, 1997. The agreements are collateralized by equipment and receivables of the Parent. The outstanding balance on these lines-of-credit agreements amounted to $3,788,341 at March 31, 1997. The Parent also has revolving term lines-of-credit available from various lending institutions which aggregate $63,700,000 as of March 31, 1997. The Company pays interest on the outstanding balances of these agreements at rates which ranged from 6.65% to 9.8% at March 31, 1997. The Subsidiary has a $500,000 (Canadian denomination) revolving line-of- credit available for operating cash requirements and a $2,400,000 (Canadian denomination) term line-of-credit available to finance up to 75% of the cost of equipment acquisitions. The operating line-of-credit is payable on demand, with interest due monthly at the Canadian prime rate of interest plus 0.25%, (5.00% at March 31, 1997). There was not an outstanding balance on the operating line-of-credit agreement as of March 31, 1997. Advances on the equipment line-of-credit are payable over 36 or 48 months, with interest due monthly at Canadian prime plus 0.50%, (5.25% at March 31, 1997). The outstanding balance on the equipment line-of-credit agreement was $878,339 (United States denomination) as of March 31, 1997. The line-of-credit agreements are collateralized by accounts receivable and personal property of the Subsidiary and are guaranteed by the Parent. Current maturities of long-term debt for each of the five years subsequent to March 31, 1997 are as follows:
CAPITAL DEBT LEASE OBLIGATIONS OBLIGATIONS TOTAL DEBT ----------- ----------- ----------- 1998.................................. $12,274,967 $2,283,984 $14,558,951 1999.................................. 7,097,078 2,168,855 9,265,933 2000.................................. 5,099,954 1,869,131 6,969,085 2001.................................. 3,002,236 1,379,399 4,381,635 2002.................................. 1,811,547 896,077 2,707,624 Thereafter............................ 2,031,206 1,492,772 3,523,978 ----------- ---------- ----------- Total payments........................ 31,316,988 10,090,218 41,407,206 Less interest amount.................. -- 1,624,969 1,624,969 ----------- ---------- ----------- Total debt.......................... $31,316,988 $8,465,249 $39,782,237 =========== ========== ===========
CAPITAL LEASE OBLIGATIONS The Company and Affiliate lease rental equipment under various agreements classified as capital leases based on the provisions of Statement of Financial Accounting Standards No. 13. The economic substance of the leases is that the Company is financing the acquisition of the equipment through the leases and, accordingly, they are recorded in the Company's assets and liabilities. These assets are stated on the balance sheet at their capitalized cost, less accumulated depreciation, of $4,115,887, $9,091,782 and $16,275,311 as of March 31, 1996 and 1997 and December 31, 1997, respectively. F-30 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 5--OPERATING LEASES The Company leases building, shop and office space, and rental equipment under various long-term and short-term operating lease agreements. Rent expense under the agreements for the years ended September 30, 1994 and 1995, six months ended March 31, 1996, year ended March 31, 1997, and nine months ended December 31, 1996 and 1997 amounted to $328,892, $334,504, $174,189, $825,229, $758,883 and $1,086,219, respectively. The total future minimum rental payments required for noncancellable operating leases as of March 31, 1997 are as follows: 1998........................................................... $ 513,782 1999........................................................... 342,859 2000........................................................... 363,925 2001........................................................... 267,697 2002........................................................... 410,846 Thereafter..................................................... 80,785 ---------- Total...................................................... $1,979,894 ==========
NOTE 6--PROVISIONS FOR INCOME TAXES The Company has provided for income tax based on consolidated net income. Income tax expense is allocated to the Parent and Subsidiary based on the tax liability and expense relating to the respective taxing authorities. The provision for income taxes, calculated according to SFAS No. 109, "Accounting for Income Taxes", amounted to:
YEAR ENDED SIX MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED YEAR ENDED DECEMBER 31, --------------------- MARCH 31, MARCH 31, ----------------------- 1994 1995 1996 1997 1996 1997 ---------- ---------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) Current: Federal income tax.... $ 651,914 $ 844,075 $ 336,022 $ 495,887 $ 699,193 $ 835,885 State income tax...... 338,000 296,054 114,774 93,415 268,000 301,000 Canadian business tax... -- 2,544 4,643 45,966 -- 2,108 ---------- ---------- ----------- ----------- ---------- ----------- Total current....... 989,914 1,142,673 455,439 635,268 967,193 1,138,993 Deferred: Federal income tax.... 577,859 455,576 336,121 866,666 849,733 1,320,725 State income tax...... 94,221 89,206 268,291 194,174 64,000 378,575 Canadian business tax... -- 132,000 63,000 90,616 135,140 135,740 ---------- ---------- ----------- ----------- ---------- ----------- Total deferred...... 672,080 676,782 667,412 1,151,456 1,048,873 1,835,040 ---------- ---------- ----------- ----------- ---------- ----------- Total provision for income taxes....... $1,661,994 $1,819,455 $ 1,122,851 $ 1,786,724 $2,016,066 $ 2,974,033 ========== ========== =========== =========== ========== ===========
Deferred taxes are recorded based on differences between the financial statement and tax basis of assets and liabilities. Temporary differences which give rise to a significant portion of deferred tax assets and liabilities F-31 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE NOTES TO FINANCIAL STATEMENTS--(CONTINUED) were the result of book and tax depreciation and revenue recognition timing differences, allowance for uncollectible accounts, net operating loss carryforwards of the Subsidiary and certain tax credits. The Subsidiary has remaining Canadian net operating loss (NOL) carryforwards of approximately $415,000 as of March 31, 1997 and December 31, 1997. The NOL carryforwards begin to expire in 1998 and will be completely expired in 2001. Application of statutory tax rates to combined pretax income will not be representative of the provision for income taxes. As previously disclosed, the income of the Affiliate is taxed individually at the member level. NOTE 7--RELATED PARTY TRANSACTIONS Officer Loan--The chief executive officer and a stockholder maintains a floating loan with the Company. This loan is charged when personal expenditures are paid by the Company on behalf of the officer. A loan agreement exists between the parties, in which the Company charges interest of 8.5% on the average outstanding balance. The terms provide for the officer to make regular, periodic payments to reduce the outstanding balance. The balance outstanding at March 31, 1996 and 1997 and December 31, 1997 amounted to $420,040, $515,606 and $1,105,994, respectively. The amounts at March 31, 1997 and December 31, 1997 have been reduced in combination by the Affiliate's capital account. Loan Receivable--The Company has a loan receivable which represents cash advances made to companies owned by an employee and the stockholders. The Company charges interest on these loans at an annual rate of 8%. The balance outstanding at March 31, 1996 and 1997 and December 31, 1997 amounted to $1,121,814, $1,860,102 and $2,071,971, respectively. Operating Lease Agreement--The Company leases shop, warehouse space and aircraft from companies owned by an employee and the stockholders. The Company also leases rental equipment from the Affiliate, the effect of which has been eliminated in the combination of the financial statements. The leases are on a month to month basis and require monthly payments of $41,000 for the shop and warehouse space and $250,000 ($325,000 as of September 1, 1997) for rental equipment. The terms of the equipment lease with the Affiliate were modified during the nine months ended December 1997. Sale/Leaseback of Property--On March 31, 1996, the Company sold four buildings to a company owned by the stockholders for $1,725,000. Management estimated that the market value of the property approximated the net book value. The property is provided for in the operating lease, as disclosed above. NOTE 8--CASH FLOW DISCLOSURE INFORMATION For the years ended September 30, 1994 and 1995, six months ended March 31, 1996, year ended March 31, 1997, and nine months ended December 31, 1996 and 1997, total interest paid amounted to $660,902, $1,132,222, $676,546, $2,005,464, $1,447,752 and $2,120,907, respectively. For the years ended September 30, 1994 and 1995, six months ended March 31, 1996, year ended March 31, 1997, and nine months ended December 31, 1996 and 1997, total taxes paid amounted to $887,760, $1,516,861, $584,371, $1,045,652, $791,179 and $298,321, respectively. During the years ended September 30, 1994 and 1995, six months ended March 31, 1996, year ended March 31, 1997, and nine months ended December 31, 1996 and 1997, the Company and Affiliate purchased F-32 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE NOTES TO FINANCIAL STATEMENTS--(CONTINUED) $7,368,661, $7,127,810, $7,968,504, $28,603,655, $27,336,255 and $21,237,266, respectively, of equipment which was financed. NOTE 9--RETIREMENT PLANS The Parent maintains a defined contribution retirement plan for non-union employees. The plan qualifies as a deferred compensation plan under Section 401(k) of the Internal Revenue Code. Company contributions are based on a 100% match of the employees' elective deferral up to 4%. The Parent also contributes to defined benefit pension plans for employees covered under six union contracts, Locals #15C, #103, #138, #542C, #825 and #832 of the International Union of Operating Engineers. A full description of the membership, benefits and employer and employee obligations to contribute to these plans are described in the Summary Plan Description and Annual Reports of the plans. The actuarial information needed to determine the liabilities and provide the current disclosure information necessary under FASB No. 87 was unavailable. Consequently, the financial statements for the years ended September 30, 1994 and 1995, six months ended March 31, 1996, year ended March 31, 1997 and nine months ended December 1996 and 1997, do not reflect the financial position, results of operations and expanded disclosures in accordance with FASB No. 87. The Subsidiary maintains a non-contributory pension plan, whereby the Subsidiary contributes 4% of employee compensation to the plan. In addition, the Subsidiary will contribute a 100% match of the employees' elective deferral up to a maximum of 2%. The cost of the plans for the years ended September 30, 1994 and 1995, six months ended March 31, 1996, the year ended March 31, 1997, and the nine months ended December 31, 1996 and 1997, amounted to approximately $151,669, $192,541, $110,857, $329,712, $149,568 and $162,150, respectively. NOTE 10--COMMITMENTS AND CONTINGENCIES Access Rentals, Inc. (Parent) guarantees debt obligations of the Subsidiary, Access Lift Equipment, Inc., the Affiliate, Reinhart Leasing, LLC, and another related company owned by the stockholders. At December 31, 1997, the Company had outstanding purchase orders for equipment in the amount of $4,240,564. NOTE 11--CHANGE IN METHOD OF ACCOUNTING AND PRIOR YEAR ADJUSTMENT The accompanying consolidated financial statements for the fiscal year ended September 30, 1994 have been retroactively restated as a result of management's change in method of accounting for rental income. In years prior to the change, the Company recorded revenue for the entire rental period of a contract upon billing. The change in accounting policy removes the portion of rental billings pertaining to periods subsequent to the reporting period. The effect of the restatement resulted in a $265,019 decrease to retained earnings at September 30, 1993. F-33 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE NOTES TO FINANCIAL STATEMENTS--(CONTINUED) A restatement of the September 30, 1994 consolidated statement of income is summarized as follows:
AS PREVIOUSLY REPORTED AS RESTATED ----------- ----------- Rental income.......................................... $14,730,347 $15,804,754 Income before taxes and cumulative effect of change in accounting principle.................................. 4,127,869 4,019,441 Provision for income taxes............................. 1,715,048 1,661,994 Income before cumulative effect of change in accounting principle............................................. 2,412,821 2,357,447 Cumulative effect of change in method of accounting for income taxes.......................................... 46,325 46,325 Net income............................................. $ 2,459,146 $ 2,403,772
NOTE 12--ACQUISITION OF SUBSIDIARY Effective February 26, 1995, the Company acquired 100% of the outstanding common stock of Access Lift Equipment, Inc., formerly Upright of Canada, Inc., for approximately $920,000. The acquisition, accounted for in accordance with Accounting Principles Board (APB) Opinion No. 16--Business Combinations, using the purchase method of accounting, has resulted in the inclusion of the operating results of the Subsidiary, from the date of acquisition, in the financial statements of the Company. NOTE 13--STOCKHOLDERS' EQUITY On December 30, 1997, Access Rentals, Inc. (Parent) retired 6 shares of treasury stock then issued its remaining 194 common shares with no par value. Also, on December 30, 1997, Access Rentals, Inc. (Parent) amended its certificate of incorporation to increase the number of authorized shares from 200 common with no par value to 100 Class A Voting common shares with a par value of $1 and 9,900 Class B Non-voting common shares with a par value of $1, effecting a stock split of 50 shares of new stock for each share of stock. The retirement of treasury stock and the stock split were given retroactive effect in the accompanying financial statements. At December 31, 1997 the following common stock shares were authorized, issued and outstanding: Class A Voting, $1 par value....................................... 100 Class B Non-voting, $1 par value................................... 9,900 ------ Total shares................................................... 10,000 ======
NOTE 14--SUBSEQUENT EVENTS On September 1, 1997, the Company and Affiliate acquired certain assets of a company engaged in primarily the same business as Access Rentals, Inc., with operations in Florida. The purchase price, including the covenant not-to- compete, amounted to approximately $4,988,850, for which the same amount of debt was incurred. During January 1998, the Company sold all real estate owned by the Company to a related party company. The sales price was determined based upon appraisals and approximated $605,000. On January 21, 1998, the Company, Affiliate and stockholders entered into a stock purchase agreement with United Rentals, Inc. (URI). Under the terms of the stock purchase agreement, URI purchased all of the issued and outstanding capital stock of the Company and substantially all of the assets of the Affiliate. Also, as part of the transaction all of the stock of Access Lift Equipment, Inc. (Subsidiary) was sold by Access Rentals, Inc., to United Rentals of Canada, Inc., a wholly-owned subsidiary of URI. NOTE 15--RECLASSIFICATIONS Certain reclassifications have been made to previously issued financial statements in order to conform them to current classifications. F-34 REPORT OF INDEPENDENT AUDITORS Board of Directors BNR Group of Companies We have audited the combined balance sheets of BNR Group of Companies as at March 31, 1996 and 1997 and the combined statements of earnings, stockholders' equity and cash flows for the years then ended. These combined financial statements are the responsibility of the companies' management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these combined financial statements present fairly, in all material respects, the combined financial position of BNR Group of Companies as at March 31, 1996 and 1997 and the results of their operations and their cash flows for the years then ended in accordance with generally accepted accounting principles in Canada. Generally accepted accounting principles in Canada vary in certain significant respects from generally accepted accounting principles in the United States. Application of generally accepted accounting principles in the United States would have affected results of operations for the years ended March 31, 1996 and 1997 and stockholders' equity as at March 31, 1996 and March 31, 1997 to the extent summarized in note 14 to the combined financial statements. /s/ KPMG Chartered Accountants Waterloo, Canada February 3, 1998 F-35 BNR GROUP OF COMPANIES COMBINED BALANCE SHEETS (AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
MARCH 31, MARCH 31, DECEMBER 31, 1996 1997 1997 --------- ----------- ------------ (UNAUDITED) ASSETS Current assets: Cash.................................... $ 45,817 $ 62,471 $ 36,157 Trade accounts receivable (note 2)...... 3,807,908 4,692,084 7,281,959 Inventories............................. 1,744,367 1,897,021 2,276,311 Income taxes recoverable................ -- 81,808 -- Prepaid expenses........................ 116,844 128,343 85,937 ----------- ----------- ----------- 5,714,936 6,861,727 9,680,364 Rental equipment (note 3)................. 8,668,609 10,593,547 13,211,100 Fixed assets (note 4)..................... 731,864 716,381 1,054,482 ----------- ----------- ----------- $15,115,409 $18,171,655 $23,945,946 =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Bank indebtedness (note 5).............. $ 120,373 $ 469,860 $ 1,469,042 Short-term borrowings (note 5).......... 1,428,176 1,407,830 1,752,252 Accounts payable........................ 1,950,163 1,957,643 2,081,720 Accrued liabilities..................... 946,688 686,351 433,945 Income taxes payable.................... 67,618 -- 475,417 Current portion of long-term debt (note 6)..................................... 1,618,749 2,390,758 3,233,715 ----------- ----------- ----------- 6,131,767 6,912,442 9,446,091 Long-term debt (note 6)................... 2,250,744 3,467,720 4,369,061 Redeemable shares (note 7)................ 4,534,975 4,424,975 4,424,975 Deferred income taxes..................... 681,518 975,570 1,385,392 Stockholders' equity: Share capital (note 8).................. 83,319 83,319 83,319 Retained earnings....................... 1,433,086 2,307,629 4,237,108 ----------- ----------- ----------- 1,516,405 2,390,948 4,320,427 ----------- ----------- ----------- $15,115,409 $18,171,655 $23,945,946 =========== =========== ===========
See accompanying notes to combined financial statements. F-36 BNR GROUP OF COMPANIES COMBINED STATEMENTS OF EARNINGS (AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
NINE MONTHS NINE MONTHS YEAR ENDED YEAR ENDED ENDED ENDED MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, 1996 1997 1996 1997 ---------- ---------- ------------ ------------ (UNAUDITED) (UNAUDITED) Revenues: Rental revenue............. $ 9,286,562 $10,873,631 $ 9,333,864 $11,481,757 Sales of equipment, parts and supplies.............. 12,276,498 15,829,146 12,292,494 15,836,495 Other...................... 847,000 788,306 682,980 757,443 ----------- ----------- ----------- ----------- 22,410,060 27,491,083 22,309,338 28,075,695 Cost of revenues: Cost of equipment rentals, excluding equipment rental depreciation.............. 4,352,621 5,277,966 4,103,508 5,282,162 Depreciation on rental equipment................. 1,609,690 1,936,254 1,451,671 1,715,542 Cost of sales, equipment, parts and supplies........ 8,883,214 11,818,715 9,303,777 11,832,825 ----------- ----------- ----------- ----------- 14,845,525 19,032,935 14,858,956 18,830,529 ----------- ----------- ----------- ----------- Gross profit................. 7,564,535 8,458,148 7,450,382 9,245,166 Selling, general and adminis- tration..................... 5,728,380 6,386,710 4,528,911 5,623,444 Non-rental depreciation...... 71,748 78,354 56,903 123,246 ----------- ----------- ----------- ----------- Operating earnings........... 1,764,407 1,993,084 2,864,568 3,498,476 Interest expense............. 565,106 691,559 514,503 517,347 ----------- ----------- ----------- ----------- Earnings before income taxes. 1,199,301 1,301,525 2,350,065 2,981,129 Income taxes (note 9): Current.................... 245,436 132,930 480,220 637,328 Deferred................... 118,677 294,052 288,251 409,822 ----------- ----------- ----------- ----------- 364,113 426,982 768,471 1,047,150 ----------- ----------- ----------- ----------- Net earnings................. $ 835,188 $ 874,543 $ 1,581,594 $ 1,933,979 =========== =========== =========== ===========
See accompanying notes to combined financial statements. F-37 BNR GROUP OF COMPANIES COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
SHARE RETAINED CAPITAL EARNINGS TOTAL ------- ---------- ---------- Balances, at March 31, 1995..................... $83,319 $ 597,898 $ 681,217 Net earnings.................................... -- 835,188 835,188 ------- ---------- ---------- Balances, at March 31, 1996..................... 83,319 1,433,086 1,516,405 Net earnings.................................... -- 874,543 874,543 ------- ---------- ---------- Balances, at March 31, 1997..................... 83,319 2,307,629 2,390,948 Net earnings (unaudited)........................ -- 1,933,979 1,933,979 Dividends (unaudited)........................... -- (4,500) (4,500) ------- ---------- ---------- Balances, at December 31, 1997 (unaudited)...... $83,319 $4,237,108 $4,320,427 ======= ========== ==========
See accompanying notes to combined financial statements. F-38 BNR GROUP OF COMPANIES COMBINED STATEMENTS OF CASH FLOWS (AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
NINE MONTHS NINE MONTHS YEAR ENDED YEAR ENDED ENDED ENDED MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, 1996 1997 1996 1997 ---------- ---------- ------------ ------------ (UNAUDITED) (UNAUDITED) Cash flows from operating activities: Net earnings............... $ 835,188 $ 874,543 $ 1,581,594 $ 1,933,979 Items not involving cash: Depreciation and amorti- zation.................. 1,681,438 2,014,608 1,508,574 1,838,788 Gain on disposal of rental equipment........ (639,271) (839,394) (725,213) (764,999) Gain on disposal of fixed assets.................. (44,016) -- -- -- Deferred income taxes.... 118,677 294,052 288,251 409,822 Change in operating assets: Accounts receivable...... (894,464) (884,176) (2,814,394) (2,589,875) Inventories.............. (613,126) (152,654) (186,602) (379,290) Prepaid expenses......... (63,687) (11,499) 3,516 42,406 Accounts payable......... 408,768 7,480 (209,735) 124,077 Accrued liabilities...... 387,747 (260,337) (600,645) (252,406) Income taxes............. 9,712 (149,426) 338,842 557,225 ----------- ----------- ----------- ----------- 1,186,966 893,197 (815,812) 919,727 Cash flows from investing activities: Purchase of rental equip- ment.................... (5,523,247) (7,355,356) (6,419,981) (7,976,473) Proceeds on disposal of rental equipment........ 2,900,664 4,333,558 3,489,908 4,408,377 Purchase of fixed assets. (91,794) (62,871) (50,489) (461,347) Proceeds on disposal of fixed assets............ 52,648 -- -- -- ----------- ----------- ----------- ----------- (2,661,729) (3,084,669) (2,980,562) (4,029,443) Cash flows from financing activities: Net advance (repayment) of bank indebtedness.... 23,618 349,487 1,256,010 344,422 Net borrowings (repayment) on short- term borrowings......... 188,093 (20,346) 338,414 999,182 Borrowings on long-term debt.................... 2,172,871 2,894,173 3,066,515 2,998,826 Payments on long-term debt.................... (673,795) (905,188) (783,925) (1,254,528) Repayment of shareholder loans................... (41,180) -- -- -- Issuance of share capi- tal..................... 69,520 -- -- -- Dividends................ -- -- -- (4,500) Redemption of Class B special shares.......... (229,725) (110,000) (110,000) -- ----------- ----------- ----------- ----------- 1,509,402 2,208,126 3,767,014 3,083,402 ----------- ----------- ----------- ----------- Increase (decrease) in cash...................... 34,639 16,654 (29,360) (26,314) Cash, beginning of period.. 11,178 45,817 45,817 62,471 ----------- ----------- ----------- ----------- Cash, end of period........ $ 45,817 $ 62,471 $ 16,457 $ 36,157 =========== =========== =========== =========== Supplemental Schedule of Cash Flow Information: Cash paid during the pe- riod for interest....... $ 565,106 $ 691,559 $ 514,503 $ 517,347 Cash paid during the pe- riod for income taxes... 231,521 332,816 183,030 143,383 =========== =========== =========== ===========
See accompanying notes to combined financial statements. F-39 BNR GROUP OF COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS (AMOUNTS EXPRESSED IN CANADIAN DOLLARS) MARCH 31, 1996 AND 1997 (The information as at December 31, 1997 and for the nine months ended December 31, 1996 and 1997 is unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES: (a) Basis of presentation: The accompanying combined financial statements are presented in accordance with accounting principles generally accepted in Canada (Canadian GAAP). The combined financial statements include the accounts of BNR Equipment Limited (BNR Kitchener), 754643 Ontario Limited (BNR Ottawa), 650310 Ontario Limited (BNR Barrie), 766903 Ontario Inc. (BNR Owen Sound) and BNR Equipment, Inc. (BNR Amherst). As more fully described in note 15, on January 22, 1998, all of the aforementioned companies were acquired by United Rentals, Inc. in a single common transaction and, accordingly, these financial statements have been prepared on a combined basis. Each of the companies rents and sells industrial supplies and power equipment. All significant intercompany accounts and transactions have been eliminated on combination. These financial statements are prepared on the basis of their predecessor historical costs and do not include any adjustments that may result on the acquisition of the BNR Group of Companies by United Rentals, Inc. as more fully described in note 15. (b) Interim financial statements: The accompanying combined balance sheets and statements of stockholders' equity at December 31, 1997 and the combined statements of earnings, stockholders' equity and cash flows for the nine month periods ended December 31, 1996 and 1997 are unaudited and have been prepared on a basis that is consistent with the audited combined financial statements included herein. In the opinion of management, such unaudited combined 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) Revenue recognition: Revenue related to the sale of industrial supplies and power equipment is recognized at the point of sale. Revenue related to the rental of industrial power equipment is recognized ratably over the contract term. The companies generally rent equipment under short-term agreements of one month or less. (d) Inventories: Inventories consisting primarily of power tools, industrial supplies and power equipment are valued at the lower of cost (first-in, first-out basis) and net realizable value. (e) Foreign currency translation: Monetary assets and liabilities of the companies, which are denominated in foreign currencies, are translated into Canadian dollars at exchange rates prevailing at the balance sheet date. Exchange gains and losses resulting from the translation of these amounts are reflected in the combined statement of earnings in the period in which they occur. F-40 BNR GROUP OF COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS EXPRESSED IN CANADIAN DOLLARS) (f) Rental equipment, fixed assets and depreciation: Rental equipment and fixed assets are stated at acquisition cost. Depreciation is provided using the following methods and annual rates:
ASSET BASIS RATE ----- ----- ---- Rental equipment...................................... Declining balance 15% Buildings............................................. Declining balance 5% Office and shop equipment............................. Declining balance 20% Signs................................................. Declining balance 20% Vehicles.............................................. Declining balance 20% Parking lot........................................... Declining balance 8% Leasehold improvements................................ Straight-line 20%
(g) Deferred income taxes: The companies account for income taxes on the deferred tax allocation method. Under this method, timing differences between reported and taxable income result in provisions for taxes not currently payable. Such timing differences arise principally as a result of claiming depreciation and other amounts for tax purposes at amounts differing from those charged to income. (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. 2. TRADE ACCOUNTS RECEIVABLE: Trade accounts receivable are net of allowances for doubtful accounts of $nil at March 31, 1996, $68,966 at March 31, 1997 and $215,591 at December 31, 1997. 3. RENTAL EQUIPMENT:
MARCH 31, MARCH 31, DECEMBER 31, 1996 1997 1997 ----------- ----------- ------------ (UNAUDITED) Rental equipment........................ $18,335,170 $22,133,208 $26,466,262 Less accumulated depreciation........... 9,666,561 11,539,661 13,255,162 ----------- ----------- ----------- $ 8,668,609 $10,593,547 $13,211,100 =========== =========== ===========
F-41 BNR GROUP OF COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS EXPRESSED IN CANADIAN DOLLARS) 4. FIXED ASSETS:
MARCH 31, MARCH 31, DECEMBER 31, 1996 1997 1997 ---------- ---------- ------------ (UNAUDITED) Land..................................... $ 201,600 $ 201,600 $ 201,600 Buildings................................ 617,977 617,977 623,066 Office and shop equipment................ 319,208 337,252 363,774 Signs.................................... 17,426 19,163 23,884 Vehicles................................. 53,020 53,020 388,361 Parking lot.............................. -- 7,560 26,448 Leasehold improvements................... 145,646 181,176 251,962 ---------- ---------- ---------- 1,354,877 1,417,748 1,879,095 Less accumulated depreciation and amorti- zation.................................. 623,013 701,367 824,613 ---------- ---------- ---------- $ 731,864 $ 716,381 $1,054,482 ========== ========== ==========
5. BANK INDEBTEDNESS AND SHORT-TERM BORROWINGS: Bank indebtedness and short-term borrowings bear interest rates between prime plus .50% to prime plus .75% and are secured by a general assignment of book debts, security agreement over all inventories, first collateral mortgages and demand debenture over land and buildings, a fixed charge and a chattel mortgage over certain equipment and an assignment of fire insurance over buildings and equipment. 6. LONG-TERM DEBT:
MARCH 31, MARCH 31, DECEMBER 31, 1996 1997 1997 ---------- ---------- ------------ (UNAUDITED) Bank loans, various term loans with combined monthly payments of $123,078 (as at December 31, 1997) including interest ranging from prime plus 1% to prime plus 1.75% due from 1998 through 2001. Collateralized by certain equipment and fixed assets............ $1,662,704 $2,406,572 $2,021,641 Lien notes, various notes with combined monthly payments of $300,956 (as at December 31, 1997) including interest ranging from prime plus 1.25% to prime plus 2%, due from 1998 through 2001. Collateralized by specific equipment . 2,136,540 3,288,692 5,062,094 Other notes, various notes with combined monthly payments of $26,106 (as at December 31, 1997) including interest ranging from 2.9% to 10%, due from 1998 through 2000. Collateralized by specific equipment and vehicles.... 70,249 163,214 519,041 ---------- ---------- ---------- 3,869,493 5,858,478 7,602,776 Current portion of long-term debt...... 1,618,749 2,390,758 3,233,715 ---------- ---------- ---------- $2,250,744 $3,467,720 $4,369,061 ========== ========== ==========
F-42 BNR GROUP OF COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS EXPRESSED IN CANADIAN DOLLARS) 6. LONG-TERM DEBT (CONTINUED): Annual principal payments over each of the next four years are as follows:
MARCH 31, DECEMBER 31, 1997 1997 ----------- ------------ (UNAUDITED) 1998............ $ 2,390,758 $ 3,233,715 1999............ 1,878,097 2,696,223 2000............ 1,280,955 1,448,045 2001............ 308,668 224,793 ----------- ----------- $ 5,858,478 $ 7,602,776 =========== ===========
7. REDEEMABLE SHARES:
MARCH 31, MARCH 31, DECEMBER 31, 1996 1997 1997 ----------------- ----------------- ----------------- (UNAUDITED) # $ # $ # $ ------- --------- ------- --------- ------- --------- BNR EQUIPMENT LIMITED (BNR KITCHENER) Authorized: Unlimited number of Class A special shares, non-voting, redeemable Unlimited number of Class B special shares, non-voting, redeemable Issued: Class B special shares.............. 875,975 875,975 765,975 765,975 765,975 765,975 754643 ONTARIO LIMITED (BNR OTTAWA) Authorized: Unlimited number of special shares, non- voting, redeemable Issued: Special shares....... 159,000 159,000 159,000 159,000 159,000 159,000 650310 ONTARIO LIMITED (BNR BARRIE) Authorized: Unlimited number of Class C special shares, non-voting, redeemable Unlimited number of Class D special shares, non-voting, redeemable Issued: Class C special shares.............. 1,000 2,315,000 1,000 2,315,000 1,000 2,315,000 Class D special shares.............. 185,000 185,000 185,000 185,000 185,000 185,000 766903 ONTARIO INC. (BNR OWEN SOUND) Authorized: Unlimited number of Class C special shares, non-voting, redeemable Issued: Class C special shares.............. 1,000 1,000,000 1,000 1,000,000 1,000 1,000,000 --------- --------- --------- 4,534,975 4,424,975 4,424,975 ========= ========= =========
F-43 BNR GROUP OF COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS EXPRESSED IN CANADIAN DOLLARS) 7. REDEEMABLE SHARES (CONTINUED) (a) Certain of the BNR Group of Companies have issued special shares, Class B special shares and Class D special shares which are redeemable at the holders option at $1 per share. Under Canadian generally accepted accounting principles, these shares are presented as liabilities in the combined financial statements at their redemption amounts. (b) Certain of the BNR Group of Companies have issued Class C special shares which are redeemable at the holders option at a fixed amount which is in excess of their stated capital amounts. Under Canadian generally accepted accounting principles, these Class C special shares are presented as liabilities in the combined financial statements at their redemption amounts. The excess of their redemption amounts over their paid-up capital amounts of $3,314,990 has been charged to retained earnings. (c) The special shares, Class B special shares, Class C special shares and Class D special shares have no fixed redemption date and are redeemable at the option of the holder. Dividends on these shares are discretionary. In the event of liquidation, dissolution, or wind up of the companies, holders of these shares are entitled to receive, in priority to all other classes, an amount equal to the redemption amount plus any declared and unpaid dividends. (d) Between May 8, 1995 and January 18, 1996, BNR Equipment Limited (BNR Kitchener) redeemed 229,725 Class B special shares for $229,725. Between April 18, 1996 and July 15, 1996, BNR Equipment Limited (BNR Kitchener) redeemed 110,000 Class B special shares for $110,000. F-44 BNR GROUP OF COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS EXPRESSED IN CANADIAN DOLLARS) 8. SHARE CAPITAL:
MARCH 31, MARCH 31, DECEMBER 31, 1996 1997 1997 ------------ ------------ ------------ (UNAUDITED) # $ # $ # $ ----- ------ ----- ------ ----- ------ BNR EQUIPMENT LIMITED (BNR KITCHENER) Authorized: Unlimited number of common shares Issued: Common shares................. 6,000 13,693 6,000 13,693 6,000 13,693 754643 ONTARIO LIMITED (BNR OT- TAWA) Authorized: Unlimited number of common shares Issued: Common shares................. 100 100 100 100 100 100 650310 ONTARIO LIMITED (BNR BARRIE) Authorized: Unlimited number of Class A common shares................ Unlimited number of Class B convertible common shares Issued: Class B convertible common shares....................... 600 1 600 1 600 1 766903 ONTARIO INC. (BNR OWEN SOUND) Authorized: Unlimited number of Class A common shares................ Unlimited number of Class B convertible common shares Issued: Class B convertible common shares....................... 1,000 5 1,000 5 1,000 5 BNR EQUIPMENT INC. (BNR AMHERST) Authorized: Unlimited number of common shares Issued: Common shares................. 100 69,520 100 69,520 100 69,520 ------ ------ ------ 83,319 83,319 83,319 ====== ====== ======
The Class B convertible common shares are convertible into an equivalent number of Class A common shares for no additional consideration. F-45 BNR GROUP OF COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS EXPRESSED IN CANADIAN DOLLARS) 9. INCOME TAXES: The effective income tax rate differs from the statutory rate that would be obtained by applying the combined basic federal, state and provincial tax rate to earnings before income taxes. These differences result from the following items:
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, 1996 1997 1996 1997 --------- --------- ------------ ------------ (UNAUDITED) (UNAUDITED) Combined basic federal, state and provincial tax rate..... 44.6% 44.6% 44.6% 44.6% Increase (decrease) in income tax rate resulting from: Tax reductions to certain private companies........... (12.0) (9.9) (11.3) (10.0) Other permanent differences.. (2.2) (1.9) (.6) .5 ----- ---- ----- ----- Effective income tax rate.... 30.4% 32.8% 32.7% 35.1% ===== ==== ===== =====
10. COMMITMENTS: The companies are committed to payments under operating leases for equipment, vehicles and buildings. Annual payments over each of the next five years are as follows:
MARCH 31, DECEMBER 31, 1997 1997 ---------- ------------ (UNAUDITED) 1998............ $ 789,000 $ 620,000 1999............ 446,000 522,000 2000............ 275,000 361,000 2001............ 122,000 238,000 2002............ 54,000 148,000 ---------- ---------- $1,686,000 $1,889,000 ========== ==========
11. FINANCIAL INSTRUMENTS: The carrying value of the companies' trade accounts receivable, bank indebtedness, accounts payable, accrued liabilities, short-term borrowings and redeemable shares approximate their fair values due to their demand nature or relatively short periods to maturity. The fair value of the companies' long-term debt have been determined to be equal to their carrying values, as the current financing arrangements represent the borrowing rate presently available to the companies for loans with similar terms and maturities. 12. RELATED PARTY TRANSACTIONS: (a) The companies rent certain premises from officers and stockholders of the companies. The following are the amounts that have been expensed in each of the periods: March 31, 1997.................. $202,081 December 31, 1997 (unaudited)... 164,498
(b) Included in note 10 are operating lease commitments with a company controlled by certain stockholders: The following are the amounts that have been expensed in each of the periods: March 31, 1997................... $57,523 December 31, 1997 (unaudited).... 57,391
F-46 BNR GROUP OF COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS EXPRESSED IN CANADIAN DOLLARS) 13. NATURE OF OPERATIONS AND SEGMENT INFORMATION: The companies only significant activity is the rental and sale of industrial supplies and power equipment. Geographically segmented information is as follows:
CANADA UNITED STATES TOTAL MARCH 31, MARCH 31, MARCH 31, ----------------------- --------------------- ----------------------- YEAR ENDED 1996 1997 1996 1997 1996 1997 ------------------------ ----------- ----------- --------- ---------- ----------- ----------- Revenues................ $21,812,899 $24,746,282 $ 597,161 $2,744,801 $22,410,060 $27,491,083 Operating earnings (loss)................. 1,922,641 1,996,754 (158,234) (3,670) 1,764,407 1,993,084 Identifiable net assets. 1,307,530 1,821,554 208,875 569,394 1,516,405 2,390,948
CANADA UNITED STATES TOTAL DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------ ------------- ------------ NINE MONTHS ENDED 1997 1997 1997 ------------------------------------- ------------ ------------- ------------ (UNAUDITED) (UNAUDITED) (UNAUDITED) Revenues............................. $24,447,526 $3,628,169 $28,075,695 Operating earnings................... 3,137,274 361,202 3,498,476 Identifiable net assets.............. 3,251,422 1,069,005 4,320,427
14. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: The companies follow Canadian generally accepted accounting principles which are different in some respects from those applicable in the United States. (a) Since redemption of the shares described in note 7 is outside the control of the companies, the shares are classified as liabilities under Canadian GAAP. For U.S. GAAP purposes, such redeemable shares can be classified outside stockholders' equity and below liabilities. This classification difference has no impact on net income or stockholders' equity for U.S. GAAP purposes. (b) The income tax provision is based on the deferral method and adjustments are generally not made for changes in income tax rates. Under U.S. GAAP, deferred tax liabilities are measured using the enacted tax rate expected to apply to taxable income in the periods in which the deferred tax liability is expected to be settled. The deferred income tax liability under U.S. GAAP as compared to Canadian GAAP consists of the following temporary differences:
YEAR YEAR NINE MONTHS ENDED ENDED ENDED MARCH 31, MARCH 31, DECEMBER 31, 1996 1997 1997 ---------- ---------- ------------ (UNAUDITED) Rental Equipment and Fixed Assets-- Tax depreciation in excess of book depreciation-- For U.S. GAAP........................... $1,257,257 $1,518,790 $1,833,228 For Canadian GAAP....................... 681,518 975,570 1,385,392
(c) The following table presents a reconciliation of net earnings from Canadian GAAP to U.S. GAAP:
YEAR YEAR NINE MONTHS NINE MONTHS ENDED ENDED ENDED ENDED MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, 1996 1997 1996 1997 --------- --------- ------------ ------------ (UNAUDITED) (UNAUDITED) Net earnings under Canadian GAAP......................... $835,188 $874,543 $1,581,594 $1,933,979 Income tax adjustment under the asset and liability method....................... (66,853) 32,519 56,922 95,384 -------- -------- ---------- ---------- Net earnings under U.S. GAAP.. $768,335 $907,062 $1,638,516 $2,029,363 ======== ======== ========== ==========
F-47 BNR GROUP OF COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS EXPRESSED IN CANADIAN DOLLARS) 14. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED): (d) The following table presents stockholders' equity under U.S. GAAP:
YEAR YEAR NINE MONTHS ENDED ENDED ENDED MARCH 31, MARCH 31, DECEMBER 31, 1996 1997 1997 ---------- ---------- ------------ (UNAUDITED) Stockholders' equity under Canadian GAAP.................................. $1,516,405 $2,390,948 $4,320,427 Income tax adjustment under the asset and liability method.................. (575,739) (543,220) (447,836) Stockholders' equity under U.S. GAAP... 940,666 1,847,728 3,872,591
15. SUBSEQUENT EVENT: On January 22, 1998, all of the outstanding capital stock was acquired by United Rentals, Inc. All of the shares described in note 7 and all of the shares described in note 8, except for the shares of the U.S. company BNR Equipment, Inc. (BNR Amherst) were cancelled and these Canadian companies of the BNR Group of Companies amalgamated with United Rentals of Canada, Inc. on January 30, 1998. Subsequent to December 31, 1997 and prior to the acquisition by United Rentals, Inc., land and buildings with a carrying value of approximately $500,000 were acquired by certain of the BNR Group of Companies' stockholders for cash of $665,000 which was used by the companies to repay the companies' debt. At the same time, the companies entered into operating lease agreements with the stockholders with respect to these land and buildings. F-48 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders Mission Valley Rentals, Inc. We have audited the balance sheets of Mission Valley Rentals, Inc. as of June 30, 1996 and 1997 and the related statements of operations, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mission Valley Rentals, Inc. at June 30, 1996 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP MetroPark, New Jersey January 23, 1998 F-49 MISSION VALLEY RENTALS, INC. BALANCE SHEETS
JUNE 30 --------------------- DECEMBER 31, 1996 1997 1997 ---------- ---------- ------------ (UNAUDITED) ASSETS ------ Cash........................................ $ 144,491 $ 527,922 $ 505,541 Accounts receivable, net.................... 470,736 662,006 721,252 Inventory................................... 37,539 58,949 88,965 Rental equipment, net....................... 3,004,111 5,158,789 5,667,659 Property and equipment, net................. 124,597 155,001 138,343 Prepaid expenses and other assets........... 34,850 180,875 165,599 Intangible assets, net...................... 776,003 765,841 ---------- ---------- ---------- Total assets............................ $3,816,324 $7,519,545 $8,053,200 ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Liabilities: Accounts payable, accrued expenses and other liabilities........................ $ 246,536 $ 404,689 $ 805,462 Income taxes payable...................... 53,303 (54,283) Debt...................................... 1,512,074 5,102,143 5,536,280 Deferred income taxes..................... 188,774 319,869 235,744 ---------- ---------- ---------- Total liabilities....................... 2,000,687 5,826,701 6,523,203 Commitments and contingencies Stockholders' equity: Common stock, no par value and $1.00 stated value, 10,000 shares authorized, 1,000 issued and outstanding at June 30, 1996 and 1997, and December 31, 1997..... 1,000 1,000 1,000 Retained earnings......................... 1,814,637 1,691,844 1,528,997 ---------- ---------- ---------- Total stockholders' equity.............. 1,815,637 1,692,844 1,529,997 ---------- ---------- ---------- Total liabilities and stockholders' equity................................. $3,816,324 $7,519,545 $8,053,200 ========== ========== ==========
See accompanying notes. F-50 MISSION VALLEY RENTALS, INC. STATEMENTS OF OPERATIONS
SIX MONTHS ENDED YEAR ENDED JUNE 30 DECEMBER 31 ---------------------- ---------------------- 1996 1997 1996 1997 ---------- ---------- ---------- ---------- (UNAUDITED) Revenues: Equipment rentals........... $4,851,942 $6,798,752 $3,365,276 $4,419,275 Sales of rental equipment... 96,987 413,481 346,540 74,642 Sales of parts and supplies. 399,156 558,034 264,193 329,496 ---------- ---------- ---------- ---------- Total revenues............ 5,348,085 7,770,267 3,976,009 4,823,413 Cost of revenues: Cost of equipment rentals, excluding depreciation..... 1,893,655 2,876,589 1,392,173 1,952,185 Depreciation of rental equipment.................. 738,229 1,599,457 586,675 733,558 Cost of rental equipment sales...................... 61,810 413,481 346,540 55,168 Cost of sales of parts and supplies................... 214,802 377,047 153,444 171,949 ---------- ---------- ---------- ---------- Total cost of revenues.... 2,908,496 5,266,574 2,478,832 2,912,860 ---------- ---------- ---------- ---------- Gross profit.................. 2,439,589 2,503,693 1,497,177 1,910,553 Selling, general and administrative expenses...... 1,640,442 2,222,524 1,086,303 1,926,386 Non-rental depreciation....... 25,355 30,154 15,117 16,658 ---------- ---------- ---------- ---------- Operating income (loss)....... 773,792 251,015 395,757 (32,491) Interest expense.............. 139,925 390,047 171,923 215,848 Other (income), net........... (58,767) (62,016) (31,956) (31,209) ---------- ---------- ---------- ---------- Income (loss) before provision (benefit) for income taxes 692,634 (77,016) 255,790 (217,130) Provision (benefit) for income taxes........................ 299,259 45,777 64,295 (54,283) ---------- ---------- ---------- ---------- Net income (loss)............. $ 393,375 $ (122,793) $ 191,495 $ (162,847) ========== ========== ========== ==========
See accompanying notes. F-51 MISSION VALLEY RENTALS, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK -------------- RETAINED SHARES AMOUNTS EARNINGS ------ ------- ---------- Balance at July 1, 1995.............................. 1,000 $1,000 $1,421,262 Net income......................................... 393,375 ----- ------ ---------- Balance at June 30, 1996............................. 1,000 1,000 1,814,637 Net loss........................................... (122,793) ----- ------ ---------- Balance at June 30, 1997............................. 1,000 1,000 1,691,844 Net loss (unaudited)............................... (162,847) ----- ------ ---------- Balance at December 31, 1997 (unaudited)............. 1,000 $1,000 $1,528,997 ===== ====== ==========
See accompanying notes. F-52 MISSION VALLEY RENTALS, INC. STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED YEAR ENDED JUNE 30 DECEMBER 31 --------------------- ------------------- 1996 1997 1996 1997 --------- ---------- -------- --------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)................. $ 393,375 $ (122,793) $191,495 $(162,847) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization... 763,584 1,646,105 611,009 760,378 Gain on equipment sales......... (35,177) (19,474) Deferred taxes.................. 81,859 131,318 87,014 (84,125) Changes in assets and liabilities: Increase in accounts receivable. (81,581) (191,270) (206,289) (59,246) Increase in inventory........... (10,437) (21,410) (48,417) (30,016) (Decrease) increase in prepaid expenses and other assets...... 50,884 (146,248) (104,458) 15,276 Increase in accounts payable, accrued expenses and other liabilities.................... 119,054 158,153 65,881 400,773 (Decrease) increase in income taxes payable.................. 53,303 (53,303) 10,992 (54,283) --------- ---------- -------- --------- Total adjustments................. 941,489 1,523,345 415,732 929,283 --------- ---------- -------- --------- Cash provided by operating activities..................... 1,334,864 1,400,552 607,227 766,436 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of rental equipment...... (388,116) Proceeds from sale of rental equipment........................ 96,987 413,481 346,540 74,642 --------- ---------- -------- --------- Cash provided by (used in) investing activities........... (291,129) 413,481 346,540 74,642 CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on debt........ (957,424) (4,567,552) (741,982) (863,459) Principal payments on capital lease obligations................ (32,258) Borrowings under credit facility.. 3,169,208 --------- ---------- -------- --------- Cash used in financing activities..................... (957,424) (1,430,602) (741,982) (863,459) --------- ---------- -------- --------- Increase (decrease) in cash....... 86,311 383,431 211,785 (22,381) Cash balance at beginning of year........................... 58,180 144,491 144,491 527,922 --------- ---------- -------- --------- Cash balance at end of year..... $ 144,491 $ 527,922 $356,276 $ 505,541 ========= ========== ======== =========
See accompanying notes. F-53 MISSION VALLEY RENTALS, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 AND 1997 (THE INFORMATION AS OF DECEMBER 31, 1997 AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Activity Mission Valley Rentals, Inc. (the "Company") rents, sells and repairs construction equipment for use by contractor, industrial and homeowner markets. The rentals are on a daily, weekly or monthly basis. The Company has four locations in Northern California and its principal market area is the entire Bay Area and the San Joaquin Valley. 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. On September 1, 1996, the Company acquired for $2,320,000 a substantial amount of rental equipment and fixed assets from Rental World, Inc. and assumed all operations. The Company utilized the funds available under its line of credit to finance the purchase. The acquisition has been accounted for as a purchase and, accordingly, at such date the Company recorded the assets acquired at their estimated fair values. The acquired assets have been recorded at their estimated fair value at the date of the acquisition of $1,527,503 with the excess purchase price of $792,497 being recorded as goodwill. Interim Financial Statements The accompanying balance sheet at December 31, 1997 and the statements of income, stockholders' equity and cash flows for the six-month periods ended December 31, 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 Inventory 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 a 10% 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. F-54 MISSION VALLEY RENTALS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 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. Intangible assets Intangible assets are recorded at cost and consist of goodwill, which is being amortized by the straight line method over its estimated useful life of forty years. Accumulated amortization at June 30, 1997 and December 31, 1997 is $16,494 and $26,656, respectively. Rental Revenue Rental revenue is recorded as earned under the operating method. Advertising Costs The Company advertises primarily through phone directories and the distribution of promotional items. All advertising costs are expensed as incurred. Advertising expenses amounted to approximately $63,800 and $104,500 in the years ended June 30, 1996 and 1997, respectively, and $52,000 and $42,000 for the six months ended December 31, 1996 and 1997, respectively. Income Taxes The Company uses the "liability method" of accounting for income taxes. Accordingly, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. 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, consequently, management believes funds maintained there are secure. 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:
JUNE 30 --------------------- DECEMBER 31, 1996 1997 1997 ---------- ---------- ------------ (UNAUDITED) Rental equipment....................... $6,384,287 $9,793,816 $10,454,616 Less accumulated depreciation.......... 3,380,176 4,635,027 4,786,957 ---------- ---------- ----------- Rental equipment, net.................. $3,004,111 $5,158,789 $ 5,667,659 ========== ========== ===========
F-55 MISSION VALLEY RENTALS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 4. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
JUNE 30 ----------------- DECEMBER 31, 1996 1997 1997 -------- -------- ------------ (UNAUDITED) Furniture and fixtures..................... $237,744 $273,686 $273,686 Leasehold improvements..................... 268,939 293,557 293,557 -------- -------- -------- 506,683 567,243 567,243 Less accumulated depreciation.............. 382,086 412,242 428,900 -------- -------- -------- Total.................................... $124,597 $155,001 $138,343 ======== ======== ========
5. DEBT AND CAPITAL LEASE OBLIGATIONS Debt and capital lease obligations consist of the following:
JUNE 30 --------------------- DECEMBER 31, 1996 1997 1997 ---------- ---------- ------------ (UNAUDITED) Ingersoll-Rand--Various notes with combined monthly payments of $3,514 including interest from 7.9% to 10%................. $ 53,296 $ 100,980 $ 167,744 Clark Equipment Credit Co.--Various notes with combined monthly payments of $5,217 including interest from 7.9% to 9.9%...... 35,443 194,304 156,550 Fremont Bank--Various notes with combined monthly payments of $52,073 including interest from 8.75% to 9.35%.............. 784,633 2,874,127 3,017,141 Ford Motor Credit--Various notes with combined monthly payments of $1,908 including interest from 8.75% to 9.25%.... 64,948 333,237 374,384 Ford New Holland--Various notes with combined monthly payments of $3,849 including interest 10.5%.................. 123,539 79,366 55,493 Orix Credit--Various notes with combined monthly payments of $3,864 including interest from 6.3% to 9.3%................ 10,264 71,764 51,293 Case Credit--Various notes with combined monthly payments of $20,216 including interest from 7.7% to 7.9%................ 209,397 567,827 486,188 Caterpillar Financial Services--Various notes with combined monthly payments of $3,615 including interest of 6.6%......... -- 150,936 133,994 Country Ford--Various leases with combined monthly payments of $6,685 including interest of 8.0%.......................... -- 351,683 325,197 John Deere--Three notes with combined monthly payments of $3,038 including interest of 4.9%.......................... 14,073 53,471 45,788 Associates--Various notes with combined monthly payments of $5,314 including interest from 7.5% to 8.98%............... 147,925 182,165 366,594 GMAC--One note with a monthly payment of $886 including interest of 9.99%.......... -- 20,627 16,254 AEL Lease--Two notes with a combined monthly payment of $2,736 including interest of 8.25%......................... 3,244 40,705 82,129 M.E.L. Enterprises--One note with a monthly payment of $2,595 including interest of 9.0%...................................... 65,312 38,984 24,909 AT&T Finance Corp.--Three notes with a combined monthly payment of $4,028 including interest of 7.35%............... -- -- 194,253 Other...................................... -- 41,967 38,369 ---------- ---------- ---------- $1,512,074 $5,102,143 $5,536,280 ========== ========== ==========
F-56 MISSION VALLEY RENTALS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Substantially all rental equipment collateralize the above notes. Subsequent to June 30, 1997, the Company paid $2,766,372 on certain amounts outstanding under the debt and capital lease agreements. The remaining balance of $2,335,771 is scheduled for payment in fiscal year 1998. 6. CAPITAL LEASES The Company leases certain rental equipment under leases accounted for as capital leases. The following is an analysis of the leased property.
