-----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, LK/nUuuf0+zyRZf7yAkb9hNpJSTaGkatgFKN2Uh3CVvTYZkV6b33MCX2+vCXOmQ0 Z3x9KzvrkX4j3CjFHYV3tw== 0000950130-98-003787.txt : 19980805 0000950130-98-003787.hdr.sgml : 19980805 ACCESSION NUMBER: 0000950130-98-003787 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19980803 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-4 SEC ACT: SEC FILE NUMBER: 333-60467 FILM NUMBER: 98675897 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-4 1 FORM S-4 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM S-4 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 (I.R.S. EMPLOYER JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.) INCORPORATION OR CLASSIFICATION NUMBER) ORGANIZATION) (FOR CO-REGISTRANTS, PLEASE SEE "TABLE OF CO-REGISTRANTS" ON THE FOLLOWING PAGE) 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. GREENWICH, CONNECTICUT 06830 (203) 622-3131 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ---------------- A COPY OF ALL COMMUNICATIONS, INCLUDING COMMUNICATIONS SENT TO THE AGENT FOR SERVICE, SHOULD BE SENT TO: JOSEPH EHRENREICH, ESQ. STEPHEN M. BESEN, ESQ. EHRENREICH EILENBERG KRAUSE & ZIVIAN WEIL, GOTSHAL & MANGES LLP LLP 767 FIFTH AVENUE 11 EAST 44TH STREET NEW YORK, NEW YORK 10153 NEW YORK, NEW YORK 10017 (212) 310-8000 (212) 986-9700 ---------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: As soon as practicable following the effectiveness of this Registration Statement and satisfaction of all other conditions to the exchange offer described in the prospectus included herein. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION REGISTERED REGISTERED PER UNIT PRICE(1) FEE - ------------------------------------------------------------------------------- 9 1/2% Senior Subordinated Notes Due 2008, Series B......... $200,000,000 100% $200,000,000 $59,000 - ------------------------------------------------------------------------------- Guarantees of the 9 1/2% Senior Subordinated Notes Due 2008, Series B(2)............ NA NA NA NA
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) The registration fee has been calculated pursuant to Rule 457(a) and Rule 457(f)(2) under the Securities Act of 1933, as amended (the "Act"). The Proposed Maximum Aggregate Offering Price is estimated solely for the purpose of calculating the registration fee. (2) Represents the guarantees of the 9 1/2% Senior Subordinated Notes due 2008, Series B, to be issued by the Co-Registrants. Pursuant to Rule 457(n) under the Act, no additional registration fee is being paid in respect of the guarantees. The guarantees are not traded separately. ---------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CO-REGISTRANTS
(PRIMARY (STATE OR OTHER STANDARD EXACT NAME OF CO- JURISDICTION OF INDUSTRIAL REGISTRANT AS INCORPORATION OR CLASSIFICATION (I.R.S. EMPLOYER SPECIFIED IN ITS CHARTER ORGANIZATION) NUMBER) IDENTIFICATION NO.) - ------------------------------------------------------------------------------- Mercer Equipment Company North Carolina 7353 56-1686482 - ------------------------------------------------------------------------------- ASC Equipment Co., Inc. North Carolina 7353 56-1171483 - ------------------------------------------------------------------------------- A&A Tool Rentals and Sales, Inc. California 7353 94-1729580 - ------------------------------------------------------------------------------- Coran Enterprises Incorporated California 7353 94-2292438 - ------------------------------------------------------------------------------- Mission Valley Rentals, Inc. California 7353 94-2367404 - ------------------------------------------------------------------------------- United Rentals of Southern California, Inc. California 7353 95-2592018 - ------------------------------------------------------------------------------- San Leandro Equipment Rental Service California 7353 94-1539117 - ------------------------------------------------------------------------------- United Rents Et. Al., Inc. California 7353 06-1507810 - ------------------------------------------------------------------------------- Adco Equipment, Inc. California 7353 95-3448693 - ------------------------------------------------------------------------------- Adco Equipment Supply, Inc. California 7353 95-4299564 - ------------------------------------------------------------------------------- United Rentals of Southern California, Inc. California 7353 95-2592018 - ------------------------------------------------------------------------------- Carson Tahoe Rents Nevada 7353 94-1621808 - ------------------------------------------------------------------------------- Nevada High Reach Equipment, Inc. Nevada 7353 88-0208294 - ------------------------------------------------------------------------------- Yankee Equipment Corporation Connecticut 7353 06-0955659 - ------------------------------------------------------------------------------- United Rentals of New Connecticut 7353 06-1164236 England, Inc. (formerly Manchester Equipment Rental & Sales, Inc) - ------------------------------------------------------------------------------- J&J Rental Services, Inc. Texas 7353 76-0551618 - ------------------------------------------------------------------------------- River City Machinery Co., Inc. Texas 7353 74-2799778 - ------------------------------------------------------------------------------- Gaedcke Equipment Company Texas 7353 74-1492000 - ------------------------------------------------------------------------------- Access Rentals, Inc. New York 7353 16-1056415 - ------------------------------------------------------------------------------- BNR Equipment, Inc. New York 7353 16-1487245 - ------------------------------------------------------------------------------- United Rentals of New York, Inc. New York 7353 06-1512550 - ------------------------------------------------------------------------------- United Rentals of Utah, Inc. Utah 7353 06-150-6299 - ------------------------------------------------------------------------------- Bronco Hi-Lift Inc. Colorado 7353 84-0888507 - ------------------------------------------------------------------------------- Sante Fe Supply & Rental, Inc. Colorado 7353 84-1092722 - ------------------------------------------------------------------------------- Equipment Capital Corporation Colorado 7353 84-1130121 - ------------------------------------------------------------------------------- Valley Rentals, Inc. Washington 7353 91-0856154 - ------------------------------------------------------------------------------- Rentals Unlimited, Incorporated Rhode Island 7353 05-0373691 - ------------------------------------------------------------------------------- High Reach, Inc. Oregon 7353 93-0257120 - ------------------------------------------------------------------------------- West Main Rentals and Sales, Inc. Oregon 7353 93-0820057 - -------------------------------------------------------------------------------
(PRIMARY (STATE OR OTHER STANDARD EXACT NAME OF CO- JURISDICTION OF INDUSTRIAL REGISTRANT AS INCORPORATION OR CLASSIFICATION (I.R.S. EMPLOYER SPECIFIED IN ITS CHARTER ORGANIZATION) NUMBER) IDENTIFICATION NO.) - ------------------------------------------------------------------------------- Power Rental Co., Inc. Oregon 7353 93-0841562 - ------------------------------------------------------------------------------- Misco Rents, Inc. Indiana 7353 35-1804651 - ------------------------------------------------------------------------------- Industrial Lift, Inc. New Jersey 7353 22-2470136 - ------------------------------------------------------------------------------- Dealers Service Co. New Jersey 7353 22-1944238 - ------------------------------------------------------------------------------- Palmer Equipment Company Michigan 7353 38-2216420 - ------------------------------------------------------------------------------- Grand Valley Equipment Co. Michigan 7353 38-2279574 - ------------------------------------------------------------------------------- Kubota of Grand Rapids, Inc. Michigan 7353 38-2700834 - ------------------------------------------------------------------------------- Madison Equipment Sales and Rental, Inc. Alabama 7353 63-0972387 - ------------------------------------------------------------------------------- UR Acquisition Corporation Delaware 7353 Applied for - ------------------------------------------------------------------------------- Rylan, Inc. Delaware 7353 51-0374193 - ------------------------------------------------------------------------------- Bear Associates, Inc. Delaware 7353 22-2709819 - ------------------------------------------------------------------------------- United Rentals of New Jersey, Inc. Delaware 7353 06-1520087 - ------------------------------------------------------------------------------- High Reach Co., Inc. Pennsylvania 7353 23-1737104 - ------------------------------------------------------------------------------- Paul E. Carlson, Inc. Minnesota 7353 41-1346079 - ------------------------------------------------------------------------------- Space Maker Systems of Va., Inc. Virginia 7353 54-1696593 - ------------------------------------------------------------------------------- United Rentals of Kentucky, Inc. Kentucky 7353 06-1522041 - ------------------------------------------------------------------------------- Contractor Supply & Equipment Kentucky 7353 61-1181351 - ------------------------------------------------------------------------------- Lift Systems, Inc. Illinois 7353 36-3521018 - -------------------------------------------------------------------------------