JUNE 30 DECEMBER 31, 1997 1997 -------- ------------ (UNAUDITED) Rental equipment.................................... $383,874 $383,874 Less accumulated amortization....................... 39,688 59,688 -------- -------- Net............................................... $344,186 $324,186 ======== ========
Total depreciation expense on assets under capital leases was $39,688 and $20,000 in the year ended June 30, 1997 and for the six months ended December 31, 1997, respectively. 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 June 30, 1997: Year ended June 30, 1998........................................ $ 80,223 1999.......................................................... 80,233 2000.......................................................... 80,223 2001.......................................................... 80,223 2002.......................................................... 80,223 Thereafter.................................................... 33,426 -------- Net minimum lease payment....................................... 434,541 Less amount representing interest............................... 82,858 -------- Present value of net minimum lease payments..................... $351,683 ========
7. OPERATING LEASES The Company leases four store locations on long term leases. The Company is responsible for all operating expenses of the facilities including property taxes, assessments, insurance, repairs and maintenance. Rent expense under these leases totaled $216,725 and $334,725 for the years ended June 30, 1996 and 1997 and $166,363 and $169,963 for the six months ended December 31, 1996 and 1997, respectively. Under the lease agreements, aggregate rent is payable in monthly installments of approximately $28,560. Under certain lease agreements, 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 a specific percentage, as defined in the agreements, of the previous year's rental rate. Future minimum rent commitments are $342,725 each for years ended June 30, 1998 to June 30, 2004 and $217,563 and $21,000 for fiscal 2005 and 2006 respectively, provided there is no increase in fair market rent for the premises. F-57 MISSION VALLEY RENTALS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 8. INCOME TAXES The provision (benefit) for income taxes consists of the following:
JUNE 30 DECEMBER 31 ----------------- ------------------ 1996 1997 1996 1997 -------- -------- -------- -------- (UNAUDITED) Current:. Federal................................ $184,790 $(85,541) $(22,719) $ 29,842 State.................................. 32,610 -- -- -------- -------- -------- -------- 217,400 (85,541) (22,719) 29,842 Deferred:. Federal................................ 69,580 111,620 74,407 (71,507) State.................................. 12,279 19,698 12,607 (12,618) -------- -------- -------- -------- 81,859 131,318 87,014 (84,125) -------- -------- -------- -------- Total.................................. $299,259 $ 45,777 $ 64,295 $(54,283) ======== ======== ======== ========
Significant components of the Company's deferred tax liability at June 30, 1996 and 1997 and December 31, 1997 (unaudited) are as follows:
JUNE 30 ------------------ DECEMBER 31, 1996 1997 1997 -------- -------- ------------ (UNAUDITED) Difference in basis of accounting............. $(33,025) $(41,185) $ -- Cumulative tax depreciation in excess of book................ 188,774 319,869 235,744 -------- -------- -------- Deferred tax liability, net.................... $155,749 $278,684 $235,744 ======== ======== ========
Deferred tax assets at June 30, 1996 and 1997, are included in prepaid expenses and other assets on the accompanying balance sheet. 9. SUPPLEMENTAL CASH FLOW INFORMATION For the years ended June 30, 1996 and 1997 and the six months ended December 31, 1996 and 1997, total interest paid was $139,925 and $367,561 and $171,923 and $238,334, respectively. For the years ended June 30, 1996 and 1997 and the six months ended December 31, 1996 and 1997, total taxes paid were $120,000 and $127,611 and $84,358 and $ -- , respectively. For the years ended June 30, 1996 and 1997 and for the six months ended December 31, 1996 and 1997, the Company purchased $857,779, $3,844,300, $3,156,404 and $1,297,596, respectively, of equipment which was financed. For the year ended June 30, 1997 and the six months ended December 31, 1996, the Company entered into capital lease agreements for rental equipment totaling $383,874. 10. EMPLOYEE BENEFIT PLAN On January 1, 1996, the Company established a defined contribution 401(k) retirement plan which covers substantially all full time employees. The employees may contribute up to 15% of their weekly gross pay. The Company matches 20% of the employees contribution. Effective September 1997, the Company's match F-58 MISSION VALLEY RENTALS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) increased to 70%. Company contributions to the plan were $7,674, $15,211, $7,807 and $33,159 for the years ended June 30, 1996 and 1997 and for the six month periods ended December 31, 1996 and 1997, respectively. 11. SUBSEQUENT EVENT On January 13, 1998, 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-59 INDEPENDENT AUDITOR'S REPORT MERCER Equipment Company: We have audited the accompanying balance sheets of MERCER Equipment Company as of December 31, 1996 and October 24, 1997 and the related statements of income and retained earnings and of cash flows for each of the two years in the period ended December 31, 1996, and for the period from January 1, 1997 to October 24, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of MERCER Equipment Company as of December 31, 1996, and October 24, 1997 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1996 and for the period from January 1, 1997 to October 24, 1997 in conformity with generally accepted accounting principles. /s/ Webster, Duke & Co. PA Charlotte, North Carolina January 21, 1998 F-60 MERCER EQUIPMENT COMPANY BALANCE SHEETS
DECEMBER 31, OCTOBER 24, ------------ ----------- 1996 1997 ------------ ----------- ASSETS CURRENT ASSETS: Cash................................................ $ 276,639 $ 85,384 Accounts receivable (less allowance for doubtful accounts: 1996-$182,425, 1997-$254,073)............ 1,819,581 2,398,926 Inventory (Notes 2, 5 and 8)........................ 2,417,425 2,299,512 Miscellaneous receivables........................... 16,604 29,508 Prepaid expenses.................................... - 17,965 ----------- ----------- Total current assets.............................. 4,530,249 4,831,295 ----------- ----------- RENTAL EQUIPMENT (Notes 2, 5, 8, 9, 10 and 15): Rental equipment.................................... 14,030,584 15,392,093 Less accumulated depreciation....................... 3,717,218 4,322,744 ----------- ----------- Rental equipment, net............................. 10,313,366 11,069,349 ----------- ----------- OTHER PROPERTY (Notes 2, 8 and 11): Other property...................................... 1,003,079 1,091,365 Less accumulated depreciation....................... 395,658 498,962 ----------- ----------- Other property, net............................... 607,421 592,403 ----------- ----------- OTHER ASSETS (Note 13): Deposits and other assets........................... 68,639 42,889 Notes receivable-officers........................... 69,980 67,453 ----------- ----------- Total other assets................................ 138,619 110,342 ----------- ----------- TOTAL............................................. $15,589,655 $16,603,389 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Line of credit (Note 4)............................. -- -- Note payable-Bank (Note 4).......................... $ 494,245 $ 5,017,953 Short-term equipment notes (Note 5)................. 189,528 3,619,830 Notes payable-individuals (Notes 6 and 13).......... 609,000 142,000 Current portion of long-term debt................... 2,253,562 56,411 Current portion of capital leases................... 167,445 86,597 Accounts payable.................................... 2,161,340 3,174,282 Accrued expenses.................................... 140,361 254,444 ----------- ----------- Total current liabilities......................... 6,015,481 12,351,517 ----------- ----------- LONG-TERM DEBT (Non-current Portion): Revolving credit note (Note 7)...................... 2,430,000 -- Notes payable to bank (Note 8)...................... 1,513,000 -- Notes payable on rental equipment (Note 9).......... 2,195,238 -- Capital leases on rental equipment (Note 10)........ 119,183 176,047 Notes payable on other property..................... 138,543 82,208 ----------- ----------- Total long-term debt.............................. 6,395,964 258,255 ----------- ----------- STOCKHOLDERS' EQUITY: Common stock (Notes 2 and 12)....................... 500,001 500,001 Retained earnings (Note 8).......................... 2,678,209 3,493,616 ----------- ----------- Total stockholders' equity........................ 3,178,210 3,993,617 ----------- ----------- TOTAL............................................. $15,589,655 $16,603,389 =========== ===========
See notes to financial statements. F-61 MERCER EQUIPMENT COMPANY STATEMENTS OF INCOME AND RETAINED EARNINGS
PERIOD FROM JANUARY 1, 1997 YEAR ENDED DECEMBER 31, TO OCTOBER 24, 1997 ------------------------ --------------------------- 1995 1996 1997 ----------- ----------- --------------------------- REVENUE: Sales of new equipment............. $ 2,479,358 $ 3,415,523 $3,709,356 Sales of supplies and parts................. 1,558,273 2,067,403 1,831,345 ----------- ----------- ---------- Total goods sold..... 4,037,631 5,482,926 5,540,701 Sales of rental equipment............. 872,621 1,102,621 1,876,001 Rental revenues........ 4,950,614 7,380,137 6,891,972 Service department revenues.............. 357,039 488,216 764,738 ----------- ----------- ---------- Total revenues....... 10,217,905 14,453,900 15,073,412 ----------- ----------- ---------- DIRECT COSTS OF REVENUE: Cost of goods sold..... 3,171,168 4,469,790 4,677,328 Cost of rental equipment sold, net... 530,102 702,254 1,218,507 Rental department expenses (including depreciation of $1,035,352, $1,492,131 and $1,428,312)....... 2,226,420 3,589,936 3,728,374 Service department expenses.............. 460,382 648,882 706,958 ----------- ----------- ---------- Total direct costs of revenue............. 6,388,072 9,410,862 10,331,167 ----------- ----------- ---------- GROSS MARGIN............. 3,829,833 5,043,038 4,742,245 ----------- ----------- ---------- OPERATING EXPENSES: Sales expenses......... 752,722 1,386,812 1,345,705 Administrative and general expenses...... 1,930,124 2,247,556 2,014,205 ----------- ----------- ---------- Total operating expenses............ 2,682,846 3,634,368 3,359,910 ----------- ----------- ---------- MARGIN FROM OPERATIONS... 1,146,987 1,408,670 1,382,335 ----------- ----------- ---------- OTHER INCOME (EXPENSE): Miscellaneous income... 78,258 110,340 147,362 Interest expense....... (486,976) (813,339) (686,512) ----------- ----------- ---------- Total other income (expense)........... (408,718) (702,999) (539,150) ----------- ----------- ---------- NET INCOME............... 738,269 705,671 843,185 BEGINNING RETAINED EARNINGS................ 1,450,936 2,045,871 2,678,209 ----------- ----------- ---------- Total................ 2,189,205 2,751,542 3,521,394 LESS DIVIDENDS PAID...... 143,334 73,333 27,778 ----------- ----------- ---------- ENDING RETAINED EARNINGS................ $ 2,045,871 $ 2,678,209 $3,493,616 =========== =========== ==========
See notes to financial statements. F-62 MERCER EQUIPMENT COMPANY STATEMENTS OF CASH FLOWS
PERIOD FROM JANUARY 1, YEAR ENDED DECEMBER 31, 1997 TO ------------------------ OCTOBER 24, 1995 1996 1997 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................. $ 738,269 $ 705,671 $ 843,185 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........ 1,117,783 1,610,918 1,542,966 Cost of rental equipment sold, net... 530,102 702,254 1,218,507 Cost of other property sold, net..... 14,800 Changes in assets and liabilities: Accounts receivable, net........... (418,132) (398,900) (579,345) Inventory.......................... (900,532) (325,339) 117,913 Miscellaneous receivables.......... (5,437) (4,065) (12,904) Prepaid expenses................... (17,965) Other assets....................... (16,000) (24,239) 14,400 Accounts payable................... 651,668 558,903 944,210 Accrued expenses................... 29,098 24,329 114,083 ----------- ----------- ---------- Net cash provided by operating activities...................... 1,726,819 2,864,332 4,185,050 ----------- ----------- ---------- CASH FLOWS (TO) INVESTING ACTIVITIES: Purchase of rental equipment........... (2,466,039) (2,001,083) (1,601,703) Purchase of other property............. (131,695) (171,319) (81,117) Increase in other asset................ (1,650) ----------- ----------- ---------- Net cash (to) investing activities...................... (2,599,384) (2,172,402) (1,682,820) ----------- ----------- ---------- CASH FLOWS FROM (TO) FINANCING ACTIVITIES: Repayments of notes receivable-- officers.............................. 2,264 3,019 2,527 Repayments by stockholders............. 220,602 Loans to stockholders.................. (247,729) Repayments under line of credit........ (125,000) (8,792) Borrowings under line of credit........ -- Repayments of short-term equipment notes................................. (130,301) (618,854) (597,500) Repayments of notes payable-- individuals........................... (52,500) (491,000) Repayments of long term debt........... (1,051,070) (1,950,688) (1,794,942) Repayments of capital leases........... (22,009) (150,279) Net borrowings under note payable-- bank.................................. 465,200 29,045 -- Borrowings under revolving credit note.................................. 1,000,000 1,700,000 200,000 Proceeds from bank loans............... 1,120,588 Proceeds from notes payable individuals........................... 305,000 23,000 24,000 Dividends paid......................... (143,334 ) (73,333) (27,778) ----------- ----------- ---------- Net cash from (to) financing activities...................... 1,173,609 (869,988) (2,693,485) ----------- ----------- ---------- NET INCREASE (DECREASE) IN CASH.......... 301,044 (178,058) (191,255) BEGINNING CASH BALANCE................... 153,653 454,697 276,639 ----------- ----------- ---------- ENDING CASH BALANCE...................... $ 454,697 $ 276,639 $ 85,384 =========== =========== ==========
See notes to financial statements F-63 MERCER EQUIPMENT COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND OCTOBER 24, 1997 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. 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, 1996 and October 24, 1997, the difference between LIFO and first-in, first-out cost was $310,346 and $347,936 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 Note 15). 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, and October 24, 1997 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 no voting rights other than in those cases in which nonvoting stock is expressly granted voting rights under North Carolina law. F-64 MERCER EQUIPMENT COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) At December 31, 1996 and October 24, 1997, 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. MERCER paid interest expense and purchase various assets through incurrence of notes payable as follows:
PERIOD FROM JANUARY 1, YEAR ENDED DECEMBER 1997 TO 31 OCTOBER 24, 1995 1996 1997 ---------- ---------- ----------- Interest paid................................ $ 464,090 $ 807,169 $ 683,596 Debt incurred to purchase: Inventory.................................. 357,306 88,509 Rental equipment........................... 2,300,291 2,530,234 1,801,029 Fixed assets............................... 142,174 163,756 7,169
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. There were no intangible assets purchased nor are there any contingent payments or commitments. 4. NOTE PAYABLE--BANK 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. In connection with the purchase of MERCER's common stock (see Note 16), substantially all of the outstanding debt at October 24, 1997 was paid off. 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-65 MERCER EQUIPMENT COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) In connection with the purchase of MERCERs common stock (see Note 16), substantially all of the outstanding debt at October 24, 1997 was paid off. 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, 1996 and October 24, 1997, $178,000 and $ -- , 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%. At December 31, 1995 and during 1996, only interest payments were due on the note (see Note 9 for collateral). In connection with the purchase of MERCERs common stock (see Note 16), substantially all of the outstanding debt at October 24, 1997 was paid off. 8. NOTES PAYABLE TO BANK MERCER's note payable to bank consisted of the following:
DECEMBER 31, 1996 ------------ Bank note--8.25%, principal of $49,750 plus interest paid monthly thru November 1998; balance of $635,750 due December 1998........................................................... $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............................................. 450,000 ---------- Total........................................................... 2,230,000 Less current portion............................................ 717,000 ---------- Noncurrent portion.............................................. $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 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. In connection with the purchase of MERCERs common stock (see Note 16), substantially all of the outstanding debt at October 24, 1997 was paid off. 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 10.1%, and 8.6%, respectively. F-66 MERCER EQUIPMENT COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 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. In connection with the purchase of MERCER's common stock (see Note 16), substantially all of the outstanding debt at October 24, 1997 was paid off. 10. CAPITAL LEASES MERCER leases certain rental equipment under leases accounted for as capital leases. The following is an analysis of the leased property:
DECEMBER 31, OCTOBER 24, ------------ ----------- 1996 1997 ------------ ----------- Rental equipment.................................... $408,081 $386,153 Less accumulated amortization....................... 78,561 138,706 -------- -------- Net............................................... $329,520 $247,447 ======== ========
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 October 24, 1997: Year ended December 31, 1997....................................... $106,795 1998............................................................. 98,730 1999............................................................. 74,158 2000............................................................. 23,177 -------- Net minimum lease payments......................................... 302,860 Less amount representing interest.................................. 40,216 -------- Present value of net minimum lease payments........................ 262,644 Less current portion............................................... 86,597 -------- Long-term portion.................................................. $176,047 ========
11. NOTES PAYABLE ON OTHER PROPERTY The notes payable on other property provide for monthly payment of principal and interest at rates from 9.0% to 10.8%. At December 31, 1996 and October 24, 1997, related assets with a cost of $287,430 and $232,599 are collateral for the notes. The annual amounts of principal due for the next five years is as follows: 1997--$56,411; 1998--$50,318; 1999--$25,082; and 2000--$6,808. 12. COMMITMENTS AND CONTINGENCIES As of December 31, 1996 and October 24, 1997, MERCER's cash balance had $100,000 of FDIC insurance and is at one bank. F-67 MERCER EQUIPMENT COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) As of October 24, 1997, MERCER leased all of its facilities from a limited liability company (LLC) whose members own 72% of MERCER's outstanding stock. The leases provided 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 13). In connection with the sale of MERCER's common stock (see Note 16), the leases were rewritten to provide for an initial term of ten years with two five-year options. The leases provide for minimum rentals of $28,000 per month, after five years, minimum rents will be adjusted for changes in the Consumer Price Index. MERCER has also guaranteed debt of approximately $2,000,000 that the LLC has borrowed against the buildings. MERCER had 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 had 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. In connection with the Purchase of MERCER's common stock both of these agreements were canceled. (See Note 16) 13. RELATED PARTIES At December 31, 1996 and October 24, 1997, other assets includes rental deposits of $42,889 and $42,889, respectively, with the LLC described in Note 12. For the years ended December 31, 1995 and 1996 and for the period from January 1, 1997 to October 24, 1997, MERCER paid building rentals to the LLC of $149,500, $278,000 and $273,000, respectively. For the years ended December 31, 1995 and 1996 and for period from January 1, 1997 to October 24, 1997, MERCER paid interest of $17,808, $15,672 and $14,576, respectively to stockholders on the notes payable--individuals. 14. PROFIT-SHARING PLAN MERCER has adopted a profit-sharing plan that covers substantially all employees and provides for discretionary employer and voluntary employee contributions. For the years ended December 31, 1995, and 1996, and for the period from January 1, 1997 to October 24, 1997, no profit-sharing contribution was made. For the years ended December 31, 1995, and 1996, and for the period from January 1, 1997 to October 24, 1997, MERCER made matching payments of $21,969, $14,777, and $24,287, respectively under Section 401(k) of the Internal Revenue Code of 1986. 15. 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. 16. SUBSEQUENT EVENT On October 24, 1997, United Rentals, Inc. purchased all of MERCER's issued and outstanding common stock. F-68 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, 1995 and 1996 and October 19, 1997 and the related consolidated statements of operations, stockholders' equity, and cash flows for the years ended October 31, 1995 and 1996, and the period from November 1, 1996 to October 19, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of A&A Tool Rentals & Sales, Inc. and subsidiary as of October 31, 1995 and 1996 and October 19, 1997 and the results of their operations and their cash flows for the years ended October 31, 1995 and 1996, and the period from November 1, 1996 to October 19, 1997, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP Sacramento, California November 20, 1997 F-69 A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
OCTOBER 31, --------------------- OCTOBER 19, JULY 31, 1995 1996 1997 1997 ---------- ---------- ----------- ----------- (UNAUDITED) ASSETS Cash............................ $ 336,304 $ 308,331 $ 108,327 $ 187,082 Trade accounts receivable, less allowance for doubtful accounts of $85,000 at October 31, 1995, $80,000 at October 31, 1996 and at October 19, 1997, and $94,608 at July 31, 1997 (notes 2 and 3)................ 1,360,476 1,416,142 1,415,775 1,324,684 Merchandise inventory........... 750,556 847,035 862,200 906,969 Rental equipment, primarily ma- chinery, at cost, net of accu- mulated depreciation and amor- tization of $5,388,046 at Octo- ber 31, 1995, $5,909,751 at Oc- tober 31, 1996, $6,822,441 at October 19, 1997, and $6,727,264 at July 31, 1997 (notes 2 and 3)................ 2,136,948 3,190,093 2,780,854 3,133,863 Operating property and equip- ment, net of accumulated depre- ciation and amortization of $967,822 at October 31, 1995, $912,230 at October 31, 1996, $955,007 at October 19, 1997, and $975,498 at July 31, 1997 (notes 2 and 3)................ 356,336 384,759 281,593 306,415 Due from related party (note 5)............................. 229,485 228,737 332,613 316,364 Prepaid expenses and other as- sets........................... 183,681 234,976 303,553 152,251 ---------- ---------- ---------- ---------- Total assets................ $5,353,786 $6,610,073 $6,084,915 $6,327,628 ========== ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Short-term debt (note 2)........ $1,679,244 $ 90,400 $ 449,670 $ 484,700 Accounts payable................ 705,460 766,465 1,040,494 703,583 Accrued liabilities............. 235,258 244,938 203,709 221,763 Income tax payable.............. -- 6,019 12,262 2,992 Long-term debt and capital lease obligations (note 3)........... 1,723,384 4,351,394 3,463,807 3,868,069 ---------- ---------- ---------- ---------- Total liabilities........... 4,343,346 5,459,216 5,169,942 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... 72,000 72,000 72,000 72,000 Common stock, Class B--nonvot- ing. Authorized 5,000,000 shares; issued and outstand- ing 335,586 shares at October 31, 1995, 277,172 shares at October 31, 1996, 272,491 shares at October 19, 1997, and 275,242 shares at July 31, 1997..................... 457,813 395,201 378,714 393,058 Retained earnings............. 480,627 683,656 464,259 581,463 ---------- ---------- ---------- ---------- Total stockholders' equity.. 1,010,440 1,150,857 914,973 1,046,521 ---------- ---------- ---------- ---------- Total liabilities and stockholders' equity....... $5,353,786 $6,610,073 $6,084,915 $6,327,628 ========== ========== ========== ==========
See accompanying notes to consolidated financial statements. F-70 A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM NOVEMBER 1, NINE MONTHS YEAR ENDED OCTOBER 31, 1996 TO ENDED JULY 31, ------------------------ OCTOBER 19, ---------------------- 1995 1996 1997 1996 1997 ----------- ----------- ----------- ---------- ---------- (UNAUDITED) Revenues: Equipment rentals..... $ 4,800,767 $ 5,918,148 $6,022,196 $4,165,881 $4,501,537 New equipment sales... 4,283,294 4,463,117 4,355,965 3,310,409 3,228,472 Sales of parts, sup- plies and rent- al equipment......... 848,193 1,027,943 778,141 824,910 657,572 Other................. 237,205 296,926 290,140 198,144 215,542 ----------- ----------- ---------- ---------- ---------- Total revenues.......... 10,169,459 11,706,134 11,446,442 8,499,344 8,603,123 ----------- ----------- ---------- ---------- ---------- Costs of Revenues: Cost of equipment rentals, excluding equipment rental de- preciation and amortization......... 2,049,172 2,542,965 2,583,884 1,976,183 2,097,280 Depreciation and amor- tization, equipment rentals.............. 1,040,233 1,382,048 1,465,586 902,347 1,193,986 Cost of new equipment sales................ 4,054,467 4,304,301 4,148,874 3,234,457 3,016,957 Cost of sales of parts, supplies, and equipment............ 598,545 622,956 595,424 330,714 296,725 Other................. 38,358 32,582 31,339 24,337 33,115 ----------- ----------- ---------- ---------- ---------- Total costs of revenues............... 7,780,775 8,884,852 8,825,107 6,468,038 6,638,063 ----------- ----------- ---------- ---------- ---------- Gross Profit............ 2,388,684 2,821,282 2,621,335 2,031,306 1,965,060 Selling, general and administration....... 2,063,730 2,215,936 2,178,383 1,614,263 1,696,104 Non-rental depreciation and amortization......... 107,390 120,757 124,648 88,896 95,171 ----------- ----------- ---------- ---------- ---------- Operating income (loss)................. 217,564 484,589 318,304 328,147 173,785 Other income (expense)............ 50,090 116,539 80,080 61,119 105,777 ----------- ----------- ---------- ---------- ---------- Income before interest and taxes.............. 267,654 601,128 398,384 389,266 279,562 ----------- ----------- ---------- ---------- ---------- Interest income....... 56,053 54,993 39,967 51,898 34,590 Interest expense...... (324,957) (401,204) (642,478) (264,613) (410,345) ----------- ----------- ---------- ---------- ---------- Net interest expense............ (268,904) (346,211) (602,511) (212,715) (375,755) ----------- ----------- ---------- ---------- ---------- Income (loss) before income taxes........... (1,250) 254,917 (204,127) 176,551 (96,193) Income tax expense (note 4)............. (1,600) (7,619) (15,270) (1,600) (6,000) ----------- ----------- ---------- ---------- ---------- Income (loss) from continuing operations.. (2,850) 247,298 (219,397) 174,951 (102,193) Loss from operation of discontinued subsidiary (note 1).. (55,929) -- -- -- -- Loss from disposal of discontinued subsidiary (note 1).. -- (44,269) -- (16,318) -- ----------- ----------- ---------- ---------- ---------- Net income (loss)....... $ (58,779) $ 203,029 $ (219,397) $ 158,633 $ (102,193) =========== =========== ========== ========== ==========
See accompanying notes to consolidated financial statements. F-71 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, 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........ -- -- (4,681) (16,487) -- (16,487) Net loss................ -- -- -- -- (219,397) (219,397) ------- ------- ------- -------- -------- ---------- Balances at October 19, 1997................... 720,000 $72,000 272,491 $378,714 $464,259 $ 914,973 ======= ======= ======= ======== ======== ==========
See accompanying notes to consolidated financial statements. F-72 A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM YEAR ENDED OCTOBER 31, NOVEMBER 1, 1996 NINE MONTHS ENDED JULY 31, ------------------------ TO OCTOBER 19, -------------------------- 1995 1996 1997 1996 1997 ----------- ----------- ---------------- ----------- ---------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)...... $ (58,779) $ 203,029 $ (219,397) $ 158,633 $ (102,193) Adjustments to recon- cile net income (loss) to net cash provided by operating activi- ties: Depreciation and amortization.......... 1,147,623 1,502,805 1,590,234 991,243 1,289,157 Provision for bad debts................. 71,600 96,216 73,894 52,515 59,985 Provision for write- down of inventory..... 31,709 -- 35,403 -- 35,403 Gain on sale of equip- ment.................. (213,049) (364,504) (220,017) (196,325) (167,944) Changes in operating assets: (Increase) decrease in trade accounts receivable........... (282,115) (151,882) (73,527) (190,069) 31,473 (Increase) decrease in related party re- ceivables............ (54,741) 748 (103,876) (30,385) (87,627) (Increase) decrease in merchandise in- ventory.............. 38,955 (96,479) (50,568) (348,187) (95,337) (Increase) decrease in prepaid expenses and other assets..... (29,102) 10,934 (174,821) (42,445) (50,309) Increase (decrease) in accounts payable, trade................ 18,196 61,005 274,029 114,982 (62,882) Increase (decrease) in accrued liabili- ties................. 52,801 9,680 (41,229) (39,228) (23,175) Decrease in deferred revenue.............. (4,440) -- -- -- -- Increase (decrease) in income tax pay- able................. -- 6,019 6,243 -- (3,027) ----------- ----------- ---------- ----------- ---------- Net cash provided by operating activities.......... 718,658 1,277,571 1,096,368 470,734 823,524 ----------- ----------- ---------- ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from the sale of rental equipment and operating property and equipment......... 277,390 469,489 348,374 245,232 213,013 Purchases of rental equipment and operat- ing property and equipment......... (1,620,011) (2,689,358) (1,206,186) (2,042,083) (1,199,652) Proceeds from sale of marketable securi- ties.................. 4,954 2,514 -- 2,514 -- ----------- ----------- ---------- ----------- ---------- Net cash used in investing activities.......... (1,337,667) (2,217,355) (857,812) (1,794,337) (986,639) ----------- ----------- ---------- ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on long-term debt.................. 788,967 3,062,482 855,435 3,224,342 828,345 Payments on long-term debt.................. (574,595) (1,121,435) (1,743,022) (572,655) (1,311,670) Net borrowings (pay- ments) on short-term debt.................. 513,771 (901,881) 359,270 (1,553,999) 394,300 Premiums paid for offi- cers' life insurance.. (60,042) (64,743) (93,756) (50,799) (66,966) Drawings on cash sur- render value of offi- cers' life insurance.. -- -- 200,000 -- 200,000 Purchase of Class B common stock.......... (29,796) (62,612) (16,487) (59,590) (2,143) ----------- ----------- ---------- ----------- ---------- Net cash provided by (used in) financing activities.......... 638,305 911,811 (438,560) 987,299 41,866 ----------- ----------- ---------- ----------- ---------- Net increase (de- crease) in cash..... 19,296 (27,973) (200,004) (336,304) (121,249) Cash at beginning of period................. 317,008 336,304 308,331 336,304 308,331 ----------- ----------- ---------- ----------- ---------- Cash at end of period... $ 336,304 $ 308,331 $ 108,327 $ -- $ 187,082 =========== =========== ========== =========== ========== SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest............... $ 324,957 $ 401,204 $ 516,307 $ 264,613 $ 410,345 =========== =========== ========== =========== ========== Income taxes........... $ 1,600 $ 1,600 $ 4,606 $ 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-73 A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1995 AND 1996 AND PERIOD FROM NOVEMBER 1, 1996 TO OCTOBER 19, 1997 (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 $55,929 for the year ending October 31, 1995. (b) Interim Financial Statements The accompanying consolidated balance sheet at July 31, 1997 and the consolidated statements of operations, stockholders' 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-74 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 and unbilled rental revenue. The loans outstanding were $410,000 at October 31, 1995 and 1996, and $610,000 at October 19, 1997 and July 31, 1997. The Company is named beneficiary under the life insurance policy. Unbilled rental revenue represents the revenue recognized on contracts over twenty-eight days, but not billed. At October 19, 1997 unbilled rental revenue was $180,178. (g) Income Taxes The Company accounts for income taxes using the asset and liability method under which 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. 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. Under the asset and liability method, 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. (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. (j) Reclassifications Certain amounts in the 1995 and 1996 consolidated financial statements have been reclassified to conform to the 1997 consolidated financial statement presentation. (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 F-75 A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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. In 1997, the Company had borrowed on a credit facility that allows the Company to borrow up to $500,000 at the bank's prime rate (8.5% at October 19, 1997 and July 31, 1997) plus 2%. At October 19, 1997 and July 31, 1997, the amounts outstanding were $449,670 and $484,700, respectively. (3) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS Long-term debt and capital lease obligations consist of the following:
OCTOBER 31, --------------------- OCTOBER 19, JULY 31, 1995 1996 1997 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 $851,741 $989,334 American Equipment Leasing-- Various leases with combined monthly payments of $24,149 including interest ranging from 11.5% to 12%, due from 1997 through 1998. Collateralized by equipment................... 351,766 510,567 377,619 381,122 Atlas Copco, Inc.--Various notes with a combined monthly payment of $22,212 including interest ranging from 8.5% to 12.36%, due from 1996 through 1998. Collateralized by equipment................... 190,310 352,446 257,875 323,727 Clark Equipment Credit Co.-- Various notes with a combined monthly payment of $3,546 including interest ranging from 8.7% to 12.39%, due from 1996 through 1999. Collateralized by equipment................... 236,363 105,889 39,083 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 52,069 61,832 Prospect Leasing--Two leases with a combined monthly payment of $1,798 including interest at 10%, due in 1998. Collateralized by equipment................... -- 36,364 18,712 24,106
F-76 A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, --------------------- OCTOBER 19, JULY 31, 1995 1996 1997 1997 ---------- ---------- ----------- ----------- (UNAUDITED) CURRENT PAYOR AND TERMS-- (CONTINUED) Miller Electric Finance--Two notes with a combined monthly payment of $3,964 including interest ranging from 10.25% to 11.3%, due in 1999. Collateralized by equipment.. -- 72,746 89,813 101,704 The Associates--Various notes and leases with a combined monthly payment of $35,365 including interest ranging from 9% to 13.5%, due from 1996 through 2000. Collateralized by equipment.. 609,507 924,064 1,002,327 1,175,627 JI Case Credit Corporation-- Three notes with combined monthly payments of $14,428 including interest ranging from 6.9% to 8.2%, due from 1997 through 2000. Collateralized by equipment.. 268,365 515,184 349,235 346,540 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 3,540 6,195 Caterpillar Financial Services--Various notes with a combined monthly payment of $12,279 including interest ranging from 9.4% to 11.3%, due from 1998 through 2001. Collateralized by equipment.. 65,842 546,420 458,438 493,833 Colonial Pacific Leasing--One note 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 10% to 11%, due in 1998 and 2001. Collateralized by equipment.. 50,638 196,194 148,508 158,329 Other......................... 30,730 80,773 62,181 105,030 ---------- ---------- ---------- ---------- Total long-term debt.......... 1,926,699 4,833,702 3,711,141 4,212,812 Less amounts representing interest..................... 203,315 482,308 247,334 344,743 ---------- ---------- ---------- ---------- Long-term debt, net of interest..................... $1,723,384 $4,351,394 $3,463,807 $3,868,069 ========== ========== ========== ==========
Subsequent to October 19, 1997, all amounts outstanding under the long-term debt agreements and capital lease agreements were paid except for $18,546 which is scheduled for payment in fiscal year 1998. F-77 A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (4) INCOME TAXES Income tax expense consists of the following:
PERIOD FROM YEAR ENDED NOVEMBER 1, NINE MONTHS OCTOBER 31, 1996 TO ENDED JULY 31, ------------- OCTOBER 19, --------------- 1995 1996 1997 1996 1997 ------ ------ ----------- ------- ------- (UNAUDITED) Current............................ $1,600 $7,619 $15,270 $ 1,600 $ 6,000 Deferred........................... -- -- -- -- -- ------ ------ ------- ------- ------- $1,600 $7,619 $15,270 $ 1,600 $ 6,000 ====== ====== ======= ======= =======
Deferred tax assets and deferred tax liabilities are comprised of the following:
OCTOBER 31, -------------------- OCTOBER 19, JULY 31, 1995 1996 1997 1997 --------- --------- ----------- ----------- (UNAUDITED) Current deferred tax assets: Allowance for bad debts..... $ 36,800 $ 34,600 $ 34,600 $ 41,000 Inventory reserve........... 13,800 -- 6,600 -- Noncurrent deferred tax assets: Depreciation and amortization expense....... 12,700 12,000 14,000 11,300 Net operating loss.......... 285,400 188,300 236,800 198,800 Alternative minimum taxes... 12,300 25,500 39,000 29,900 --------- --------- --------- --------- Total deferred tax assets... 361,000 260,400 331,000 281,000 Less: Valuation allowance... (361,000) (260,400) (331,000) (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, ------------ OCTOBER 19, JULY 31, 1995 1996 1997 1997 ----- ----- ----------- ----------- (UNAUDITED) Expected U.S. Federal income tax...... (34%) 34% (34%) (34%) State franchise tax, net.............. 128% 1% -- 2% Net operating loss carryforward....... -- (34%) -- -- Effect of valuation allowance......... 34% -- 34% 34% Alternative minimum tax............... -- 2% 7% 4% ----- ----- --- ---- Total............................. 128% 3% 7% 6% ===== ===== === ====
F-78 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, 1995 and 1996 and the period from November 1, 1996 to October 19, 1997 was an increase of $8,000, a decrease of $100,600 and an increase of $70,600, 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 with monthly rent of $21,500. On October 20, 1997, this lease was amended for an additional five years with monthly rent of $17,000. In addition, the Company as lessee is to pay all taxes and insurance relating to the property. At October 19, 1997, the remaining commitment under this lease, as amended, is $1,020,000 plus property taxes and insurance. Due From Related Party Due from related party comprise the following:
OCTOBER 31, ----------------- OCTOBER 19, JULY 31, DUE FROM 1995 1996 1997 1997 -------- -------- -------- ----------- ----------- (UNAUDITED) President and shareholder.......... $206,296 $228,737 $317,613 $316,364 Vice president and shareholder..... 23,189 -- 15,000 -- -------- -------- -------- -------- $229,485 $228,737 $332,613 $316,364 ======== ======== ======== ========
The amounts due from related parties were paid subsequent to October 19, 1997. (6) OPERATING LEASES The Company leases vehicles from various unrelated companies through 1999. The vehicle leases, as well as the lease for the Company's business premises, are classified as operating leases. At October 19, 1997, future minimum lease payments under the operating leases including amounts amended as discussed in note (5) are:
YEAR ENDING OCTOBER 31 ---------------------- 1998............................................................ $ 442,636 1999............................................................ 305,036 2000............................................................ 204,000 2001............................................................ 204,000 2002............................................................ 204,000 ---------- $1,359,672 ==========