The Address, Including Zip Code, and Telephone Number, Including Area Code, of each of the Co-Registrant's Principal Executive Offices is c/o United Rentals, Inc, Four Greenwich Office Park, Greenwich, Connecticut 06830, (203) 622-3131. The Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service for each of the Co-Registrants is Michael J. Nolan, c/o United Rentals, Inc, Four Greenwich Office Park, Greenwich, Connecticut 06830, (203) 622-3131. ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. + +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THESE + +SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE + +TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT + +CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL + +THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, + +SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION + +UNDER THE SECURITIES LAWS OF ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION DATED JULY 24, 1998 PROSPECTUS UNITED RENTALS, INC. OFFER TO EXCHANGE UP TO $200,000,000 OF 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B FOR ANY AND ALL OF THE OUTSTANDING 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A ----------- THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED. ----------- United Rentals, Inc. (the "Company") hereby offers (the "Exchange Offer"), upon the terms and subject to the conditions set forth in this Prospectus and the accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange its outstanding 9 1/2% Senior Subordinated Notes due 2008, Series A (the "Original Notes"), of which an aggregate of $200,000,000 in principal amount is outstanding as of the date hereof, for an equal principal amount of newly issued 9 1/2% Senior Subordinated Notes due 2008, Series B (the "Exchange Notes"). The Original Notes were issued on May 22, 1998 (the "Offering") by the Company. The form and terms of the Exchange Notes will be the same in all material respects as the form and terms of the Original Notes except that (i) the Exchange Notes will be registered under the Securities Act of 1933, as amended (the "Securities Act"), and, therefore, will not bear legends restricting the transfer thereof; and (ii) certain of the registration rights under the Registration Rights Agreement (as defined herein) relating to the Exchange Notes are different than those relating to the Original Notes and, therefore, the defaults under the Registration Rights Agreement that may require the Company to pay additional interest will be different for the Exchange Notes and the Original Notes. The Exchange Notes will evidence the same debt as the Original Notes and will be entitled to the benefits of an indenture dated as of May 22, 1998, governing the Original Notes and the Exchange Notes (the "Indenture"). The Indenture provides for the issuance of both the Exchange Notes and the Original Notes. The Exchange Notes and the Original Notes are sometimes referred to herein collectively as the "Notes". Interest on the Exchange Notes will be payable semi-annually in arrears on June 1 and December 1 of each year, commencing December 1, 1998. The Exchange Notes will mature on June 1, 2008. The Exchange Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after June 1, 2003 at the redemption prices set forth herein, plus accrued and unpaid interest thereon to the date of redemption. In addition, on or prior to June 1, 2001, the Company may redeem Exchange Notes at a redemption price of 109.5% of the principal amount thereof, plus accrued and unpaid interest thereon to the date of redemption, with the net cash proceeds of one or more Public Equity Offerings (as defined herein), provided that after giving effect to such redemption the aggregate principal amount of the Notes outstanding must equal at least $130 million. See "Description of the Notes--Optional Redemption." Upon a Change of Control (as defined herein), each holder of Exchange Notes (a "Holder") will have the right to require the Company to purchase all or a portion of such Holder's Exchange Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest thereon to the date of purchase. See "Description of the Notes--Change of Control." ----------- SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS WHICH HOLDERS OF ORIGINAL NOTES AND PROSPECTIVE PURCHASERS OF EXCHANGE NOTES SHOULD CONSIDER IN CONNECTION WITH THIS EXCHANGE OFFER. ----------- 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. ----------- (cover page continued on next page) The date of this Prospectus is , 1998 The Exchange Notes will be unsecured senior subordinated obligations of the Company and, as such, will be subordinated in right of payment to all existing and future Senior Indebtedness (as defined herein) of the Company, including borrowings under the Company's Credit Facility (as defined herein). The Exchange Notes will rank pari passu in right of payment with any future senior subordinated indebtedness of the Company, and senior in right of payment to any future subordinated indebtedness of the Company. The Exchange Notes will be unconditionally guaranteed (the "Guarantees") on a senior subordinated basis by the Company's current and future United States subsidiaries (each, a "Guarantor" and collectively, the "Guarantors"). The Guarantees will be unsecured senior subordinated obligations of the Guarantors and, as such, will be subordinated in right of payment to all existing and future Guarantor Senior Indebtedness (as defined herein). The Exchange Notes will also be effectively subordinated to all obligations of any subsidiary of the Company that is not a Guarantor. At March 31, 1998, on a pro forma basis (after giving effect to all acquisitions completed by the Company subsequent to such date and the financing thereof), there was outstanding (i) $447.1 million of Senior Indebtedness, (ii) $9.3 million of Guarantor Senior Indebtedness (other than guarantees of the Company's Senior Indebtedness) and (iii) $20.2 million of obligations of subsidiaries that are not Guarantors (other than obligations to the Company). The Indenture permits the Company and its subsidiaries to incur additional debt, subject to certain limitations. See "Description of the Notes." There is no established trading market for the Original Notes or the Exchange Notes and the Company does not intend to apply for listing of the Original Notes or the Exchange Notes on any securities exchange or for inclusion of the Notes in any automated quotation system. Although the Original Notes are currently eligible for trading through PORTAL (as defined herein), the Exchange Notes will not be eligible for trading through PORTAL. If a market for the Exchange Notes develops, the Exchange Notes could trade at a discount from their principal amount. The Company will accept for exchange any and all Original Notes validly tendered on or prior to 5:00 p.m., New York City time, on , 1998 (if and as extended, the "Expiration Date"). Tenders of Original Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Offer is not conditioned upon any minimum principal amount of Original Notes being tendered for exchange. The Original Notes may be tendered only in integral multiples of $1,000. In the event the Company terminates the Exchange Offer and does not accept for exchange any Original Notes, the Company will promptly return all previously tendered Original Notes to the Holders thereof. The Original Notes were originally issued and sold on May 22, 1998 in a transaction not registered under the Securities Act in reliance upon an exemption from the registration requirements thereof and were offered for sale by the initial purchasers of the Original Notes pursuant to Rule 144A and Regulation S of the Securities Act. In general, the Original Notes may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act. The Exchange Notes are being offered hereby in order to satisfy certain obligations of the Company contained in the Registration Rights Agreement. Following the Exchange Offer, any Holders of Original Notes will continue to be subject to the existing restrictions on transfer and, subject to limited exceptions, the Company will not have any further obligation to such Holders to provide for registration under the Securities Act of transfers of the Original Notes held by them. See "Registration Rights Agreement." Each Holder that wishes to exchange Original Notes for Exchange Notes in the Exchange Offer will be required to make certain representations, including that (i) it is not an affiliate of the Company, (ii) it is not a broker-dealer that purchased such Original Notes directly from the Company, (iii) any Exchange Notes that it acquires in the Exchange Offer will be acquired by it in the ordinary course of its business and (iv) it has no arrangement with any person to participate in the distribution of the Exchange Notes; provided, however, that if the Holder is a broker-dealer that wishes to exchange Original Notes that were acquired by it for its own account as a result of market-making activities or other trading activities, it may represent, in lieu of the representation set forth in clause (iv), that it has no arrangement or understanding with the Company, or any affiliate of the Company, to participate in the distribution of the Exchange Notes. See "The Exchange Offer--Required Representations." ii Based on interpretations by the Staff of the Securities and Exchange Commission (the "Commission") set forth in no-action letters issued to third parties, the Company believes that the Exchange Notes issued pursuant to the Exchange Offer may be offered for resale, resold or otherwise transferred by any Holder thereof (other than an affiliate of the Company) without compliance with the registration and prospectus delivery provisions of the Securities Act (subject to the representations set forth in the preceding paragraph being made and being accurate); provided, however, that in the case of a broker- dealer that receives Exchange Notes in exchange for Original Notes that were acquired by it for its own account as a result of market-making activities or other trading activities, such broker-dealer must deliver a prospectus meeting the requirements of the Securities Act in connection with any resales by it of any such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may, if permitted by the Company, be used by a broker- dealer in order to satisfy such prospectus delivery requirements. The Company has agreed in the Registration Rights Agreement that, for a period of 30 days following consummation of the Exchange Offer (subject to extension under certain circumstances), it will make this Prospectus available to any broker- dealer for use in connection with any such resale (subject to the right of the Company to restrict the use of this Prospectus under certain circumstances). Each broker-dealer that participates in the Exchange Offer will be required to confirm that it will comply with the prospectus delivery requirements described above. See "The Exchange Offer--Resale of Exchange Notes" and "Registration Rights Agreement--Certain Provisions Relating to Broker- Dealers." Any Original Notes not tendered and accepted in the Exchange Offer will remain outstanding. To the extent that Original Notes are tendered and accepted in the Exchange Offer, a Holder's ability to sell untendered, or tendered but unaccepted, Original Notes could be adversely affected. The Exchange Notes issued pursuant to the Exchange Offer will be issued in the form of a single permanent Exchange Global Security (as defined herein), which will be deposited with, or on behalf of, The Depository Trust Company ("DTC") and registered in its name or in the name of Cede & Co., its nominee. Beneficial interests in the Exchange Global Security representing the Exchange Notes will be shown on, and transfers thereof will be effected through, records maintained by DTC and its participants. See "Description of the Exchange Notes--Book-Entry, Delivery and Form." The Company will not receive any proceeds from, and has agreed to bear the expense of, this Exchange Offer. No underwriter is being used in connection with this Exchange Offer. THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT TENDERS FOR EXCHANGE FROM, HOLDERS OF THE ORIGINAL NOTES IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION. iii AVAILABLE INFORMATION The Company has filed with the Commission in Washington, D.C. a Registration Statement on Form S-4 (together with all amendments thereto, the "Registration Statement"), under the Securities Act with respect to the Exchange Notes 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 Exchange Notes 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 (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 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 Company's 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. CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS Certain statements contained in this Prospectus are forward-looking in nature. Such statements can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," or "anticipates" or the negative thereof or comparable terminology, or by discussions of strategy. Prospective purchasers of Exchange Notes are cautioned that the Company's business and operations are subject to a variety of risks and uncertainties and, consequently, the Company's actual results may materially differ from those projected by the forward-looking statements contained in this Prospectus. Certain of such risks and uncertainties are discussed under "Risk Factors," beginning on page of this Prospectus, and prospective purchasers of Exchange Notes are urged to carefully consider such factors. 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, (ii) the term the "Issuer" refers to United Rentals, Inc. and not its subsidiaries and (iii) the term the "Acquired Companies" refers collectively to the 59 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 after giving effect to the acquisition of the Acquired Companies and the financing thereof as of January 1, 1997. THE COMPANY United Rentals is a large, geographically diversified equipment rental company with 210 rental locations in 28 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 other individuals. The Company also sells used rental equipment, acts as a distributor for certain new equipment, and sells related merchandise and parts. The Company commenced equipment rental operations in October 1997 by acquiring six established companies and acquired 53 additional companies in the first seven months of 1998. During the year ended December 31, 1997, the Company rented equipment to approximately 360,000 customers (with the top ten customers representing approximately 1% of total revenues) and had pro forma revenues and EBITDA (as defined herein) of $605.5 million and $181.6 million, respectively. The types of rental equipment offered by the Company include a broad range of light to heavy construction and industrial equipment (such as backhoes, forklifts, aerial lifts, skid-steer loaders, compressors, pumps and generators), general tools and equipment (such as hand tools and garden and landscaping equipment) and, to a lesser extent, 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 July 10, 1998, the Company's rental equipment included approximately 105,000 units (not including special event equipment), had an original purchase price of approximately $606 million and had a weighted average age (based on original purchase price) of approximately 32 months. PENDING MERGER GENERAL On June 15, 1998, the Company entered into an Agreement and Plan of Merger, as amended on July , 1998 (the "Merger Agreement"), with U.S. Rentals, Inc., a Delaware corporation ("U.S. Rentals"). The Merger Agreement provides, subject to the terms and conditions set forth therein, for a subsidiary of the Company to be merged with and into U.S. Rentals (the "Merger") as a result of which U.S. Rentals will become a wholly owned subsidiary of URI. At the effective time of the Merger, (i) each outstanding share of U.S. Rentals common stock will be converted into 0.9625 shares of Common Stock of United Rentals (the "Exchange Ratio") and (ii) all outstanding options to purchase shares of U.S. Rentals common stock will be assumed by United Rentals and converted into options to purchase Common Stock of United Rentals, subject to adjustment for the Exchange Ratio. The Merger is expected to be accounted for as a "pooling of interests" for financial accounting purposes. See "Certain Information Concerning Pending Merger." U.S. Rentals is the second largest equipment rental company in the United States and the largest in the Western United States based on 1997 rental revenues. U.S. Rentals currently operates 127 equipment rental locations in 22 states and Mexico and generates an average of approximately 145,000 rental contracts per month from a diverse base of customers including commercial and residential construction, industrial and homeowner 2 customers. U.S. Rentals management estimates that more than 280,000 customers did business with U.S. Rentals in 1997. U.S. Rentals owns more than 100,000 pieces of rental equipment comprised of approximately 600 equipment categories, including aerial work platforms, forklifts, paving and concrete equipment, compaction equipment, air compressors, hand tools, plumbing, landscaping and gardening equipment. U.S. Rentals management believes that U.S. Rentals' fleet, which had a weighted average age of approximately 23 months and an original equipment cost of approximately $725 million at June 30, 1998, is one of the most comprehensive and well-maintained equipment rental fleets in the industry. U.S. Rentals also sells new equipment manufactured by nationally known companies, used equipment from its rental fleet and rental-related merchandise, parts and supplies. COMBINED OPERATIONS OF UNITED RENTALS AND U.S. RENTALS United Rentals and U.S. Rentals on a combined basis (the "Combined Company") currently operates 337 rental locations (301 in the United States, 35 in Canada and one in Mexico). During the year ended December 31, 1997, the Combined Company rented equipment to over 640,000 customers, of which the top 10 customers represented less than 2.0% of total revenues, and had revenues and EBITDA of $1,030.2 million and $325.9 million, respectively, on a pro forma basis (giving effect to the Merger and the acquisitions of the Acquired Companies). As of July 10, 1998, the Combined Company's rental equipment included approximately 205,000 units (excluding special event equipment) and had an original purchase price of approximately $1,331.4 million and a weighted average age (based on original purchase price) of approximately 27 months. 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 23% from 1992 through 1997 (based upon 1992 revenues and 1997 pro forma revenues, giving effect to certain acquisitions completed after the beginning of 1997, reported by the Rental Equipment Register, an industry trade publication). The Company believes that growth in the equipment rental industry 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 1997: (i) there were only 10 equipment rental companies that had 1997 equipment rental revenues in excess of $100 million (with the largest company having had 1997 equipment rental revenues of approximately $460 million), (ii) the largest 100 equipment rental companies combined had less than a 22% share of the market based on 1997 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 1997 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. 