Operating lease expense aggregated $520,210, $533,619 and $501,473 in 1995, 1996 and for the period from November 1, 1996 to October 19, 1997, 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 F-79 A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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, 1995 and 1996 or the period from November 1, 1996 to October 19, 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, 1995 and 1996, or the period from November 1, 1996 to October 19, 1997. The ESOP held 335,586, 277,172, 272,491 and 275,242 allocated shares at October 31, 1995 and 1996, October 19, 1997, and July 31, 1997, respectively. No committed-to-be-released or suspense shares were held by the ESOP at October 31, 1995 and 1996, October 19, 1997, 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 period from November 1, 1996 to October 19, 1997, the Company contributed $8,245, $27,422, and $27,064, respectively to the Plan and $19,780 and $19,779 for the nine months ended July 31, 1996 and 1997. (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-80 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, 1996 and for J&J Rental Services, Inc. as of October 22, 1997 and the related statements of income, stockholders' equity and partners' capital and cash flows for each of the two years in the period ended December 31, 1996, the six months ended June 30, 1997 and for the period from July 1, 1997 to October 22, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the predecessor companies to J & J Rental Services, Inc. at December 31, 1996, and for J&J Rental Services, Inc. as of October 22, 1997 and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1996, the six months ended June 30, 1997 and for the period from July 1, 1997 to October 22, 1997 in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP MetroPark, New Jersey January 23, 1998 F-81 J & J RENTAL SERVICES, INC. BALANCE SHEETS (NOTE 1)
PREDECESSORS COMPANY ------------ ----------- DECEMBER 31, OCTOBER 22, 1996 1997 ------------ ----------- ASSETS Cash................................................. $ 666,153 $ 1,431,287 Accounts receivable, net of allowance for doubtful accounts of $428,270, and $226,273 at 1996 and 1997, respectively........................................ 1,502,119 1,470,608 Trade notes receivable, net of allowance for doubtful accounts of $93,337 at 1996......................... 37,081 Rental equipment, net................................ 6,669,365 7,961,850 Property and equipment, net.......................... 467,460 319,219 Investments in marketable equity securities.......... 81,175 Due from Predecessor Stockholder..................... 120,000 Due from Related Party............................... 354,388 Prepaid expenses and other assets.................... 126,221 4,006 Intangible assets, net............................... 3,270,614 ---------- ----------- Total assets................................... $9,669,574 $14,811,972 ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL Liabilities: Accounts payable................................... $ 628,252 $ 936,725 Accrued expenses................................... 336,884 360,990 Income tax payable................................. 24,814 Deferred tax liability............................. 430,000 Debt............................................... 5,766,651 14,078,932 Due to Predecessor Stockholder..................... 336,498 ---------- ----------- Total liabilities.............................. 7,523,099 15,376,647 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 Unrealized gain on marketable equity securities.. 1,165 Retained earnings................................ 981,955 ---------- 1,033,120 Partners' capital--Tri-Star Rentals, Ltd........... 1,113,355 ---------- Stockholders' equity--J & J Rental Services, Inc. Common stock, no par value, 1,000,000 shares au- thorized, 77,500 shares issued and outstanding.. 1,000 Accumulated deficit.............................. (565,675) ----------- Total stockholders' equity (deficit) and partners' capital............................................. 2,146,475 (564,675) ---------- ----------- Total liabilities and stockholders' equity and partners' capital............................... $9,669,574 $14,811,972 ========== ===========
See accompanying notes. F-82 J & J RENTAL SERVICES, INC. STATEMENTS OF INCOME (NOTE 1)
PREDECESSORS COMPANY ------------------------------------------ --------------- THE PERIOD FROM YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JULY 1, TO ------------------------ JUNE 30, OCTOBER 22, 1995 1996 1997 1997 ----------- ----------- ---------------- --------------- Revenues: Equipment rentals................................................. $7,573,784 $7,769,716 $3,823,790 $2,544,233 Sales of equipment and parts...................................... 1,810,400 1,243,297 573,450 129,963 ----------- ----------- ---------- ---------- Total revenues.................................................. 9,384,184 9,013,013 4,397,240 2,674,196 Cost of revenues: Cost of revenues, excluding depreciation.......................... 3,906,336 3,544,040 1,629,299 1,363,085 Depreciation, equipment rentals................................... 2,048,619 2,389,929 1,171,685 359,672 Cost of revenues of equipment and parts........................... 898,190 452,522 326,847 46,653 ----------- ----------- ---------- ---------- Total cost of revenues.......................................... 6,853,145 6,386,491 3,127,831 1,769,410 ----------- ----------- ---------- ---------- Gross profit........................................................ 2,531,039 2,626,522 1,269,409 904,786 Selling, general and administrative expenses........................ 1,840,973 1,521,562 713,488 786,907 Non-rental depreciation............................................. 125,004 123,971 78,643 7,629 ----------- ----------- ---------- ---------- Operating income................................................ 565,062 980,989 477,278 110,250 Interest expense.................................................... 411,731 478,341 180,769 378,231 Other (income), net................................................. (45,103) (27,523) (11,418) (26,306) ----------- ----------- ---------- ---------- Income (loss) before provision for income taxes................. 198,434 530,171 307,927 (241,675) Provision for income taxes.......................................... 35,678 49,685 98,000 -- ----------- ----------- ---------- ---------- Net income (loss)............................................... $ 162,756 $ 480,486 $ 209,927 $ (241,675) - -------------------------------------------------- =========== =========== ========== ==========
See accompanying notes. F-83 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, 1995................... 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............... 311,262 (101,335) Distributions paid to partners............... (50,500) ------ ------- ------- ---------- --------- Balance at June 30, 1997................... 50,000 $50,000 $ 1,165 $1,293,217 $ 961,520 ====== ======= ======= ========== ========= Company: Issuance of common stock.................. 77,500 $ 1,000 Net loss from July 1, 1997 to October 22, 1997................... $ (241,675) Basis adjustment........ (324,000) ------ ------- ------- ---------- --------- Balance at October 22, 1997................... 77,500 $ 1,000 $ (565,675) ====== ======= ======= ========== =========
See accompanying notes. F-84 J & J RENTAL SERVICES, INC. STATEMENTS OF CASH FLOWS (NOTE 1)
PREDECESSORS COMPANY ------------------------------------ ----------- THE PERIOD SIX MONTHS FROM JULY 1 YEAR ENDED DECEMBER 31, ENDED TO ------------------------ JUNE 30, OCTOBER 22, 1995 1996 1997 1997 ----------- ----------- ---------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................................... $ 162,756 $ 480,486 $ 209,927 $ (241,675) Adjustments to reconcile net income to net cash provided by (used in) op- erating activities: Depreciation and amortization............................................. 2,173,623 2,513,900 1,250,328 396,823 Bad debt expense (recovery)............................................... 128,092 (57,621) 7,214 226,273 Gain on sale of rental equipment.......................................... (396,704) (369,379) (210,390) (43,878) Gain on sale of property and equipment.................................... (2,809) (6,591) -- -- Deferred taxes............................................................ 23,000 12,000 -- -- Changes in assets and liabilities: Increase in accounts receivable.......................................... (64,895) (10,430) (512,942) (1,696,881) (Increase) decrease in trade notes receivable............................ (170,337) 39,859 37,081 -- Increase in prepaid expenses and other assets............................ (31,561) (84,918) (26,028) (4,006) Increase (decrease) in accounts payable.................................. 46,476 (41,052) 372,230 936,725 Increase in accrued expenses............................................. 53,632 1,919 123,765 360,990 Increase in income tax payable........................................... 7,613 17,201 73,186 -- Increase in Related Party receivable..................................... (354,388) ----------- ----------- ---------- ---------- Cash provided by (used in) operating activities......................... 1,928,886 2,495,374 1,324,371 (420,017) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property and equipment..................................... (270,369) (195,823) (614,414) (548,346) Proceeds from sale of rental equipment.................................... 930,860 755,122 1,227,501 232,148 Proceeds from sale of property and equipment.............................. 24,634 74,585 -- -- Purchase of other company, net of cash acquired........................... (7,238,924) Unrealized gain/(loss) on marketable securities........................... 9,250 (1,585) -- -- Purchase of marketable securities......................................... (9,250) (28,425) -- -- Payments on loans to Predecessor Stockholder.............................. (21,573) (73,724) (79,254) -- Proceeds received on Predecessor Stockholder loans........................ 94,857 -- 6,884 -- Loan to Predecessor Stockholder........................................... (120,000) -- -- -- ----------- ----------- ---------- ---------- Cash provided by (used in) investing activities......................... 638,409 530,150 540,717 (7,555,122) CASH FLOWS FROM FINANCING ACTIVITIES Borrowing under credit facilities......................................... 871,496 351,958 -- 10,000,000 Principal payments on debt................................................ (3,117,926) (3,171,213) (1,920,472) (593,574) Distributions paid........................................................ (169,741) (101,559) (50,500) -- ----------- ----------- ---------- ---------- Cash provided by (used in) financing activities......................... (2,416,171) (2,920,814) (1,970,972) 9,406,426 ----------- ----------- ---------- ---------- Increase (decrease) in cash ............................................... 151,124 104,710 (105,884) 1,431,287 Cash at beginning of year.................................................. 410,319 561,443 666,153 -- ----------- ----------- ---------- ---------- Cash at end of year..................................................... $ 561,443 $ 666,153 $ 560,269 $1,431,287 - -------------------------------------------------- =========== =========== ========== ==========
See accompanying notes. F-85 J & J RENTAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1996 AND OCTOBER 22, 1997 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, 1996 and for the years ended December 31, 1995 and 1996, and for the six month period ended June 30, 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 October 22, 1997 and for the period from July 1 to October 22, 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.................................................. $10,739,000 Adjustment necessary to value Predecessor Stockholder's continuing residual interest at Predecessor's basis............ 324,000 ----------- Adjusted purchase price......................................... $10,415,000 =========== Allocation of adjusted purchase price: Net assets acquired, at fair values........................... $ 7,115,000 Covenant not to compete....................................... 50,000 Goodwill...................................................... 3,250,000 ----------- Total adjusted purchase price allocation.................... $10,415,000 ===========
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, F-86 J & J RENTAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) weekly or monthly basis. The Company has two locations in Houston, Texas and its principal market area is the 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. 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 through June 30, 1997 and two to ten years subsequent to June 30, 1997. 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 $40,095 and $52,483 in the years ended December 31, 1995 and 1996, respectively, $1,297 in the six months ended June 30, 1997, and $9,433 from July 1 to October 22, 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. 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. Intangible assets Intangible assets are recorded at cost and consist of goodwill of $3,250,134 and covenant not to compete of $50,000. Goodwill is being amortized by the straight-line method over its estimated useful life of forty years. 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 $29,520 for the period from July 1 to October 22, 1997. F-87 J & J RENTAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 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 consists of the following:
DECEMBER 31, OCTOBER 22, 1996 1997 ------------ ----------- Rental equipment.................................... $12,520,482 $8,313,840 Less accumulated depreciation....................... 5,851,117 351,990 ----------- ---------- Rental equipment, net............................... $ 6,669,365 $7,961,850 =========== ==========
4. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, OCTOBER 22, 1996 1997 ------------ ----------- Transportation equipment............................ $ 763,402 $166,003 Furniture, fixtures and office equipment............ 92,082 59,760 Shop equipment...................................... 39,356 Leasehold improvements.............................. 38,386 Construction in progress............................ 101,085 --------- -------- 933,226 326,848 Less accumulated depreciation....................... 465,766 7,629 --------- -------- Total............................................... $ 467,460 $319,219 ========= ========
F-88 J & J RENTAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 5. DEBT Debt consists of the following:
DECEMBER 31, OCTOBER 22, 1996 1997 ------------ ----------- 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. ............. $ 1,246,231 $637,956 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. ... 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. ....................... 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. .............. 1,443,971 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. ............................................ 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. ............................................ 101,771 Citicorp--Note dated June 15, 1993, with an annual interest rate of 5.9% due in monthly payments of $921. .............................................. 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. ... 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. ............................................ 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 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. .. 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............ 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.............................................. 246,570
F-89 J & J RENTAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, OCTOBER 22, 1996 1997 ------------ ----------- 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.... 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............ 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............ 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........................................... 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 July 12 and August 28, 1997, with annual interest rates of 5.4% and 6.9%, respectively, due in monthly installments of $543 and $ 561, respectively..................... 47,460 AEL Leasing Co., Inc.--Note dated October 10, 1997 with annual interest of 9.33% due in monthly payments of $3,345.................................. 157,807 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.......... 290,260 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............................................. 7,445,449 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 ---------- ----------- $5,766,651 $14,078,932 ========== ===========
Substantially all rental equipment collateralize the above notes. All debt at October 22, 1997, except for $200,000 of the J & J and Tri-Star note, were paid off by October 31, 1997 as a result of the acquisition discussed in Note 10. F-90 J & J RENTAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 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:
YEAR ENDED SIX MONTHS DECEMBER 31, ENDED JUNE --------------- 30, 1995 1996 1997 ------- ------- ---------- Current: Federal............................................ $ 7,216 $32,054 $86,500 State.............................................. 5,462 5,631 11,500 ------- ------- ------- 12,678 37,685 98,000 Deferred: Federal............................................ 20,300 10,600 -- State.............................................. 2,700 1,400 -- ------- ------- ------- 23,000 12,000 -- ------- ------- ------- Total............................................ $35,678 $49,685 $98,000 ======= ======= =======
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, 1996 is as follows:
DECEMBER 31, 1996 ------------ Difference in basis of accounting......................... $221,000 Cumulative tax depreciation in excess of book............. 209,000 -------- Deferred tax liability $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 period from July 1 to October 22, 1997. 7. SUPPLEMENTAL CASH FLOW INFORMATION For the years ended December 31, 1995 and 1996; the six months ended June 30, 1997; and the period from July 1 to October 22, 1997, total interest paid was $411,731 and $478,341; $180,769; and $259,705, respectively. For the years ended December 31, 1995 and 1996; the six months ended June 30, 1997; and the period from July 1 to October 22, 1997, total income taxes paid was $ -- and $ --; $24,814; and $ --, respectively. During the years ended December 31, 1995 and 1996, and the six months ended June 30, 1997, and for the period from July 1 to October 22, 1997 the Company purchased $3,738,807, and $3,160,914; $1,172,917; and $1,172,506, respectively, of equipment which was financed. F-91 J & J RENTAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 8. 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, for the six month period ended June 30, 1997 and for the period from July 1 to October 22, 1997, respectively. 9. 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, 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, 1996 was $79,254, respectively. 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, 1996 was $257,244. During the period from July 1 to October 22, 1997 the Company made payments of $354,388 on behalf of another Company owned by the Company's Stockholder. The Company leases its operating facilities from the Predecessor Stockholder, and pays monthly rent of $8,600 through June 30, 1997. These leases are month-to-month and can be canceled by either party. 10. 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-92 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Coran Enterprises, Inc. and Monterey Bay Equipment Rental, Inc. We have audited the accompanying combined statements of earnings, stockholders' equity, and cash flows of Coran Enterprises, Inc., dba A-1 Rents, and Monterey Bay Equipment Rental, Inc. for the years ended December 31, 1995 and 1996. We have also audited the combined statement of earnings, stockholders' equity, and cash flows for the period January 1, 1997 through October 24, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined results of operations and combined cash flows of Coran Enterprises, Inc. dba A-1 Rents, and Monterey Bay Equipment Rental, Inc. for the years ended December 31, 1995 and 1996, and also for the period January 1, 1997 through October 24, 1997 in conformity with generally accepted accounting principles. /s/ Grant Thornton LLP San Jose, California January 21, 1998 F-93 CORAN ENTERPRISES, INC. DBA A-1 RENTS AND MONTEREY BAY EQUIPMENT RENTAL, INC. COMBINED STATEMENTS OF EARNINGS
PERIOD JANUARY 1, 1997 YEAR ENDED DECEMBER 31, THROUGH ----------------------- OCTOBER 24, 1995 1996 1997 ----------- ----------- ----------- Revenues: Equipment rentals........................ $ 6,962,130 $ 7,679,713 $6,743,497 Sales of parts, supplies and rental equipment............................... 565,586 738,330 974,713 ----------- ----------- ---------- Total revenues......................... 7,527,716 8,418,043 7,718,210 Costs Cost of equipment rentals................ 3,835,982 4,254,243 3,764,346 Rental equipment depreciation............ 611,577 1,304,847 1,328,193 Cost of sales of supplies................ 200,746 257,500 204,248 Other.................................... 49,523 115,758 53,590 ----------- ----------- ---------- Total costs............................ 4,697,828 5,932,348 5,350,377 ----------- ----------- ---------- Gross margin........................... 2,829,888 2,485,695 2,367,833 Selling, general and administrative........ 1,786,650 2,062,246 1,768,439 Non-rental depreciation.................... 28,435 17,202 15,370 ----------- ----------- ---------- Operating Income....................... 1,014,803 406,247 584,024 Interest expense........................... 21,120 96,464 170,183 ----------- ----------- ---------- Earnings before income taxes........... 993,683 309,783 413,841 Provision for income taxes................. 12,275 8,221 276,383 ----------- ----------- ---------- Net earnings............................. $ 981,408 $ 301,562 $ 137,458 =========== =========== ==========
The accompanying notes are an integral part of these statements. F-94 CORAN ENTERPRISES, INC. DBA A-1 RENTS AND MONTEREY BAY EQUIPMENT RENTAL, INC. COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
SHARES ISSUED ------------- CEI MBERI ------ ------ ADDITIONAL $1 PAR NO PAR COMMON PAID-IN RETAINED VALUE VALUE STOCK CAPITAL EARNINGS TOTAL ------ ------ -------- ---------- ---------- ---------- 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 January 1, 1997 through October 24, 1997..... -- -- -- -- 137,458 137,458 Dividends paid to stockholders......... -- -- -- -- (781,852) (781,852) Stock redemption...... -- (2,500) (50,000) -- (200,000) (250,000) ------ ------ -------- ------- ---------- ---------- Balance at October 24, 1997................... 75,000 7,500 $225,000 $37,920 $1,380,117 $1,643,037 ====== ====== ======== ======= ========== ==========
The accompanying notes are an integral part of this statement. F-95 CORAN ENTERPRISES, INC. DBA A-1 RENTS AND MONTEREY BAY EQUIPMENT RENTAL, INC. COMBINED STATEMENTS OF CASH FLOWS
PERIOD JANUARY 1, YEAR ENDED 1997 DECEMBER 31, THROUGH ---------------------- OCTOBER 24, 1995 1996 1997 --------- ----------- ----------- Cash flows from operating activities: Net earnings............................. $ 981,408 $ 301,562 $ 137,458 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization............ 640,012 1,322,049 1,343,563 Gain on sale of equipment................ (85,747) (163,753) (446,621) Change in assets and liabilities: Accounts receivable..................... (210,091) 60,246 (61,976) Other assets............................ 5,220 (3,108) 59,276 Accounts payable and accrued liabilities............................ 36,638 32,355 625,287 --------- ----------- ----------- Net cash provided by operating activities............................ 1,367,440 1,549,351 1,656,987 Cash flows from investing activities: Purchases of rental equipment............ (633,519) (4,017,946) (315,346) Proceeds from sale of equipment.......... 110,273 205,639 492,977 --------- ----------- ----------- Net cash provided by (used in) investing activities.................. (523,246) (3,812,307) 177,631 Cash flows from financing activities: Change in bank overdraft................. (15,760) -- -- Borrowings on equipment loans............ 244,235 1,096,820 -- Payments on equipment loans.............. (46,853) (158,893) (42,649) Payment of dividends..................... -- (750,000) (781,853) Stock redemption......................... -- -- (250,000) Borrowings on notes payable-- stockholders............................ -- 1,249,988 -- Payments on notes payable--stockholders.. (95,888) -- (538,156) --------- ----------- ----------- Net cash provided by (used in) financing activities.................. 85,734 1,437,915 (1,612,658) --------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...................... 929,928 (825,041) 221,960 Cash and cash equivalents--beginning of period................................... 35,259 965,187 140,146 --------- ----------- ----------- Cash and cash equivalents--end of period.. $ 965,187 $ 140,146 $ 362,106 ========= =========== =========== Supplementary disclosures of cash flow information: Cash paid during the period for: Interest................................. $ 21,120 $ 95,958 $ 151,792 ========= =========== =========== Income taxes............................. $ 1,600 $ 23,047 $ 800 ========= =========== ===========
The accompanying notes are an integral part of these statements. F-96 CORAN ENTERPRISES, INC. DBA A-1 RENTS ANDMONTEREY BAY EQUIPMENT RENTAL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE PERIOD FROM JANUARY 1, 1997 THROUGH OCTOBER 24, 1997 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. 2. 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. 3. 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. 4. 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--RELATED PARTY TRANSACTIONS The Company leases facilities from its stockholders on a month-to-month basis. Total rent expense on the facilities was $662,880 and $667,638 for the years ended December 31, 1995 and 1996. Total rent expense for the period from January 1, 1997 through October 24, 1997 was $545,702. The Company incurred interest expense of $17,755 and $27,627, respectively, for the years ended December 31, 1995 and 1996, related to notes payable to stockholders. For the period from January 1, 1997 through October 24, 1997 the interest expense related to the stockholder notes was $80,693. NOTE C--INCOME TAXES The stockholders of the Company 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 returns. 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. (See Note E) F-97 CORAN ENTERPRISES, INC. DBA A-1 RENTS AND MONTEREY BAY EQUIPMENT RENTAL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE PERIOD FROM JANUARY 1, 1997 THROUGH OCTOBER 24, 1997 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%. These loans were paid in full as of October 31, 1997. Interest expense on the equipment loans aggregated $3,365 and $68,837, respectively, for the years ended December 31, 1995 and 1996. Interest expense on the equipment loans was $89,455 for the period January 1, 1997 through October 24, 1997. NOTE E--CHANGE IN OWNERSHIP Effective October 24, 1997, the stockholders of CEI and MBERI sold 100% of the outstanding shares of each company to United Rentals, Inc. The Company provided $270,000 for state income taxes resulting from the stock sale. F-98 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, 1996 and October 24, 1997 and the related statements of income, stockholders' equity and cash flows for the years ended December 31, 1995 and 1996, and the period from January 1, 1997 to October 24, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bronco Hi-Lift, Inc. at December 31, 1996 and October 24, 1997, and the results of its operations and its cash flows for the years ended December 31, 1995 and 1996, and the period from January 1, 1997 to October 24, 1997 in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP MetroPark, New Jersey January 19, 1998 F-99 BRONCO HI-LIFT, INC. BALANCE SHEETS
DECEMBER 31, OCTOBER 1996 24, 1997 ------------ ---------- ASSETS Cash................................................... $ 305,506 $ 180,745 Accounts receivable, net............................... 826,849 998,467 Unbilled receivables................................... 40,722 283,865 Inventory.............................................. 67,825 273,119 Rental equipment, net.................................. 1,972,910 2,725,464 Property and equipment, net............................ 234,914 423,918 Due from related party................................. -- -- Prepaid expenses and other assets...................... 13,530 44,273 ---------- ---------- Total assets....................................... $3,462,256 $4,929,851 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable, accrued expenses and other liabili- ties................................................ $ 90,584 $ 277,651 Debt................................................. 3,051,711 3,473,516 ---------- ---------- Total liabilities.................................. 3,142,295 3,751,167 Commitments and contingencies Stockholders' equity: Common stock, $.01 par value and $1.00 stated value, 100,000 shares authorized, 10,000 issued and out- standing at December 31, 1996, and October 24, 1997. 10,000 10,000 Additional paid-in capital........................... 598,000 598,000 Notes receivable from stockholders................... (300,000) -- Retained earnings.................................... 11,961 570,684 ---------- ---------- Total stockholders' equity......................... 319,961 1,178,684 ---------- ---------- Total liabilities and stockholders' equity......... $3,462,256 $4,929,851 ========== ==========
See accompanying notes. F-100 BRONCO HI-LIFT, INC. STATEMENTS OF INCOME
PERIOD FROM JANUARY 1, YEAR ENDED DECEMBER 31 1997 TO ------------------------ OCTOBER 1995 1996 24, 1997 ----------- ----------- ---------- Revenues: Equipment rentals...................... $ 3,427,596 $ 4,313,855 $4,330,000 New equipment sales.................... 266,308 611,033 533,370 Sales of parts, supplies and rental equipment............................. 155,331 410,957 375,451 Other.................................. 147,214 194,469 182,355 ----------- ----------- ---------- Total revenues....................... 3,996,449 5,530,314 5,421,176 Cost of revenues: Cost of equipment rentals, excluding depreciation.......................... 335,028 699,455 374,845 Depreciation, equipment rentals........ 637,766 736,525 660,598 Cost of new equipment sales............ 206,268 479,920 412,592 Cost of sales of parts, supplies and equipment............................. 107,989 293,987 148,464 Other.................................. 32,418 119,315 112,107 ----------- ----------- ---------- Total cost of revenues............... 1,319,469 2,329,202 1,708,606 ----------- ----------- ---------- Gross profit............................. 2,676,980 3,201,112 3,712,570 Selling, general and administrative expenses................................ 2,540,699 2,359,326 2,353,924 Non-rental depreciation.................. 84,463 99,669 85,707 ----------- ----------- ---------- Operating income..................... 51,818 742,117 1,272,939 Interest expense......................... 171,305 334,035 229,154 Other (income), net...................... (26,575) (46,175) (29,938) ----------- ----------- ---------- Net income (loss).................... $ (92,912) $ 454,257 $1,073,723 =========== =========== ==========
See accompanying notes. F-101 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, 1995................... 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 Payments on notes receivable from stockholders......... 300,000 Net income............ 1,073,723 Dividends paid........ (515,000) ------- -------- --------- -------- ----------- Balance at October 24, 1997................... 10,000 $ 10,000 $ 598,000 $ -- $ 570,684 ======= ======== ========= ======== ===========
See accompanying notes. F-102 BRONCO HI-LIFT, INC. STATEMENTS OF CASH FLOWS
PERIOD FROM JANUARY 1, YEAR ENDED DECEMBER 31 1997 TO ------------------------ OCTOBER 24, 1995 1996 1997 ----------- ------------ ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)...................... $ (92,912) $ 454,257 $ 1,073,723 Adjustments to reconcile net income to net cash provided by operating activi- ties: Depreciation........................... 722,229 836,194 746,305 Gain on equipment sales................ (317,871) (302,777) (355,159) Interest expense not requiring cash.... 17,500 Changes in assets and liabilities: Increase in accounts receivable....... (132,976) (235,655) (171,618) Decrease (increase) in unbilled re- ceivables............................ 5,646 27,632 (243,143) (Increase) decrease in inventory...... (102,542) 89,645 (205,294) Decrease (increase) in prepaid ex- penses and other assets.............. 30,774 20,171 (30,743) (Decrease) increase in accounts payable, accrued expenses and other liabilities.......................... (60,113) (14,377) 187,067 ---------- ------------ ----------- Total adjustments.................... 145,147 438,333 (72,585) ---------- ------------ ----------- Cash provided by operating activities.......................... 52,235 892,590 1,001,138 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of rental equipment........... (92,727) (1,368,253) (1,631,309) Proceeds from sale of rental equip- ment.................................. 350,739 745,687 573,316 Purchases of property and equipment, net................................... (101,985) (90,932) (304,711) ---------- ------------ ----------- Cash provided by (used in) investing activities.......................... 156,027 (713,498) (1,362,704) CASH FLOWS FROM FINANCING ACTIVITIES Cash dividends paid.................... (485,000) Issuance of stock...................... 100,000 Re-payments on notes due from stock- holders............................... 200,000 300,000 Principal payments on debt............. (742,891) (802,358) (278,195) Principal payments on capital lease ob- ligations............................. (32,711) Advances to related party.............. (412,113) Borrowings under credit facility....... 900,000 500,000 700,000 ---------- ------------ ----------- Cash provided by (used) in financing activities.......................... (187,715) (102,358) 236,805 ---------- ------------ ----------- Increase (decrease) in cash............ 20,547 76,734 (124,761) Cash balance at beginning period..... 208,225 228,772 305,506 ---------- ------------ ----------- Cash balance at end of period........ $ 228,772 $ 305,506 $ 180,745 ========== ============ ===========
See accompanying notes. F-103 BRONCO HI-LIFT, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1996 AND OCTOBER 24, 1997 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. 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 $74,400 and $43,000 in the years ended December 31, 1995 and 1996, respectively, and $49,500 in the period from January 1, 1997 to October 24, 1997. 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. F-104 BRONCO HI-LIFT, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 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:
OCTOBER DECEMBER 31, 24, 1996 1997 ------------ ---------- Rental equipment.................................... $5,176,658 $5,943,569 Less accumulated depreciation....................... 3,203,748 3,218,105 ---------- ---------- Rental equipment, net............................... $1,972,910 $2,725,464 ========== ==========
4. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, OCTOBER 24, 1996 1997 ------------ ----------- Furniture and fixtures.............................. $ 59,572 $172,839 Transportation equipment............................ 520,356 664,543 Shop equipment...................................... 37,591 37,591 -------- -------- 617,519 874,973 Less accumulated depreciation....................... 382,605 451,055 -------- -------- Total............................................. $234,914 $423,918 ======== ========
F-105 BRONCO HI-LIFT, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 5. DEBT Debt consists of the following:
OCTOBER DECEMBER 31 24, 1996 1997 ----------- ---------- Citicorp Dealer Finance Agreement.................... $1,585,000 $2,135,000 GMAC note dated October 27, 1994 paid in full in August 1997......................................... 17,564 -- Kenworth/Trial-EZE dated July 11, 1994 paid in full in September 1997................................... 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 1,338,516 ---------- ---------- $3,051,711 $3,473,516 ========== ==========
Substantially all of the Company's assets collateralize the debt outstanding under the Financing Agreement. All debt at October 24, 1997 was paid off in connection with the acquisition discussed in Note 10. 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 $52,000 and $78,000 for the years ended December 31, 1995 and 1996 and $65,000 for the period from January 1, 1997 to October 24, 1997. 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, 1998 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, and $521,000 for the years ended December 31, 1995 and 1996 and for the period from January 1, 1997 to October 24, 1997, respectively. F-106 BRONCO HI-LIFT, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Additional compensation to be paid to the officers, until the agreements expire, amounts to approximately $100,000 for the two 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). 8. SUPPLEMENTAL CASH FLOW INFORMATION For the years ended December 31, 1995 and 1996 and for the period from January 1, 1997 to October 24, 1997, total interest paid was $171,305, $335,686 and $224,016, respectively. During 1995, the Company purchased $726,355, of equipment which was financed. There were no purchases in 1996 or for the period from January 1, 1997 to October 24, 1997. 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 $540,200 at October 24, 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-107 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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 OR 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........................................................... 11 Dividend Policy........................................................... 12 Price Range of Common Stock............................................... 12 Capitalization............................................................ 13 Selected Historical and Pro Forma Consolidated Financial Information...... 14 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 16 Business.................................................................. 21 Management................................................................ 28 Principal Stockholders.................................................... 35 Description of Capital Stock.............................................. 37 Certain Charter and By-Law Provisions..................................... 38 Shares Eligible for Future Sale........................................... 41 Certain United States Federal Tax Considerations.......................... 42 Underwriting.............................................................. 45 Legal Matters............................................................. 48 Experts................................................................... 48 Available Information..................................................... 49
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 5,500,000 SHARES [LOGO] UNITED RENTALS COMMON STOCK --------------- PROSPECTUS --------------- MERRILL LYNCH & CO. DEUTSCHE MORGAN GRENFELL DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION SALOMON SMITH BARNEY , 1998 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS, DATED FEBRUARY 4, 1998 PROSPECTUS 5,500,000 SHARES [LOGO] UNITED RENTALS 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, 1,100,000 shares are being offered initially outside the United States and Canada by the International Managers (the "International Offering"), and 4,400,000 shares are being offered initially in a concurrent offering in the United States and Canada by the U.S. Underwriters (the "U.S. Offering", and together with the International Offering, the "Offerings"). The public offering price and the underwriting discount per share are identical for each of the Offerings. See "Underwriting." The Common Stock is traded on the New York Stock Exchange under the symbol "URI." On February 3, 1998, the last sale price of the Common Stock as reported on the New York Stock Exchange was $24 5/16 per share. See "Price Range of Common Stock." 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. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO PUBLIC DISCOUNT(1) 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 $1,000,000. (3) The Company has granted the International Managers and the U.S. Underwriters options to purchase up to an additional 165,000 shares and 660,000 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 , 1998. ---------- MERRILL LYNCH INTERNATIONAL DEUTSCHE MORGAN GRENFELL DONALDSON, LUFKIN & JENRETTE INTERNATIONAL SALOMON SMITH BARNEY INTERNATIONAL ---------- The date of this Prospectus is , 1998. UNDERWRITING Subject to the terms and conditions set forth in an international purchase agreement (the "International Purchase Agreement") among the Company and Merrill Lynch International, Donaldson, Lufkin & Jenrette International, Morgan Grenfell & Co. Limited and Smith Barney Inc. (together, the "International Managers") and concurrently with the sale of 4,400,000 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 at the public offering price less the underwriting discount set forth on the cover page of this Prospectus.
INTERNATIONAL MANAGER NUMBER OF SHARES --------------------- ---------------- Merrill Lynch International............................. Donaldson, Lufkin & Jenrette International.............. Morgan Grenfell & Co. Limited........................... Smith Barney Inc........................................ --------- Total.............................................. 1,100,000 =========
The Company has also entered into a U.S. purchase agreement (the "U.S. Purchase Agreement") with Merrill Lynch, Pierce, Fenner & Smith ("Merrill Lynch"), Donaldson, Lufkin & Jenrette Securities Corporation, Deutsche Morgan Grenfell Inc. and Smith Barney Inc. (the "U.S. Underwriters" and, together with the International Managers, the "Underwriters"). Subject to the terms and conditions set forth in the U.S. Purchase Agreement, and concurrently with the sale of 1,100,000 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 4,400,000 shares of Common Stock. The 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 International Managers have advised the Company that the International Managers propose initially to offer the shares of Common Stock to the public at the 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 shares of Common Stock are released for sale to the public, 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 165,000 additional shares of Common Stock at the 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 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 660,000 additional shares of Common Stock to cover over-allotments, if any, on terms similar to those granted to the International Manager. The Company and all its executive officers and directors (who hold an aggregate of 13,262,414 shares of Common Stock) 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, 45 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 & Co. 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) issue shares as consideration for acquisitions (provided that the Company may not issue in excess of 750,000 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 existing lock-up agreements between the Company and its stockholders 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 the holders of an aggregate of 2,901,705 shares of Common Stock 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. See "Shares Eligible for Future Sales." 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 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. The Company has agreed to indemnify the U.S. Underwriters and the International Managers against certain liabilities, including certain liabilities under the Securities Act. Certain of the Underwriters have from time to time provided certain investment banking and advisory services to the Company for which services such Underwriters received customary compensation. The Underwriters may in the future provide additional investment banking and advisory services to the Company. 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. Underwriters 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. 46 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. Underwriters may reduce that short position by purchasing Common Stock in the open market. The U.S. Underwriters may also elect to reduce any short position by exercising all or part of the over-allotment option described above. The U.S. Underwriters may also impose a penalty bid on certain Underwriters and selling group members. This means that if the U.S. Underwriters 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. Underwriters 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 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. 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 Eilenberg Krause & Zivian LLP, 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. 47 EXPERTS The financial statements of United Rentals, Inc. at December 31, 1997 and for the period from August 14, 1997 (Inception) to December 31, 1997, the financial statements of J&J Rental Services, Inc. at December 31, 1996 and October 22, 1997 and for each of the two years in the period ended December 31, 1996, the six months ended June 30, 1997 and for the period from July 1, 1997 to October 22, 1997, the financial statements of Bronco Hi-Lift, Inc. at December 31, 1996 and October 24, 1997 and for each of the two years in the period ended December 31, 1996 and for the period from January 1, 1997 to October 24, 1997, and the financial statements of Mission Valley Rentals, Inc. at June 30, 1996 and 1997 and for the years then ended, appearing in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their 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 consolidated financial statements of A&A Tool Rentals & Sales, Inc. and subsidiary as of October 19, 1997, October 31, 1996, and 1995, and for the period from November 1, 1996 to October 19, 1997 and for the years ended October 31, 1996 and 1995, have been included herein and in the Registration Statement 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. The combined financial statements of BNR Group of Companies as of March 31, 1996 and 1997 and for the years ended March 31, 1996 and 1997, have been included herein and in the Registration Statement in reliance upon the report of KPMG, independent chartered accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The audited financial statements of Access Rentals, Inc., and Subsidiary and Affiliate included in this Registration Statement have been included herein in reliance on the report of Battaglia, Andrews & Moag, P.C., independent certified public accountants, 210 East Main Street, Batavia, New York 14020, for the periods indicated, given on the authority of that firm as experts in auditing and accounting. 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 48 by such reference. The Registration Statement, including all exhibits and schedules thereto, may be inspected and copied at the public reference facilities maintained by the Commission 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. 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. The Company is subject to the informational and periodic reporting requirements of the Exchange Act, and in accordance therewith, files periodic reports, proxy statements, and other information with the Commission. Such periodic reports, proxy statements, and other information may be inspected and copied at the public reference facilities maintained by the Commission and at the Commission's regional offices at the addresses stated above. Copies of such material may be obtained at prescribed rates from the Public Reference Section of the Commission at the address stated above. The Common Stock is listed on the New York Stock Exchange (the "NYSE"), and the Registration Statement and such reports, proxy statements and other information can also be inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005. 49 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. IN THE PROSPECTUS, REFERENCES TO "DOLLARS" AND "$" ARE TO UNITED STATES DOLLARS, UNLESS OTHERWISE INDICATED. --------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary........................................................ 3 Summary Historical and Pro Forma Consolidated Financial Information....... 6 Risk Factors.............................................................. 7 Use of Proceeds........................................................... 11 Dividend Policy........................................................... 12 Price Range of Common Stock............................................... 12 Capitalization............................................................ 13 Selected Historical and Pro Forma Consolidated Financial Information...... 14 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 16 Business.................................................................. 21 Management................................................................ 28 Principal Stockholders.................................................... 35 Description of Capital Stock.............................................. 37 Certain Charter and By-Law Provisions..................................... 38 Shares Eligible for Future Sale........................................... 41 Certain United States Federal Tax Considerations.......................... 42 Underwriting.............................................................. 45 Legal Matters............................................................. 48 Experts................................................................... 48 Available Information..................................................... 48
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 5,500,000 SHARES [LOGO] UNITED RENTALS COMMON STOCK --------------- PROSPECTUS --------------- MERRILL LYNCH INTERNATIONAL DEUTSCHE MORGAN GRENFELL DONALDSON, LUFKIN & JENRETTE INTERNATIONAL SALOMON SMITH BARNEY INTERNATIONAL , 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. SEC Registration Fee.......................................... $ 41,537 Listing Fee................................................... $ 24,500 NASD Filing Fee............................................... $ 15,878 Accounting Fees and Expenses*................................. $ 350,000 Printing and Engraving Expenses*.............................. $ 200,000 Legal Fees and Expenses (other than blue sky)*................ $ 250,000 Blue Sky Fees and Expenses*................................... $ 5,000 Transfer Agent and Registrar Fees*............................ $ 5,000 Miscellaneous Expenses*....................................... $ 108,085 ---------- Total*........................................................ $1,000,000 ==========
- -------- * 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 The Registrant has entered into indemnification agreements with certain members of its management in the form filed as an exhibit to this registration statement. 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 Eilenberg Krause & Zivian LLP 10(a)* $155 Million Revolving Credit Facility, dated as of December 23, 1997, between the Company, various financial institutions, and Bank of America National Trust and Savings Association, as agent 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 September 19, 1997 10(h)** Employment Agreement between the Company and John N. Milne, dated as of September 19, 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.+ 10(q)** Convertible Note dated October 24, 1997 10(r)** Subscription Agreement dated November 14, 1997, between Wayland R. Hicks and the Company 10(s)** Agreement dated November 14, 1997, between the Company and Wayland R. Hicks
II-2
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS -------- ----------------------- 10(t)* Purchase Agreement, dated as of January 22, 1998, among the Company, United Rentals of Canada, Inc., Access Rentals, Inc., Reinhart Leasing, LLC and the Stockholders of Access Rentals, Inc. 10(u)* Stock Purchase Agreement, dated as of January 13, 1998, among the Company, Mission Valley Rentals, Inc., Charles F. Journey and Connie J. Journey 10(v)* Stock Purchase Agreement, dated as of January 22, 1998, among the Company, United Rentals of Canada, Inc. and BNR Equipment Limited and Affiliates 21* Subsidiaries of the Registrant 23(a)*** Consent of Ehrenreich Eilenberg Krause & Zivian LLP (included in opinion filed as Exhibit 5) 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 Ernst & Young LLP 23(g)* Consent of KPMG Peat Marwick LLP 23(h)* Consent of KPMG 23(i)* Consent of Webster Duke & Co. PA 23(j)* Consent of Grant Thornton LLP 23(k)* Consent of Battaglia, Andrews & Maag, P.C. 23(l)* Consent of Wayland R. Hicks 24* Power of Attorney (included in Part II of the Registration Statement under the caption "Signatures") 27* Financial Data Schedule
- -------- * Filed herewith. ** Incorporated by reference to the correspondingly numbered exhibit to the Registrant's Registration Statement on Form S-1 (Registration No. 333- 39117). *** 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 Company's initial public offering in December 1997, other than Messrs. Jacobs and Hicks, entered into a Private Placement Purchase Agreement in this form (modified, in the case of Messrs. Barker and Imig, to reflect the fact that such officers 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 of Common Stock in the Company's September 1997 private placement entered into a Subscription Agreement in this form with respect to the shares purchased. ITEM 17. UNDERTAKINGS. 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 II-3 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 FEBRUARY 3, 1998. United Rentals, Inc. /s/ Michael J. Nolan By: _________________________________ MICHAEL J. NOLANCHIEF FINANCIAL OFFICER 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 February 3, - ------------------------------------- Executive Officer 1998 BRADLEY S. JACOBS and Director (Principal Executive Officer) /s/ John N. Milne Director February 3, - ------------------------------------- 1998 JOHN N. MILNE /s/ Ronald M. DeFeo Director February 3, - ------------------------------------- 1998 RONALD M. DEFEO /s/ Richard J. Heckmann Director February 3, - ------------------------------------- 1998 RICHARD J. HECKMANN /s/ Gerald Tsai, Jr. Director February 3, - ------------------------------------- 1998 GERALD TSAI, JR. /s/ Michael J. Nolan Chief Financial February 3, - ------------------------------------- Officer (Principal 1998 MICHAEL J. NOLAN Financial Officer) /s/ Sandra E. Welwood Vice President, February 3, _____________________________________ Corporate 1998 SANDRA E. WELWOOD Controller (Principal Accounting Officer) EXHIBIT INDEX
EXHIBIT PAGE NUMBER DESCRIPTION OF EXHIBITS NUMBER -------- ----------------------- ------ 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 Eilenberg Krause & Zivian LLP 10(a)* $155 Million Revolving Credit Facility, dated as of December 23, 1997, between the Company, various financial institutions, and Bank of America National Trust and Savings Association, as agent 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 September 19, 1997 10(h)** Employment Agreement between the Company and John N. Milne, dated as of September 19, 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.+ 10(q)** Convertible Note dated October 24, 1997 10(r)** Subscription Agreement dated November 14, 1997, between Wayland R. Hicks and the Company 10(s)** Agreement dated November 14, 1997, between the Company and Wayland R. Hicks
EXHIBIT PAGE NUMBER DESCRIPTION OF EXHIBITS NUMBER -------- ----------------------- ------ 10(t)* Purchase Agreement, dated as of January 22, 1998, among the Company, United Rentals of Canada, Inc., Access Rentals, Inc., Reinhart Leasing, LLC and the Stockholders of Access Rentals, Inc. 10(u)* Stock Purchase Agreement, dated as of January 13, 1998, among the Company, Mission Valley Rentals, Inc., Charles F. Journey and Connie J. Journey 10(v)* Stock Purchase Agreement, dated as of January 22, 1998, among the Company, United Rentals of Canada, Inc. and BNR Equipment Limited and Affiliates 21* Subsidiaries of the Registrant 23(a)*** Consent of Ehrenreich Eilenberg Krause & Zivian LLP (included in opinion filed as Exhibit 5) 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 Ernst & Young LLP 23(g)* Consent of KPMG Peat Marwick LLP 23(h)* Consent of KPMG 23(i)* Consent of Webster Duke & Co. PA 23(j)* Consent of Grant Thornton LLP 23(k)* Consent of Battaglia, Andrews & Maag, P.C. 23(l)* Consent of Wayland R. Hicks 24* Power of Attorney (included in Part II of the Registration Statement under the caption "Signatures") 27* Financial Data Schedule
- -------- * Filed herewith. ** Incorporated by reference to the correspondingly numbered exhibit to the Registrant's Registration Statement on Form S-1 (Registration No. 333- 39117). *** 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 Company's initial public offering in December 1997, other than Messrs. Jacobs and Hicks, entered into a Private Placement Purchase Agreement in this form (modified, in the case of Messrs. Barker and Imig, to reflect the fact that such officers 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 of Common Stock in the Company's September 1997 private placement entered into a Subscription Agreement in this form with respect to the shares purchased. EX-10.(A) 2 $155 MILLION REVOLVING CREDIT FACILITY DATED DEC 23 EXHIBIT 10(a) ================================================================================ AMENDED AND RESTATED CREDIT AGREEMENT dated as of December 24, 1997 among UNITED RENTALS, INC., VARIOUS FINANCIAL INSTITUTIONS, BANKBOSTON, N.A., COMERICA BANK and DEUTSCHE BANK AG, as Co-Agents, and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent ================================================================================ Arranged by BANCAMERICA ROBERTSON STEPHENS TABLE OF CONTENTS Page SECTION 1 DEFINITIONS, ETC..................................................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................................................12 2.2.1 Various Types of Loans................................12 2.2.2 Borrowing Procedures..................................12 2.2.3 Procedures for Conversion of Type of Loan.............13 2.3 Letter of Credit Procedures....................................13 2.3.1 L/C Applications......................................13 2.3.2 Participation in Letters of Credit....................14 2.3.3 Reimbursement Obligations.............................14 2.3.4 Limitation on BofA's Obligations......................14 2.3.5 Funding by Banks to BofA..............................14 2.3.6 Repayment of Participations...........................15 2.4 Commitments Several............................................15 2.5 Certain Conditions.............................................15 SECTION 3 NOTES EVIDENCING LOANS...........................................15 3.1 Notes..........................................................15 3.2 Recordkeeping..................................................16 SECTION 4 INTEREST.........................................................16 4.1 Interest Rates.................................................16 4.2 Interest Payment Dates.........................................16 4.3 Interest Periods...............................................16 4.4 Setting and Notice of Eurodollar Rates.........................17 4.5 Computation of Interest........................................17 SECTION 5 FEES.............................................................17 5.1 Non-Use Fee....................................................17 5.2 Letter of Credit Fees..........................................18 5.3 Arrangement and Agent's Fees...................................18 SECTION 6 REDUCTION AND TERMINATION OF THE COMMITMENTS; PREPAYMENTS.........................................................18 -i- 6.1 Reduction or Termination of the Commitments....................18 6.2 Voluntary Prepayments..........................................18 SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES..................19 7.1 Making of Payments.............................................19 7.2 Application of Certain Payments................................19 7.3 Due Date Extension.............................................19 7.4 Setoff.........................................................19 7.5 Proration of Payments..........................................20 7.6 Taxes..........................................................20 SECTION 8 INCREASED COSTS; SPECIAL PROVISIONS FOR EURODOLLAR LOANS........................................................21 8.1 Increased Costs................................................21 8.2 Basis for Determining Interest Rate Inadequate or Unfair.......22 8.3 Changes in Law Rendering Eurodollar Loans Unlawful.............23 8.4 Funding Losses.................................................23 8.5 Right of Banks to Fund through Other Offices...................24 8.6 Discretion of Banks as to Manner of Funding....................24 8.7 Mitigation of Circumstances; Replacement of Affected Bank......24 8.8 Conclusiveness of Statements; Survival of Provisions...........24 SECTION 9 WARRANTIES.......................................................25 9.1 Organization, etc..............................................25 9.2 Authorization; No Conflict.....................................25 9.3 Validity and Binding Nature....................................25 9.4 Information....................................................26 9.5 No Material Adverse Change.....................................26 9.6 Litigation and Contingent Liabilities..........................26 9.7 Ownership of Properties; Liens.................................26 9.8 Subsidiaries...................................................26 9.9 Pension and Welfare Plans......................................26 9.10 Investment Company Act........................................27 9.11 Public Utility Holding Company Act............................27 9.12 Regulation U..................................................27 9.13 Taxes.........................................................27 9.14 Solvency, etc.................................................27 9.15 Environmental Matters.........................................28 9.16 Year 2000 Problem.............................................28 SECTION 10 COVENANTS.......................................................28 10.1 Reports, Certificates and Other Information...................28 10.1.1 Audit Report.........................................28 10.1.2 Quarterly Reports....................................29 -ii- 10.1.3 Monthly Reports......................................29 10.1.4 Compliance Certificates..............................29 10.1.5 Reports to SEC and to Shareholders...................29 10.1.6 Notice of Default, Litigation and ERISA Matters......29 10.1.7 Subsidiaries.........................................30 10.1.8 Management Reports...................................30 10.1.9 Projections..........................................30 10.1.10 Other Information...................................31 10.2 Books, Records and Inspections................................31 10.3 Insurance.....................................................31 10.4 Compliance with Laws; Payment of Taxes and Liabilities........31 10.5 Maintenance of Existence, etc.................................31 10.6 Financial Covenants...........................................32 10.6.1 Minimum Net Worth....................................32 10.6.2 Maximum Leverage.....................................32 10.6.3 Minimum Interest Coverage............................32 10.6.4 Funded Debt to Cash Flow Ratio.......................32 10.6.5 Senior Debt to Tangible Assets.......................33 10.7 Limitations on Debt...........................................33 10.8 Liens.........................................................34 10.9 Operating Leases..............................................35 10.10 Restricted Payments..........................................35 10.11 Mergers, Consolidations, Sales...............................35 10.12 Modification of Organizational Documents.....................36 10.13 Use of Proceeds..............................................36 10.14 Further Assurances...........................................36 10.15 Transactions with Affiliates.................................36 10.16 Employee Benefit Plans.......................................36 10.17 Environmental Laws...........................................36 10.18 Unconditional Purchase Obligations...........................36 10.19 Inconsistent Agreements......................................37 10.20 Business Activities..........................................37 10.21 Advances and Other Investments...............................37 SECTION 11 EFFECTIVENESS; CONDITIONS OF LENDING, ETC.......................38 11.1 Effectiveness.................................................38 11.1.1 Notes................................................38 11.1.2 Resolutions..........................................38 11.1.3 Consents, etc........................................38 11.1.4 Incumbency and Signature Certificates................38 11.1.5 Intercompany Guaranty................................38 11.1.6 Security Agreement...................................38 11.1.7 Pledge Agreements....................................39 11.1.8 Opinions of Counsel for the Company and the Guaran...39 -iii- 11.1.9 Other................................................39 11.2 Conditions....................................................39 11.2.1 Compliance with Warranties, No Default, etc..........39 11.2.2 Confirmatory Certificate.............................40 SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT..............................40 12.1 Events of Default.............................................40 12.1.1 Non-Payment of the Loans, etc........................40 12.1.2 Non-Payment of Other Debt............................40 12.1.3 Other Material Obligations...........................40 12.1.4 Bankruptcy, Insolvency, etc..........................41 12.1.5 Non-Compliance with Provisions of This Agreement.....41 12.1.6 Warranties...........................................41 12.1.7 Pension Plans........................................41 12.1.8 Judgments............................................42 12.1.9 Invalidity of Intercompany Guaranty, etc.............42 12.1.10 Invalidity of Collateral Documents, etc.............42 12.1.11 Change in Control...................................42 12.2 Effect of Event of Default....................................42 SECTION 13 THE AGENT.......................................................43 13.1 Appointment and Authorization.................................43 13.2 Delegation of Duties..........................................43 13.3 Liability of Agent............................................43 13.4 Reliance by Agent.............................................44 13.5 Notice of Default.............................................44 13.6 Credit Decision...............................................44 13.7 Indemnification...............................................45 13.8 Agent in Individual Capacity..................................46 13.9 Successor Agent; Assignment of Agency.........................46 13.10 Withholding Tax..............................................47 13.11 Collateral Matters...........................................48 13.12 Co-Agents. None o...........................................48 SECTION 14 GENERAL.........................................................48 14.1 Waiver; Amendments............................................48 14.2 Confirmations.................................................49 14.3 Notices.......................................................49 14.4 Computations..................................................49 14.5 Regulation U..................................................50 14.6 Costs, Expenses and Taxes.....................................50 14.7 Subsidiary References.........................................50 14.8 Captions......................................................50 14.9 Assignments; Participations...................................50 -iv- 14.9.1 Assignments..........................................50 14.9.2 Participations.......................................52 14.10 Governing Law................................................52 14.11 Counterparts.................................................52 14.12 Successors and Assigns.......................................53 14.13 Indemnification by the Company...............................53 14.14 Forum Selection and Consent to Jurisdiction..................53 14.15 Waiver of Jury Trial.........................................54 -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 9.15 Environmental Matters 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 Intercompany Guaranty (Section 1) EXHIBIT D Security Agreement (Section 1) EXHIBIT E 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- AMENDED AND RESTATED CREDIT AGREEMENT ------------------------------------- This AMENDED AND RESTATED CREDIT AGREEMENT, dated as of December 24, 1997 (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. ---- WHEREAS, the Company, various financial institutions and the Agent have entered into a Credit Agreement, dated as of October 8, 1997 (the "Existing -------- Agreement"); - --------- WHEREAS, the parties hereto have agreed to amend and restate the Existing Agreement so as to, among other things, (a) increase the amount of the revolving credit facility to $155,000,000, (b) amend certain covenants and various other provisions of the Existing Agreement and (c) add additional financial institutions to the lender group; and WHEREAS, the parties hereto intend that this Agreement and the documents executed in connection herewith not effect a novation of the obligations of the Company under the Existing Agreement, but merely a restatement and, where applicable, an amendment of the terms governing such obligations; NOW, THEREFORE, in consideration of the mutual agreements contained herein, the Existing Agreement is amended and restated in its entirety, and the parties hereto agree as follows: SECTION 1 DEFINITIONS, ETC. 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, in its capacity as Agent, 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. -2- Code means the Internal Revenue Code of 1986. ---- Collateral Documents means the Company Pledge Agreement, each Subsidiary -------------------- Pledge Agreement, the Security Agreement and any 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 the Company Pledge Agreement dated as of ------------------------ October 20, 1997, between the Company and the Agent, a copy of which is attached hereto as Exhibit E. --------- 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 real estate, where the obligation to make such -3- 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 or upon the application 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 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. ----- 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 -4- 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 --------------- (Reserve Adjusted) 1-Eurocurrency Reserve Percentage Event of Default means any of the events described in Section 12.1. ---------------- ------------ Existing Agreement - see the Recitals. ------------------ -------- 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. -5- Financial Letter of Credit means any Letter of Credit determined by the -------------------------- Agent 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 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). -6- 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. 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. Intercompany Guaranty means the Guaranty dated as of October 20, 1997, --------------------- executed by various Subsidiaries of the Company, a copy of which is attached hereto as Exhibit C. --------- 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 -7- 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. 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). -8- 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 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. Public Offering means the initial public offering of the Company's common --------------- stock as described in the Prospectus dated as of December 18, 1997. 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. --- -9- Security Agreement means the Security Agreement dated as of October 8, ------------------ 1997, among the Company, various Subsidiaries of the Company and the Agent, a copy of which is attached as Exhibit D. --------- 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 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. -10- Termination Date means the earlier to occur of (a) October 8, 2000, or such ---------------- later date to which the Termination 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. 1.2 Other Interpretive Provisions. ----------------------------- (a) Section, Schedule and Exhibit references are to this ------- -------- ------- Agreement unless otherwise specified. (b) (i) The term "including" is not limiting and means "including without limitation." (ii) In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including"; the words "to" and "until" each mean "to but excluding", and the word "through" means "to and including." (c) Unless otherwise expressly provided herein, (i) references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Loan Document, and (ii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such statute or regulation. (d) This Agreement and the other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and shall each be performed in accordance with their terms. (e) This Agreement and the other Loan Documents are the result of negotiations among and have been reviewed by counsel to the Agent, the Company, the Banks and the other parties thereto and are the products of all parties. Accordingly, they shall not be construed against the Agent or the Banks merely because of the Agent's or Banks' involvement in their preparation. -11- 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) $155,000,000, 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. 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, 10:00 A.M., Chicago time, on the proposed date of such borrowing, and (b) in the case of a Eurodollar borrowing, 9:00 A.M., Chicago time, at least two Business Days prior to the proposed date of such -12- 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 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 -13- 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 (a) to notify each Bank upon the issuance of, or any increase in the amount of, any Letter of Credit; and (b) upon request of any 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 disbursement shall bear interest from the date of such payment or disbursement to 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 -14- 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 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 the date such amount was to have been delivered to the Agent to 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. 2.3.6 Repayment of Participations. Upon (and only upon) receipt by the --------------------------- Agent for the account of BofA of immediately available funds from the Company (a) in reimbursement of any payment made by BofA under a Letter of Credit with respect to which a Bank has paid the Agent for the account of BofA the amount of such Bank's participation therein or (b) in payment of any interest thereon, the Agent will pay to such Bank its pro rata share (according to its Percentage) thereof (and BofA shall receive the amount otherwise payable to any Bank which did not so pay the Agent the amount of such Bank's participation in the applicable Letter of Credit). 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 (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). -15- 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 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 Floating Rate Loan, in the related notice of borrowing or conversion pursuant to Section 2.2.2 or ------------- 2.2.3, or ----- -16- (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 (which shall promptly notify each Bank) 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 the Effective Date to 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 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. -17- 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 the date of the issuance of each Letter of Credit to 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 the excess (if any) of such Bank's Percentage of the Commitment Amount over such Bank's "Percentage" of the "Commitment Amount" under the Existing Agreement. 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 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 -18- 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 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 -19- 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, but excluding any payment pursuant to Section 8.7 or 14.9) 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 (but without interest). 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 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. -20- 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 or any State thereof 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. The obligations of the Company under this Section 7.6 (i) are subject to ----------- the limitations set out in Section 14.9.1 and (ii) shall survive repayment of -------------- the Loans, cancellation of the Notes, cancellation or expiration of the Letters of Credit and any termination of the Agreement. SECTION 8 INCREASED COSTS; SPECIAL PROVISIONS FOR EURODOLLAR LOANS. 8.1 Increased Costs. --------------- (a) If, after the date hereof, the adoption of or any change in any applicable law, rule or regulation, 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 --------- -21- 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 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 or any change in any applicable law, rule or regulation regarding capital adequacy, 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 -22- (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; 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, convert, continue or prepay any Loan on a date specified therefor in a notice of borrowing, conversion, continuation or prepayment pursuant to this Agreement. For this purpose, all notices to the Agent pursuant to this Agreement shall be deemed to be irrevocable. -23- 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 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 -24- 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 each of 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 and obtaining of letters of credit 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 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. -25- 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). --------------- ------ (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 -26- 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 such Multiemployer Pension 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 Multiemployer Pension Plan, received notice of any claim or demand for withdrawal liability or partial withdrawal liability from any Multiemployer Pension Plan, and no condition has occurred which, if continued, might result in a withdrawal or partial withdrawal from any Multiemployer Pension 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 Multiemployer Pension Plan is or has been funded at a rate less than that required under Section 412 of the Code, that any Multiemployer Pension Plan is or may be terminated, or that any Multiemployer Pension Plan is or may become insolvent. 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. 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. 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 -27- 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 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) -28- 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 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; -29- (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 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 granted under any Collateral Document, or the Banks' rights with respect to any such 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. 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 -30- 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 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). -31- 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 at any ---- time the applicable ratio set forth below during any period set forth below: SENIOR DEBT TO FUNDED DEBT FISCAL -------------------------- 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 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. -32- 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 $5,000,000; (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 the -------- aggregate amount of all such Debt at any time outstanding shall not exceed $12,500,000; (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 $10,000,000; (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 -33- possible amount of which exceeds $10,000,000 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; (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 for the benefit of the Banks arising under the Loan Documents. -34- 10.9 Operating Leases. Not, and not permit any Subsidiary to, be party ---------------- to Operating Leases requiring rental payments in excess of $12,000,000 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 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 and 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. -35- 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, and the Letters of --------------- Credit, 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. 10.14 Further Assurances. Take, and cause each Subsidiary to take, such ------------------ actions as are necessary or 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. Conduct, and 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. -36- 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, or the obtaining of any Letter of Credit, 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 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 Equivalent Investment" 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. -37- 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 Effectiveness. This Agreement shall become effective, and all ------------- outstanding loans made and letters of credit issued under the Existing Agreement shall be deemed to have been made and issued (respectively) hereunder, on the date (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 net cash proceeds of not less than $100,000,000 from the Public Offering 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 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 as of the Effective Date. 11.1.6 Security Agreement. The Security Agreement executed by the Company ------------------ and each Subsidiary as of the Effective Date, together with evidence, satisfactory to the Agent, that all -38- filings necessary to perfect the Agent's Lien (for the benefit of the Banks) 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, ----------- (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 -39- (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. 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 -40- 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 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 or deemed 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 (or are deemed) 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. -41- 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. 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, 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 -42- 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 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. 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 -43- 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 (or, if required, all 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 (or, if required, all 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 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 promptly 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 (or, if required, all 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 -44- 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, 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 (but subject to the proviso to the foregoing sentence), 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 Loans 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 -45- 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. 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. -46- 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 tax under Section 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 grants a participation in all or part of the obligations of the Company to such Bank hereunder, such Bank agrees to undertake sole responsibility for complying with the withholding tax requirements imposed by Sections 1441 and 1442 of the Code. (d) If any Bank is entitled to a reduction in the applicable withholding tax, the Agent may withhold from any interest payment to such Bank an amount -47- 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 asserts a claim that the Agent did not properly withhold tax from amounts paid to or for the account of any Bank (because such Bank failed to notify the Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective) 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) covering 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. ------------- 13.12 Co-Agents. None of the Banks identified on the facing page of this --------- Agreement as a "Co-Agent" shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Banks as such. Without limiting the foregoing, none of the Banks so identified as a "Co-Agent" shall have or be deemed to have any fiduciary relationship with any Bank. Each Bank acknowledges that it has not relied, and will not rely, on any of the Banks so identified in deciding to enter into this Agreement or in taking or not taking action hereunder. 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 any other or further exercise thereof, or the exercise of any other right, power or remedy. No -48- 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 Documents 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 provision 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 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 ---------- -49- 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. In addition, the Company agrees to pay, and to save the Agent and the Banks harmless from all liability for, (a) 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 -50- 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 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 the 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. -51- 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 Bank, the commitments of such Bank hereunder, 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 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 -52- 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. The Company may not assign its rights or obligations hereunder without the prior written consent of all Banks. 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 and exonerate the Agent, each Bank and each of the officers, directors, employees, Affiliates and agents of the Agent and each Bank (each a "Bank Party") against, and hold each Bank Party ---------- free and harmless from, 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 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 -53- 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. -54- 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 SAVING ASSOCIATION, as a Bank By ---------------------------------------- Title ------------------------------------- THE BANK OF NEW YORK By ---------------------------------------- Title ------------------------------------- CREDIT LYONNAIS By ---------------------------------------- Title ------------------------------------- -55- FIRST NATIONAL BANK OF MARYLAND By ---------------------------------------- Title ------------------------------------- SUMMIT BANK By ---------------------------------------- Title ------------------------------------- NATIONAL CITY BANK By ---------------------------------------- Title ------------------------------------- BANKBOSTON, N.A. By ---------------------------------------- Title ------------------------------------- COMERICA BANK By ---------------------------------------- Title ------------------------------------- DEUTSCHE BANK AG, New York Branch and/or Cayman Islands Branch By ---------------------------------------- Title ------------------------------------- By ---------------------------------------- -56- Title ------------------------------------- FLEET BANK, N.A. By ---------------------------------------- Title ------------------------------------- HARRIS TRUST AND SAVINGS BANK By ---------------------------------------- Title ------------------------------------- LASALLE NATIONAL BANK By ---------------------------------------- Title ------------------------------------- -57- ANNEX I Portion of Bank Commitment Amount Percentage - ------------------------------------------------------------------- Bank of America National $ 30,000,000 19.354838710% Trust and Savings Association - ------------------------------------------------------------------- BankBoston, N.A. $ 15,000,000 9.677419355% - ------------------------------------------------------------------- Comerica Bank $ 15,000,000 9.677419355% - ------------------------------------------------------------------- Deutsche Bank AG $ 15,000,000 9.677419355% - ------------------------------------------------------------------- The Bank of New York $ 10,000,000 6.451612903% - ------------------------------------------------------------------- Credit Lyonnais $ 10,000,000 6.451612903% - ------------------------------------------------------------------- First National Bank of Maryland $ 10,000,000 6.451612903% - ------------------------------------------------------------------- Summit Bank $ 10,000,000 6.451612903% - ------------------------------------------------------------------- National City Bank $ 10,000,000 6.451612903% - ------------------------------------------------------------------- Fleet Bank, N.A. $ 10,000,000 6.451612903% - ------------------------------------------------------------------- Harris Trust and Savings Bank $ 10,000,000 6.451612903% - ------------------------------------------------------------------- LaSalle National Bank $ 10,000,000 6.451612903% - ------------------------------------------------------------------- ___________ ___ - ------------------------------------------------------------------- TOTALS $155,000,000 100% - ------------------------------------------------------------------- -58- 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 III LEVEL IV LEVEL 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 Fee 1.250% 1.125% 1.000% 0.875% 0.750% - --------------------------------------------------------------------------- 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 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) 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. -59- EX-10.(T) 3 PURCHASE AGREEMENT DATED JAN 22, 1998 EXHIBIT 10(t) ================================================================================ PURCHASE AGREEMENT among UNITED RENTALS, INC., UNITED RENTALS OF CANADA, INC., ACCESS RENTALS, INC., REINHART LEASING, LLC and THE STOCKHOLDERS OF ACCESS RENTALS, INC. Dated as of January 22, 1998 ================================================================================ TABLE OF CONTENTS ARTICLE I SALE AND PURCHASE..................................................... 1 1.1 Sale and Purchase of the Subsidiary Shares.................. 1 1.2 Sale and Purchase of Shares................................. 2 1.3 Sale and Purchase of Assets................................. 2 1.4 Assumed Obligations; Retained Liabilities................... 2 ARTICLE II PURCHASE CONSIDERATION................................................ 2 2.1 Amount of Purchase Price.................................... 2 2.2 Adjustments to the Purchase Price........................... 3 2.3 Escrow...................................................... 6 2.4 Collection of Receivables................................... 7 ARTICLE III CLOSING............................................................... 7 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLERS 8 4.1 Organization and Good Standing.............................. 8 4.2 Authorization of Agreement.................................. 8 4.3 Capitalization.............................................. 9 4.4 Subsidiaries................................................ 9 4.5 Corporate Records........................................... 9 4.6 Conflicts; Consents......................................... 10 4.7 Ownership and Transfer of Shares............................ 10 4.8 Financial Statements........................................ 10 4.9 No Undisclosed Liabilities.................................. 11 4.10 Absence of Certain Developments............................. 11 4.11 Taxes 13 4.12 Real Property............................................... 15 4.13 Tangible Property; Assets................................... 16 4.14 Intangible Property......................................... 16 4.15 Material Contracts.......................................... 17 4.16 Employee Benefits........................................... 18 4.17 Labor; Personnel............................................ 20 4.18 Litigation.................................................. 20 4.19 Compliance with Laws; Permits............................... 21 4.20 Environmental Matters....................................... 21 4.21 Insurance................................................... 22 4.22 Related Party Transactions.................................. 22 i 4.23 Banks....................................................... 23 4.24 Product Quality, Warranty Claims, Product Liability......... 23 4.25 Investment Intention........................................ 23 4.26 No Misrepresentation........................................ 24 4.27 Brokers; Finders............................................ 24 ARTICLE V REPRESENTATIONS AND WARRANTIES OF URI 24 5.1 Organization and Good Standing.............................. 24 5.2 Authorization of Agreement.................................. 24 5.3 Conflicts; Consents of Third Parties........................ 25 5.4 Litigation.................................................. 25 5.5 Investment Intention........................................ 25 5.6 Stock Consideration......................................... 25 5.7 Brokers; Finders............................................ 25 ARTICLE VI COVENANTS............................................................. 26 6.1 Access to Information....................................... 26 6.2 Publicity; Non-disclosure................................... 26 6.3 Use of Name................................................. 26 6.4 Records..................................................... 27 6.5 Senior Managers; Bonuses.................................... 