3 GROWTH STRATEGY The Company's growth strategy is to continue 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 it has competitive advantages relative to many 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, greater flexibility to transfer equipment among locations in response to customer demand, and greater ability to efficiently dispose of used equipment through direct sales to customers. The Company is seeking to make acquisitions of varying size, including acquisitions of smaller companies to complement existing or anticipated locations and combinations with relatively large companies that have an established presence in one or more regions. 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 continue to seek expansion opportunities in the United States and Canada and to 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, adverse weather impacting a particular region or changes that affect particular market segments. The Company focuses substantial efforts on improving operating margins and increasing internal growth at acquired companies. The Company seeks to improve operating margins by efficiently integrating new and existing operations, eliminating duplicative costs, reducing overhead, centralizing functions such as purchasing and information technology, and applying best practices. The Company seeks 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, cross- marketing between locations that offer different equipment categories, expanding the customer segments and geographic areas served, and opening complementary locations. The Company believes that the potential to increase growth through capital investment is particularly significant at many acquired companies because a lack of capital has constrained many small and mid-sized equipment rental companies from adequately expanding and modernizing their equipment. BACKGROUND The Company was founded by eight of the Company's officers. 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. Since the founding of the Company, the Company has recruited additional operating, acquisition, finance and other personnel from the equipment rental industry and other industries, including regional managers, store managers and acquisition professionals with extensive experience 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. 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 RECENT DEVELOPMENTS The Company is currently a party to 20 non-binding letters of intent relating to the possible acquisition by the Company of 20 additional companies having an aggregate of 68 rental locations (32 of which are attributable to the three largest companies under letter of intent). Based upon information provided to the Company in connection with its preliminary investigation of these companies, the Company estimates that the aggregate 1997 revenues of these companies were approximately $255.9 million ($159.9 million of which are attributable to the three largest companies under letter of intent). However, in view of the preliminary nature of this estimate, there can be no assurance that actual revenues will not differ. Based upon the terms contained in the letters of intent, the Company estimates that the aggregate purchase price for the 20 companies under letter of intent would be approximately $367.3 million plus the assumption of approximately $81.2 million of indebtedness. A portion of the purchase price for certain of these potential acquisitions may be paid in the form of Common Stock. In view of the fact that the letters of intent are non-binding and that the Company has not completed its due diligence investigations with respect to the companies under letter of intent, the Company cannot predict whether these letters of intent will lead to definitive agreements, whether the terms of any such definitive agreements will be the same as the terms contemplated by the letters of intent or whether any transaction contemplated by such letters of intent will be consummated. The Company is continuously involved in discussions relating to potential acquisitions of varying size and in due diligence investigations of potential acquisition candidates. In addition to the potential acquisitions that are currently under letter of intent, there are additional potential acquisitions with respect to which the Company is currently engaged in discussions or due diligence investigations. These potential acquisitions include the acquisition of smaller companies to complement existing or anticipated locations and combinations with large companies that have an established presence in one or more regions. The Company will require additional financing for future acquisitions and, consequently, the Company's indebtedness may increase as the Company implements its growth strategy. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--General Cash Requirements Related to Operations." CERTAIN INFORMATION CONCERNING THE ISSUANCE OF THE ORIGINAL NOTES The Original Notes were originally issued and sold on May 22, 1998 in a transaction not registered under the Securities Act in reliance upon an exemption from the registration requirements thereof. The initial purchasers (the "Initial Purchasers") of the Original Notes were: Merrill Lynch, Pierce, Fenner & Smith Incorporated; Donaldson, Lufkin & Jenrette Securities Corporation; Goldman, Sachs & Co.; and Salomon Brothers Inc. The Initial Purchasers subsequently offered and resold the Original Notes pursuant to Rule 144A and Regulation S under the Securities Act. In connection with the issuance of the Original Notes, the Company entered into a Registration Rights Agreement with the Initial Purchasers (the "Registration Rights Agreement") which provides the Holders of the Notes with certain registration and exchange rights. The Exchange Offer is intended to satisfy certain of the Company's obligations under the Registration Rights Agreement. See "Registration Rights Agreement." The Original Notes are represented by two, permanent global notes which are registered in the name of a nominee of DTC. Pursuant to procedures established by DTC, interests in the global notes are held in book-entry form by participants in the DTC system who have accounts with DTC ("DTC Participants"). Accordingly, ownership of beneficial interests in such Notes is limited to DTC Participants or persons who hold such interests through DTC Participants. The term "Book-Entry Holder" with respect to any Notes means the DTC Participant that is listed as the holder of such Notes in the records maintained by DTC. 5 THE EXCHANGE OFFER The Exchange Offer.......... The Company is offering to exchange up to $200 million aggregate principal amount of Exchange Notes for a like principal amount of Original Notes. The Exchange Notes may be exchanged only in multiples of $1,000 principal amount. The Company will issue the Exchange Notes on or promptly after the Expiration Date. See "The Exchange Offer." Required Representations.... In connection with any tender of Original Notes pursuant to the Exchange Offer, the Book-Entry Holder of such Original Notes will be required to make certain representations in the Letter of Transmittal, including that (i) it is not an affiliate of the Company, (ii) it is not a broker-dealer that purchased such Original Notes directly from the Company, (iii) any Exchange Notes that it acquires in the Exchange Offer will be acquired by it in the ordinary course of its business and (iv) it has no arrangement with any person to participate in the distribution of the Exchange Notes; provided, however, that if the Book-Entry Holder is a broker-dealer that wishes to tender Original Notes that were acquired by it for its own account as a result of market-making activities or other trading activities, it may represent, in lieu of the representation set forth in clause (iv) above, that it has no arrangement or understanding with the Company, or any affiliate of the Company, to participate in the distribution of the Exchange Notes. In addition, any Book-Entry Holder that holds any Original Notes as nominee, will be required to confirm that the beneficial owner for which it is holding such Notes has made the representations provided for in the preceding sentence. Resale of the Exchange Based on interpretations by the Staff of the Notes...................... Commission set forth in no-action letters issued to third parties, the Company believes that the Exchange Notes issued pursuant to the Exchange Offer may be offered for resale, resold or otherwise transferred by any Holder thereof (other than an affiliate of the Company) without compliance with the registration and prospectus delivery provisions of the Securities Act (subject to the representations set forth in the preceding paragraph being made and being accurate); provided, however, that in the case of a broker-dealer that receives Exchange Note in exchange for Original Notes that were acquired by it for its own account as a result of market- making activities or other trading activities, such broker-dealer must deliver a prospectus meeting the requirements of the Securities Act in connection with any resales by it of any such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may, if permitted by the Company, be used by a broker- dealer in order to satisfy such prospectus delivery requirements. The Company has agreed in the Registration Rights Agreement that, for a period of 30 days following consummation of the Exchange Offer (subject to extension under certain circumstances), it will make this Prospectus available to any broker-dealer for use in connection with any such 6 resale (subject to the right of the Company to restrict the use of this Prospectus under certain circumstances). Each broker-dealer that participates in the Exchange Offer will be required to confirm