27 6.6 Release of Guarantees....................................... 27 ARTICLE VII CLOSING DELIVERIES.................................................... 27 7.1 Closing Deliveries of ARI................................... 27 7.2 Closing Deliveries of URI Sub............................... 28 7.3 Closing Deliveries of the Sellers........................... 28 7.4 Closing Deliveries of URI................................... 29 ARTICLE VIII INDEMNIFICATION; TAX MATTERS.......................................... 30 8.1 Indemnification............................................. 30 8.2 Survival of Representations and Warranties.................. 31 8.3 Limitations on Indemnification.............................. 31 8.4 Non-Tax Indemnification Procedures.......................... 32 8.5 Right of Set-Off............................................ 34 8.6 Tax Indemnification and Related Matters..................... 34 8.7 Tax Treatment of Indemnity Payments......................... 37 ARTICLE IX MISCELLANEOUS......................................................... 37 ii 9.1 Rules of Construction; Certain Definitions.................. 37 9.2 Payment of Sales, Use, Transfer or Similar Taxes............ 42 9.3 Bulk Sales Laws............................................. 42 9.4 Expenses.................................................... 42 9.5 Specific Performance........................................ 42 9.6 Further Assurances.......................................... 43 9.7 Entire Agreement; Amendments and Waivers.................... 43 9.8 Governing Law............................................... 43 9.9 Section Headings............................................ 43 9.10 Notices..................................................... 43 9.11 Severability................................................ 44 9.12 Binding Effect; Assignment.................................. 44 9.13 No Third Party Beneficiaries................................ 45 9.14 Sellers' Representative..................................... 45 iii PURCHASE AGREEMENT ------------------ PURCHASE AGREEMENT, dated as of January 22, 1998 (this "Agreement"), among United Rentals, Inc., a Delaware corporation ("URI"), United Rentals of Canada, Inc., an Ontario, Canada corporation and wholly-owned subsidiary of URI ("URI Sub"), Access Rentals, Inc., a New York corporation ("ARI"), Reinhart Leasing, LLC, a New York limited liability company ("Reinhart Leasing"), and the stockholders of ARI executing a signature page hereto (the "Stockholders" and, together with Reinhart Leasing, the "Sellers"). W I T N E S S E T H: ------------------- WHEREAS, ARI, its wholly-owned subsidiary Access Lift Equipment Inc., a Canadian corporation (the "Subsidiary"), and its affiliate, Reinhart Leasing, are engaged in the equipment rental business; WHEREAS, the Stockholders own an aggregate of 100 shares of Class A Voting Common Stock, par value $1.00 per share, of ARI, and 9,900 shares of Class B Nonvoting Common Stock, par value $1.00 per share, of ARI (such 10,000 shares of common stock of ARI are hereinafter collectively referred to as the "Shares"), constituting all of the issued and outstanding shares of capital stock of ARI; WHEREAS, ARI desires to sell to URI Sub, and URI Sub desires to purchase from ARI, all of the issued and outstanding shares of capital stock of the Subsidiary (the "Subsidiary Shares"), for the purchase price and upon the terms and conditions hereinafter set forth; WHEREAS, the Stockholders desire to sell to URI, and URI desires to purchase from the Stockholders, all of the Shares, and Reinhart Leasing desires to sell to URI, and URI desires to purchase from Reinhart Leasing, the Assets of Reinhart Leasing, in each case, 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. 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 1.1 Sale and Purchase of the Subsidiary Shares. At the Closing (as ------------------------------------------ hereinafter defined), upon the terms and subject to the conditions contained herein, ARI shall sell, assign, transfer, convey and deliver to URI Sub, free and clear of all Liens, and URI Sub shall purchase from ARI, all of the Subsidiary Shares. 1.2 Sale and Purchase of Shares. At the Closing, immediately following the --------------------------- sale and purchase of the Subsidiary Shares pursuant to Section 1.1 and upon the terms and subject to the conditions contained herein, the Stockholders shall sell, assign, transfer, convey and deliver to URI, free and clear of all Liens, and URI shall purchase from the Stockholders, all of the Shares. 1.3 Sale and Purchase of Assets. At the Closing, immediately following the --------------------------- sale and purchase of the Subsidiary Shares pursuant to Section 1.1 and upon the terms and subject to the conditions contained herein, Reinhart Leasing shall sell, assign, transfer, convey and deliver to URI, free and clear of all Liens, and URI shall purchase from Reinhart Leasing, all of Reinhart Leasing's right, title and interest in and to the Assets, such sale and transfer to be evidenced by a Bill of Sale substantially in the form of Exhibit A hereto (the "Bill of --------- Sale") and by such other instruments of transfer and assignment as URI may from time to time reasonably request in order to evidence and more formally vest in URI, as of the Closing, title to the Assets which are owned, and a valid and assignable leasehold or other contractual interest in the Assets which are leased or otherwise held under Contract, by Reinhart Leasing. 1.4 Assumed Obligations; Retained Liabilities. From and after the Closing, ----------------------------------------- and prorated from and as of the Closing Date, URI shall assume, perform and discharge the obligations and liabilities of Reinhart Leasing under the equipment lease with KeyCorp Leasing Ltd. dated August 5, 1994 with ARI and Equipment Schedule #1 thereto dated June 28, 1996 with Reinhart Leasing (lease #11074) (collectively, the "Assumed Obligations") pursuant to an Assumption Agreement substantially in the form of Exhibit B hereto (the "Assumption --------- Agreement"); provided that URI shall have received all necessary consents with -------- respect to the assignment thereof to URI. No other liabilities or obligations of Reinhart Leasing are expressly or by implication being assumed by URI under this Agreement. Without limiting the generality of the preceding sentence, Reinhart Leasing shall retain and remain responsible for all Retained Liabilities. ARTICLE II PURCHASE CONSIDERATION 2.1 Amount of Purchase Price. ------------------------ (a) Subsidiary Shares. The aggregate purchase price for the Subsidiary ----------------- Shares shall be $1,000,000, payable in cash. (b) Shares and Assets. The aggregate purchase price for the Shares, ----------------- the Assets and the Non-Competition Agreements shall be (i) $86,507,600, which amount shall 2 be (x) decreased by the amount of the Closing Date Debt (as defined in Section 2.2(a)) and (y) subject to further adjustment pursuant to the provisions of Section 2.2 (as so adjusted, the "Purchase Price") plus (ii) a warrant issued substantially the form of Exhibit C hereto (the "Warrant") to purchase an --------- aggregate of 30,000 shares of URI Common Stock. The Purchase Price shall be payable as follows: (A) $79,907,600 shall be paid in cash (the "Cash Component") and allocated among the Sellers in accordance with Schedule 2.1(b)(A), of which aggregate amount $5,500,000 (the "Escrow Amount") will be deposited in escrow as described in Section 2.3, and (B) URI shall issue (I) an aggregate of 347,369 shares of URI Common Stock (the "Stock Component") to the Sellers, allocated as set forth on Schedule 2.1(b)(A), and (II) the Warrant (c) Purchase Price Allocation. The Purchase Price and the Warrant ------------------------- shall be allocated among the Shares, the Assets and the Non-Competition Agreements in accordance with Exhibit D hereto. Subject to the requirements of --------- any applicable Tax law, all Tax Returns and reports filed by URI and the Sellers shall be prepared consistently with such allocation. In the event any purchase price adjustments are made hereunder, the parties hereto agree to adjust such allocation to reflect such purchase price adjustment and to file consistently any Tax Returns and reports required as a result of such purchase price adjustment. 2.2 Adjustments to the Purchase Price. The Purchase Price was or shall be --------------------------------- adjusted as follows: (a) Closing Date Debt. The "Closing Date Debt" shall be as set forth on Schedule 2.2(a) and shall include (i) the amount of the aggregate debt (excluding trade payables) of ARI and the Subsidiary, and of Reinhart Leasing to the extent such debt constitutes an Assumed Obligation, outstanding on the close of business on January 21, 1998 (the "Accounting Date") to be repaid by URI at or immediately after the Closing and all prepayment penalties incurred or to be incurred by URI and URI Sub in connection with the repayment of any such debt; (ii) the amount of the aggregate debt (excluding trade payables) of ARI and the Subsidiary, and of Reinhart Leasing to the extent such debt constitutes an Assumed Obligation, outstanding on the Accounting Date which will remain outstanding obligations of ARI, the Subsidiary or URI after the Closing Date, including in each case all interest thereon accrued through and including the Accounting Date; and (iii) the aggregate amount of the present value of all capitalized lease obligations (determined in accordance with GAAP) of ARI and the Subsidiary, and of Reinhart Leasing to the extent such obligations constitute Assumed Obligations. Schedule 2.2(a) includes wire transfer instructions for creditors whose Closing Date Debt will be repaid by URI, and attached to Schedule 2.2(a) are pay-off letters or instructions from such creditors. (b) Equipment Adjustment. The Rental Asset Listings attached as Schedule 2.2(b)(i) set forth the asset description, make, model, original cost and net book value of all rental equipment and inventory held for rent to customers and related transportation equipment (collectively, the "Equipment") of ARI, the Subsidiary and Reinhart Leasing 3 (A) as of March 31, 1997 (the "3/31/97 RAL"), and (B) as of the Accounting Date, which Accounting Date RAL identifies and reflects all purchases and sales of Equipment by the Company, the Subsidiary and Reinhart Leasing since March 31, 1997 (the "Closing Date RAL"), in each case, as used in the preparation of the Balance Sheets (as defined in Section 4.8). The Equipment reflected on the Closing Date RAL is Rental Ready (as defined below). The Purchase Price shall be (i) reduced for each item of Equipment listed on the 3/31/97 RAL which is missing (or non-existing), not Rental Ready, has been sold or is otherwise not available for rent to customers, and (ii) increased by the cost of each item of Equipment (including freight charges) not listed on the 3/31/97 RAL that was purchased between March 31, 1997 and the Closing Date, excluding approximately $600,000 of purchases of additional equipment for the Rent-It location consisting of six Genie S-60 units, four Z-45/22 units and one JL600S unit (collectively, the "Equipment Adjustment"). An estimated Equipment Adjustment shall be made on the Closing Date based on a comparison of the 3/31/RAL and the Closing Date RAL (the "Closing Date Equipment Adjustment"). Within 45 days following the Closing Date, URI shall complete a physical inventory of each item of Equipment on the Closing Date RAL, including by visiting renters' locations as necessary to inspect such Equipment, and the Purchase Price shall be further decreased or increased, if and as necessary, based on the Equipment Adjustment resulting from the findings of URI's physical inventory (the "Post Closing Equipment Adjustment"). The reduction in the Purchase Price described in clause (i) of the definition of "Equipment Adjustment" above shall be calculated by the aggregate fair market value (as determined by URI and the Representative) of all missing or unavailable Equipment and at the lesser of (x) the repair cost and (y) the replacement cost for all non-Rental Ready Equipment, but the Purchase Price shall only be reduced by the extent that the aggregate fair market value (determined as aforesaid) of all such missing, sold or unavailable Equipment, plus the repair/replacement costs of all such non Rental Ready Equipment, exceeds $25,000. In the event of a Purchase Price reduction due to a Post Closing Equipment Adjustment, the Sellers shall pay URI the amount of such adjustment and URI shall be entitled to be paid out of the Escrow Amount, and URI and the Sellers shall give instructions to the Escrow Agent to pay, an amount equal to such adjustment within five Business Days of completion of the determination of the Equipment Adjustment. In the event of a Purchase Price increase due to a Post Closing Equipment Adjustment, URI shall pay the Representative the amount of such adjustment, net of any reductions to the Purchase Price as a result of any provision of this Article II, not less than 120 but not more than 150 days following the Closing Date. For purposes of this Agreement, an item of Equipment is "Rental Ready" only if all required maintenance (other than routine maintenance) has been performed and it does not require any repairs that would cost in excess of $750 per item. The parties agree that the items of Equipment listed in Schedule 2.2(b)(ii) shall not give rise to an Equipment Adjustment solely by reason of their failure to be Rental Ready. 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 within 15 days shall be resolved by an independent third party mutually acceptable to URI and the Representative or, if URI and the Representative cannot agree 4 on the designation of such independent third party within five Business Days, by the Independent Firm, whose determination shall be final, binding and conclusive on the parties hereto. Unless otherwise agreed to by URI in writing, operating leases entered into by ARI, the Subsidiary or Reinhart Leasing shall not cause an adjustment to the Purchase Price pursuant to an Equipment Adjustment. (c) [Intentionally Omitted]. (d) Net Current Position Adjustment. Schedule 2.2(d) sets forth the estimated consolidated Net Current Position (as hereinafter defined) of ARI, the Subsidiary and Reinhart Leasing at the Accounting Date (the "Projected Net Current Position"), which Schedule the Sellers represent and warrant to URI has been prepared on a basis consistent with the Balance Sheets, subject to the adjustments detailed on such Schedule. The Purchase Price shall be increased by the amount shown as a positive balance on Schedule 2.2(d), or decreased by the amount shown as a negative balance on Schedule 2.2(d). Promptly following the Closing Date (but in any event no later than 90 days after the Closing Date), URI shall prepare (on a basis consistent with the preparation of Schedule 2.2(d)) and deliver to the Representative a schedule showing the actual consolidated Net Current Position of ARI and the Subsidiary at the Accounting Date and after giving effect to the contribution and assignment by URI to ARI immediately following the Closing of the Assets and the Assumed Liabilities (the "Closing Net Current Position"). If the Sellers agree 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 Sellers within 15 days after their receipt of such schedule specifying any objections they may have (an "Objection Notice"), the Sellers and URI shall attempt to reconcile such items as are in dispute. If the Sellers and URI are unable to reconcile all such items within 15 days after the date on which the Objection Notice is given, then such items as remain in dispute shall be resolved by an independent third party mutually acceptable to URI and the Sellers or, if the parties cannot agree on the designation of such independent third party within five Business Days, by the Independent Firm, whose determination shall be final, binding and conclusive on the parties hereto. If the Closing Net Current Position is greater than the Projected Net Current Position, then URI shall pay to the Sellers the amount of such excess. If the Closing Net Current Position is less than the Projected Net Current Position, the amount of such shortfall shall be deducted from the Purchase Price by payment from the Escrow Amount or, if such amount is insufficient, the Sellers shall pay to URI the amount of such shortfall. As used in this Agreement, the term "Net Current Position" means, with respect to any Person, the difference between the (A) aggregate current assets (including cash and cash equivalents (including, in the case of ARI, the cash received on the Accounting Date in consideration of the sale of Subsidiary Shares to URI Sub pursuant to Section 1.1 hereof)), advances, unearned premiums, notes receivable, prepaid expenses and deposits, the fair market value of merchandise inventory (but not parts) held for 5 resale, manufacturers' credits for warranty work performed prior to the Accounting Date, 68% of the Alternative Minimum Tax credit of such Person as of the Accounting Date, 90% of the net operating loss carryforward of the Subsidiary as of the Accounting Date for Canadian federal and Ontario provincial Tax purposes and, with respect to operating leases of equipment for which such Person is a lessee, the net reduction in the amortizable principal balance from the original purchase price to the lessee for such equipment as set forth in the lease, which net reductions are identified and individually quantified on Schedule 2.2(d), but excluding accounts receivable, and (B) aggregate current liabilities (excluding the current portion of long-term debt) of such Person. (e) The fees and expenses hereunder of the Sellers' accountants and URI's accountants shall be paid by the Sellers and URI, respectively, and those of the independent firms selected pursuant to Section 2.2(b) or 2.2(d) shall be paid one-half by URI and one half by the Sellers. (f) The parties agree that any deferred Tax obligations of ARI, the Subsidiary or Reinhart Leasing, computed in accordance with GAAP, shall not be included in the computation of any Purchase Price adjustment pursuant to the foregoing provisions of this Section 2.2; it being understood that the Sellers shall remain solely responsible for all Tax liabilities of ARI, the Subsidiary and Reinhart Leasing for all periods through and including the Accounting Date. 2.3 Escrow. (a) The Escrow Amount shall be deposited with State Street Bank ------ and Trust Company (the "Escrow Agent") pursuant to, and shall be held, applied and disbursed in accordance with, an escrow agreement substantially in the form of Exhibit E-1 hereto (the "Escrow Agreement"). All interest and dividends ----------- earned on the Escrow Amount during the term of the escrow shall be paid to the parties entitled, pursuant to the provisions hereof, to such Escrow Amount on a pro rata basis in relation to such entitlements. (b) It is acknowledged and agreed that the adjustments made to the Purchase Price on the Closing Date were based on estimates prepared by the Sellers and delivered to URI. To the extent that the aggregate amount of the adjustments pursuant to Section 2.2, as subsequently determined, exceed the Escrow Amount, the Sellers, jointly and severally, shall pay to URI any such deficiency by wire transfer of immediately available funds not later than five Business Days after calculation of such deficiency. Notwithstanding anything in this Article II, URI shall not be limited to the Escrow Amount as a sole remedy in the event that any Purchase Price adjustment exceeds the Escrow Amount. 2.4 Collection of Receivables. On the Closing Date, URI shall deposit ------------------------- $10,000,000 (the "Receivables Escrow Amount") with the Escrow Agent pursuant to an escrow agreement substantially in the form of Exhibit E-2 hereto (the ----------- "Receivables 6 Escrow Agreement"). The Sellers represent and warrant that all of the accounts receivable (including earned but not yet billed receivables) of ARI and the Subsidiary existing as of the Closing Date (the "Receivables") have arisen from bona fide transactions in the ordinary course of business consistent with past practice, are good and valid, and will be collectable by ARI, URI Sub and URI at the aggregate recorded amounts thereof not later than 120 days after the Closing Date. URI shall instruct the Escrow Agent to pay to the Representative, on a weekly basis, out of the Receivables Escrow Amount an amount equal to the amount of Receivables collected by ARI and the Subsidiary between the Closing Date and the date that is 120 days following the Closing Date and, to the extent the Receivables Escrow Amount is insufficient to cover such payments, URI shall cause ARI and/or the Subsidiary to pay the Representative the amount of such shortfall upon completion of such 120 day period. On the 120th day following the Closing Date, URI shall provide to the Representative a reconciliation of the outstanding uncollected Receivables as of such date. The parties will agree to such reconciliation and to the extent any Receivables existing on the Closing Date remain outstanding following such 120 day period, URI shall be entitled to be paid, and the parties hereto shall give instructions to the Escrow Agent to pay, out of the Receivables Escrow Amount an amount (on a dollar-for-dollar basis) equal to the Receivables remaining unpaid at such time (provided that no additional payment is due to URI from ARI or Subsidiary if the Receivables remaining unpaid at such time shall exceed the remaining Receivables Escrow Amount). Upon receipt of such payment in respect of unpaid Receivables, URI shall assign such unpaid Receivables to the Representative. For a period of 120 days following the Closing Date, URI and URI Sub shall cause ARI and the Subsidiary to take all reasonable commercial action, consistent with past practice, to collect the Receivables and, upon any assignment to the Representative of any uncollected Receivables pursuant to the preceding sentence, URI and URI Sub shall cause ARI and the Subsidiary to continue to use reasonable commercial efforts, at the Representative's cost and expense (including a reasonable allocation of the cost of ARI and Subsidiary personnel), to collect the Receivables on behalf of the Representative for a period to end not later than the first anniversary of the Closing Date. Unless otherwise specified by the customer (in any remittance or otherwise) (i) collected Receivables will be applied against invoices on a "FIFO" basis and (ii) remittances from a customer received by ARI in respect of receivables that arose after the Closing Date shall be first applied against the Receivables of such customer, if any. All interest and dividends earned on the Receivables Escrow Amount during the term of the escrow shall be paid to the party entitled, pursuant to the provisions hereof, to such Receivables Escrow Amount on a pro rata basis in relation to such entitlement. ARTICLE III CLOSING The closing of the sale and purchase of the Subsidiary Shares, the Shares and the Assets provided for in Article I hereof (the "Closing") took place concurrently with the 7 execution and delivery of this Agreement at 10:00 a.m., New York City time, at the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153, on January 22, 1998 (the "Closing Date"), at which Closing the parties also executed and delivered the items described in Article VII hereof. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLERS The Sellers hereby jointly and severally represent and warrant to URI and URI Sub that as of the close of business on the Accounting Date: 4.1 Organization and Good Standing. ARI is a corporation duly organized, ------------------------------ validly existing and in good standing under the laws of the State of New York and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now conducted. Reinhart Leasing is a limited liability company duly organized, validly existing and in good standing under the laws of the State of New York and has all requisite limited liability company power and authority to own, lease and operate its properties and to carry on its business as now conducted. Each of ARI, the Subsidiary and Reinhart Leasing is duly qualified and authorized to do business as a foreign corporation in each jurisdiction listed on Schedule 4.1, which listed jurisdictions are (except as set forth on such Schedule) the only jurisdictions where the nature of their respective businesses or operations, or their respective ownership or leasing of property, requires such qualification or authorization (other than any jurisdiction where the failure to be so qualified or authorized would not result in a Material Adverse Change). 4.2 Authorization of Agreement. ARI and Each Seller has all requisite -------------------------- (corporate, limited liability company, partnership, trust or otherwise) power, authority and legal capacity to execute and deliver this Agreement and each other Seller Document to which such Person is a party, and to consummate the transactions contemplated hereby and thereby. This Agreement and the other Seller Documents have been duly authorized by all requisite action (corporate, limited liability company, partnership, trust or otherwise) on the part of ARI and the Sellers. This Agreement and each of the other Seller Documents have been duly and validly executed and delivered by ARI and each Seller party thereto and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement and each of the other Seller Documents constitutes legal, valid and binding obligations of ARI and each Seller party thereto, 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). 8 4.3 Capitalization. The authorized capital stock of ARI consists of 100 -------------- shares of Class A Voting Common Stock, par value $1.00 per share ("Class A Stock"), and 10,000 shares of Class B Nonvoting Common Stock, par value $1.00 per share ("Class B Stock"), of which, as of the date hereof, there are 100 shares of Class A Stock issued and outstanding and 9,900 shares of Class B Stock issued and outstanding. All of the issued and outstanding shares of capital stock of ARI were duly authorized for issuance, are validly issued, fully paid and non-assessable, and have not been issued in violation of any preemptive or similar rights of any Person. The Shares being acquired by URI hereunder constitute all of the outstanding shares of capital stock of ARI. There is no existing option, warrant, call, right, commitment or other agreement of any character to which any Stockholder or ARI is a party requiring, and there are no securities of ARI 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 ARI 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 ARI. There are no voting trust or other agreements with respect to any shares of capital stock of ARI or any agreements relating to the issuance, sale, redemption, transfer or other disposition of the capital stock of ARI. 4.4 Subsidiaries. The Subsidiary is the only Person in or of which ARI owns ------------ any stock, limited liability company membership, partnership or other equity interest. The Subsidiary does not own any stock, limited liability company membership, partnership or other equity interest in any Person. The authorized capital stock of the Subsidiary is unlimited. As of the date hereof, there are 1,500 issued and outstanding shares of the Subsidiary's capital stock, all of which shares are validly issued, fully paid and non-assessable and are owned beneficially and of record by ARI, free and clear of any and all Liens. No shares of capital stock are held by the Subsidiary as treasury stock. There is no existing option, warrant, call, commitment or agreement to which the Subsidiary is a party requiring, and there are no convertible or exchangeable securities of the Subsidiary outstanding which upon conversion or exchange would require, the issuance of any additional shares of capital stock or other equity interests of the Subsidiary or other securities convertible into or exchangeable for shares of capital stock or other equity interests of the Subsidiary or other equity security of the Subsidiary. The Subsidiary has all requisite corporate power and authority to own its properties and carry on its business as presently conducted. ARI has the power and authority to sell, transfer, assign and deliver the Subsidiary Shares to URI Sub as provided in this Agreement, and such delivery will convey to URI Sub good and marketable title to the Subsidiary Shares, free and clear of any and all Liens. 4.5 Corporate Records. The Stockholders have delivered to URI true, correct ----------------- and complete copies of the certificate of incorporation of ARI and the Subsidiary, certified by the Secretary of State of their respective jurisdictions of incorporation, and the by-laws of ARI and the Subsidiary, each certified by their respective corporate secretaries. The minute books of ARI and the Subsidiary made available to URI contain complete and 9 accurate records in all material respects of all meetings and accurately reflect all other corporate action of the stockholders and board of directors (including committees thereof) of ARI and the Subsidiary. The stock certificate books and stock transfer ledgers of ARI and the Subsidiary delivered to URI are true, correct and complete. All stock transfer taxes levied or payable with respect to all transfers of shares of ARI and the Subsidiary prior to the date hereof have been paid and appropriate transfer tax stamps affixed. 4.6 Conflicts; Consents. None of the execution, delivery or performance by ------------------- the Sellers of this Agreement and the other Seller Documents, the consummation of the transactions contemplated hereby or thereby, or compliance by the Sellers with any of the provisions hereof or thereof will (a) conflict with, or result in the breach of, any provision of the certificate of incorporation, by-laws or comparable organizational documents of ARI or the Subsidiary, the certificate of formation, limited liability company agreement or comparable organizational or governing documents of Reinhart Leasing, or the trust documents of any Stockholder; (b) except as set forth on Schedule 4.6, with notice, lapse of time or both, conflict with, violate, result in the breach or termination of, constitute a default or give rise to the right to accelerate the rights or obligations of any Person under any note, bond, mortgage, indenture, license, agreement, lease or other instrument or obligation to which any Seller, ARI or the Subsidiary is a party or by which any of them or any of their respective properties or assets is bound; (c) violate any statute, rule, regulation, order or decree of any Governmental Body by which any Seller, ARI or the Subsidiary is bound; or (d) result in the creation of any Lien upon the properties or assets of any Seller, ARI or the Subsidiary. Except as set forth on Schedule 4.6 hereto, and except for any required filings under the HSR Act, no consent, waiver, approval, Order, Permit or authorization of, declaration or filing with, or notification to, any Person or Governmental Body is required on the part of any Seller, ARI or the Subsidiary (pursuant to any Law, Material Contract (as defined in Section 4.15) or otherwise) in connection with the execution and delivery of this Agreement or the other Seller Documents, consummation of the transactions contemplated hereby or thereby or the compliance by the Sellers with any of the provisions hereof or thereof. 4.7 Ownership and Transfer of Shares. Schedule 4.7 sets forth the ownership -------------------------------- of the outstanding Shares by the Stockholders. Each Stockholder is the record and beneficial owner of all of the Shares indicated on Schedule 4.7 as being owned by such Stockholder, free and clear of any and all Liens. Each Stockholder has the power and authority to sell, transfer, assign and deliver the Shares to URI as provided in this Agreement, and such delivery will convey to URI good and marketable title to the Shares, free and clear of any and all Liens. 4.8 Financial Statements. The Sellers have delivered to URI copies of (a) -------------------- the audited balance sheets of (i) ARI as at September 30, 1995, March 31, 1996 and March 31, 1997, (ii) the Subsidiary as at December 31, 1995 and December 31, 1996 and (iii) Reinhart Leasing as at December 31, 1996 and the related audited statements of income and of cash flows of ARI, the Subsidiary and of Reinhart Leasing for the years then 10 ended, respectively, and (b) the unaudited balance sheets of ARI, the Subsidiary and Reinhart Leasing as at December 31, 1997 and the related statement of income of ARI for the 9-month period then ended and the related statement of income of the Subsidiary and Reinhart Leasing for the 12-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 complete and correct in all material respects, has been prepared in accordance with GAAP (subject to normal year-end adjustments in the case of the unaudited statements) and in conformity with the practices consistently applied by ARI, the Subsidiary and Reinhart Leasing, respectively, without modification of the accounting principles used in the preparation thereof and presents fairly the financial position, results of operations and cash flows of ARI, the Subsidiary and Reinhart Leasing, respectively, as at the dates and for the periods indicated. For the purposes hereof, the balance sheets of ARI, the Subsidiary and Reinhart Leasing as at December 31, 1997 are referred to as the "Balance Sheets" and the date December 31, 1997 is referred to as the "Balance Sheet Date." 4.9 No Undisclosed Liabilities; Operating Leases. (a) Except as set forth -------------------------------------------- on Schedule 4.9(a), none of ARI, the Subsidiary or Reinhart Leasing has any indebtedness, obligations or liabilities of any kind (whether accrued, absolute, fixed, 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 Balance Sheets or in the notes thereto in accordance with GAAP which was not fully reflected in, reserved against or otherwise described in the Balance Sheets or the notes thereto or was not incurred in the ordinary course of business consistent with past practice since the Balance Sheet Date. (b) Schedule 4.9(b) sets forth a list of all operating leases to which ARI, the Subsidiary or Reinhart Leasing are a party, and for each such operating lease, Schedule 4.9(b) sets forth the aggregate annual amount of lease and other payments required to be made by the lessee thereunder. 4.10 Absence of Certain Developments. Except as expressly contemplated by ------------------------------- this Agreement or as set forth on Schedule 4.10, since the 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 with respect to the property and assets of ARI, the Subsidiary or Reinhart Leasing having a replacement cost of more than $10,000 for any single loss or $20,000 for all such losses; (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 ARI or any repurchase, redemption or other acquisition of capital stock or other securities of, or other ownership interest in, ARI; 11 (iv) there has not been any award, announcement or payment of bonuses to employees of ARI, the Subsidiary or Reinhart Leasing except to the extent accrued on the Balance Sheets (other than normal and customary year-end bonuses in the ordinary course of business consistent with past practice and that in the aggregate do not represent a material increase in the compensation expense of ARI, the Subsidiary or Reinhart Leasing); none of ARI, the Subsidiary or Reinhart Leasing has entered into any employment, deferred compensation, severance or similar agreement (nor amended any such agreement) or agreed to increase the compensation payable or to become payable by it to any of its directors, officers, employees, agents or representatives or agreed to increase the coverage or benefits available under any severance pay, termination pay, vacation pay, salary continuation for disability, sick leave, deferred compensation, bonus or other incentive compensation, insurance, medical plan, pension or other employee benefit plan, payment or arrangement made to, for or with such directors, officers, employees, agents or representatives (other than 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 ARI, the Subsidiary or Reinhart Leasing); (v) there has not been any change by ARI, the Subsidiary or Reinhart Leasing in accounting or Tax reporting principles, methods or policies; (vi) none of ARI, the Subsidiary or Reinhart Leasing has entered into any transaction or Contract or conducted its business other than in the ordinary course consistent with past practice; (vii) none of ARI, the Subsidiary or Reinhart Leasing has failed to promptly pay and discharge current liabilities except where disputed in good faith by appropriate proceedings; (viii) none of ARI, the Subsidiary or Reinhart Leasing has made any loans, advances or capital contributions to, or investments in, any Person or paid any fees or expenses to any Seller or any Affiliate of ARI or Reinhart Leasing, in each case, except in the ordinary course consistent with past practice; (ix) none of ARI, the Subsidiary or Reinhart Leasing has 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 of its assets, 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) none of ARI, the Subsidiary or Reinhart Leasing has 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 and which, in the aggregate, would not cause a Material Adverse Change; 12 (xi) none of ARI, the Subsidiary or Reinhart Leasing has canceled or com promised any debt or claim or amended, canceled, terminated, relinquished, waived or re leased any Contract or right except in the ordinary course of business consistent with past practice and which, in the aggregate, would not cause a Material Adverse Change; (xii) none of ARI, the Subsidiary or Reinhart Leasing has made or committed to make any capital expenditures or capital additions or betterments in excess of $5,000 individually or $15,000 in the aggregate; (xiii) none of ARI, the Subsidiary or Reinhart Leasing has instituted or settled any material Legal Proceeding; and (xiv) none of the Sellers, ARI or any of the Subsidiary has agreed to do anything set forth in this Section 4.10. 4.11 Taxes. (a) Except as set forth on Schedule 4.11(a), (i) all Tax ----- Returns required to be filed by or on behalf of ARI and the Subsidiary 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 Taxes that are due from ARI or the Subsidiary with respect to the periods covered by such Tax Returns have been fully and timely paid, and adequate reserves or accruals for Taxes have been provided in the Balance Sheets with respect to any period for which Tax Returns have not yet been filed or for which Taxes are not yet due and owing. (b) Each of ARI and the Subsidiary 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. (c) URI has received complete copies of (i) all federal, state, local and foreign income or franchise Tax Returns of ARI, the Subsidiary and Reinhart Leasing relating to the last three taxable periods of ARI, the Subsidiary and Reinhart Leasing and (ii) any audit report issued within the last three years (or otherwise with respect to any audit or investigation in progress) relating to Taxes due from or with respect to ARI or the Subsidiary, their respective income, assets or operations. All income and franchise Tax Returns filed by or on behalf of ARI and the Subsidiary for the taxable years ended on the respective dates set forth on Schedule 4.11 have been examined by the relevant taxing authority or the statute of limitations with respect to such Tax Returns has expired. (d) Schedule 4.11(d)(1) lists all material types of Taxes paid and material types of Tax Returns filed by or on behalf of ARI and the Subsidiary. Except as 13 set forth on Schedule 4.11(d)(2), no claim has been made by a taxing authority in a jurisdiction where ARI or the Subsidiary does not file Tax Returns such that it is or may be subject to taxation by that jurisdiction. (e) Except as set forth on Schedule 4.11(e), all deficiencies asserted or assessments made as a result of any examinations by the Internal Revenue Service (the "IRS") or any other taxing authority of the Tax Returns of or covering or including ARI, the Subsidiary and Reinhart Leasing have been fully paid, and there are no other audits or investigations by any taxing authority in progress, nor has any Seller, ARI, the Subsidiary or any member of Reinhart Leasing received any 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 proposed deficiency for any subsequent taxable period. None of ARI, the Subsidiary or Reinhart Leasing is subject to any private letter ruling of the IRS or comparable rulings of other taxing authorities. (f) Except as set forth on Schedule 4.11(f), none of the Sellers, ARI, the Subsidiary, or any other Person on behalf of ARI or Reinhart Leasing 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 ARI or the Subsidiary or has any knowledge that the IRS 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 ARI or the Subsidiary, (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 ARI or the Subsidiary, (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) any power of attorney with respect to any Tax matter currently in force. (g) No property owned by ARI or Reinhart Leasing is (i) 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. (h) There are no Liens as a result of any unpaid Taxes upon any of the assets of ARI, the Subsidiary or Reinhart Leasing. (i) No Seller is a foreign person within the meaning of Section 1445 of the Code. 14 (j) Neither ARI nor the Subsidiary is a party to any tax sharing or similar Contract or arrangement (whether or not written). (k) There is no Contract, plan or arrangement involving ARI and covering any Person that, individually or collectively, could give rise to the payment of any amount that would not be deductible by URI, ARI or their Affiliates by reason of Section 280G of the Code. (l) Except as set forth on Schedule 4.11(l), ARI 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. (m) Except as set forth on Schedule 4.11(m), ARI has never been a member of any consolidated, combined or affiliated group of corporations for any Tax purposes and the Subsidiary has not been a member of any consolidated, combined, affiliated or similar group of corporations for any Tax purposes since December 31, 1989. 4.12 Real Property. (a) ARI, the Subsidiary and Reinhart Leasing own no ------------- real property or interests in real property. Schedule 4.12 sets forth a complete list of all real property and interests in real property leased by ARI, the Subsidiary and Reinhart Leasing, respectively, and used in the operation of their respective businesses (such real properties being referred to herein as the "Company Property" and the leases covering such real properties being referred to herein as the "Real Property Leases"). The Company Property constitutes all interests in real property currently used or currently held for use in connection with the businesses of ARI, the Subsidiary and Reinhart Leasing and which are necessary for the continued operation of the businesses of ARI, the Subsidiary and Reinhart Leasing as such businesses are currently conducted. ARI, the Subsidiary and Reinhart Leasing have valid and enforceable leasehold interests under each of the Real Property Leases to which they are a party with Persons that are Affiliates of any Seller and, to the Sellers' knowledge, under all other Real Property Leases, and none of the Sellers nor ARI has received any notice of any default or event that with notice or lapse of time, or both, would constitute a default by ARI, the Subsidiary or Reinhart Leasing under any of the Real Property Leases. All of the Company Property, buildings, fixtures and improvements thereon owned or leased by ARI, the Subsidiary and Reinhart Leasing are in good operating condition and repair (subject to normal wear and tear), with sufficient access to roads and utilities to operate the businesses of ARI, the Subsidiary and Reinhart Leasing as presently conducted. The Sellers have delivered to URI true, correct and complete copies of the Real Property Leases, together with all amendments, modifications or supplements, if any, thereto. (b) ARI, the Subsidiary and Reinhart Leasing have all material certificates of occupancy and Permits of any Governmental Body necessary or useful for the current use and operation of each Company Property, and ARI, the Subsidiary and Reinhart Leasing have fully complied with all material conditions of the Permits applicable 15 to them. No default or violation, or event that with the lapse of time or giving of notice or both would become a default or violation, has occurred in the due observance of any Permit, except for any default or violation that has not caused and would not cause a Material Adverse Change. (c) There does not exist any actual or, to the best knowledge of the Sellers, threatened or contemplated condemnation or eminent domain proceedings that affect any Company Property or any part thereof, and none of the Sellers nor ARI has received any notice, oral or written, of the intention of any Governmental Body or other Person to take or use all or any part thereof. (d) Except as set forth on Schedule 4.12(d), none of ARI, the Subsidiary or Reinhart Leasing owns or holds, or is 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 any portion thereof or interest therein. 4.13 Tangible Property; Assets. (a) Schedule 2.2(b) sets forth a list, as ------------------------- of the date hereof, of all Equipment owned or leased by ARI, the Subsidiary and Reinhart Leasing for lease or rent to their respective customers. Schedule 4.13 (a) sets forth a list, as of the date hereof, of all items of tangible property (other than Equipment) owned or leased by ARI, the Subsidiary and Reinhart Leasing having a fair market value in excess of $10,000 ("Other Assets"). (b) Except as set forth in Schedule 4.13(b), ARI, the Subsidiary and Reinhart Leasing have good and marketable title to all of their Equipment and Other Assets (except as sold or disposed of subsequent to the date indicated in Section 4.13(a) 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 in a state of good maintenance and repair (ordinary wear and tear excepted) and are suitable for the purposes used. 4.14 Intangible Property. Schedule 4.14 contains a complete and correct ------------------- list of each patent, trademark, trade name, service mark and copyright owned or used by ARI, the Subsidiary or Reinhart Leasing during the past five years, 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 party shown on such Schedule as owning the same, free and clear of all Liens, and is in good standing and not the subject of any challenge. There have been no claims made and neither the Sellers nor ARI have received any 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 ARI, the Subsidiary or Reinhart Leasing is a party or by which it is bound (collectively, the "Material Contracts"): (i) Contracts with any stockholder, member, 16 director, officer or manager of ARI, the Subsidiary or Reinhart Leasing that will not terminate on or prior to the Closing Date without further obligation or liability on the part of any party thereto; (ii) Contracts with any labor union or association representing any employee of ARI, the Subsidiary or Reinhart Leasing; (iii) Contracts for the sale of any assets (other than in the ordinary course of business or as set forth on Schedule 4.10), or for the grant to any Person of any preferential rights to purchase any of its assets or requiring any Person to purchase or sell all or a fixed portion of its requirements or output to or from another Person; (iv) Contracts containing covenants of ARI, the Subsidiary or Reinhart Leasing 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 ARI, the Subsidiary or Reinhart Leasing in any line of business or in any geographical area; (v) Contracts relating to the acquisition by ARI, the Subsidiary or Reinhart Leasing of any operating business or the capital stock of any other Person; (vi) Contracts relating to the borrowing of money or the issuance of guarantees; (vii) Contracts under which ARI, the Subsidiary or Reinhart Leasing acts as a distributor, dealer, franchisor, licensee or authorized service Person; or (viii) any other Contracts which (A) involve the expenditure of more than $20,000 in the aggregate or $20,000 annually, (B) are not terminable by each party thereto, without further obligation or liability, upon less than 60 days' notice, or (C) require performance by any party more than six months from the date hereof. There have been made available to URI and its representatives true and complete copies of all of the Material Contracts. Except as set forth on Schedule 4.15, all of the Material Contracts are in full force and effect and are the legal, valid and binding obligation of ARI, the Subsidiary, Reinhart Leasing and, to the best knowledge of the Sellers, each other party thereto, enforceable against each such party 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. Except as set forth on Schedule 4.15, none of ARI, the Subsidiary or Reinhart Leasing is, with notice or lapse of time, or both, in default in any material respect under any Material Contracts nor, to the best knowledge of the Sellers, is any other party to any Material Contract in default thereunder in any material respect. None of the Sellers nor ARI has received notice that any party to a Material Contract intends to terminate or not renew the same at its next renewal date. 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 benefit plans or employee benefit arrangements, programs or payroll practices (including 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) maintained by ARI, the Subsidiary or Reinhart Leasing or as to which any of ARI, the Subsidiary or Reinhart Leasing has any obligation or liability (contingent or otherwise) ("Employee Benefit Plans") and (ii) all "employee pension plans", as defined in Section 3(2) of ERISA, maintained by ARI, the Subsidiary or 17 Reinhart Leasing or any trade or business (whether or not incorporated) which are under control, or which are treated as a single employer, with ARI, the Subsidiary or Reinhart Leasing under Section 414(b), (c), (m) or (o) of the Code ("ERISA Affiliate") or to which ARI, the Subsidiary, Reinhart Leasing or any ERISA Affiliate contributed or is obligated to contribute thereunder ("Pension Plans"). Schedule 4.16(a) clearly identifies, in separate categories, Employee Benefit Plans or Pension Plans that are (i) subject to Section 4063 and 4064 of ERISA ("Multiple Employer Plans"), (ii) multiemployer plans (as defined in Section 4001(a)(3) of ERISA) ("Multiemployer Plans") or (iii) "benefit plans", within the meaning of Section 5000(b)(1) of the Code providing continuing benefits after the termination of employment (other than as required by Section 4980B of the Code or Part 6 of Title I of ERISA and at the former employee's or his beneficiary's sole expense). True, correct and complete copies of the following documents, with respect to each of the single employer Employee Benefit Plans and Pension Plans (as applicable), have been delivered to URI: (i) any plans, agreements, policies or other governing document and related trust documents, and all amendments thereto, (ii) the most recent Forms 5500 and schedules thereto, (iii) the most recent financial statements and actuarial valuations, (iv) the most recent IRS determination letter, (v) the most recent summary plan descriptions (including letters or other documents updating such descriptions) and (v) written descriptions of all non-written agreements relating to the Employee Benefit Plans and Pension Plans. (b) ARI participates in and contributes to six Multiemployer Plans. None of ARI, the Subsidiary, Reinhart Leasing or any ERISA Affiliate has incurred any withdrawal liability (contingent or otherwise) under Title IV of ERISA with respect to any Multiple Employer Plan or Multiemployer Plan. (c) Each of the single employer 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 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 which are defined benefit plans or money purchase plans 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) The benefit liabilities, as defined in Section 4001(a)(16) of ERISA, of each of the Employee Benefit Plans and Pension Plans (excluding any Multiemployer Plan) subject to Title IV of ERISA using the actuarial assumptions that would be used by 18 the Pension Benefit Guaranty Corporation (the "PBGC") in the event it terminated each such plan do not exceed the fair market value of the assets of each such plan. (f) There are no pending or, to the Sellers' knowledge, threatened 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 ARI, the Subsidiary, Reinhart Leasing or the plan administrator or any fiduciary of the single employer 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 known to the Sellers which could form the basis for any such Legal Proceeding. There has been no "reportable event" as that term is defined in Section 4043 of ERISA and the regulations thereunder with respect to any of the single employer Pension Plans subject to Title IV of ERISA which would require the giving of notice, or any event requiring notice to be provided under Section 4041(c)(3)(C) or 4063(a) of ERISA. (g) Each of the single employer 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 single employer 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. (h) Neither ARI, the Subsidiary, Reinhart Leasing 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 PBGC or to a trustee appointed under Section 4042 of ERISA. (i) 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 ARI, the Subsidiary or Reinhart Leasing; (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. (j) No stock or other security issued by ARI, the Subsidiary or Reinhart Leasing forms or has formed a material part of the assets of any Employee Benefit Plan or Pension Plan. 4.17 Labor; Personnel. (a) Schedule 4.17(a) sets forth a complete list, as ---------------- of the date hereof, of all officers, directors and employees (by type or classification) of ARI, the Subsidiary and Reinhart Leasing and their respective rates of compensation, including (i) the portions thereof attributable to bonuses, (ii) any other salary, bonus, equity participation, or other compensation arrangement made with or promised to any of them, and (iii) copies of all employment agreements with officers, directors and employees. 19 (b) Except as set forth on Schedule 4.17(b), none of ARI, the Subsidiary or Reinhart Leasing is a party to any labor or collective bargaining agreement and there are no labor or collective bargaining agreements which pertain to their employees and none of their employees are represented by any labor organization. No labor organization or group of employees of ARI, the Subsidiary or Reinhart Leasing has made a pending demand 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. There is no organizing activity involving ARI, the Subsidiary or Reinhart Leasing pending or, to the best knowledge of any Seller, threatened by any labor organization or group of employees of ARI, the Subsidiary or Reinhart Leasing. (c) There are no (i) strikes, work stoppages, slowdowns, lockouts or arbitrations or (ii) material grievances or other labor disputes pending or, to the best knowledge of any Seller, threatened against or involving ARI, the Subsidiary or Reinhart Leasing. 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 ARI, the Subsidiary or Reinhart Leasing. 4.18 Litigation. Except as set forth in Schedule 4.18, there is no suit, ---------- action, proceeding, investigation, claim or order pending before any court, or before any governmental department, commission, board, agency, or instrumentality or, to the knowledge of the Sellers, threatened against ARI, the Subsidiary or Reinhart Leasing (or to the knowledge of the Sellers, pending or threatened against any of the officers, directors or key employees of ARI, the Subsidiary or Reinhart Leasing with respect to their business activities on behalf of ARI, the Subsidiary or Reinhart Leasing), or to which the Sellers, ARI or the Subsidiary is otherwise a party or to which any of their properties or operations is subject, in each case, which if adversely determined, could result in a liability in excess of $50,000 or require any specific performance or act, or injunction not to act, by any such Person; nor to the knowledge of the Sellers is there any reasonable basis for any such action, proceeding, or investigation. None of ARI, the Subsidiary or Reinhart Leasing is subject to any judgment, order or decree of any Governmental Body, nor is any of them engaged in any legal action to recover monies due it or for damages sustained by it. All matters disclosed on Schedule 4.18 are covered by insurance in favor of ARI, subject to deductibles not in excess of $10,000 per occurrence, and the insurance carriers have not disputed or denied coverage for any such matter. 4.19 Compliance with Laws; Permits. ----------------------------- (a) ARI, the Subsidiary and Reinhart Leasing are in compliance in all material respects with all Laws applicable to them or to the conduct of their respective businesses or operations or the use of their properties (including any leased properties) and assets. Except as set forth on Schedule 4.19(a) or as would not, individually or in the aggregate, cause a Material Adverse Change, there has been no assertion by any party, 20 and none of the Sellers, ARI or the Subsidiary has received any notice, of any violation of any Laws. (b) Schedule 4.19(b) sets forth a full and complete list of all Permits owned by, issued to, or otherwise benefitting ARI, the Subsidiary and Reinhart Leasing and which are material to the operation of their respective businesses. Such Permits constitute all material Permits necessary or useful in the operation of the businesses of ARI, the Subsidiary and Reinhart Leasing as currently conducted. All of such material 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 adverse modification of any such Permit. 4.20 Environmental Matters. The Sellers have provided to URI all --------------------- environmentally related audits, studies, reports, analyses, and results of investigations that have been performed with respect to the currently or previously owned, leased or operated properties of ARI, the Subsidiary or Reinhart Leasing. To the Sellers' knowledge, except as set forth on Schedule 4.20 hereto and except for any factual matters (as opposed to evaluations, assessments, interpretations or recommendations) disclosed in any Phase 1 environmental study commissioned by URI with respect to the Company Property that has been completed prior to the date hereof (copies of which have been delivered to the Representative): (a) the operations of ARI, the Subsidiary and Reinhart Leasing are in compliance in all material respects with all applicable Environmental Laws and all Permits issued pursuant to Environmental Laws or otherwise; (b) ARI, the Subsidiary and Reinhart Leasing have obtained all Permits required under all applicable Environmental Laws necessary to operate their respective businesses; (c) none of ARI, the Subsidiary or Reinhart Leasing is 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) none of ARI, the Subsidiary or Reinhart Leasing has received any communication alleging that it may be in violation of any Environmental Law or any Permit issued pursuant to Environmental Law or may have any liability under any Environmental Law; (e) none of ARI, the Subsidiary or Reinhart Leasing has any current contingent liability in connection with any Release of any Hazardous Materials into the indoor or outdoor environment (whether on-site or off-site); 21 (f) there are no investigations of the businesses, operations, or currently or previously owned, operated or leased property of ARI, the Subsidiary or Reinhart Leasing pending or threatened which could lead to the imposition of any liability pursuant to Environmental Law; and (g) there is not located at any of the properties of ARI, the Subsidiary or Reinhart Leasing (including the Company Property) any (i) underground storage tanks, (ii) asbestos-containing material or (iii) equipment containing polychlorinated biphenyls. 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 ARI, the Subsidiary, Reinhart Leasing or any of their respective employees, properties or assets, including policies of life, disability, fire, theft, workers compensation, employee fidelity and other casualty and lia bility 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, none of ARI, the Subsidiary or Reinhart Leasing is in default of any provision thereof. 4.22 Related Party Transactions. Except as set forth on Schedule 4.22, no -------------------------- Stockholder nor any other Affiliate of ARI, the Subsidiary or Reinhart Leasing has borrowed any moneys from or has outstanding any indebtedness or other similar obli gations to ARI, the Subsidiary or Reinhart Leasing. Except as set forth in Schedule 4.22, no Stockholder nor any director, officer, member, manager, employee or Affiliate of ARI or Reinhart Leasing (i) owns any direct or indirect interest of any kind in, or controls or is a director, officer, employee, member 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 ARI, the Subsidiary or Reinhart Leasing, (B) engaged in a business related to the business of ARI, the Subsidiary or Reinhart Leasing, or (C) a participant in any transaction to which ARI, the Subsidiary or Reinhart Leasing is a party or (ii) is a party to any Contract with ARI, the Subsidiary or Reinhart Leasing. 4.23 Banks. Schedule 4.23 contains a complete and correct list of the names ----- and locations of all banks in which ARI or the Subsidiary 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, no Person holds a power of attorney to act on behalf of ARI or the Subsidiary. 4.24 Product Quality, Warranty Claims, Product Liability. All products and --------------------------------------------------- services sold, rented, leased, provided or delivered by ARI, the Subsidiary and Reinhart Leasing to their respective 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 and, to the knowledge of the Sellers, none of ARI, the Subsidiary or Reinhart Leasing has any 22 liability (and there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against ARI, the Subsidiary or Reinhart Leasing 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 ARI, the Subsidiary or Reinhart Leasing 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 and Schedule 4.18, none of ARI, the Subsidiary or Reinhart Leasing has any liability (and there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against ARI, the Subsidiary or Reinhart Leasing 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 ARI, the Subsidiary or Reinhart Leasing on or prior to the Closing Date, and all matters disclosed on Schedules 4.18 and 4.24 are covered by insurance in favor of ARI, subject to deductibles not in excess of $10,000 per occurrence, and the insurance carriers have not disputed or denied coverage for any such matter. All product liability claims that have been asserted against ARI or Reinhart Leasing since January 1, 1991 or against the Subsidiary since February 21, 1995, whether covered by insurance or not and whether litigation has resulted or not, are listed and summarized on Schedules 4.18 and 4.24. 4.25 Investment Intention. Each of the Sellers listed on Schedule -------------------- 2.1(b)(A): (a) is acquiring the shares of URI Common Stock constituting the Stock Component and the Warrant for its own account, for investment purposes only and not with a view to the distribution thereof in contravention of the Securities Act; (b) is an "accredited investor" as that term is defined in Rule 501(a) under the Securities Act; and (c) understands that (i) none of (A) the shares of URI Common Stock constituting the Stock Component, (B) the Warrant or (C) the shares of URI Common Stock issuable upon exercise of the Warrant have been registered under the Securities Act or any state securities laws and, accordingly, such securities cannot be sold unless registered under the Securities Act and applicable state securities laws or pursuant to an available exemption from such registration requirements and (ii) except as set forth in that certain agreement between URI and certain Sellers, dated the Closing Date, URI is under no obligation to register any of such securities under the Securities Act. 4.26 No Misrepresentation. No representation or warranty of any Seller -------------------- contained in this Agreement or any other Seller Document or in any schedule hereto, or in any certificate or other instrument furnished by any Seller or ARI to URI 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. 4.27 Brokers; Finders. No Person has acted, directly or indirectly, as a ---------------- broker, finder or financial advisor for any Seller or ARI in connection with the transactions 23 contemplated by this Agreement and no Person is entitled to any fee, commission or like payment in respect thereof. ARTICLE V REPRESENTATIONS AND WARRANTIES OF URI URI hereby represents and warrants to the Sellers that: 5.1 Organization and Good Standing. URI is a corporation duly organized, ------------------------------ validly existing and in good standing under the laws of the State of Delaware. 5.2 Authorization of Agreement. URI has full corporate power and authority -------------------------- to execute and deliver this Agreement and each of the other Purchaser Documents to which it is a party, and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by URI of this Agreement and each other Purchaser Document have been duly authorized by all necessary corporate action on behalf of URI. This Agreement and each other Purchaser Document to which URI is a party has been duly executed and delivered by URI and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement and each other Purchaser Document to which URI is a party constitutes legal, valid and binding obligations of URI, enforceable against URI 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) Except as set forth on Schedule 5.3 hereto, neither the execution and delivery by URI of this Agreement and the other Purchase Documents to which URI is a party, nor the compliance by URI 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 URI, (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 URI is a party or by which URI or any of its properties or assets are bound or (iii) violate any statute, rule, regulation, order or decree of any governmental body or authority by which URI 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 URI and its subsidiaries, taken as a whole. Except as set forth on Schedule 5.3 hereto, and except for any required filings under the HSR Act, 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 24 URI in connection with the execution and delivery of this Agreement or the other Purchaser Documents to which URI is a party or the compliance by URI with any of the provisions hereof or thereof. 5.4 Litigation. There are no Legal Proceedings pending or, to the best ---------- knowledge of URI, threatened that are reasonably likely to prohibit or restrain the ability of URI to enter into this Agreement or consummate the transactions contemplated hereby. 5.5 Investment Intention. URI is acquiring the Shares for its own account, -------------------- for investment purposes only and not with a view to the distribution thereof in contravention of the Securities Act. URI understands that the Shares have not been registered under the Securities Act and cannot be sold unless registered under the Securities Act or pursuant to an available exemption from such registration requirements. 5.6 Stock Consideration. The shares of URI Common Stock constituting the ------------------- Stock Component, and the shares of URI Common Stock issuable upon exercise of the Warrant, have been duly authorized and, when issued against the consideration therefor as provided herein, will be fully paid for and non- assessable. 5.7 Brokers; Finders. No Person has acted, directly or indirectly, as a ---------------- broker, finder or financial advisor for URI in connection with the transactions contemplated by this Agreement and no Person is entitled to any fee, commission or like payment in respect thereof. ARTICLE VI COVENANTS 6.1 Access to Information. The Sellers agree that, prior to the Closing --------------------- Date, URI shall be entitled, through its officers, employees and representatives (including legal advisors and accountants), to make such investigation of the properties, businesses and operations of ARI, the Subsidiary and Reinhart Leasing and such examination of the books, records and financial condition of ARI, the Subsidiary and Reinhart Leasing as URI reasonably requests and to make extracts and copies of such books and records. Any such investigation and examination shall be conducted during regular business hours and under reasonable circumstances, and the Sellers shall cooperate, and shall cause ARI and the Subsidiary to cooperate, fully therein. No investigation by URI prior to or after the date of this Agreement shall diminish or obviate any of the representations, warranties, covenants or agreements of the Sellers contained in this Agreement or the Seller Documents. In order that URI may have full opportunity to make such physical, business, accounting and legal review, examination or investigation as it may reasonably request of the affairs of ARI, the Subsidiary and Reinhart Leasing, the Sellers shall cause the officers, employees, consultants, agents, accountants, attorneys and other representatives 25 of ARI, the Subsidiary and Reinhart Leasing to cooperate fully with such representatives in connection with such review and examination. 6.2 Publicity; Non-disclosure. (a) None of the Sellers, ARI or URI shall ------------------------- issue any press release or public announcement concerning this Agreement or the transactions contemplated hereby without obtaining the prior written approval of the other parties hereto, which approval will not be unreasonably withheld or delayed; provided, however, that URI may, in its exclusive judgement and -------- ------- discretion, make such disclosure as URI deems is required by applicable Law or by the rules of any stock exchange on which any securities of URI are listed. (b) For a period of three years following the date hereof, URI will not disclose the results of any "Phase 1" environmental study commissioned by URI with respect to any Company Property without the prior consent of the Representative, such consent not to be unreasonably withheld; provided, however, -------- ------- that URI may, in its exclusive discretion, make such disclosure (i) to (A) URI's lenders, (B) any prospective underwriter or placement agent of any securities of URI or (C) any Person contemplating the acquisition of a material portion of the securities or assets of URI (by merger, purchase or otherwise), (ii) pursuant to any request or order of any Governmental Body or (iii) as URI deems is required by applicable Law or by the rules of any stock exchange on which any securities of URI are listed. 6.3 Use of Name. The Sellers hereby agree that upon the consummation of the ----------- transactions contemplated hereby, URI and ARI shall have the sole right to the use of the name "Access Rentals" and the Sellers shall not, and shall not cause or permit any of their Affiliates to, use such name or any variation or simulation thereof in any business. 6.4 Records. The Sellers and URI agree that each of them shall preserve and ------- keep the records held by them relating to the business of ARI, the Subsidiary and Reinhart Leasing for a period of three years from the Closing Date (except that records pertaining to Tax matters shall be retained for a period of six years or such other period as required by applicable Law) and shall make such records and personnel available to the other as may be reasonably required by such party in connection with, among other things, any insurance claims by, legal proceedings against or governmental investigations or audits of their or their Affiliates' businesses. In the event either the Sellers or URI desire to destroy such records after that time, such party shall first give 60 days prior written notice to the other and such other party shall have the right at its option and expense, upon prior written notice given to such party within that 60 day period, to take possession of the records within 90 days after the date of such notice. 6.5 Senior Managers; Bonuses. (a) URI agrees to cause ARI to offer at-will ------------------------ employment (subject to such terms and conditions, including covenants not to compete, as are consistent with URI's custom and practice) to the senior managers of ARI designated in writing by the Representative on the Closing Date. 26 (b) Promptly following the Closing Date, URI shall cause ARI to pay the senior managers of ARI designated by the Representative the bonuses set forth on Schedule 6.5 hereto to the extent, and only to the extent, that the amounts of such bonuses (and any Tax cost to ARI on account thereof) have been reflected in a reduction in the Purchase Price pursuant to Section 2.2(d) hereof. 6.6 Release of Guarantees. As soon as practicable (and in any event within --------------------- 30 days) following the Closing Date, the Sellers shall use their best efforts to cause ARI to be unconditionally released from, and discharged from all obligations under, each of the guarantees described on Schedule 4.9 hereto (other than the guarantees of obligations of the Subsidiary and Excelsior Henderson listed on such Schedule) which have not been released or discharged on or prior to the Closing Date. ARTICLE VII CLOSING DELIVERIES 7.1 Closing Deliveries of ARI. On the Closing Date, ARI delivered to URI ------------------------- Sub certificates, duly endorsed in blank or accompanied by stock transfer powers and with all requisite stock transfer tax stamps attached, representing 100% of the Shares, for transfer to URI Sub, free and clear of any and all Liens. 7.2 Closing Deliveries of URI Sub. On the Closing Date, URI Sub delivered ----------------------------- to ARI the purchase price set forth in Section 2.1 hereof, by wire transfer to the account designated in writing by ARI. 7.3 Closing Deliveries of the Sellers. On or prior to the Closing Date, the --------------------------------- Sellers delivered the following to URI: (a) certificates, duly endorsed in blank or accompanied by stock transfer powers and with all requisite stock transfer tax stamps attached, representing 100% of the Shares, for transfer to URI, free and clear of any and all Liens; (b) the Bill of Sale, duly executed by Reinhart Leasing; (c) a copy of the Escrow Agreement, executed by the Sellers and the Escrow Agent; (d) a copy of the Receivables Escrow Agreement, executed by the Sellers and the Escrow Agent; (e) copies of each of the Leases; 27 (f) copies of the Non-Competition Agreements in the forms of Exhibit F-1 and ----------- Exhibit F-2 hereto (the "Non-Competition Agreement"), executed by JLR, Jerry R. - ----------- Reinhart and the other parties named therein; (g) executed copies of Employment Agreements, duly executed by each of Joseph DiFrancesco and Jerry R. Reinhart, in substantially the forms of Exhibit ------- G-1 and Exhibit G-2 hereto, respectively; - --- ----------- (h) an executed copy of the Consulting Agreement in substantially the form of Exhibit H hereto, between ARI and JLR; --------- (i) the opinion of Ferguson & Saunders, LLP, counsel to the Sellers, addressed to URI, in substantially the form of Exhibit I hereto; --------- (j) copies of all consents and waivers referred to in Section 4.6 hereof with respect to the transactions contemplated by this Agreement and the other Seller Documents; (k) affidavits of non-foreign status that comply with Section 1445 of the Code, executed by each of the Sellers; (l) the written resignations of each director and officer of ARI and the Subsidiary; (m) releases, in the form of Exhibit J hereto, executed by each Stockholder --------- and each officer or director of ARI and the Subsidiary; (n) a copy of the agreement referred to in Section 4.25 hereof, executed by the Sellers party thereto and Joseph A. DiFrancesco; and (o) certificates of good standing with respect to ARI, the Subsidiary and Reinhart Leasing issued by the Secretary of State or comparable official of their jurisdiction of organization and for each jurisdiction in which they are qualified to do business as a foreign corporation. 7.4 Closing Deliveries of URI. On or prior to the Closing Date, URI ------------------------- delivered the following to the Representative on behalf of the Sellers: (a) the Cash Component of the Purchase Price, by wire transfer to the accounts designated in writing by the Representative, with the Escrow Amount being contemporaneously delivered to the Escrow Agent; (b) the Receivables Escrow Amount to the Escrow Agent; (c) a stock certificate or certificates representing the Stock Component; 28 (d) the Warrant; (e) the Assumption Agreement, executed by URI; (f) a copy of the Escrow Agreement, executed by URI and the Escrow Agent; (g) a copy of the Receivables Escrow Agreement, executed by URI and the Escrow Agent; (h) a copy of the employment and consulting agreements and the Leases referred to in Section 7.3, executed by ARI; (i) a copy of the agreement referred to in Section 4.25 hereof, executed by URI; and (j) the opinion of Weil, Gotshal & Manges LLP, counsel to URI, in substantially the form of Exhibit K hereto. --------- ARTICLE VIII INDEMNIFICATION; TAX MATTERS 8.1 Indemnification. (a) Subject to Sections 8.2, 8.3 and 8.6 hereof, the --------------- Sellers hereby agree, jointly and severally, to indemnify and hold URI, URI Sub, ARI and their respective Affiliates, directors, officers, employees, agents, successors and assigns (collectively, the "URI 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 Sellers set forth in this Agreement, 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; (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 Assets or tangible personal property of ARI or the Subsidiary) arising from: (A) any Release of Hazardous Materials in, on, at, or from Company Properties which occurred, or resulted from operations occurring, as of or prior to the Closing; (B) any tort liability to third parties as a result of any Releases or from exposure to Hazardous Materials arising from any Releases as of or prior to the Closing; (C) notification or designation under any Environmental Law as a 29 potentially responsible party for on-site or off-site disposal of Hazardous Materials, which disposal occurred as of or prior to the Closing, or the listing of any Company Property on the CERCLA National Priorities List or any similar list under any Environmental Law as a result of on-site disposal of Hazardous Materials as of or prior to the Closing; and (D) any fines or penalties with respect to any violation of Environmental Law occurring as of or prior to the Closing; (iv) any and all Losses in connection with any product liability, failure to label or warn, or similar claims asserted with respect to items rented, leased, serviced or sold by ARI, the Subsidiary or Reinhart Leasing prior to the Closing; (v) any and all Retained Liabilities; (vi) any and all Losses attributable to or resulting from any guaranty by ARI of obligations of any Person (other than the Subsidiary and Excelsior Henderson, which in the case of Excelsior Henderson is in the amount set forth on Schedule 4.9) in existence as of the Closing Date (including the guarantees described on Schedule 4.9 hereto); (vii) the operation of Reinhart Leasing or its business or assets after the Closing; and (viii) Reinhart Leasing's non-compliance with applicable "bulk sales" Laws. (b) Subject to Section 8.2 hereof, URI 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 URI set forth in Article V hereof, or any representation or warranty contained in any certificate delivered by or on behalf of URI 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 URI under this Agreement; and (iii) the Assumed Obligations. 8.2 Survival of Representations and Warranties. The parties hereto hereby ------------------------------------------ agree that the representations and warranties contained in this Agreement or in any certificate, document or instrument delivered in connection herewith, shall survive the execution and 30 delivery of this Agreement, and the Closing hereunder, regardless of any investigation made by the parties hereto; provided, however, that any claims or actions with respect thereto (other than claims for indemnification with respect to the representations and warranties contained in Sections 4.2, 4.3, 4.7, 4.27, 5.2 and 5.7, which shall survive indefinitely, and those in Sections 4.11, 4.16, 4.18 and 4.20, which shall survive for periods coterminous with any applicable statutes of limitation) shall terminate on the date of the third anniversary of the Closing Date unless prior to such date written notice of such claims is given to the Representative, in the case of claims against the Sellers, or URI, in the case of claims against URI, or such actions are commenced. 8.3 Limitations on Indemnification. ------------------------------ (a) The Sellers shall not have any liability under Section 8.1(a)(i) hereof unless the aggregate amount of Losses to the URI 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, exceeds $500,000 (the "Deductible Amount") and, in such event, the indemnifying party shall be required to pay the entire amount of such Losses in excess of $500,000; provided, however, that Losses finally determined to arise thereunder based - -------- ------- upon, attributable to or resulting from the failure of any representation or warranty set forth in Sections 4.2, 4.3, 4.7, 4.11, the first sentence of Section 4.13(b), Section 4.16 (to the extent such representations and warranties relate to (x) Pension Plans or ERISA Affiliates or (y) any failure to file any Form 5500 with respect to the Employee Benefit Plans, regardless of whether or not such failure was disclosed on any Schedule), and Section 4.27 hereof to be true and correct shall not be subject to the foregoing limitation and shall be indemnified pursuant to this Article VIII even if less than the Deductible Amount; and provided further, however, that Losses finally determined to arise -------- ------- ------- based upon, attributable to or resulting from the failure of any representation or warranty set forth in Sections 4.18 and 4.24 to be true and correct (including the failure of any matter represented therein as being covered by insurance to be so covered) shall be indemnifiable pursuant to Section 8.1(a)(i) to the extent the aggregate amount of all such Losses exceeds $100,000 even if such Losses, taken together with all other Losses indemnifiable pursuant to Section 8.1(a)(i), aggregate less than the Deductible Amount. Solely for purposes of this Section 8.3(a), the term "material" as used in any representation or warranty in Article IV hereof shall refer to a value, liability, cost or expense, as the case may be, in excess of $5,000; it being understood that this qualification shall not apply to the defined term "Material Adverse Change." (b) The maximum amount of Losses for which the Sellers shall be liable for pursuant to Section 8.1(a) shall not exceed $50,000,000. 8.4 Non-Tax Indemnification Procedures. (a) In the event that any Legal ---------------------------------- Proceedings shall be instituted or that any claim or demand ("Claim") shall be asserted by any Person in respect of which payment may be sought under Section 8.1 hereof, the indemnified party shall reasonably and promptly cause written notice of the assertion of 31 any Claim of which it has knowledge which is covered by this indemnity to be forwarded to the indemnifying party. 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 otherwise deal with any Claim which relates to any Losses indemnified against hereunder; provided however, that URI 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 fifteen (15) 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; provided that the indemnified party shall not settle any Claim without the - -------- indemnifying party's prior consent, such consent not to be unreasonably withheld. If the indemnified party defends any Claim, then the indemnifying party shall reimburse the indemnified party for the costs and expenses (including reasonable attorneys' and other professionals' fees and 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 the indemnified 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 separate 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) The failure of an indemnified party to give reasonably prompt notice of any Claim shall not release, waive or otherwise affect the indemnifying party's obligations 32 with respect thereto except to the extent that the indemnifying party can demonstrate actual loss and prejudice as a result of such failure. (d) Except for claims against Reinhart Leasing, and without limitation of, or prejudice to, any of URI's rights under this Agreement, at Law or otherwise, URI agrees to pursue any claim for indemnification under Section 8.1(a) against JLR before pursuing such claim against the other Sellers, it being understood that (i) URI need not exhaust its available remedies against JLR before pursuing any claims against the other Sellers and (ii) the foregoing shall not limit the ability of JLR to seek contribution from the other Sellers in connection with any such claim. (e) URI will use its reasonable commercial efforts to update the Representative, upon request, as to the status of any pending litigation to which ARI is a party for which the Sellers are obligated to indemnify the URI Indemnified Parties hereunder. 8.5 Right of Set Off. URI may, but shall not be obligated to, set off ---------------- against any and all payments due to the Sellers out of the Escrow Amount, any amount to which any URI Indemnified Party is entitled hereunder. URI shall have no right of set off against the Receivables Escrow Amount. 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. 8.6 Tax Indemnification and Related Matters. (a) The Sellers, jointly and --------------------------------------- severally, shall be responsible for and shall indemnify and hold harmless URI, URI Sub, ARI and their respective Affiliates from and against any and all Losses for or in respect of each of the following: (i) any and all Taxes (including any Taxes resulting from the inclusion of ARI and/or the Subsidiary in a consolidated, combined or unitary Tax Return) with respect to all taxable periods of ARI and the Subsidiary ending on or prior to the Closing Date and, to the extent provided in Section 8.6(b) hereof, all taxable periods that include, and end after, the Closing Date (other than, in each case, Taxes for which sufficient current accruals have been made on the Balance Sheets); and (ii) any and all Taxes resulting from any breach of the representations and warranties contained in Section 4.11 hereof. (b) The Sellers, ARI, the Subsidiary, and URI will, to the extent permitted by applicable Law, close the taxable periods of ARI and the Subsidiary on the Closing Date. In any case where applicable Law does not permit ARI and/or the Subsidiary to close its taxable year on the Closing Date, then Taxes, if any, attributable to the taxable periods of ARI and the Subsidiary beginning on or before and ending after the Closing Date shall be allocated (i) to the Sellers for the period up to and including the Closing Date, and (ii) to 33 URI for the period subsequent to the Closing Date. For purposes of this Section 8.6(b), Taxes for the period up to and including the Closing Date and for the period subsequent to the Closing Date shall be determined on the basis of an interim closing of the books as of the Closing Date or, to the extent not susceptible to such allocation, by apportionment on the basis of elapsed days. (c) URI shall be responsible for, and shall pay or cause to be paid, and shall indemnify and hold harmless the Sellers from and against any and all Losses for or in respect of each of the following: (i) any and all Taxes (including any Taxes resulting from the inclusion of ARI and/or the Subsidiary in a consolidated, combined or unitary Tax Return) with respect to all taxable periods of ARI and the Subsidiary beginning after the Closing Date and, to the extent provided in Section 8.6(b) hereof, all taxable periods that include, and end after, the Closing Date (other than, in each case, Taxes for which the Sellers are responsible pursuant to Section 8.6(a)(ii) hereof); (ii) Taxes for which sufficient current accruals have been made on the Balance Sheets; and (iii) Taxes incurred by ARI solely as a result of the purchase of the Subsidiary Shares by URI Sub on the Closing Date. (d) (i) The Sellers shall be responsible for causing to be filed all Tax Returns required to be filed by or on behalf of ARI and the Subsidiary and any of their operations and assets on or before the Closing Date (taking into account applicable extensions of time) and shall pay or cause to be paid any Taxes shown to be due thereon. The Sellers shall file all such Tax Returns in a manner consistent with past practices and, upon URI's request, shall provide copies of such Tax Returns to URI for URI's review and comment at least fifteen (15) business days prior to filing. URI shall be responsible for filing or causing to be filed all Tax Returns required to be filed by or on behalf of ARI and the Subsidiary and any of their operations and/or assets after the Closing Date (taking into account applicable extensions of time) and shall pay or cause to be paid any Taxes shown to be due thereon. (ii) With respect to any Tax Return required to be filed by URI for a taxable period of ARI and/or the Subsidiary beginning on or before and ending on or after the Closing Date, URI shall provide the Representative with a statement setting forth the amount of Tax shown on such Tax Return for which the Sellers are responsible pursuant to Section 8.6(a) hereof or that are allocable to the Sellers pursuant to Section 8.6(b) hereof (as the case may be) (the "Statement") at least thirty (30) business days prior to the due date for filing of such Tax Return (including extensions). The Representative shall have the right to review such Tax Return and the Statement prior to the filing of such Tax Return. The Sellers and URI agree to consult and resolve in good faith any issue arising 34 as a result of the review of such Tax Return and such Statement and to mutually consent to the filing as promptly as possible of such Tax Return. If the parties are unable to resolve any disagreement within fifteen Business Days following the Representative's receipt of such Tax Return and Statement, the parties shall jointly request the Independent Firm to resolve any issue in dispute as promptly as possible and shall cooperate with the Independent Firm to resolve such disagreement. If the Independent Firm is unable to make a determination with respect to any disputed issue prior to the due date (including extensions) for the filing of the Tax Return in question, then URI may file such Tax Return on the due date (including extensions) therefor without such determination having been made. Notwithstanding the filing of such Tax Return, the Independent Firm shall make a determination with respect to any disputed issue, and the amount of Taxes that are allocated to the Sellers pursuant to this Section 8.6(d)(ii) shall be as determined by the Independent Firm. The fees and expenses of the Independent Firm shall be paid one-half by URI and one-half by the Sellers. Not later than five (5) Business Days before the due date (including extensions) for payment of Taxes with respect to such Tax Return or, in the case of a dispute, not later than five (5) Business Days after notice to the Representative of resolution thereof, the Sellers shall pay to URI an amount equal to the Taxes shown on the Statement or as shown in such notice, as the case may be, as being the responsibility of the Sellers pursuant to Section 8.6(a) hereof or allocable to the Sellers pursuant to Section 8.6(b) hereof (as the case may be). No payment pursuant to this Section 8.6(d)(ii) shall excuse the Sellers from their indemnification obligations pursuant to Section 8.6(a) hereof should the amount of Taxes as ultimately determined (on audit or otherwise), for the periods covered by such Tax Returns and which are the responsibility of the Sellers, exceed the amount of the Sellers' payment under this Section 8.6(d)(ii). (iii) The Sellers may not file any amended Tax Returns or refund claims in respect of any taxable period of ARI or the Subsidiary ending on or prior to the Closing Date without the prior written consent of URI, such consent not to be unreasonably withheld. (iv) The Sellers shall cooperate fully with URI and make available to URI in a timely fashion such Tax data and other information as may be reasonably required for the preparation by URI of any Tax Returns required to be prepared and filed by URI hereunder. The Sellers and URI shall make available to the other, as reasonably requested, all information, records or documents in their possession relating to Tax liabilities of ARI and/or the Subsidiary for all taxable periods of ARI and the Subsidiary ending on, prior to or including the Closing Date and shall preserve all such information, records and documents until the expiration of any applicable Tax statute of limitations or extensions thereof; provided, however, that if a proceeding has been instituted for which -------- ------- the information, records or documents is required prior to the expiration of the applicable statute of limitations, such information, records or documents shall be retained until there is a final determination with respect to such proceeding. 35 (e) URI shall promptly notify the Representative in writing upon receipt by URI, ARI or the Subsidiary of notice of any Tax audits of or proposed assessments against ARI or the Subsidiary for taxable periods of ARI and the Subsidiary ending on or prior to the Closing Date; provided, however, that the -------- ------- failure of URI to give the Sellers prompt notice as required herein shall not relieve the Sellers of any of their obligations under this Section 8.6, except to the extent that the Sellers are actually and materially prejudiced thereby. URI shall have the right to represent ARI's and the Subsidiary's interests in any such Tax audit or administrative or court proceeding and to employ counsel of its choice at URI's expense; provided, however, that URI may not agree to a -------- ------- settlement or compromise thereof without the prior consent of the Representative, which consent will not be unreasonably withheld. The Sellers and their counsel may participate (at the Sellers' expense) in any such audit or proceeding. The Sellers agree that they will cooperate fully with URI and its counsel in the defense against or compromise of any claim in any said audit or proceeding. (f) Any dispute as to any matter covered hereby shall be resolved by an independent accounting firm mutually acceptable to the Representative and URI. The fees and expenses of such accounting firm shall be borne equally by the parties. (g) The parties hereto agree to furnish or cause to be furnished to each other, at their own expense, such information, access to books and records, and assistance, including making employees available during regular business hours on a mutually convenient basis, as may reasonably be necessary for the preparation and filing of any Tax Return contemplated by this Section 8.6. 8.7 Tax Treatment of Indemnity Payments. The Sellers and URI agree to treat ----------------------------------- any indemnity payment made pursuant to this Article VIII as an adjustment to the Purchase Price for federal, state, local and foreign income tax purposes. ARTICLE IX MISCELLANEOUS 9.1 Rules of Construction; Certain Definitions. (a) As used in this ------------------------------------------ Agreement, the words "herein," "hereof," "hereto" and "hereunder" and other ------ ------ ------ --------- words of similar import refer to this Agreement as a whole, including the Schedules hereto, and not to any subdivision contained in this Agreement. The word "including" when used herein is not intended to be exclusive and means --------- "including, without limitation." Statements, representations or warranties made ----------------------------- to a Person's "knowledge" mean such Person's knowledge after diligent inquiry of --------- appropriate Persons and sources using prudent business standards. (b) For purposes of this Agreement, the following terms shall have the meanings specified in this Section 9.1(b): 36 "Affiliate" means, with respect to any Person, any other Person --------- controlling, controlled by or under common control with such Person. "Assets" means all of Reinhart Leasing's right, title and interest in ------ and to all assets (other than cash), properties and rights of Reinhart Leasing of every kind and description, wherever located, whether tangible or intangible, including the following: (a) all equipment, vehicles, tools, spare parts, machinery, computers, furnishings, furniture, office supplies or other equipment used in the operation of Reinhart Leasing's business (in each case, including all accessories, supplies, operating manuals and other documentation with respect thereto) and all of Reinhart Leasing's interests in the leases of the equipment described in this clause (a) and all other fixed assets that are located at Reinhart Leasing's facilities or otherwise used in its business; (b) all inventories of parts, supplies, fuels, chemicals, solvents, components, labels, stationary, forms, packing materials and other goods and personal property used in Reinhart Leasing's business; (c) all Contracts of Reinhart Leasing and all rights of Reinhart Leasing thereunder, and all rights of Reinhart Leasing under any non-disclosure, confidentiality or non-competition Contracts relating to Reinhart Leasing's business; (d) all rights of Reinhart Leasing under or pursuant to all warranties, representations or guarantees made by suppliers, manufacturers and contractors in connection with products or services of, or used in, Reinhart Leasing's business, or otherwise affecting Reinhart Leasing's equipment, assets or inventory; (e) all customer and vendor lists relating to Reinhart Leasing's business, all files or documents relating to customers and vendors of Reinhart Leasing's business, and all financial records, files, books or documents otherwise relating to the Assets and the Assumed Obligations, including computer programs, manuals, sales and advertising materials, billing records, and sales, distribution and purchase correspondence; (f) all intellectual property rights of Reinhart Leasing and all of Reinhart Leasing's rights under all intellectual property license arrangements and all documentation relating thereto in whatever media it is embodied, other than the name "Reinhart Leasing"; (g) all computer software owned by Reinhart Leasing or used by Reinhart Leasing in connection with its business, and all documentation and specifications relating thereto; (h) all Permits and licenses issued by any governmental authority held or used by Reinhart Leasing in connection with its business; (i) all prepaid deposits, expenses or charges of Reinhart Leasing's business; (j) all claims, choses of action and rights relating to the Assets and the Assumed Obligations, and all insurance proceeds, judgements or settlements with respect to the Assets and the Assumed Obligations; and (k) the current telephone numbers and telephone listings of Reinhart Leasing's business. "Balance Sheets" has the meaning ascribed to such term in Section 4.8. -------------- "Business Day" means any day of the year on which national banking ------------ institutions in New York are open to the public for conducting business and are not required or authorized to close. 37 "Closing" and "Closing Date" have the respective meanings ascribed in ------- ------------ Article III hereof. "Code" shall mean the Internal Revenue Code of 1986, as amended. ---- "Company Property" shall have the meaning ascribed to such term in ---------------- Section 4.12 hereof. "Contract" means any contract, agreement, indenture, note, bond, loan, -------- instrument, lease, commitment or other arrangement. "Environmental Law" means any foreign, federal, state or local Law or ----------------- rule of common law as now or hereafter in effect in any way relating to the protection of human health and safety or the environment, including 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.), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. -- ---- (S) 136 et seq.), and the Occupational Safety and Health Act (29 U.S.C. (S) 651 -- ---- et seq.), and the regulations promulgated pursuant thereto. - -- ---- "Equipment" has the meaning ascribed to such term in Section 2.2(b). --------- "GAAP" means generally accepted accounting principles in the United ---- States as of the date hereof. "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, foreign jurisdictions in which ARI, the Subsidiary or Reinhart Leasing conducts business, or any state or local governmental authority, including 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. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of ------- 1976, as amended. "Independent Firm" shall mean Deloitte & Touche LLP. ---------------- 38 "JLR" means Jerry L. Reinhart, an individual and one of the --- Stockholders. "Law" means any federal, state, local or foreign law (including common --- law), statute, code, ordinance, rule, regulation or other requirement. "Leases" shall mean the real property leases with Affiliates of the ------ Sellers, and the assignments of rights to, and landlord estoppel certificates with respect to, real property leases with third-parties, in each case, 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, encumbrance, deed or trust, ---- security interest, claim, lease, charge, option, right of first refusal, easement, transfer restriction under any Contract or any other restriction or limitation whatsoever. "Losses" shall mean, collectively, with respect to any Person, any and ------ all losses, liabilities, obligations, damages, costs and expenses, and all notices, actions, suits, proceedings, claims, demands, assessments, judgments, costs, penalties and expenses, including attorneys' and other professionals' fees and disbursements incident to any such loss, liability, obligation, damage, cost or expense, in each case, incurred or suffered by such Person; provided -------- that a Person shall be deemed not to have suffered or incurred a Loss to the extent that such Person has (i) recovered insurance proceeds or has otherwise been reimbursed by another Person or (ii) received an actual Tax benefit which offsets an otherwise required Tax liability, in respect of the same. "Material Adverse Change" means any material adverse change in the ----------------------- business, assets, properties, results of operations, prospects, condition (financial or otherwise) of ARI, the Subsidiary or Reinhart Leasing. "Non-Competition Agreements" has the meaning ascribed to such term in -------------------------- Section 7.3. "Order" means any order, injunction, judgment, decree, ruling, writ, ----- assessment or arbitration award. "Permits" means any approvals, authorizations, consents, licenses, ------- permits or certificates of any type. "Permitted Exceptions" means (i) all defects, exceptions, restrictions, -------------------- easements, rights of way and encumbrances disclosed in policies of title insurance which have been made available to URI; (ii) statutory liens for current taxes, assessments or other governmental charges not yet delinquent or the amount or validity of which is being 39 contested in good faith by appropriate proceedings, provided an appropriate reserve is established therefor; (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 owner or user thereof; (iv) zoning, entitlement and other land use and environmental regulations by any Governmental Body, provided that such regulations have not been violated; 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 or other assets subject thereto or affected thereby. "Person" means any individual, corporation, limited liability company, ------ part nership, firm, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental Body or other entity. "Purchaser Documents" shall mean, collectively, this Agreement, the ------------------- Assumption Agreement, the Escrow Agreement and the Warrant. "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 (i) clean up, remove, treat or in --------------- any other way address any Hazardous Material; (ii) prevent the Release of any Hazardous Material so it does not endanger or threaten to endanger public health or welfare or the indoor or outdoor environment; or (iii) perform pre-remedial studies and investigations or post-remedial monitoring and care. "Representative" has the meaning ascribed to such term in Section 9.14. -------------- "Retained Liabilities" means all obligations and liabilities (known or -------------------- unknown, contingent or fixed, liquidated or unliquidated, accrued or unaccrued, or otherwise) relating to, arising out of or accruing from the operation of Reinhart Leasing's business, including any and all obligations of Reinhart Leasing for performance under Contracts (other than the Assumed Obligations), any and all Taxes with respect to the ownership, use or leasing of any of the assets or the operations of Reinhart Leasing on or prior to the Closing Date, any liabilities under any Environmental Law, and any liabilities with respect to any Employee Benefit Plan or Pension Plan. "Securities Act" means the Securities Act of 1933, as amended. -------------- "Seller Documents" shall mean, collectively, this Agreement, the Bill of ---------------- Sale, the Escrow Agreement, the Employment, Consulting and Non-Competition Agreements referred to in Section 7.3 and the Leases. 40 "Taxes" means (i) all federal, state, local or foreign 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, inven tory, 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, (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) and (iii) any transferee liability in respect of any items described in clauses (i) and/or (ii). "Tax Return" means all returns, declarations, reports, estimates, ---------- information returns and statements required to be filed in respect of any Taxes. "URI Common Stock" means the common stock, par value $.01 per share, of ---------------- URI. "Warrant" has the meaning ascribed to such term in Section 2.1(b). ------- 9.2 Payment of Sales, Use, Transfer or Similar Taxes. All sales, use, ------------------------------------------------ transfer, 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. 9.3 Bulk Sales Laws. The parties hereby waive compliance by Reinhart --------------- Leasing with the requirements of Article 6 of the Uniform Commercial Code as in effect in applicable jurisdictions and any other "bulk sales" Laws applicable to the transfers contemplated by this Agreement, and the Sellers hereby covenant and agree to indemnify URI and hold URI harmless from any costs or liabilities resulting from such non-compliance. 9.4 Expenses. Except as otherwise provided in this Agreement, the Sellers -------- and URI shall each bear their 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; provided that ARI may pay any such -------- expenses to the extent such expenses are reflected as a current liability on the Net Current Position statement referred to in Section 2.2(d) hereof. 9.5 Specific Performance. The Sellers acknowledge and agree that the breach -------------------- of this Agreement would cause irreparable damage to URI and that URI will not have an adequate remedy at law. Therefore, the obligations of the Sellers under this Agreement, including the Sellers' obligation to sell the Shares and the Assets to URI, 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 41 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. 9.6 Further Assurances. The Sellers and URI agree 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. 9.7 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 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. 9.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ------------- ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 9.9 Section Headings. The captions 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. 