that it will comply with the prospectus delivery requirements described above. See "Registration Rights Agreement" and "Plan of Distribution." The conclusions set forth in the preceding paragraph are based on interpretations by the Staff of the Commission set forth in no-action letters issued to third parties. The Company does not intend to seek its own no-action letter with respect to the Exchange Offer and there can be no assurance that the Staff of the Commission would make a similar determination with respect to the Exchange Offer as it has in such no-action letters to third parties. Accrued Interest on the Original Notes............. The Exchange Notes will bear interest at the rate of 9 1/2% per annum from and including the last interest payment date on the Original Notes (or, if none has yet occurred, the date of issuance of such Original Notes). Accordingly, Holders of Original Notes that are accepted for exchange will not receive interest that is accrued but unpaid on the Original Notes at the time of tender, but such interest will be payable in respect of the Exchange Notes delivered in exchange for such Original Notes on the first interest payment date after the Expiration Date. Procedures for Tendering Original Notes............. To tender any Original Notes pursuant to the Exchange Offer, the Book-Entry Holder of such Original Notes must make book-entry delivery of such Original Notes by causing DTC to transfer such Original Notes to the account of the Exchange Agent (as defined herein) at DTC in accordance with DTC's Automated Tender Offer Program ("ATOP"). In addition, either (i) DTC must deliver an Agent's Message (as defined below) prior to 5:00 p.m., New York City time, on the Expiration Date, indicating that DTC has received from such Book-Entry Holder an express acknowledgment that such Book-Entry Holder has received and agrees to be bound by the terms of the accompanying Letter of Transmittal (the "Letter of Transmittal") or (ii) such Book-Entry Holder must complete, sign and date the Letter of Transmittal or a facsimile thereof, in accordance with the instructions contained herein and therein, and deliver such Letter of Transmittal, or such facsimile, and any other required documentation to the Exchange Agent at the address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. The term "Agent's Message" means a message transmitted by DTC to, and received by, the Exchange Agent and forming part of the book-entry confirmation relating to a book-entry transfer of Original Notes through ATOP, which states that DTC has received an express acknowledgment from the DTC Participant that is tendering the Original Notes which are the subject of such book entry confirmation, that such DTC Participant has received and agrees to be bound by the terms of the Letter of Transmittal. See "The Exchange Offer--Procedures for Tendering." 7 Expiration Date............. 5:00 p.m., New York City time, on , 1998, unless the Exchange Offer is extended, in which case the term "Expiration Date" means the latest date and time to which the Exchange Offer is extended. See "The Exchange Offer--Expiration Date; Extensions; Amendments." Exchange Date............... The date of acceptance for exchange of the Original Notes tendered for exchange will be when, as and if the Company gives oral or written notice thereof to the Exchange Agent. Withdrawal Rights........... Tenders of Original Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date by (i) furnishing a written or facsimile notice of withdrawal to the Exchange Agent containing the information set forth under "The Exchange Offer--Withdrawal of Tenders" or (ii) complying with the appropriate procedures of DTC's ATOP system. Acceptance of Original Notes and Delivery of Exchange Notes............. Subject to satisfaction or waiver of all the conditions referred to below, the Company will accept for exchange any and all Original Notes which are properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Notes issued pursuant to the Exchange Offer will be delivered promptly following the Expiration Date. See "The Exchange Offer--Terms of the Exchange Offer." Conditions to the Exchange The Exchange Offer is not conditioned upon any Offer...................... minimum aggregate principal amount of Original Notes being tendered for exchange. The Exchange Offer is subject to certain customary conditions concerning, among other things, changes to existing law and governmental approvals, which may be waived by the Company. See "The Exchange Offer--Conditions." Federal Income Tax The exchange of Original Notes for Exchange Notes Consequences............... pursuant to the terms set forth in this Prospectus should not result in any material federal income tax consequences to Holders exchanging Original Notes for Exchange Notes. See "The Exchange Offer--Certain Federal Income Tax Considerations." Use of Proceeds............. There will be no cash proceeds to the Company from the exchange of Original Notes pursuant to the Exchange Offer. The net proceeds to the Company from the sale of the Original Notes was approximately $193.1 million. The Company (i) used $102.8 million of the net proceeds from the sale of the Original Notes to repay outstanding indebtedness under the Credit Facility and (ii) used the balance of such net proceeds for acquisitions. Exchange Agent.............. State Street Bank and Trust Company is serving as exchange agent (the "Exchange Agent") in connection with the Exchange Offer. The address and telephone number of the Exchange Agent is set forth under "The Exchange Offer--Exchange Agent." State Street Bank and Trust Company also serves as Trustee under the Indenture. 8 Effect on the Holders of Original Notes............. Upon consummation of the Exchange Offer, the Holders of Original Notes will not have any further registration rights under the Registration Rights Agreement (subject to limited exceptions as described under "Registration Rights Agreement--Shelf Registration Statement"). Holders of the Original Notes who do not tender their Original Notes in the Exchange Offer will continue to hold such Original Notes and will be entitled to all the rights and will be subject to all the limitations applicable thereto under the Indenture. All Original Notes that remain outstanding upon consummation of the Exchange Offer will continue to be subject to the restrictions on transfer provided for in the Original Notes and the Indenture. In general, the Original Notes may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. To the extent that the Original Notes are tendered and accepted in the Exchange Offer, the trading market for untendered Original Notes could be adversely affected. 9 SUMMARY OF TERMS OF THE EXCHANGE NOTES The Exchange Offer applies to $200 million aggregate principal amount of the Original Notes. The terms of the Exchange Notes will be the same in all material respects as the Original Notes except that (i) the Exchange Notes will be registered under the Securities Act, and, therefore, will not bear legends restricting the transfer thereof and (ii) certain of the registration rights, under the Registration Rights Agreement, relating to the Exchange Notes are different than those relating to the Original Notes and, therefore, the defaults under the Registration Rights Agreement that may require the Company to pay additional interest will be different for the Exchange Notes and the Original Notes. The Exchange Notes will evidence the same debt as the Original Notes and both series of Notes will be entitled to the benefits of the Indenture and treated as a single class of debt securities. Issuer...................... United Rentals, Inc. Maturity.................... June 1, 2008. Interest Payment Dates...... June 1 and December 1 of each year, commencing December 1, 1998. Optional Redemption......... The Exchange Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after June 1, 2003, at the redemption prices set forth herein, plus accrued and unpaid interest thereon to the date of redemption. In addition, on or prior to June 1, 2001, the Company may redeem Exchange Notes at a redemption price of 109.5% of the principal amount thereof, plus accrued and unpaid interest thereon to the date of redemption, with the net cash proceeds of one or more Public Equity Offerings (as defined herein), provided that not less than $130 million of principal amount of the Notes is outstanding immediately after giving effect to such redemption. See "Description of the Notes-- Optional Redemption." Guarantees.................. The Exchange Notes will be unconditionally guaranteed on a senior subordinated basis by the Company's current and future United States subsidiaries. Ranking..................... The Exchange Notes will be unsecured senior subordinated obligations of the Issuer and, as such, will be subordinated in right of payment to all existing and future Senior Indebtedness (as defined herein) of the Issuer, including borrowings under the Company's $300 million revolving credit facility (the "Credit Facility"). The Exchange Notes will rank pari passu in right of payment with any future senior subordinated indebtedness of the Issuer, and senior in right of payment to any future subordinated indebtedness of the Issuer. The Guarantees will be unsecured senior subordinated obligations of the Guarantors and, as such, will be subordinated in right of payment to all existing and future Guarantor Senior Indebtedness (as defined herein). The Guarantees will rank pari passu with any future senior subordinated Indebtedness of the Guarantors, and senior in right of payment to any future 10 subordinated indebtedness of the Guarantors. The Company's Canadian subsidiaries will not be Guarantors and, as