9.10 Notices. All notices and other communications under this Agreement ------- shall be in writing and shall be deemed given when delivered personally or by facsimile transmission (with record of successful transmission/answerback received), the Business Day following being sent by reputable next day delivery service or three Business Days after being 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): 42 If to any Seller or the Representative, to: Mr. Jerry L. Reinhart 417 Garden Drive Batavia, New York 14020 With a copy (which shall not constitute notice) to: Ferguson & Saunders, LLP 3950 One Atlantic Center 1201 West Peachtree Street, N.W. Atlanta, Georgia 30309 Attn: Kevin J. Saunders, Esq. Facsimile: (404) 876-4010 If to URI or URI Sub, to: United Rentals, Inc. Four Greenwich Office Park Greenwich, Connecticut 06830 Attn: Mr. John N. Milne Facsimile: (203) 622-6080 With a copy (which shall not constitute notice) to: Oscar D. Folger, Esq. -and- Weil, Gotshal & Manges LLP 521 Fifth Avenue 767 Fifth Avenue New York, New York 10175 New York, New York 10153 Facsimile: (212) 697-5970 Attn: Stephen M. Besen, Esq. Facsimile: (212) 310-8007 9.11 Severability. If any provision of this Agreement is invalid or ------------ unenforceable, the balance of this Agreement shall remain in effect. 9.12 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 either the Sellers or URI (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 URI may assign this Agreement and any or all -------- ------- rights or obligations hereunder (including rights to purchase the Shares and the Assets and rights to seek indemnification hereunder) to any Affiliate of URI, and upon 43 any such permitted assignment, the references in this Agreement to URI, as the case may be, shall also apply to any such assignee unless the context otherwise requires. 9.13 No Third Party Beneficiaries. Except as expressly set forth in this ---------------------------- Agreement, nothing herein, express or implied, is intended to or shall confer upon any Person (including any employees of ARI, the Subsidiary or Reinhart Leasing), other than the parties hereto and the Persons described in Section 8.1 hereof, any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. 9.14 Sellers' Representative. JLR is hereby designated as the representative ----------------------- (the "Representative") to act for and represent the Sellers with respect to all matters arising out of Article II and Article VIII hereof, all matters relating to the Escrow Agreement, and in those other matters with respect to which this Agreement specifies that the Representative shall so act, as well as matters which require notice to be given to the Sellers under this Agreement. Each of the Sellers hereby appoints the Representative as such Seller'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 Seller's behalf (i) to consummate the transactions contemplated by this Agreement, (ii) to disburse any funds received hereunder to the Sellers, (iii) to execute and deliver on behalf of each Seller any amendment or waiver under this Agreement or the Escrow Agreement, and to agree to resolution of all purchase price adjustments and Claims hereunder and thereunder, and (iv) to do each and every act and exercise any and all rights which such Seller or Sellers are permitted or required to do or exercise under this Agreement and the other agreements, documents and certificates executed in connection herewith. [signature pages follow] 44 IN WITNESS WHEREOF, the parties hereto have, as appropriate, executed this Agreement or caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first written above. URI: UNITED RENTALS, INC. By: /s/ John N. Milne ---------------------------------- Name: John N. Milne Title: Vice Chairman and Chief Acquisition Officer URI SUB: UNITED RENTALS OF CANADA, INC. By: /s/ John N. Milne ---------------------------------- Name: John N. Milne Title: REINHART LEASING: REINHART LEASING; LLC By: /s/ Jerry L. Reinhart ---------------------------------- Name: Jerry L. Reinhart Title: Managing Member ARI: ACCESS RENTALS, INC. By: /s/ Jerry L. Reinhart ---------------------------------- Name: Jerry L. Reinhart Title: President THE STOCKHOLDERS: /s/ Jerry L. Reinhart ------------------------------------- Jerry L. Reinhart 45 JERRY L. REINHART CHARITABLE REMAINDER UNITRUST By: /s/ Paul J. Battaglia ---------------------------------- Name: Paul J. Battaglia Title: Trustee JERRY L. REINHART 1997 TRUST FOR THE BENEFIT OF JERRY R. REINHART By: /s/ Paul J. Battaglia ---------------------------------- Name: Paul J. Battaglia Title: Trustee JERRY L. REINHART 1997 TRUST FOR THE BENEFIT OF ANGELINA REINHART By: /s/ Paul J. Battaglia ---------------------------------- Name: Paul J. Battaglia Title: Trustee JERRY L. REINHART 1997 TRUST FOR THE BENEFIT OF JASON REINHART By: /s/ Paul J. Battaglia ---------------------------------- Name: Paul J. Battaglia Title: Trustee JERRY L. REINHART 1997 TRUST FOR THE BENEFIT OF JENNIFER REINHART By: /s/ Paul J. Battaglia ---------------------------------- Name: Paul J. Battaglia Title: Trustee 46 Schedule 5.3 ------------ Consent of Bank of America National Trust and Savings Association, as agent, under URI's Credit Agreement 47 EX-10.(U) 4 STOCK PURCHASE AGREEMENT JAN 13, 1998 EXHIBIT 10(u) STOCK PURCHASE AGREEMENT Dated as of January 13, 1998, by and among United Rentals, Inc. Mission Valley Rentals, Inc. Charles F. Journey and Connie J. Journey 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....................... 1 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............... 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 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 General Release by Shareholders..................... 23 6.8 Shareholders' Representative........................ 24 7. INDEMNIFICATION.......................................... 25 7.1 Indemnity by the Shareholders....................... 25 7.2 Limitations on Shareholders' Indemnities............ 26 7.3 Notice of Indemnity Claim........................... 26 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................................................... 28 8.1 Restrictive Covenants............................... 28 8.2 Rights and Remedies Upon Breach..................... 30 9. GENERAL.................................................. 31 ii Page ---- 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.......................... 32 9.8 Captions............................................ 32 9.9 Number and Gender of Words; Corporation............. 32 9.10 Entire Agreement.................................... 32 9.11 Waiver.............................................. 33 9.12 Construction........................................ 33 10. ARBITRATION AND DISPUTE RESOLUTION....................... 33 iii STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT, dated as of January 13, 1998, is entered into by and among United Rentals, Inc., a Delaware corporation ("United"), Mission Valley Rentals, Inc., a California corporation (the "Corporation"), and Charles F. Journey ("Charles") and Connie J. Journey ("Connie") (Charles and Connie collectively the "Shareholders"). WHEREAS, the Corporation is engaged in the equipment rental, sales and service business in Fremont, Tracy and Dublin, California; WHEREAS, the Shareholders own all of the issued and outstanding capital stock of the Corporation (the "Corporation's Stock"); WHEREAS, United wishes to acquire from the Shareholders all of the issued and outstanding capital stock of the Corporation owned by the Shareholders; 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 twenty million dollars one -------------- hundred ninety one thousand ($20,191,000), subject to adjustment as provided in Section 1.3. 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 account of the Shareholders as set forth on Schedule 3.2. 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 1 of the Corporation 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 Corporation 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 Corporation by a third party lender in connection with its most recent borrowing to finance equipment, of all lease obligations of the Corporation 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) 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 (other than accounts receivable), including prepaid expenses, plus the accounts receivable (including unbilled receivables) of the Corporation earned prior to January 1, 1998, and collectible on or after January 1, 1998 (valued as set forth below), minus the Inventory Value of the fuel and merchandise set forth on Schedule 1.3(c). 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 January 1, 1998, plus $70,000 attributable to the costs of monitoring and remediating the UST cleanup with respect to 41655 Osgood Road described on Schedule 3.26. The Closing Date Working Capital, the Closing Date Current Assets and the Closing Date Current Liabilities are set forth on Schedule 1.3(b). For purposes of valuing the accounts receivable of the Corporation in determining Closing Date Current Assets, such accounts receivable will be valued at ninety eight percent (98%) of their face value. (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. (e) Prior to the Closing, United inspected the Equipment included on the Rental Asset Listing (as described below) and the Purchase Price payable pursuant to Section 1.2 was adjusted for Equipment that was not Rental Ready. For purposes of this Agreement, an item of Equipment was "Rental Ready" only if all required maintenance had been performed and it did not require any repairs in excess of $200 per item for 2 those items having a net book value of $5,000 or greater and $100 per item for those items having a net book value less than $5,000 per item. (f) Schedule 1.3(f) lists accounts receivable of the Corporation which have been written off and which have not been included in the Closing Date Current Assets. To the extent the Corporation collects any such accounts after the Closing Date, the amount collected shall first be applied to the costs of collection and one-half of the remainder shall be paid to the Shareholders. (g) If and when the Corporation receives reimbursement of up to $25,000 from the State of California for remediating the UST cleanup described on Schedule 3.26, the Corporation shall promptly pay one-half of the amount received to the Shareholders. 1.4 HOLD BACK. --------- (a) United held back from the Purchase Price the sum of two million dollars ($2,000,000) (the "Hold Back"), which amount was 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' Representative 90 days after the Closing Date. In the event of any disagreement between United and the 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. Within 30 days following the Closing Date, United and the Shareholders' Representative jointly shall complete a physical inventory 3 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, 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 $25,000. 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 or unavailable Equipment, and by the net proceeds to the Corporation received from the sale of Equipment sold between the date of the Rental Asset Listing and the Closing Date. 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. Any disputes as to the physical count or fair market value 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). "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, be resolved by representatives of 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) 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 90 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 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. For accounting and tax reporting purposes, the Closing was deemed effective as of January 1, 1998. 3. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION AND ----------------------------------------------------- THE SHAREHOLDERS ---------------- The Corporation 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 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 have 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 the Shareholders and, subject to the due authorization, execution and delivery by United, constitutes the legal, valid and binding obligation of the Corporation and the Shareholders enforceable against the Corporation and 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 June 30, 1996 and 1997, compiled by Thomas C. Tang and unaudited interim Financial Statements for the Corporation for the period ended November 30, 1997 (the "Balance Sheet Date"). 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. 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, all contingent liabilities and, to the knowledge of the Corporation and the Shareholders, 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 to which the 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 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 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 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 there is no non-conforming use or other activities 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 leased by the Corporation ("Facility Property") and is legally described on the surveys or site plans attached to Schedule 3.10(b) (the "Facility Surveys/Site Plans"), 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 such Facility owned by the Corporation or owned by the Shareholders or an Affiliate (as hereinafter defined) 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 the 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 parts, supplies and inventory. Except as shall be described on Schedule 3.12(a), all of 9 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 in operable condition, and are in material compliance with all applicable laws, rules and regulations. All such vehicles and equipment (including such Equipment) 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 in full force and effect and binding on the parties thereto; neither the Corporation nor any other party to such leases is in breach of any of the material provisions thereof. Except as described on Schedule 3.12(b) there are 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 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) (September 30, 1997), the Corporation has not acquired or sold or otherwise disposed of any properties or assets which have a value in excess of $25,000 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 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 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 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 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 liability to the Pension Benefit 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. 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 unlawful discrimination in 12 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 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, 1992, 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 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 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 Corporation. Schedule 1.3(b) accurately sets forth the Closing Date Current Assets and Closing Date Current Liabilities of the Corporation. 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 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 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 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 Corporation has 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, 16 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's 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, 17 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 the Corporation intends to terminate, limit or reduce its business relations with the Corporation. 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 18 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 respective 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 any of the Shareholders or any knowledge which should have been obtained by any of the Shareholders upon reasonable inquiry by a reasonable business person. Wherever reference is made in this Agreement to the "knowledge" of the Corporation, such term means the actual knowledge of any management 19 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. 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. 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 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 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 required to be delivered on the Closing Date pursuant to Section 1.2. (b) United executed and delivered the Escrow Agreement. (c) United entered into a Consulting Agreement with Charles on terms and conditions satisfactory to Charles and United. 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. (b) The Shareholders delivered to United an opinion of counsel for the Shareholders, dated as of the Closing Date. (c) The Shareholders delivered evidence reasonably satisfactory to United that all required third party consents to the transactions contemplated hereby, including without limitation all Required Governmental Consents and all required consents of the landlords under all real estate leases to which the Corporation is a party, were obtained. (d) Except as provided in Sections 5.1(e) and 5.1(f), 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. (e) 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 21 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. (f) 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 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 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 22 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 December 31, 1997. 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 January 1, 1998 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. United shall be responsible for federal, state, county and foreign taxes of the Corporation from and after January 1, 1998. 6.7 GENERAL RELEASE BY SHAREHOLDERS. Each of the Shareholders ------------------------------- 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 any of such Shareholders 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 6.7 and expressly described and specifically excepted from this release in Schedule 6.7, (b) compensation as an employee of the Corporation for current periods expressly described and excepted from such release on schedule 6.7, and (c) for the obligations of the Corporation arising after the Closing Date under this Agreement. Specifically, but not by way of limitation, each of the Shareholders waives any right of indemnification, contribution or other recourse against the Corporation which he now has or may hereafter have against the Corporation with respect to representations, warranties or covenants made in this Agreement by the Corporation. Each of the Shareholders 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." 23 Each of the Shareholders 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 6.7, 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. 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 Charles 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) Charles 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. 7. INDEMNIFICATION --------------- 7.1 INDEMNITY BY THE SHAREHOLDERS. Each of the Shareholders, ----------------------------- subject to the limitations set forth in Section 7.2, covenants and agrees that he will indemnify and hold harmless United, the Corporation and their respective directors, officers and agents and their respective successors and assigns (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 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 (other than the UST formerly installed at 41655 Osgood Road to the extent described on Schedule 3.26) 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 25 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 matters described on Schedule 3.8(b). (d) 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 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 $100,000 (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 under Section 7.1 shall expire, unless a Claims Notice is given or litigation is commenced, on or prior to the expiration of the applicable statute of limitations. 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 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 26 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 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 after demand therefor, 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 27 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. 7.5 NO EXHAUSTION OF REMEDIES OR SUBROGATION; RIGHT OF SET OFF. ---------------------------------------------------------- Each of the Shareholders waives 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 the Shareholders pursuant to the Hold Back or under any other agreement, 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 any of the Shareholders or his 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. Each of the Shareholders covenants and agrees 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 Alameda, Contra Costa, Marin, San Francisco, San Joaquin, San Mateo, Santa Clara and Solano, California, or any other county in California where United or one of its subsidiaries owns or operates a business similar to the Business (meaning any location where rental equipment is used by a customer) (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 28 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 the Shareholders may own, directly or indirectly, solely as an investment, securities of any business traded on any national securities exchange or NASDAQ, provided that 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 respective 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, the ---------------- Shareholders shall not, 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 29 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, the Shareholders shall not, 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 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 any of the Shareholders or ------------------------------- any of their Affiliates 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. Each of the Shareholders ------------------------- acknowledges and agrees 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. 30 (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 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: Charles F. Journey 26487 Palomares Road Castro Valley, CA 94522 Fax: (650) 967-2687 With a copy to: David S. Lee, Esq. 4962 El Camino Real, Suite 223 Los Altos, CA 94022 Fax: (650) 967-2687 If to United: United Rentals, Inc. Four Greenwich Office Park Greenwich, CT 06830 Attention: John Milne Fax: (203) 622-6080 31 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 32 understanding between the Corporation, 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 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' Representative 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. 33 IN WITNESS WHEREOF, the parties hereto have executed this Agreement by persons thereunto duly authorized as of the date first above written. THE CORPORATION: MISSION VALLEY RENTALS, INC. By: /s/ Charles F. Journey ------------------------------- Charles F. Journey President THE SHAREHOLDERS: /s/ Charles F. Journey ------------------------------------ Charles F. Journey /s/ Connie F. Journey ------------------------------------ Connie F. Journey UNITED: UNITED RENTALS, INC. By: /s/ John Milne ------------------------------- John Milne, Vice Chairman and Chief Acquisition Officer 34 EX-10.(V) 5 STOCK PURCHASE AGREEMENT JAN 22, 1998 EXHIBIT 10(v) UNITED RENTALS, INC. UNITED RENTALS OF CANADA, INC. BNR GROUP SHAREHOLDERS --------------------------------------- STOCK PURCHASE AGREEMENT DATED ON AND AS OF JANUARY 22, 1998 --------------------------------------- HEENAN BLAIKIE Suite 2600 Royal Bank Plaza, South Tower Toronto, Ontario M5J 2J4 TABLE OF CONTENTS Page 1. PURCHASE OF STOCK.....................................2 Shares to be Purchased.....................................2 1.2 Purchase Price...................................2 1.3 Adjustments to Purchase Price....................2 1.4 Hold Back........................................3 1.5 Additional Purchase Price........................6 1.6 Excluded Assets..................................6 2. CLOSING TIME AND PLACE................................6 3. REPRESENTATIONS AND WARRANTIES OF THE BNR GROUP AND THE SHAREHOLDERS............6 3.1 Organization, Standing and Qualification.........7 3.2 Capitalization...................................7 3.3 All Stock Being Acquired.........................7 3.4 Authority for Agreement..........................7 3.5 No Breach or Default.............................7 3.6 Subsidiaries.....................................8 3.7 Financial Statements.............................8 3.8 Liabilities......................................8 3.9 Rental Asset Listing............................10 3.10 Permits and Licenses............................10 3.11 Certain Receivables.............................11 3.12 Fixed Assets and Real Property..................11 3.13 Acquisition/Disposal of Assets..................13 3.14 Contracts and Agreements; Adverse Restrictions..13 3.15 Insurance.......................................13 3.16 Personnel.......................................14 3.17 Benefit Plans and Union Contracts...............14 3.18 Tax Matters.....................................15 3.19 Copies Complete.................................18 3.20 Product Quality, Warranty Claims, Product Liability..............................19 3.21 No Change With Respect to BNR Group.............19 3.22 Closing Date Debt, Effective Date Current Assets and Effective Date Current Liabilities............................21 3.23 Bank Accounts...................................21 3.24 Compliance With Laws............................21 3.25 Powers of Attorney..............................22 3.26 Underground Storage Tanks.......................22 i 3.27 Patents, Trademarks, Trade Names, etc...........23 3.28 Assets, etc., Necessary to Business.............23 3.29 Condemnation....................................24 3.30 Manufacturers, Suppliers and Customers..........24 3.31 Absence of Certain Business Practices...........24 3.32 Related Party Transactions......................24 3.33 Disclosure Schedules............................24 3.34 No Misleading Statements........................24 3.35 Accurate and Complete Records...................25 3.36 Knowledge.......................................25 3.37 Brokers: Finders................................25 4. REPRESENTATIONS AND WARRANTIES OF UNITED.............25 4.1 Existence and Good Standing.....................25 4.2 No Contractual Restrictions.....................26 4.3 Authorization of Agreement......................26 4.4 No Misleading Statements........................26 4.5 Brokers: Finders................................26 4.6 Disclosure Schedules............................26 5. CLOSING DELIVERIES...................................26 5.1 United Deliveries...............................26 5.2 BNR Group and Shareholder Deliveries............27 6. ADDITIONAL COVENANTS OF UNITED, THE BNR GROUP AND THE SHAREHOLDERS....................................28 6.1 Further Assurances and Additional Conveyances...28 6.2 Release of Guaranties...........................28 6.3 Confidentiality.................................28 6.4 Brokers' and Finders' Fees......................28 6.5 Taxes...........................................28 6.6 (a) Short Year Tax Returns......................29 7. INDEMNIFICATION......................................29 7.1 Indemnity by the Shareholder....................29 7.2 Limitations on Shareholders' Indemnities........31 7.3 Notice of Indemnity Claim.......................31 7.4 Survival of Representations, Warranties and Agreements.................................33 7.5 No Exhaustion of Remedies or Subrogation: Right of Set Off...............................33 ii 8. OTHER POST-CLOSING COVENANTS OF THE SHAREHOLDERS AND UNITED..........................................33 8.1 Restrictive Covenants...........................33 (a) Non-Compete................................34 (b) Confidential Information...................34 (c) Property of the Business..............34 (d) Non-Solicitation......................35 (e) Teremination Without Cause............35 (f) No Disparagement......................35 8.2 Rights and Remedies Upon Breach.................36 (a) Specific Performance..................36 (b) Accounting............................36 (c) Severability of Covenants.............36 Enforceability in Jurisdiction.......................36 9. GENERAL..............................................36 9.1 Assignment......................................36 9.2 Counterparts....................................37 9.3 Notices.........................................37 9.4 Attorneys' Fees.................................38 9.5 Applicable Law and Attornment...................38 9.6 Payment of Fees and Expenses....................38 9.7 Incorporation by Reference......................38 9.8 Captions........................................38 9.9 Number and Gender of Words......................38 9.10 Entire Agreement................................38 9.11 Waiver..........................................38 9.12 Construction....................................39 10. ARBITRATION AND DISPUTE RESOLUTION...................39 SCHEDULES iii STOCK PURCHASE AGREEMENT ------------------------ THIS STOCK PURCHASE AGREEMENT, made on and as of January 22, 1998, is entered into by and among: 1. United Rentals, Inc. ("United US"), a Delaware corporation, and United Rentals of Canada, Inc. ("United Canada"), an Ontario corporation and wholly owned subsidiary of United Rentals, Inc. (collectively "United"); 2. BNR Equipment Limited, 650310 Ontario Limited, 754643 Ontario Limited and 766903 Ontario Inc.(collectively "BNR Canada"); 3. BNR Equipment, Inc. ("BNR US"); and 4. Boyd Bell and 1270983 Ontario Limited (a company wholly owned and controlled by Boyd Bell), David Nigh and 1270982 Ontario Limited (a company wholly owned and controlled by David Nigh), 1270984 Ontario Limited ("Holdco"), BNR Equipment Limited, Dean Bell, Steve Fay, John Folkerson, William McArthur, John Goetz, Harley Goldsworthy, Kirby Shantz, Randy Speaker, James Luft, Marilyn Nigh and Carolynn Bell (individually a "Shareholder" and collectively the "Shareholders"). Each BNR Canada company, BNR US and Holdco may be referred to individually as a "BNR Company" and collectively as the "BNR Companies" or the "BNR Group". In addition, Messrs. Boyd Bell and David Nigh may be referred to as the "Principal Shareholders". WHEREAS BNR Canada is engaged in the equipment rental, sales and service business in Ontario, Canada; AND WHEREAS BNR US is engaged in the equipment rental, sales and service business in the State of New York; AND WHEREAS the Shareholders (other than Steve Fay) own all of the issued and outstanding capital stock of BNR Canada (the "BNR Canada Stock"); AND WHEREAS BNR Equipment Limited, Dean Bell and Steve Fay own all of the issued and outstanding capital stock of BNR US (the "BNR US Stock"); AND WHEREAS 1270982 Ontario Limited and 1270983 Ontario Limited own all of the issued and outstanding capital stock of Holdco (the "Holdco Stock"); AND WHEREAS United Canada wishes to acquire the BNR Canada Stock from the Shareholders (other than Steve Fay) and the Holdco Stock from 1270982 Ontario Limited and 1270983 Ontario Limited; AND WHEREAS United US wishes to acquire the BNR US Stock from BNR Equipment Limited, Dean Bell and Steve Fay. 1 NOW THEREFORE, in consideration 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 STOCK ----------------- 1.1 SHARES TO BE PURCHASED. At the Closing (as hereinafter defined): ---------------------- (i) BNR Equipment Limited, Dean Bell and Steve Fay shall first sell and deliver the BNR US Stock to United US; and then (ii) the Shareholders (other than Steve Fay) shall sell and deliver the BNR Canada Stock to United Canada. United US and United Canada shall pay the purchase price described in Section (the "Purchase Price") to the Shareholders, all in accordance with the allocations set forth in Schedule 1.1. 1.2 PURCHASE PRICE. The Purchase Price is CAD26,900,000, subject to -------------- adjustment as provided for in Sections and 1.5. The Purchase Price, as adjusted, less the Hold Back (as defined in Section ) shall be paid as follows: (i) CAD26,359,000 shall be paid in cash by wire transfer and (ii) United shall issue an aggregate of 22,952 Common Shares, all in accordance with the allocations set forth in Schedule 1.1. The Purchase Price shall be paid by United to the Shareholders in accordance with the allocations set forth in Schedule 1.1. 1.3 ADJUSTMENTS TO PURCHASE PRICE. The Purchase Price shall be adjusted ----------------------------- as follows: (a) The Closing Date Debt shall be subtracted from the Purchase Price. The Closing Date Debt is set forth in Schedule 1.3(a) and includes: (i) the amount of the aggregate debt (excluding trade payables) of the BNR Group 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 as at the Closing Date; (ii) the amount of the aggregate debt (excluding trade payables) of the BNR Group outstanding on the Closing Date which will remain outstanding obligations of the BNR Group after the Closing Date, including in each case all interest accrued through to 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 BNR Group as at the Closing Date; (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 BNR Group by a third party lender in connection with its most recent borrowing to finance equipment, of all lease obligations of the BNR Group that are not capitalized lease obligations as at the Closing Date; and (v) any bonuses payable to employees other than included in Section 1.3(b). 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. 2 (b) The amount by which the working capital as at January 1, 1998 (the "Effective Date Working Capital") is greater or less than zero shall be added to or subtracted from the Purchase Price, as the case may be. The Effective Date Working Capital shall be determined by subtracting the Effective Date Current Liabilities from the Effective Date Current Assets. The Effective Date Current Assets consist of the amount of the aggregate current assets of the BNR Group as of the Effective Date (other than accounts receivable and cash), including prepaid expenses plus the accounts receivable of the BNR Group earned prior to the Effective Date and collectible on or after the Effective Date (subject to an allowance for collectibility), minus the Inventory Value of the merchandise set forth in Schedule 1.3(c). The Effective 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 Effective Date Debt) and trade payables of the BNR Group as of the Effective Date. The Effective Date Working Capital, the Effective Date Current Assets and the Effective Date Current Liabilities are set forth in Schedule 1.3(b). For greater certainty, the balances of any deferred taxes of the BNR Group at Closing shall not include in the assets or liabilities to be added or deducted from the Purchase Price. In addition, the cash balances of the BNR Group as at the Closing Date shall be added to the Purchase Price. (c) The Inventory Value (as defined below) of the merchandise held for sale, which is set forth in Schedule 1.3(c), shall be added to or subtracted from the Purchase Price. (d) The invoice value of any new Equipment listed in Schedule 1.3(d), which Equipment was not included in the Rental Asset Listing described in Section because it was acquired by the BNR Group after the date of the Rental Asset Listing with United's consent shall be added to the Purchase Price less the net proceeds to the BNR Group received from the sale of Equipment sold between the date of the Rental Asset Listing and the Closing Date. 1.4 HOLD BACK. --------- (a) Two million dollars (CAD$2,000,000) shall be held back by United (the "Hold Back") for later distribution pending the determination of the amount of the Equipment Adjustment, Inventory Adjustment and Working Capital Adjustment pursuant to Sections , and , respectively. Subject to the terms of an escrow agreement to be entered into among United, the Shareholders and an escrow agent to be mutually agreed upon by such parties, the Hold Back shall be deposited in a Canadian Schedule I bank and bear interest for the account of the party entitled to payment thereof at the highest rate available for 90 day deposits at such bank. United and the Shareholders will use reasonable commercial efforts to complete the Equipment Adjustment, the Inventory 3 Adjustment and the Working Capital Adjustment within 90 days after the Closing Date (the "Adjustment Determination Date"), whereupon United shall notify the Shareholders of the amount of such Adjustments. If there is no disagreement between United and the Shareholders 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 pay the balance of the Hold Back to the Shareholders 120 days after the Closing Date (the "Hold Back Period"). In the event of any disagreement among United and the Shareholders 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 pay 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 pay 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, as of October 31, 1997, the asset description, make, model, original cost and net book value of: (i) all equipment held for lease or rent to customers; (ii) all transportation equipment (collectively the "Equipment"); and (iii) equipment held for repair parts only. The Equipment is Rental Ready (as defined below). Within 30 days following the Closing Date, United and the Shareholders jointly shall complete a physical inventory of each item of Equipment on the Rental Asset Listing and on Schedule 1.3(d), 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 on Schedule 1.3(d) which has been sold, is missing, is not Rental Ready, or is otherwise not available for rent to customers by the BNR Group. The reduction in the Purchase Price shall be calculated by the aggregate fair market value (as determined by United and the Shareholders) of all missing or unavailable Equipment, and by the net proceeds to the BNR Group received from the sale of Equipment sold between the date of the Rental Asset Listing and the Closing Date. With respect to non-Rental Ready Equipment, the Purchase Price shall be adjusted by an amount equal to the lesser of the cost of repairs and the fair market value of such Equipment as if it was in reasonable operating condition. 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 repairs in excess of 2.5% of the original cost to make it operable. 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. 4 In the event Equipment is not Rental Ready and an adjustment is required hereunder, the Principal Shareholders may elect, on behalf of all the Shareholders, on or before the Adjustment Determination Date, to either (i) make, or have made, at their expense the repairs required to make such Equipment Rental Ready; or (ii) purchase such Equipment at the fair market value of such Equipment as if it was in reasonable operating condition. (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 merchandise included in Schedule 1.3(c) as of the Closing Date is greater or less than the amount set forth in Schedule 1.3(c). "Inventory Value" shall mean the lower of (x) vendor cost based on the last merchandise received (including all freight) and (y) market value as of the Effective Date, as determined in accordance with generally accepted accounting principles (no value shall be ascribed to non-saleable or obsolete merchandise, parts or supplies). Inventory Value shall be determined pursuant to a physical inventory to be taken promptly following the Closing Date, and shall be finalized on or before the Adjustment Determination Date. Any disputes as to the physical condition, saleability or obsolescence of any item of Inventory will, if possible, be resolved by representatives of United and the Shareholder while such physical inventory is being taken. Any disputes regarding the foregoing not so resolved will be resolved by arbitration in accordance with Section . (d) The adjustment made to the Purchase Price wired on the Closing Date pursuant to Section is based on Schedule 1.3(b) as delivered at the Closing, which the parties understand includes only an estimate of the Effective Date Working Capital. On or before the Adjustment Determination Date, United will determine the actual Effective Date Working Capital and will advise the Shareholder of such actual amount. If the Purchase Price increases, United will promptly pay any additional amount due to the Shareholder on the Adjustment Determination 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 Shareholder 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 . The Purchase Price shall also be reduced on the Adjustment Determination Date, on a dollar-for-dollar basis, by the value of all accounts receivable included in Effective Date Current Assets that have not been collected on or before the Adjustment Determination Date. United will cause the BNR Group to use commercially reasonable efforts to collect all such accounts receivable on or before the Adjustment Determination Date. Payments received on or before the Adjustment Determination Date with respect to 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." Any accounts receivable which remain uncollected at the 5 end of the Hold Back Period shall be assigned and allocated to the Shareholders on a pro rata basis as set forth in Schedule 1.2. 1.5 ADDITIONAL PURCHASE PRICE. ------------------------- In addition, for the period commencing January 1, 1998 and ending December 31, 2001, United shall pay the Principal Shareholders an amount equal to: (i) 5% of any gross rental revenue which United or any subsidiary or affiliate thereof, generates in the Province of Ontario and Metropolitan Buffalo; and (ii) 2.5% of any gross revenue from the sale of new or used equipment or supplies, which United or any subsidiary or affiliate thereof generates in the Province of Ontario and Metropolitan Buffalo. Payments under this Section 1.5 shall be made on a quarterly basis within 30 days of the end of the preceding calendar quarter and shall continue until the earlier of December 31, 2001 or until payments hereunder total CAD$4,000,000 in the aggregate (for greater certainty, the parties acknowledge that a payment may need to be made on or before March 30, 2002 with respect to the fiscal quarter ended December 31, 2001). 1.6 EXCLUDED ASSETS. The assets of the BNR Group listed in Schedule 1.6 --------------- (the "Excluded Assets") shall be distributed to the Shareholders prior to Closing in accordance with the steps set forth in Schedule 3.18(l), 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") shall take place upon the execution of this Agreement in the following sequence: firstly, the BNR US Stock shall be transferred and delivered to United US; and secondly, the BNR Canada Stock and Holdco Stock shall be transferred and delivered to United Canada, all on and as of the date first written above (the "Closing Date"). The Closing shall take place at the offices of Heenan Blaikie, Suite 2600, South Tower, Royal Bank Plaza, Toronto, Ontario M5J 2J7. At the Closing, United, BNR Group and the Shareholders shall deliver to each other the documents, instruments and other items described in Section 5 of this Agreement. 3. REPRESENTATIONS AND WARRANTIES ------------------------------ OF THE BNR GROUP AND THE SHAREHOLDERS ------------------------------------- 6 Each BNR Company and the Shareholders, jointly and severally, (i) represent and warrant to United that each of the following representations and warranties is true and correct as of the Closing Date with respect to each BNR Company and each Shareholder, as the case may be, and (ii) agree that such representations and warranties shall survive the Closing. 3.1 ORGANIZATION, STANDING AND QUALIFICATION. Each BNR Company is duly ---------------------------------------- organized, validly existing and in good standing under jurisdiction of its incorporation. Each BNR Company has full corporate power and authority to own and lease its properties and to carry on its business as now conducted. No BNR Company 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 each BNR Company, the name, addresses and social security numbers or taxpayer identification numbers of the registered and beneficial owners thereof, and the number of shares so owned. On the Closing Date, all of the issued and outstanding shares of the capital stock of the BNR Group 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 in the capital stock of a BNR Company 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 a BNR Company. 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 a BNR Company) exists which obligates a BNR Company to issue any of its authorized but unissued capital stock or other equity interest, or which obligates a Shareholder to transfer any BNR Shares to any person. 3.3 ALL STOCK BEING ACQUIRED. The BNR US Stock, BNR Canada Stock and the ------------------------ Holdco Stock being acquired by United hereunder constitutes all of the outstanding capital stock of the BNR Companies. 3.4 AUTHORITY FOR AGREEMENT. Each BNR Company and Shareholder has full ----------------------- right, power and authority to enter into this Agreement and to perform its his or her obligations hereunder. The execution and delivery of this Agreement by the BNR Companies has been duly authorized by its Board of Directors or Shareholders as the case may be. This Agreement has been duly and validly executed and delivered by each BNR Company and the Shareholders and, subject to the due authorization, execution and delivery by United, constitutes the legal, valid and binding obligation of each BNR Company and the Shareholders enforceable against each BNR Company and the Shareholders in accordance with its terms. 3.5 NO BREACH OR DEFAULT. Except as disclosed in Schedule 3.5, the -------------------- execution and delivery by a BNR Company and the Shareholders of this Agreement, and the consummation by the 7 BNR Group and 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, or in any manner release any party from any obligation under, require any consent under, result in any lien, claim, or encumbrance on the stock or the assets of a BNR Company 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 BNR Company or a Shareholder is a party, or by a BNR Company, or by which any of its assets, is or may be bound or affected; (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, Bylaws or other constating documents of or relating to a BNR Company. 3.6 SUBSIDIARIES. Schedule 3.6 lists, as of the Closing Date, any and all ------------ subsidiaries of a BNR Company and any securities of any other corporation or any securities or other interest in any other business entity owned by a BNR Company or any of its subsidiaries. 3.7 FINANCIAL STATEMENTS. BNR Group has delivered to United, as Schedule -------------------- 3.7, copies of the following financial statements ("Financial Statements"): financial statements for the fiscal years ended March 31, 1996 and 1997, compiled by KPMG, Chartered Accountants, and unaudited interim Financial Statements for the BNR Group for the 10 month period ended October 31, 1997 (the "Balance Sheet Date"). The Financial Statements are true and correct and fairly present (i) the financial position of the BNR Group as of the respective dates of the balance sheets included in said statements, and (ii) the results of operations for the respective periods indicated. 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 BNR Group balance sheet as of the Balance Sheet Date, or as disclosed in Schedule 3.7 or Schedule 3.8, the BNR Group 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. 3.8 LIABILITIES. Schedules 3.8(a), (b), (c) and (d), are accurate lists ----------- and descriptions of all liabilities of the BNR Group 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 Effective 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 8 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 the liability is 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 BNR Group and, to the knowledge of the BNR Group and the Shareholders, all contingent liabilities and all claims, suits and proceedings threatened against the BNR Group. 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 BNR Group 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 BNR Group (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 to which the BNR Group is a party as lessor or lessee or, to the knowledge of the BNR Group 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. 9 Except as described on Schedules 3.8(a), (b), (c) and (d), neither the BNR Group nor the Shareholders have 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 in Schedule 3.8(a), (b), (c) and (d) except, in the case of liabilities and obligations listed in 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 BNR Group for lease or rent to customers and all transportation equipment, other than Equipment acquired after October 31, 1997, the date of the Rental Asset Listing. All other Equipment acquired or disposed of after October 31, 1997 is listed in Schedule 1.3(d). 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 BNR Group (collectively the "Governmental Permits") owned by, issued to, held by or otherwise benefiting the BNR Group or the Shareholders as of the Closing Date. Any material conditions to the Governmental Permits and, if applicable, the expiration dates thereof, are also described in Schedule 3.l0(a). Schedule 3.l0(a) also sets forth the name of any third party from whom the Shareholder, the BNR Group 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 in Schedule 3.10(a), all of Governmental Permits enumerated and listed in Schedule 3.l0(a) are adequate for the operation of the business of the BNR Group 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 BNR Group or the Shareholders, threatened which may result in the revocation, cancellation, suspension or adverse modification of any of the same. Neither the BNR Group nor the Shareholders have 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, previously owned, leased, operated or otherwise used by the BNR Group, the ownership, lease, operation or use of which is being transferred to, assumed by or otherwise acquired directly 10 or indirectly by United pursuant to this Agreement (each, a "Facility" and collectively, the "Facilities"). Except as otherwise disclosed in Schedule 3.l0(b): (i) each Facility is fully licensed, permitted and authorized to carry on its current business under all applicable federal, state, provincial and local statutes, orders, approvals, zoning or land use requirements, rules and regulations and there is no non-conforming use or other activities 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, provincial 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, previously owned or leased by a BNR Company ("Facility Property") and is legally described in Schedule 3.l0(b), which Schedule includes the surveys and site plans in the possession or control of the BNR Group (the "Facility Surveys/Site Plans"), which when delivered will accurately depict the respective Facility Property; and (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 such Facility owned by a BNR Company or the Shareholders or an Affiliate (as hereinafter defined) of the Shareholders and leased to a BNR Company, and to the knowledge of the BNR Group 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 the Facilities. 3.11 CERTAIN RECEIVABLES. Schedule 3.11 is an accurate list as of the ------------------- Effective Date of the accounts and notes receivable of the BNR Group 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 BNR Company 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. 11 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 in Schedule 1.3(d)) of the BNR Group, including, without limitation, identification of each vehicle by description and serial number, identification of machinery, equipment and general descriptions of parts, supplies and inventory. Except as shall be described in Schedule 3.12(a), to the knowledge of the BNR Group and the Shareholders, all of the BNR Group's vehicles, machinery and equipment necessary for the operation of its business (other than the Equipment listed in Schedule 1.3(d) and the Rental Asset Listing) are in operable condition, and are in material compliance with all applicable laws, rules and regulations. All such vehicles and equipment (including the Equipment) are substantially free of actually 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 BNR Group 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 BNR Group 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 in 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 BNR Group together with copies of all of the title exceptions referred to in said commitments. All leases listed in Schedule 3.12(b) are in full force and effect and binding on the parties thereto. Except as described in Schedule 3.12(b) there are 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 BNR Group 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 BNR Group, and have arisen only in the ordinary course of business and consistent with past practice; and (iii) the liens identified in Schedule 3.8(c) (collectively, the "Permitted Liens"). Except as described in Schedule 3.12(b) there are 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 12 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 in Schedule ------------------------------ 3.13, since the date of the Rental Asset Listing attached as Schedule 1.4(b), the BNR Group has not acquired or sold or otherwise disposed of any properties or assets which have a value in excess of $25,000 in the aggregate, or which are material to the operation of the BNR Group'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, a copy of which is attached as Schedule 3.14(a)), leases included with Schedule 3.12(b) and documents included with Schedule 3.12(b)) to which a BNR Company 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 labour organizations, promissory notes, loan agreements, bonds, mortgages, deeds of trust, liens, pledges, conditional sales contracts or other security agreements). Except as disclosed in 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 in Schedule 3.14(a), no BNR Company, to 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 BNR Group or any Shareholder 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 in Schedule 3.14(a). (b) Except as set forth in Schedule 3.14(b), there is no outstanding judgment, order, writ, injunction or decree against the BNR Group, the result of which could materially adversely affect a BNR Company or its business or any of the Corporate Properties, nor has any BNR Company 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 BNR Group in respect of the Facilities, the Corporate Properties or any other property used by the BNR Group 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 BNR Group. For each insurer providing coverage for any of the contingent or other liabilities listed in 13 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 BNR Group or a BNR Company and the insurer has assumed defence 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 BNR 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. Schedule 3.16 shall also lists the driver's license number for each driver of a BNR Group motor vehicle 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 BNR Group'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 a BNR 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 Closing Date. Except for the employee benefit plans described in Schedule 3.17(a), the BNR Group 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 in Schedule 3.17(a), all employee benefit plans listed in Schedule 3.17(a) are fully funded and in substantial compliance with all applicable federal, state, provincial and local statutes, ordinances and regulations. Except as disclosed in 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 BNR Group has not sponsored, administered or otherwise participated in or made contributions to any multi-employer pension plan or other pension plan that is registered (or that should be registered) with the Ontario Pension Commission or with any other regulatory authority in Canada or the United States. No employee benefit plan or pension plan is under funded on a termination basis or on a going concern basis as of the date of this Agreement. 14 (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 BNR Company and any collective bargaining group. The BNR Group is in compliance in all material respects with all applicable federal, state, provincial and local 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 labour practice. There is no charge pending or, to the BNR Group's or the Shareholders' knowledge, threatened, against a BNR Company 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 labour practice against it pending before the Ontario Labour Relations Board. There is no labour strike, dispute, slow down or stoppage as of the Closing Date, existing or threatened against a BNR Company; no union organizational activity exists respecting employees of a BNR Company; and there are no union contracts or other agreements entered into or pending with respect to a BNR Company. No one has petitioned within the last five years, and no one is now petitioning, for union representation of any employees of a BNR Company. The BNR Group has not experienced any labour strike, slow-down, work stoppage, labour difficulty or other job action during the last five years. (c) For greater certainty, no notice has been received by the BNR Group of any complaint filed by any of the employees against a BNR Company claiming that any BNR Company has violated the EMPLOYMENT STANDARDS ACT (Ontario), the HUMAN RIGHTS CODE (Ontario), the PAY EQUITY ACT (Ontario) (or any applicable employee, human rights or similar legislation in the other jurisdictions in which the business is conducted) there are no outstanding orders or charges against any BNR Company under the OCCUPATIONAL HEALTH AND SAFETY ACT (Ontario) (or any applicable Health and Safety legislation in other jurisdictions in which the BNR Group does business). All levies, assessments and penalties made against any BNR Company pursuant to the WORKPLACE SAFETY AND INSURANCE ACT (Ontario) (and any applicable workers' compensation legislation in the other jurisdictions in which the BNR Group's business is conducted) have been paid by BNR Group and no BNR Company has been re-assessed under any such legislation during the past five (5) years. 3.18 TAX MATTERS. ----------- (a) Definitions. For purposes of this Agreement, the following ----------- definitions shall apply: (i) an "assessment" shall include a reassessment or additional ---------- assessment and the term "assessed" shall be interpreted in the same -------- manner. (ii) "Pre-Closing Distribution" means the distribution of the ------------------------ Excluded Assets to the Shareholders prior to the Closing Date as set out in schedule 3.18(l) 15 hereof. (iii) "Closing Balance Sheet" means the unaudited consolidated --------------------- balance sheet for the BNR Group for the period ending on the Closing Date, which statement shall be prepared in accordance with GAAP and in a manner that is consistent with the past practices of the BNR Group. (iv) "Tax" and "Taxes" shall mean any or all Canadian federal, --- ----- provincial, local or foreign (ie. non-Canadian) income, gross receipts, real property gains, goods and services, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, or other taxes, levies, governmental charges or assessments of any kind whatsoever, including, without limitation, any estimated tax payments, interest, penalties or other additions thereto, whether or not disputed. (v) "Tax Return" shall mean any return, declaration, report, ---------- estimate, information return or statement, or claim for refund relating to, or required to be filed in connection with any Taxes, including information returns or reports with respect to withholding at source or payments to third parties, and any schedules or attachments thereto or amendments of any of the foregoing. (b) Each of the BNR Companies has filed on a timely basis all Tax Returns required to be filed. To the knowledge of the BNR Group and the Shareholders, all such Tax Returns are complete and accurate in all respects. All Taxes due from or payable by the BNR Companies for periods (or portions thereof) ending on or prior to the Closing Date that are shown on any Tax Return including all Taxes arising as a result of the Pre- Closing Distribution, except as disclosed in Schedule 3.18 (b), have been paid or will be provided for in the Closing Balance Sheet. All installments or other payments on account of Taxes that relate to periods for which Tax Returns are not yet due have been paid on a timely basis. None of the BNR Companies are currently the beneficiary of any extension of time within which to file any Tax Return. Schedule 3.18 (b)(i) contains a ----------------- complete and accurate summary of all Canadian or United States federal, provincial or state income tax assessments that have been issued to each of the BNR Companies covering all past periods up to and including the fiscal years ended on or before the Closing Date. All amounts disclosed on Schedule 3.18(b)(i) have been paid or settled in full. Schedule 3.18(b)(ii) contains a complete and accurate summary of all fiscal periods that remain open for assessment of additional Taxes. Assessments for all other applicable Canadian or United States federal, provincial or state Taxes of the BNR Companies that are levied by way of assessment have 16 been issued and any amounts owing thereunder have been paid, and only the time periods described in Schedule 3.18 (b)(ii) remain open for --------------------- reassessment of additional Taxes. There are no actions, objections, appeals, suits or other proceedings or claims in progress, pending by or against any of the BNR Companies or, to the knowledge of the Sellers, threatened against any of the BNR Companies in respect of any Taxes, and in particular there are no currently outstanding reassessments or written enquiries which have been issued or raised by any government authority relating to any such Taxes. No claim has ever been made by an authority of any jurisdiction where any particular BNR Company does not file Tax Returns that such BNR Company is or may be subject to taxation by that jurisdiction. There are no security interests, liens, encumbrances, or claims pending on or with respect to any of the assets of any of the BNR Companies that arose in connection with any failure (or alleged failure) to pay any Tax. (c) To the knowledge of the BNR Group and the Shareholders, each of the BNR Companies has withheld, collected and paid to the proper governmental authority all Taxes required to have been withheld, collected and paid in connection with (i) amounts paid, credited or owing to any employee, independent or dependent contractor, creditor, shareholder, non- resident of Canada or other third party, and (ii) goods and services received from or provided to any person. (d) None of the shareholders or the directors and officers (or employees responsible for Tax matters) of any of the BNR Companies is aware of any steps being taken by any authority to assess any additional Taxes against any of the BNR Companies for any period for which Tax Returns have been filed and none of the shareholders or the directors and officers (or employees responsible for Tax matters) of any of the BNR Companies is aware of any actual or pending investigations of any of such entity relating to Taxes. United has been provided with correct and complete copies of all Tax Returns of the BNR Companies, together with any notices of assessment, examination reports or statements of deficiencies assessed against or agreed to by any of the BNR Companies, for all taxable periods for which the statute of limitations has not yet closed and any correspondence relating thereto. (e) None of the BNR Companies has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment, or deficiency. (f) At the time of the Closing, the unpaid Taxes of each of the BNR Companies attributable to all periods (or portions thereof) ending on or prior to the Closing Date will not exceed the reserve for Tax liability set forth on the face of the Closing Balance Sheet. (g) Except as set forth in Schedule 3.18 (g), none of the BNR --------------------- Companies (i) is a party to any Tax allocation or sharing agreement, (ii) has been a member of an affiliated, combined or unitary group filing a combined, unitary, or other return for provincial, local or 17 foreign tax (ie. non-Canadian) purposes reflecting the income, assets, or activities of affiliated companies, or (iii) has any liability for the Taxes of any person or entity other than the Companies under any provision of Canadian or United States federal, provincial, state, local or foreign law, or as a transferee or successor, or by contract, or otherwise. (h) None of the BNR Companies is a party to any joint venture, partnership or other arrangement or contract that could be treated as a partnership for Tax purposes. (i) None of the Sellers are non-resident persons within the meaning of the Income Tax Act (Canada) ("ITA"). (j) To the knowledge of the Shareholders and the BNR Group, the tax basis of the assets of the BNR Companies by category including the classification of such assets as being depreciable or amortizable as reflected in their respective Tax Returns and related work papers is true and correct in all material respects. (k) There are no circumstances existing at or prior to the time of Closing which could, in themselves, result in the application of any of the Sections 80 to 80.03 of the ITA or any equivalent provincial provisions to any of the BNR Companies; none of the BNR Companies have made (and none will, at or prior to the time of Closing, make) any election pursuant to Section 80.04 of the ITA or any equivalent provincial provision in which it is an eligible transferee; none of the BNR Companies has filed, or will file in respect of its taxation year ending at the time of Closing (the "Closing Time Year") an agreement pursuant to Section 191.3 of the ITA or ------------------ any equivalent provincial provision; and none of the BNR Companies has claimed and none will in their returns for the Closing Time Year claim any reserve under any of the Sections 40(1) (a) (iii) or 20 (1) (n) of the ITA or any equivalent provincial provision of any amount that could be included in any BNR Company's income for any period ending after the time of Closing in respect of any such reserve. (l) The steps necessary to complete the Pre-Closing Distribution and the amount of income, gains and Taxes arising as a result of the Pre- Closing Distribution are fully and accurately set out in Schedule 3.18 (l) ----------------- hereof. 3.19 COPIES COMPLETE. Except as disclosed in Schedule 3.19, the certified --------------- copies of the Articles of Incorporation and Bylaws of each BNR Company, 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 in Schedule 3.19, the rights and benefits of the BNR Group will not be adversely affected by the transactions contemplated hereby, and the execution of this Agreement and the performance of the obligations hereunder will 18 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 BNR Group 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 the BNR Group has no liability (and there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against a BNR Company 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 a BNR 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 3.20, the BNR Group 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 BNR Group 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 a BNR Company on or prior to the Closing Date. All product liability claims that have been asserted against a BNR Company since January 1, 1995, whether covered by insurance or not, and whether litigation has resulted or not, are listed and summarized in Schedule 3.20. 3.21 NO CHANGE WITH RESPECT TO BNR GROUP. Except as set forth on Schedule ----------------------------------- 3.21, since the Balance Sheet Date, the business of the BNR Group has been conducted only in the ordinary course and there has been no change in the condition (financial or otherwise) of the assets, liabilities or operations of the BNR Group 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 the BNR Group, 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 a BNR Company or the BNR Group, 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 19 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 labour 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 or as required by the Pre-Closing Distribution; (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 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; (m) any decline in the stockholders equity of the BNR Group to an amount less than the stockholders equity of the BNR Group as of the Balance Sheet Date; (n) any increase in the amount of indebtedness owed by the Shareholders or their 20 Affiliates to any person other than the BNR Group 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 BNR Group; or (p) any other transaction outside the ordinary course of its business. 3.22 CLOSING DATE DEBT, EFFECTIVE DATE CURRENT ASSETS AND EFFECTIVE DATE ------------------------------------------------------------------- CURRENT LIABILITIES. -------------------- Schedule 1.3(a) accurately sets forth the Effective Date Debt of the BNR Group. Schedule 1.3(b) accurately sets forth the Effective Date Current Assets and Effective Date Current Liabilities of the BNR Group. 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 a BNR Company 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 in Schedule 3.24, the BNR -------------------- Group and all activities undertaken on any and all Corporate Properties have complied with, and the BNR Group and all such activities are presently in material compliance with: (i) federal, state, provincial and local laws, ordinances, codes, rules, regulations, Governmental Permits, orders, judgments, awards, decrees, consent judgments, consent orders and requirements applicable to it including, but not limited to, the AMERICANS WITH DISABILITIES ACT, the FEDERAL OCCUPATIONAL SAFETY AND HEALTH ACT, OCCUPATIONAL HEALTH AND SAFETY ACT (ONTARIO), THE HUMAN RIGHTS CODE, WORKPLACE SAFETY AND INSURANCE ACT (ONTARIO), (collectively "Laws"); and (ii) laws relating to the public health, safety or protection of the environment (collectively, "Environmental Laws"). Except as disclosed in Schedule 3.24, there has been no assertion by any party that a BNR Company is in violation of any Laws. Specifically and without limiting the generality of the foregoing, except as disclosed in Schedule 3.24: (i) except as permitted under Environmental Laws, the BNR Group has not processed, handled, transferred, generated, treated, stored or disposed of any Hazardous Material (as defined below), (ii) no Hazardous Material has been disposed of, other than as allowed under 21 Environmental Laws, 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 or previously owned or leased by a BNR Company. As used in this Agreement, "Hazardous Material" shall mean contaminants, flammable substances, explosives, radioactive materials, hazardous wastes or substances, toxic wastes or substances, or petroleum or petroleum substances, or words of similar import under any Environmental Law or any other wastes, materials or pollutants included in the definition of "contaminant", "pollutant", "hazardous substances", "toxic substance", "hazardous material", "hazardous waste", "waste", "extremely hazardous waste", "restricted hazardous waste", or words of similar import under any Environment Law, and any substance, the presence of which requires remediation pursuant to any Environmental Laws. Notwithstanding the foregoing, with respect to real property leased by the BNR Group, the representations and warranties contained in this Section 3.24 as they pertain to Environmental Laws are based on the knowledge of the BNR Group and the Shareholders. 3.25 POWERS OF ATTORNEY. No BNR Company has 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 a BNR Company in any manner. 3.26 UNDERGROUND STORAGE TANKS. Except as set forth in Schedule 3.26, no ------------------------- underground storage tanks containing petroleum products or wastes or other Hazardous Material are currently or have been located on any Corporate Property. Except as set forth in Schedule 3.26, the BNR Group 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 Material. As to each such underground storage tank ("UST") identified in Schedule 3.26, the BNR Group has provided to United, in Schedule 3.26: (a) the location of the UST, information and material, including any available drawings and photographs, showing the location, and whether the BNR Group currently owns or leases the property on which the UST is located (and if the BNR Group 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 22 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 BNR Group's, or a Shareholder's 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. Except to the extent set forth in Schedule 3.26, the BNR Group has complied with Environmental Laws regarding the installation, use, testing, monitoring, operation and closure of any UST described in Schedule 3.26. With respect to real property leased by the BNR Group, the representations and warranties continued in this Section 3.26 as they pertain to Environmental Laws are based on the knowledge of the BNR Group and the Shareholders. 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 BNR Group 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 a BNR Company in its business infringe on any patents, trademarks, or copyrights, or any other rights of any person. No BNR Company nor any Shareholder 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 BNR Group owns or leases ----------------------------------- all properties and assets, real, personal, and mixed, tangible and intangible, and, except as disclosed on Schedules 3.5, 3.l0(a), 3.l0(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 BNR Group nor the Shareholders have any knowledge of any reason 23 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 BNR Group ------------ is the subject of, or would be affected by, any pending condemnation or eminent domain proceedings, and, to the knowledge of the BNR Group and the Shareholders, no such proceedings are threatened. 3.30 MANUFACTURERS, SUPPLIERS AND CUSTOMERS. To the knowledge of the BNR -------------------------------------- Group and the Shareholders, the relations between the BNR Group and its customers are good. Neither the BNR Group nor the Shareholders have any reason to believe (other than general economic and industry conditions) that any of the manufacturers or suppliers supplying products, components or materials to the BNR Group intends to cease providing such items to the BNR Group, nor does the BNR Group or the Shareholders have knowledge of any fact (other than general economic and industry conditions) which indicates that any of the customers of the BNR Group intends to terminate, limit or reduce its business relations with the BNR Group. 3.31 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the BNR Group nor the ------------------------------------- Shareholders have, 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 BNR Group in connection with any actual or proposed transaction which (a) might subject the BNR Group 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 BNR Group, or (c) if not continued in the future, might materially adversely affect the financial condition, business or operations of the BNR Group or which might subject the BNR Group or a BNR Company to suit or penalty in any private or governmental litigation or proceeding. 3.32 RELATED PARTY TRANSACTIONS. Except as disclosed in the Financial -------------------------- Statements or Schedule 3.32, neither the Shareholders nor their Affiliates own 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 a BNR Company. 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 ------------------------ BNR Group and the Shareholders contained in this Agreement, the Exhibits and Schedules hereto and all other 24 documents and information furnished to United and their 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 BNR Group: (a) have been made available to United and its agents; (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 BNR Group and do not contain or reflect any material discrepancies 3.36 KNOWLEDGE. Wherever reference is made in this Agreement to the --------- "knowledge" of a Shareholder or the Shareholders, such term means the actual knowledge of a Shareholder or the Shareholders or any knowledge which should have been obtained by a Shareholder or the Shareholders upon reasonable inquiry by a reasonable business person. Wherever reference is made in this Agreement to the "knowledge" of the BNR Group or a BNR Company, such term means the actual knowledge of any management employee, officer or director of a BNR Company or any knowledge which should have been obtained by any such person upon reasonable inquiry by a reasonable business person. 3.37 BROKERS: FINDERS. Except as set forth in Schedule 3.37, no person ---------------- has acted directly or indirectly as a broker, finder or financial advisor for the BNR Group 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 BNR Group or the Shareholders. 4. REPRESENTATIONS AND WARRANTIES OF UNITED ---------------------------------------- United represents and warrants to the Shareholders that each of the following representations and warranties is true and correct 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 25 existing and in good standing under the laws of its jurisdiction at incorporation. 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 BNR Group and 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 fulfilment 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 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 ------------------ At the Closing, the respective parties shall make the following deliveries: 26 5.1 UNITED DELIVERIES. ----------------- United shall: (a) pay to the Shareholders the portion of the Purchase Price required to be delivered on the Closing Date pursuant to Section 1.1.2; (b) enter into a consulting agreement with each of the Principal Shareholders substantially in the form attached as Schedule 5.1(b); (c) deliver to the Shareholders an opinion of counsel for United dated as of the Closing Date substantially in the form or Schedule 5.1(c); and (d) releases of the Shareholders substantially in the form of Schedule 5.1(d). 5.2 BNR GROUP AND SHAREHOLDER DELIVERIES. ------------------------------------ BNR Group and the Shareholders shall, as the case may be: (a) deliver to United the certificates representing the BNR US Stock, BNR Canada Stock and Holdco Stock free and clear of all liens, security interests, claims and encumbrances, duly endorsed in blank for transfer accompanied by stock powers duly executed in blank, as many be required; (b) deliver to United an opinion of counsel for the BNR Group and the Shareholders dated as of the Closing Date substantially in the form attached as Schedule 5.2(b); (c) deliver evidence reasonably satisfactory to United that all required third party consents to the transactions contemplated hereby, including without limitation all Required Governmental Consents and all required consents of the landlords under all real estate leases to which a BNR Company is a party, were obtained; (d) deliver, or cause to be delivered, by each officer and director of a BNR Company a resignation as an officer and/or director together with a general release substantially in the form of Schedule 5.2(d) releasing the BNR Group from all obligations under any indemnification agreements, the charter documents of a BNR Company, 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; 27 (e) enter into triple-net leases with United substantially in the form attached as Schedule 5.2(e) for the Facilities located in Barrie, Ottawa, Kitchener and Walkerton; (f) enter into an option with United to lease property in Owen Sound owned by the Principal Shareholders substantially in the form attached as Schedule 5.2(f); (g) transfer the Excluded Assets as provided for in Schedule 3.18(l). 6. ADDITIONAL COVENANTS OF UNITED, THE BNR GROUP 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 BNR Group 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 in Schedule 6.2, all of which relate to indebtedness of the BNR Group 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 BNR Group 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 he or she has terminated their obligations under such guaranties. The Shareholders shall cooperate with United in obtaining such releases. 6.3 CONFIDENTIALITY. Neither the BNR Group nor 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, acting in a commercially reasonable manner, shall ----- cooperate, at the 28 expense of the Shareholders, with the Shareholders with respect to any matters involving the Shareholders arising out of the Shareholders' ownership of the BNR Group 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 BNR Group for inspection and copying as may be reasonably requested by a Shareholder and shall cooperate with the Shareholders with respect to retaining information and documents which relate to such matters. 6.6 (a) SHORT YEAR TAX RETURNS. After the Closing Date, the Principal ---------------------- Shareholders shall prepare for and on behalf of the BNR Companies, at the cost and expense of the Shareholders, all Tax Returns required by law to be filed by members of the BNR Group for the period beginning with the first day of a BNR Company's fiscal year in which the Closing occurs and ending with the Closing Date. Such returns 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 against the BNR Group 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 or otherwise payable by the BNR Group relating to the period prior to the Closing Date in excess of the amount of any reserve for taxes included in Effective 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 filed on a timely basis with the appropriate authorities. (b) CONSISTENT TAX REPORTING. The Shareholders, the BNR Companies and ------------------------ United shall (a) treat and report the transactions contemplated by this Agreement in all respects consistently for purposes of any Canadian federal, provincial, local or foreign (i.e non-Canadian) tax and (b) not take any actions or positions inconsistent with the obligations of the parties set forth herein. (c) TRANSACTION TAXES. All transfer, documentary, sales, goods and ----------------- services, use, real property gains, stamp, registration, and other such taxes and fees (including any penalties and interest) incurred in connection with this Agreement or the Pre-Closing Distribution shall be for the account of the Shareholders, and shall be paid by the Shareholders when due, and the BNR Companies will, at the Shareholders expense, file all necessary Tax Returns and other documentation with respect to all such transfer, documentary, sales, use, real property gains, stamp, registration, and other taxes and fees. 6.7 ESTOPPEL CERTIFICATES. Following the closing the BNR Group shall use --------------------- their best efforts to deliver estoppel certificates , substantially in the form of Schedule 6.7, for the Facilities located in Meaford, Collingwood, Buffalo, Kitchener and Owen Sound; and 29 7. INDEMNIFICATION --------------- 7.1 INDEMNITY BY THE SHAREHOLDERS. Subject to the Purchaser being in ----------------------------- material compliance with its obligations under Section 1.4, the Shareholders, subject to the limitations set forth in Section , jointly and severally, covenant and agree that they will indemnify and hold harmless United, the BNR Group and their respective directors, officers and agents and their respective successors and assigns (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 a Shareholder 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 a Shareholder or the BNR Group 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, provincial 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 odours) 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 30 groundwater) or land and whether such Release occurred 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 or natural environment. (c) Any liability arising from the matters described in Schedule 3.8(b). (d) Any liability of the BNR Group for Taxes arising prior to the closing of the transactions contemplated herein. The obligation of the Shareholders to indemnify the United Indemnitees is absolute and is not qualified or limited in any way by the knowledge, or lack thereof, of any Shareholder. (e) 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 a Shareholder to indemnify United Indemnitees as provided in Section 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 $25,000 (the "General Deductible Amount"); provided, that the amount of any obligation of indemnity arising pursuant to Section 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 Section 1.4(b) in lieu of the General Deductible Amount. (b) The obligations of a Shareholder under Section 7.1 shall expire on the following dates: (i) with respect to Sections 3.1, 3.2, 3.3, 3.4 and all environmental and tax related matters, upon expiration of the applicable statute of limitations; (ii) with respect to Schedule 3.8(b), five (5) years from the Closing Date; and (iii) with respect to all other Indemnity Events, three (3) years from the Closing Date, 31 unless a Claims Notice is given or litigation is commenced, on or prior to such time. 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, a United Indemnitee shall notify the Shareholders (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 a 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) exceeds 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 defence of such a third party Claim only upon written agreement by the Indemnifying Party that the Indemnifying Party is obligated to fully indemnify a United Indemnitee with respect to such action. The United Indemnitee may participate, at the United Indemnitee's own expense, in the defence 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 defence and/or compromise of such Claim, and the costs and expenses of such defence, including reasonable attorneys' fees, shall be added to the Claim. The Indemnifying Party shall promptly, and in any event within 30 days after demand therefor, reimburse the United Indemnitee for the costs of defending the Claim, including attorneys' fees and expenses. (d) The party assuming the defence of any Claim shall keep the other party reasonably informed at all times of the progress and development of its or their defence of 32 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. 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 BNR Group; (ii) proceed against any other person; or (iii) pursue any other remedy whatsoever in the power of any United Indemnitee. United shall not set off against any payments due to the 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 (other than with respect to the Purchase Price Adjustments provided for in Section 1.4. 8. OTHER POST-CLOSING COVENANTS OF THE SHAREHOLDERS AND UNITED ----------------------------------------------------- 8.1 RESTRICTIVE COVENANTS. The BNR Group, the Shareholders and their --------------------- Affiliates acknowledge that (i) United, as purchaser of the BNR US Stock, BNR Canada Stock and Holdco Stock is and will be engaged in the same business as the BNR Group (the "Business"); (ii) the Shareholders and their Affiliates are intimately familiar with the Business; (iii) the Business is currently conducted principally in the Province of Ontario with operations in the State of New York (the "Territory") and United intends to continue the Business in the Territory and intends, by 33 acquisition or otherwise, to expand the Business into other geographic areas within the Territory 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 BNR Group: (a) NON-COMPETE. For a period commencing on the Closing Date and ----------- terminating five (5) years thereafter in the case of the Principal Shareholders and two (2) years thereafter in the case of the other Shareholders (the "Restricted Period"), neither the Shareholders nor any of their Affiliates shall, anywhere in Ontario nor within 150 kilometres of Ottawa or Buffalo (the "Designated Areas"), 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 a Shareholder may own, directly or indirectly, solely as an investment, securities of any business traded on any national securities exchange, NASDAQ or The Toronto Stock Exchange, provided the Shareholder is not a controlling person of, or a member of a group which controls, such business and further provided that the Shareholder does not, in the aggregate, directly or indirectly, own 2% or more of any class of securities of such business. Notwithstanding the foregoing, the applicability of the non-competition covenants to Boyd Bell's Affiliates contained in this Section 8.1(a) are modified as follows: (i) Jeffrey S. Bell may be employed in a competitive business any time after the second anniversary of the Closing Date; and (i) Kevin Bell may be employed in a competitive business any time after the second anniversary of the Closing Date provided he enters into an employment agreement with a BNR Company which includes covenants and Salary Continuation provisions similar to those applicable to the Shareholders (other than the Principal Shareholders) contained in this Section 8 on or before ., 1998. In the event that Kevin Bell enters into such an agreement, the covenants contained therein shall govern. The provisions of this Section 8.1(a) do not apply to Harley Goldsworthy. (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 34 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 a Shareholder, 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 a Shareholder or the BNR Group or made available to them relating to the Business, but excluding any materials (other than the minute books of the BNR Group) maintained by any attorneys for the BNR Group 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 BNR Group to leave the employ of the BNR Group and join the Shareholder or any Affiliate in any business endeavour owned or pursued by a Shareholder. (e) TERMINATION WITHOUT CAUSE. In the event a Shareholder is ------------------------- terminated without cause during the Restricted Period, United shall pay such Shareholder his base salary for the balance of the Restricted Period without bonus (the "Salary Continuation"). If, during the balance of the Restricted Period, the Shareholder is paid or earns other employment, consulting, commission or similar income (collectively "Additional Income") in excess of 50% of the Salary Continuation, United's obligation to pay the Shareholder the Salary Continuation for the remainder of the Restricted Period shall be reduced by an amount equal to the amount of the Additional Income in excess of 50% of the Salary Continuation. The Shareholder acknowledges that in the event he is entitled to Salary Continuation, he is still bound by his covenants contained in Section 8. Subject to payment of the Salary Continuation as provided for herein, the BNR Group shall be released from all liabilities and obligations to the Shareholder at common law for damages for wrongful termination of employment. In no event will the Shareholder receive less than his minimum statutory entitlement under the ONTARIO EMPLOYMENT STANDARDS ACT. (f) NO DISPARAGEMENT. From and after the Closing Date, the ---------------- Shareholders shall not, 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 statements shall be true and are based on acts or omissions which are learned by a Shareholder from and after the date hereof or on acts or omissions which occur from and after the date hereof, or 35 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, a Shareholder shall not, 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 (except in conjunction with enforcing his rights hereunder) 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 Shareholder 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 a Shareholder from any violation thereof. (b) ACCOUNTING. The right and remedy to require a Shareholder to ---------- account for and pay over to United all compensation, profits, monies, accruals, increments or other benefits derived or received by such Shareholder 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) 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 Shareholder that 36 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 BNR Companies, 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, his or her 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 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 mail one business day following deposit with an air courier service: If to the Shareholders: See Schedule 3.2 With a copy to: WHITE, DUNCAN, OSTNER & LINTON, 45 Erb Street East Waterloo, Ontario Canada N2J 4B5 Attention: David Linton FAX: (519) 886-8651 If to the BNR Group: BNR EQUIPMENT LIMITED 1182 Victoria Street West Kitchener, Ontario N2B 3C9 Attention: President FAX: (519) 578-4287 37 If to United: UNITED RENTALS, INC. UNITED RENTALS OF CANADA, INC. Four Greenwich Office Park Greenwich, CT 06830 Attention: John Milne FAX: (203) 622 6080 With a copy to: HEENAN BLAIKIE Suite 2600, P.O. Box 185 Royal Bank Plaza, South Tower Toronto, Ontario M5J 2J4 Attention: Byron W. Loeppky FAX: (416) 360-8425 9.4 ATTORNEYS' FEES. In the event of any dispute or controversy between --------------- United on the one hand and the BNR Group or the Shareholder 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 postjudgment attorney's fees and costs. 9.5 APPLICABLE LAW AND ATTORNMENT. This Agreement shall be governed by ----------------------------- and construed in accordance with the laws of the province of Ontario and the laws of Canada applicable therein. Each of the parties to this Agreement irrevocably attorns to the jurisdiction of the courts of Ontario. 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 BNR Group). 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. 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 38 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 BNR Group, 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 BNR Group and the Shareholders, and United acting through its officers, 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 Ontario. 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 Shareholder 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 Ontario in accordance with the rules of the ARBITRATIONS ACT (Ontario). The parties agree that such arbitration shall be conducted by a retired judge who shall be selected from a list of three (3) persons submitted by each party who is experienced in dispute resolution regarding business acquisitions and accounting matters. If the parties are unable to agree on an arbitrator, the arbitrator shall be selected by a judge of the Ontario Court (General Division), from the lists submitted by each of the parties. The parties also agree that discovery shall not be permitted except as required by the ARBITRATION ACT (Ontario), 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. Unless the parties otherwise agree, the arbitration shall be heard within 30 days following the appointment of the arbitrator. The successful 39 party will be entitled to receive their legal costs on a party and party basis from the other party. 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. * * * * [SIGNATURE PAGES FOLLOW] 40 IN WITNESS WHEREOF, the parties hereto have executed this Agreement by persons thereunto duly authorized as of the date first above written. BNR EQUIPMENT LIMITED, UNITED RENTALS, INC. 650310 ONTARIO LIMITED, UNITED RENTALS OF CANADA, INC. 754643 ONTARIO LIMITED, 766903 ONTARIO INC. BNR EQUIPMENT, INC. By:_________________________________ John Milne, Vice Chairman and By:_____________________ Chief Acquisition Officer of United Boyd Bell US and President of United Canada By:_____________________ David Nigh 1270982 ONTARIO LIMITED By:_____________________ David Nigh 1270983 ONTARIO LIMITED By:_____________________ Boyd Bell 41 THE SHAREHOLDERS: ________________________ ________________________ Boyd Bell John Goetz ________________________ ________________________ David Nigh Harley Goldsworthy ________________________ ________________________ BNR Equipment Limited Kirby Shantz ________________________ ________________________ Dean Bell Randy Speaker ________________________ ________________________ Steve Fay James Luft ________________________ ________________________ John Folkerson Marilyn Nigh ________________________ ________________________ William McArthur Carolynn Bell 1270984 ONTARIO LIMITED By:_____________________ Boyd Bell By:_____________________ David Nigh 42 SUMMARY OF SCHEDULES
- ---------------------------------------------------------------------------------------- SCHEDULE # TITLE PRINCIPAL SHAREHOLDER (INITIALS ONLY) - ---------------------------------------------------------------------------------------- 1.1 Allocation of Payment of Purchase Price among the Shareholders - ---------------------------------------------------------------------------------------- 1.3(a) Closing Date Debt - to be completed upon J.L. receipt of pay-out letter - ---------------------------------------------------------------------------------------- 1.3(b) Effective Date Working Capital, Current Assets and Liabilities - ---------------------------------------------------------------------------------------- 1.3(c) Inventory Value BNR to provide - ---------------------------------------------------------------------------------------- 1.3(d) Invoice Value of any New Equipment - ---------------------------------------------------------------------------------------- 1.4(b) Rental Asset Listing - ---------------------------------------------------------------------------------------- 1.6 Excluded Assets - ---------------------------------------------------------------------------------------- 3.2 Capital Stock of the BNR Companies - ---------------------------------------------------------------------------------------- 3.5 List of Exceptions re Breach or Default - ---------------------------------------------------------------------------------------- 3.6 List of Subsidiaries of BNR Group and Securities - ---------------------------------------------------------------------------------------- 3.7 Financial Statements - ---------------------------------------------------------------------------------------- 3.8(a) Indebtedness and Other Fixed and Uncontested Liabilities - ---------------------------------------------------------------------------------------- 3.8(b) Claims against the BNR Group - ---------------------------------------------------------------------------------------- 3.8(c) Liens, Claims and Encumbrances (note: J.L. to add PPSA summaries and U.C.C. regulations) - ---------------------------------------------------------------------------------------- 3.8(d) Real and Personal Property Leasehold Interests - ---------------------------------------------------------------------------------------- 3.10(a) Material Permits, Licenses, Titles, Approvals BNR to provide and Authorizations - ---------------------------------------------------------------------------------------- 3.10(b) Facilities - ---------------------------------------------------------------------------------------- 3.11 Accounts and Notes Receivable - ----------------------------------------------------------------------------------------
43
- ---------------------------------------------------------------------------------------- SCHEDULE # TITLE PRINCIPAL SHAREHOLDER (INITIALS ONLY) - ---------------------------------------------------------------------------------------- 3.12(a) Fixed Assets (other than Real Estate and (note: BNR to provide Inventory) depreciation summary) - ---------------------------------------------------------------------------------------- 3.12(b) Corporate Property - ---------------------------------------------------------------------------------------- 3.13 Permitted Acquisitions and Dispositions - ---------------------------------------------------------------------------------------- 3.14(a) Material Contracts (including Form of Standard BNR to provide Form Rental Contract) standard form Rental Contract - ---------------------------------------------------------------------------------------- 3.14(b) Outstanding Judgments - ---------------------------------------------------------------------------------------- 3.15 Insurance Policies J.L. to obtain from P. Seltzer - ---------------------------------------------------------------------------------------- 3.16 Directors, Officers and Employees J.M. to obtain from U.R.I. - ---------------------------------------------------------------------------------------- 3.17(a) Employee Benefit Plans and Agreements - ---------------------------------------------------------------------------------------- 3.17(b) Union Contracts and Agreements - ---------------------------------------------------------------------------------------- 3.18(b) List of Exceptions re: Taxes - ---------------------------------------------------------------------------------------- 3.18(b)(i) Tax Assessments BNR: KPMG - ---------------------------------------------------------------------------------------- 3.18(b)(ii) Fiscal Periods Open for Assessment BNR: KPMG - ---------------------------------------------------------------------------------------- 3.18(l) Pre-Closing Distribution of Assets - ---------------------------------------------------------------------------------------- 3.19 List of Exceptions re: Delivery of Materials - ---------------------------------------------------------------------------------------- 3.20 List of Exceptions re: Product Quality, Warranty Claims and Liability - ---------------------------------------------------------------------------------------- 3.21 List of exceptions re: Change of the Assets, Liabilities or Operations - ---------------------------------------------------------------------------------------- 3.23 Banking Information - ---------------------------------------------------------------------------------------- 3.24 List of Exceptions re: Compliance with Laws - ---------------------------------------------------------------------------------------- 3.26 Underground Storage Tanks, etc. - ---------------------------------------------------------------------------------------- 3.27 Intellectual Property - ---------------------------------------------------------------------------------------- 3.32 Related Party Transactions - ----------------------------------------------------------------------------------------
44
- ---------------------------------------------------------------------------------------- SCHEDULE # TITLE PRINCIPAL SHAREHOLDER (INITIALS ONLY) - ---------------------------------------------------------------------------------------- 3.37 Brokers, etc. - ---------------------------------------------------------------------------------------- 5.1(b) Form of Consulting Agreement - ---------------------------------------------------------------------------------------- 5.1(c) Opinion of Counsel to United BWL - ---------------------------------------------------------------------------------------- 5.1(d) Release of Shareholders Adam Kardash - ---------------------------------------------------------------------------------------- 5.2(b) Opinion of Counsel to BNR Group and D. Linton/BWL Shareholders - ---------------------------------------------------------------------------------------- 5.2(d) Officers and Directors Release of the BNR Adam Kardash Group - ---------------------------------------------------------------------------------------- 5.2(e) Form of Triple-Net Leases - ---------------------------------------------------------------------------------------- 5.2(f) Option to Lease - ---------------------------------------------------------------------------------------- 6.7 Form of Assignment of Lease and Estoppel Certificate - ----------------------------------------------------------------------------------------
45 EX-21 6 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 UNITED RENTALS SUBSIDIARIES Mercer Equipment Company, Inc. (NC) Gene's Village Rental & Sales, Inc. (SC) Salisbury Rental Center, Inc. (NC) Access Rentals, Inc. (NY) BNR Equipment, Inc. (NY) United Rentals Of Canada, Inc.(CN) Access Lift Equipment, Inc. (CN) Manchester Equipment Rental & Sales, Inc. (CT) Darien Rental Services, Inc., (CT) Anchor Rental, Inc. (CT) ASC Equipment Co., Inc. (NC) Coran Enterprises, Inc. (CA) A&A Tool Rentals & Sales, Inc. (CA) Rent-It-Center, Inc. (UT) J&J Rental Services, Inc. (TX) A-1 Rents of Galveston, Inc. (TX) Bronco Hi-Lift, Inc. (CO) Mission Valley Rentals, Inc. (CA) Channel Equipment Holdings, Inc. (TX) River City Machinery, Inc. (TX) Pro Rentals, Inc. (WA) San Leandro Equipment Rentals Service, Inc. (CA) Nevada High Reach Equipment, Inc. (NV) America Rents (NV) United Rentals of Utah, Inc. (UT) (inactive) United Rents Et. Al., Inc. (CA) (inactive) EX-23.(C) 7 CONSENT OF ERNST & YOUNG LLP 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 January 30, 1998, with respect to the consolidated 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 6,325,000 shares of its common stock. /s/ Ernst & Young LLP MetroPark, New Jersey February 3, 1998 EX-23.(D) 8 CONSENT OF ERNST & YOUNG LLP 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 January 23, 1998, 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 6,325,000 shares of its common stock. /s/ Ernst & Young LLP MetroPark, New Jersey February 3, 1998 EX-23.(E) 9 CONSENT OF ERNST & YOUNG LLP 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 January 19, 1998, 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 6,325,000 shares of its common stock. /s/ Ernst & Young LLP MetroPark, New Jersey February 3, 1998 EX-23.(F) 10 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23(F) CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated January 23, 1998, with respect to the financial statements of Mission Valley Rentals, Inc., in the Registration Statement (Form S-1 No. 333-xxxxx) and the related Prospectus of United Rentals, Inc. for the registration of 6,325,000 shares of its common stock. /s/ Ernst & Young LLP MetroPark, New Jersey February 3, 1998 EX-23.(G) 11 CONSENT OF KPMG PEAT MARWICK LLP EXHIBIT 23(G) The Board of Directors A&A Tool Rentals & Sales, Inc.: We consent to the use of our report dated November 20, 1997, with respect to the financial statements of A&A Tool Rentals & Sales, Inc. included herein and to the reference to our firm under the heading "Experts" in the prospectus. KPMG Peat Marwick LLP Sacramento, California February 3, 1998 EX-23.(H) 12 CONSENT OF KPMG EXHIBIT 23(H) Board of Directors The BNR Group of Companies: We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the prospectus. KPMG Waterloo, Canada February 3, 1998 EX-23.(I) 13 CONSENT OF WEBSTER DUKE & CO. PA EXHIBIT 23(I) CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated January 21, 1998, with respect to the financial statements of MERCER Equipment Company in the Registration Statement (Form S-1 No. 333-xxxxx) and the related Prospectus of United Rentals, Inc. for the registration of 6,325,000 shares of its common stock filed with the Securities and Exchange Commission on February 4, 1998. /s/ Webster, Duke & Co. PA Charlotte, North Carolina February 3, 1998 EX-23.(J) 14 CONSENT OF GRANT THORNTON LLP EXHIBIT 23(J) CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated January 21, 1998, 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, on Form S-1 (File No. 333-xxxxx), and to the use of our name as it appears under the caption "Experts." /s/ Grant Thornton LLP San Jose, California February 3, 1998 EX-23.(K) 15 CONSENT OF BATTAGLIA, ANDREWS & MAAG, P.C. EXHIBIT 23(K) INDEPENDENT PUBLIC ACCOUNTANTS' CONSENT We hereby consent to the use in the Registration Statement on Form S-1-No. 333-XXXXX of our report dated January 22, 1998 relating to the financial statements of Access Rentals, Inc., and Subsidiary and Affiliate. We also consent to the reference to us under the heading "Experts" in such Registration Statement. /s/ BATTAGLIA, ANDREWS & MOAG, P.C. Batavia, New York February 3, 1998 EX-23.(L) 16 CONSENT OF WAYLAND R. HICKS EXHIBIT 23(L) CONSENT OF PERSON CHOSEN TO BECOME A DIRECTOR Reference is made to the Registration Statement on Form S-1 being filed by United Rentals, Inc., a Delaware corporation (the "Company"). The undersigned consents to be named in the Registration Statement and any amendments thereto as a person who will become a director of the Company upon completion of the offering contemplation thereby. /s/ Wayland R. Hicks ------------------------------------- Wayland R. Hicks Dated: As of February 3, 1998 EX-27 17 FINANCIAL DATA SCHEDULE
5 OTHER DEC-31-1997 AUG-14-1997 DEC-31-1997 68607528 0 8655636 1161000 3827446 2966822 36738406 1058162 169110412 10107658 0 0 0 238991 157491040 169110412 10633398 10633398 6822118 10395889 (270701) 0 454072 54138 20516 33622 0 0 0 33622 0 0
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