a result, the Exchange Notes will be effectively subordinated to all obligations of such subsidiaries, including trade payables of such subsidiaries. At March 31, 1998, on a pro forma basis (after giving effect to all acquisitions completed by the Company subsequent to such date and the financing thereof), there was outstanding (i) $447.1 million of Senior Indebtedness, (ii) $9.3 million of Guarantor Senior Indebtedness (other than guarantees of the Company's Senior Indebtedness) and (iii) $20.2 million of obligations of subsidiaries that are not Guarantors (other than obligations to the Company). The Indenture permits the Company and its subsidiaries to incur additional debt, subject to certain limitations. See "Description of the Exchange Notes--Subordination" and "-- Certain Covenants--Limitation on Indebtedness." Change of Control........... Following the occurrence of a Change of Control (as defined herein), each Holder of Exchange Notes will have the right to require the Company to purchase all or a portion of such Holder's Exchange Notes at a purchase price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon to the date of purchase. See "Description of the Exchange Notes--Change of Control." Certain Covenants........... The Indenture contains certain covenants, including (i) limitations on additional indebtedness, (ii) limitations on restricted payments, (iii) limitations on liens, (iv) limitations on dividends and other payment restrictions affecting Restricted Subsidiaries (as defined herein), (v) limitations on preferred stock of Restricted Subsidiaries, (vi) limitations on transactions with affiliates, (vii) limitations on the disposition of proceeds of asset sales and (viii) limitations on designations of Unrestricted Subsidiaries (as defined herein). In addition, the Indenture limits the ability of the Company to consolidate, merge or sell all or substantially all of its assets. These covenants are subject to important exceptions and qualifications. See "Description of the Exchange Notes--Certain Covenants." Registration Rights......... A broker-dealer (a "Participating Broker-Dealer") that receives Exchange Notes in exchange for Original Notes that were acquired by it for its own account as a result of market-making activities or other trading activities, will be required to deliver a prospectus meeting the requirements of the Securities Act in connection with any resales by it of any such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may, if permitted by the Company, be used by a broker-dealer in order to satisfy such prospectus delivery requirements. The Company has agreed in the Registration Rights Agreement that it will use its best efforts to make this Prospectus available to any such broker-dealer for use in connection with any resales of such Exchange Notes 11 (subject to the right of the Company to restrict the use of this Prospectus under certain circumstances). The obligation of the Company to make this Prospectus available as aforesaid will commence on the day that the Exchange Offer is consummated and continue in effect for a 30-day period (the "Broker Prospectus Period"); provided, however, that, if for any day during such period the Company restricts the use of such prospectus, the Broker Prospectus Period shall be extended on a day-for-day basis. The Company has agreed in the Registration Rights Agreement that, if at the end of the Broker Prospectus Period any Participating Broker-Dealer continues to hold any Exchange Notes that it received in the Exchange Offer, the Company will (within the time period specified under "Registration Rights Agreement"), if any such broker-dealer so requests within 60 days after the end of the Broker Prospectus Period, file with the Commission a shelf registration statement (a "Broker Shelf Registration Statement") to cover the resale of such Exchange Notes by such broker-dealers and use its best efforts to have such registration statement declared effective by the Commission; provided, however, that (i) the Company may in lieu of filing such registration statement extend the Broker Prospectus Period by 60 days and (ii) the Company will not be required to file such registration statement until such time as the Company becomes eligible to use a Form S-3 for such registration statement. The interest rate on the Exchange Notes is subject to increase under certain circumstances if the Company is not in compliance with its obligations under the Registration Rights Agreement relating to the Broker Shelf Registration Statement. See "Registration Rights Agreement." Absence of Public Market for Exchange Notes......... The Exchange Notes are new securities for which there is currently no established trading market. Although the Initial Purchasers have informed the Company that they currently intend to make a market in the Exchange Notes, they are not obligated to do so and any such market making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the Exchange Notes. The Company does not intend to apply for listing of the Exchange Notes on any securities exchange or for quotation through the Nasdaq National Market. Although the Original Notes are currently eligible for trading in the Private Offerings, Resale and Trading through Automated Linkages ("PORTAL") market of the National Association of Securities Dealers, Inc., the Exchange Notes will not be eligible for trading through PORTAL. If a market for the Exchange Notes develops, the Exchange Notes could trade at a discount from their principal amount. RISK FACTORS See "Risk Factors" beginning on page 15 for a discussion of certain factors applicable to an investment in the Notes. 12 SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The Company commenced equipment rental operations in October 1997 by acquiring six established rental companies and acquired 53 additional companies in the first seven months of 1998. On June 15, 1998, the Company entered into the Merger Agreement with U.S. Rentals which, subject to the terms and conditions set forth therein, provides for the Merger of a subsidiary of the Company into U.S. Rentals as a result of which U.S. Rentals will become a wholly owned subsidiary of URI. See "Certain Information Concerning Pending Merger." The following unaudited pro forma income statement data and other financial data with respect to each period presented gives effect to each acquisition completed by the Company after the beginning of the period and the financing thereof, as if all such transactions had occurred at the beginning of the period. The following unaudited combined pro forma income statement data and other financial data with respect to each period presented gives effect to the foregoing and to completion of the Merger with U.S. Rentals using the "pooling of interests" method of accounting, as if all such transactions had occurred at the beginning of the period. The following unaudited pro forma balance sheet data as of March 31, 1998 gives effect to each acquisition completed by the Company subsequent to such date and the financing thereof as if all such transactions had occurred on such date. The following unaudited combined pro forma balance sheet data as of March 31, 1998, gives effect to the foregoing and to completion of the Merger with U.S. Rentals using the "pooling of interests" method of accounting, as if all such transactions had occurred on such date. The following data should be read in conjunction with (i) the information set forth under "Use of Proceeds," "Capitalization," "Selected Historical and Pro Forma Consolidated Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," (ii) the Consolidated Financial Statements and the related notes thereto and Pro Forma Consolidated Financial Statements and the related notes thereto of the Company included elsewhere in this Prospectus and (iii) the financial statements of certain of the Acquired Companies and of U.S. Rentals included elsewhere in this Prospectus. The pro forma data set forth below is provided for informational purposes only and does not purport to be indicative of the results that would have actually been obtained had the acquisition of each of the Acquired Companies and the Merger been completed at the beginning of the periods presented or of the results that may be expected to occur in the future. 13
PERIOD FROM AUGUST 14, 1997 (INCEPTION) THREE MONTHS THROUGH ENDED YEAR ENDED THREE MONTHS ENDED DECEMBER 31, 1997 MARCH 31, 1998 DECEMBER 31, 1997 MARCH 31, 1998 -------------------- -------------- -------------------- ------------------- COMBINED COMBINED HISTORICAL HISTORICAL PRO FORMA PRO FORMA PRO FORMA PRO FORMA -------------------- -------------- --------- ---------- --------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Total revenues.......... $10,633 $39,190 $605,461 $1,030,154 $132,906 $253,424 Gross profit............ 3,811 14,153 232,343 350,043 46,415 72,972 Operating income........ 238 5,260 89,081 132,672 12,117 23,448 Interest expense........ 454 1,173 50,985 58,355 11,629 15,315 Net income.............. 34 2,638 25,901 32,242 824 5,396 Basic earnings per share.................. $ 0.00 $ 0.10 $ 0.75 $ 0.51 $ 0.02 $ 0.08 Diluted earnings per share.................. $ 0.00 $ 0.09 $ 0.71 $ 0.50 $ 0.02 $ 0.08 Supplemental basic earnings per share(1).. $ 0.94 Supplemental diluted earnings per share(1).. $ 0.91
PERIOD FROM AUGUST 14, 1997 (INCEPTION) THROUGH THREE MONTHS ENDED YEAR ENDED THREE MONTHS ENDED DECEMBER 31, 1997 MARCH 31, 1998 DECEMBER 31, 1997 MARCH 31, 1998 -------------------- ------------------ -------------------- ------------------- COMBINED COMBINED HISTORICAL HISTORICAL PRO FORMA PRO FORMA PRO FORMA PRO FORMA -------------------- ------------------ --------- --------- --------- --------- (DOLLARS IN THOUSANDS) OTHER FINANCIAL DATA: EBITDA(2)............... $1,539 $10,930 $181,559 $325,893 $34,631 $71,207 EBITDA margin(3)........ 14.5% 27.9% 30.0% 31.6% 26.1% 28.1% Interest expense(4)..... $ 454 $ 1,173 $ 50,985 $ 58,355 $11,629 $15,315 Depreciation and amortization........... 1,301 5,670 92,478 172,931 22,514 47,759 Ratio of EBITDA to interest expense....... 3.4x 9.3x 3.6x 5.6x 3.0x 4.6x
AS OF MARCH 31, 1998 -------------------------------- COMBINED HISTORICAL PRO FORMA PRO FORMA ---------- ---------- ---------- (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents..................... $ 54,785 $ 4,000 $ 10,344 Rental equipment, net......................... 140,744 424,673 865,875 Total assets.................................. 450,127 1,176,421 1,826,343 Total debt.................................... 26,494 655,022 935,222 Stockholders' equity.......................... 384,633 421,727 631,936
- -------- (1) In connection with the initial public offering of U.S. Rentals (the "U.S. Rentals IPO") and a related recapitalization, U.S. Rentals in 1997 incurred a $20.3 million non-recurring charge (the "U.S. Rentals Non-Recurring Charge") arising from the termination of deferred compensation agreements with certain executives. See Note 1 of the Financial Statements of U.S. Rentals included elsewhere herein. Supplemental basic and diluted earnings per share gives effect to the U.S. Rentals IPO as if it had occurred during 1996 and (i) eliminates the U.S. Rentals Non-Recurring Charge, (ii) eliminates the interest expense of debt that was repaid from the proceeds of the U.S. Rentals IPO and (iii) reflects a provision for income taxes as if U.S. Rentals were liable for federal and state income taxes as a taxable corporate entity for all of 1997. (2) EBITDA is defined as net income (calculated excluding non-operating income and expense and excluding the $20.3 million Non-Recurring U.S. Rentals Charge) plus interest expense, income taxes and depreciation and amortization. EBITDA is presented to provide additional information concerning the Company's ability to meet its future debt service obligations and capital expenditure and working capital requirements. EBITDA is not a measure of financial performance under generally accepted accounting principles and should not be considered as an alternative to either net income as an indicator of the Company's operating performance or cash flows as an indicator of the Company's liquidity. (3) EBITDA margin is defined as EBITDA as a percentage of revenues. (4) Interest expense excludes the amortization of deferred financing fees. 14 RISK FACTORS In addition to the other information contained in this Prospectus, Holders of Original Notes should carefully consider the following factors before deciding to tender Original Notes in the Exchange Offer. Except as otherwise indicated, the risk factors set forth below are generally applicable to both the Original Notes and the Exchange Notes. SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS IS DEPENDENT ON FUTURE PERFORMANCE The Company incurred substantial indebtedness in connection with its acquisition of the Acquired Companies. As of March 31, 1998, the Company had total debt of $655.0 million on a pro forma basis after giving effect to the acquisitions completed by the Company subsequent to such date and the financing thereof. The Company expects to obtain additional financing in connection with the pending Merger with U.S. Rentals as described under "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." In addition, the Company will require substantial capital to finance its growth and expects that it will incur substantial additional indebtedness from time to time (including borrowings under the Credit Facility) for a variety of purposes, including completing additional acquisitions, establishing new rental locations and purchasing equipment. The Indenture and the other agreements governing the Company's existing indebtedness permit the Company and its subsidiaries to incur additional debt, subject to certain limitations. See "--Dependence on Additional Capital to Finance Growth," "Capitalization," "Selected Historical and Pro Forma Consolidated Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and "Description of the Notes--Certain Covenants-- Limitation on Indebtedness." The degree to which the Company is leveraged could have important consequences to holders of the Notes, including, but not limited to, the following: (i) a substantial portion of the Company's consolidated cash flow from operations will be dedicated to the payment of the principal of and interest on its debt and will not be available for other purposes, (ii) the Company's ability to obtain additional financing in the future for acquisitions, new rental locations, capital expenditures, general corporate purposes or other purposes may be impaired, (iii) the Company is more leveraged than certain of its competitors, which may place the Company at a competitive disadvantage, (iv) a high degree of leverage may make the Company more vulnerable to a downturn in its business or in the economy generally and (v) certain of the Company's borrowings, including all borrowings under the Credit Facility and the Term Loan (as defined herein) are, or in the future may be, at variable rates which may make the Company vulnerable to increases in interest rates. The Company's ability to make scheduled payments of principal of, or to pay interest on or to refinance its debt (including the Notes) depends on its future financial performance, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors beyond its control. There can be no assurance that the Company will have sufficient cash from operations or other sources to service its debt (including the Notes). SUBORDINATION OF THE NOTES AND GUARANTEES; UNSECURED STATUS The Notes are general unsecured obligations of the Issuer and are subordinated in right of payment to the prior payment in full of all existing and future Senior Indebtedness of the Issuer, including all amounts owing under the Credit Facility and the Term Loan. The Guarantees are general unsecured obligations of the Guarantors and are subordinated in right of payment to all existing and future Guarantor Senior Indebtedness. The Company's Canadian subsidiaries are not Guarantors and, as a result, the Notes are effectively subordinated to all obligations of such subsidiaries, including trade payables of such subsidiaries. At March 31, 1998, on a pro forma basis (after giving effect to all acquisitions completed by the Company subsequent to such date and the financing thereof), there was outstanding (i) $447.1 million of Senior Indebtedness, (ii) $9.3 million of Guarantor Senior Indebtedness (other than guarantees of the Company's Senior Indebtedness) and (iii) $20.2 million of obligations of subsidiaries that are not Guarantors (other than obligations to the Company). The Indenture permits the Company and its subsidiaries to incur additional debt, subject to certain limitations. 15 The effect of such subordination provisions is that, (i) in the event of a bankruptcy, liquidation, dissolution, reorganization or similar proceeding with respect to the Issuer, the assets of the Issuer will be available to pay obligations on the Notes only after all Senior Indebtedness has been paid in full and (ii) in the event of any such occurrence with respect to a Guarantor, the assets of such Guarantor will be available to pay obligations on the Guarantee of such Guarantor only after all Guarantor Senior Indebtedness of such Guarantor has been paid in full. In addition, no cash payments may be made with respect to the Notes during the continuance of a payment default with respect to Senior Indebtedness. Furthermore, under certain circumstances, no cash payments with respect to the Notes may be made for a period of up to 179 days (during each period of 360 days) if a non-payment default exists with respect to Senior Indebtedness. There can be no assurance that, after the payment of all Senior Indebtedness and Guarantor Senior Indebtedness, there will be sufficient assets remaining to pay amounts due on all or any of the Notes. The Indenture permits the Company to incur certain secured indebtedness. The Credit Facility and the Term Loan are secured by a lien on substantially all the assets of the Company and the Guarantors. If an event of default occurs under the Credit Facility or the Term Loan, the lenders thereunder will have the right to exercise the remedies (such as foreclosure) available to a secured lender under applicable law and the agreement governing the Credit Facility. Since the Notes are unsecured, the effect of such security interest is to give the lenders under the Credit Facility and the Term Loan a prior claim on the assets of the Company and the Guarantors, in addition to the priority that they have by virtue of the subordination provisions described above. RISKS ASSOCIATED WITH HOLDING COMPANY STRUCTURE The Company derives all its operating income from its subsidiaries and, as of March 31, 1998, approximately 82% of the Company's consolidated assets were held by its subsidiaries. Consequently, the Company's ability to meet its financial obligations, including its obligations under the Notes, is dependent upon the earnings of such subsidiaries and the distribution or other payment of such earnings to the Company. The ability of the Company's subsidiaries to make distributions or other payments to the Company is limited by applicable law generally governing the payment of dividends and other distributions by corporations. Furthermore, although at present there are no contractual restrictions that limit the ability of the Company's subsidiaries to make distributions or other payments to the Company, certain of the Company's subsidiaries may in the future become subject to loan or other agreements that contain such restrictions. POSSIBLE INABILITY TO REPURCHASE NOTES UPON CHANGE OF CONTROL Upon the occurrence of a Change of Control, the Company is required under certain circumstances to offer to repurchase the Notes for cash at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest thereon to the date of purchase. There can be no assurance, however, that the Company would have sufficient cash to make such required repurchase. Furthermore, the agreements governing the Credit Facility and Term Loan prohibit the Company from purchasing the Notes and future agreements that the Company may enter into relating to Senior Indebtedness may contain a similar prohibition. In the event that a Change of Control occurs at a time when the Company is prohibited from purchasing the Notes, the Company could seek the consent of its lenders to the purchase of the Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such consent or repay such borrowings, the Company will remain prohibited from purchasing the Notes. In such case, the Company's failure to purchase Notes that are tendered following a Change of Control would constitute an event of default under the Indenture which would, in turn, constitute a default under the Credit Facility and Term Loan and could constitute a default under other Senior Indebtedness. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of the Notes. RESTRICTIVE COVENANTS The Indenture and the agreements governing the Credit Facility and Term Loan contain, and future agreements governing the Company's long-term debt may also contain, certain restrictive financial and operating covenants which affect, and in many respects significantly limit or prohibit, among other things, the ability of 16 the Company to incur indebtedness, make prepayments of certain indebtedness, make investments, create liens, make acquisitions, sell assets and engage in mergers and consolidations. These covenants may significantly limit the operating and financial flexibility of the Company and may limit its ability to respond to changes in its business or competitive activities. The failure by the Company to comply with such covenants could result in an event of default under the applicable instrument, which could permit acceleration of the debt under such instrument and in some cases acceleration of debt under other instruments that contain cross-default or cross-acceleration provisions. See "Description of the Notes--Certain Covenants" and "Description of the Notes--Events of Default." FRAUDULENT TRANSFER CONSIDERATIONS Various fraudulent conveyance laws enacted for the protection of creditors may apply to the Guarantors' issuance of the Guarantees. To the extent that a court were to find that (x) a Guarantee was incurred by a Guarantor with actual intent to hinder, delay or defraud any present or future creditor or (y) such Guarantor did not receive fair consideration or reasonably equivalent value for issuing its Guarantee and such Guarantor (i) was insolvent, (ii) was rendered insolvent by reason of the issuance of such Guarantee, (iii) was engaged or about to engage in a business or transaction for which the remaining assets of such Guarantor constituted unreasonably small capital to carry on its business or (iv) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they matured, the court could avoid such Guarantee or subordinate such Guarantee in favor of the Guarantor's creditors. To the extent that the Guarantee of a Guarantor were avoided as a fraudulent conveyance or held unenforceable for any other reason, claims of Holders of the Notes against such Guarantor would be adversely affected, Holders of the Notes would be solely creditors of the Issuer and the other Guarantors and the Notes would be effectively subordinated to all obligations of such Guarantor. To the extent that the claims of the Holders of the Notes against any Guarantor were subordinated in favor of other creditors of such Guarantor, such other creditors would be entitled to be paid in full before any payment could be made on the Notes. In the event that one or more of the Guarantees is avoided or subordinated, there can be no assurance that after providing for all prior claims there would be sufficient assets remaining to satisfy the claims of Holders of the Notes. Based upon financial and other information, the Company believes that the Notes and the Guarantees are being incurred for proper purposes and in good faith and that the Company and each Guarantor is solvent and will continue to be solvent after issuing the Notes or its Guarantee, as the case may be, will have sufficient capital for carrying on its business after such issuance and will be able to pay its debts as they mature. There can be no assurance, however, that a court passing on such standards would agree with the foregoing. Among other things, a legal challenge of a Guarantee on fraudulent conveyance grounds may focus on the benefits, if any, realized by the Guarantor as a result of the issuance by the Company of the Notes. CONSEQUENCES OF FAILURE TO EXCHANGE ORIGINAL NOTES All Original Notes that remain outstanding upon consummation of the Exchange Offer will continue to be subject to the restrictions on transfer provided for in the Original Notes and the Indenture. In general, the Original Notes may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Upon consummation of the Exchange Offer, the Holders of Original Notes will not have any further registration rights under the Registration Rights Agreement (subject to limited exceptions as described under "Registration Right Agreement--Shelf Registration Statement"). To the extent that the Original Notes are tendered and accepted in the Exchange Offer, the trading market for untendered Original Notes could be adversely affected. EXCHANGE OFFER PROCEDURES Issuance of the Exchange Notes for Original Notes pursuant to the Exchange Offer will be made only after timely tender of the Original Notes in the manner described under "The Exchange Offer--Procedure for Tendering." Therefore, Holders desiring to tender their Original Notes pursuant to the Exchange Offer should 17 allow sufficient time to ensure timely tender of the Original Notes. The Company is under no duty to give notification of defects or irregularities with respect to tenders of Original Notes for exchange. PROSPECTUS DELIVERY REQUIREMENTS APPLICABLE TO PARTICIPATING BROKER-DEALERS A broker-dealer that receives Exchange Note in exchange for Original Notes that were acquired by it for its own account as a result of market-making activities or other trading activities, will be required to deliver a prospectus meeting the requirements of the Securities Act in connection with any resales by it of any such Exchange Notes. In order for a broker-dealer to participate in the Exchange Offer, it must acknowledge that it will comply with such prospectus delivery requirements. The Company's obligation to make this Prospectus available to broker-dealers for use by them in connection with resales of the Exchange Notes is limited (as described under "Registration Rights Agreement--Certain Provisions Relating to Broker-Dealers") Accordingly, there can be no assurance that a prospectus meeting the requirements of the Securities Act will be available for use by broker-dealers in connection with any proposed resale of Exchange Notes. NEED TO MAKE REPRESENTATIONS IN ORDER TO PARTICIPATE IN EXCHANGE OFFER In connection with any tender of Original Notes pursuant to the Exchange Offer, the Book-Entry Holder of such Original Notes will be required to make certain representations in the Letter of Transmittal, including that (i) it is not an affiliate of the Company, (ii) it is not a broker-dealer that purchased such Original Notes directly from the Company, (iii) any Exchange Notes that it acquires in the Exchange Offer will be acquired by it in the ordinary course of its business and (iv) it has no arrangement with any person to participate in the distribution of the Exchange Notes; provided, however, that if the Book-Entry Holder is a broker-dealer that wishes to exchange Original Notes that were acquired by it for its own account as a result of market- making activities or other trading activities, it may represent, in lieu of the representation set forth in clause (iv) above, that it has no arrangement or understanding with the Company, or any affiliate of the Company, to participate in the distribution of the Exchange Notes. In addition, any Book- Entry Holder that holds any Original Notes as nominee, will be required to confirm that the beneficial owner for which it is holding such Notes has made the representations provided for in the preceding sentence. In the event that any of the required representations is not true with respect to a Holder that receives Exchange Notes pursuant to the Exchange Offer, the Exchange Notes received by such Holder may be deemed to be restricted securities and, if so, such Exchange Notes may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES The Exchange Notes are a new issue of securities for which there is currently no trading market. The Company does not intend to apply for listing of the Exchange Notes on any securities exchange or for quotation through the Nasdaq National Market. Although the Initial Purchasers have informed the Company that they currently intend to make a market in the Exchange Notes, they are not obligated to do so and any such market making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development of any market for the Exchange Notes, the liquidity of any such market that may develop, the ability of the Holders of the Exchange Notes to sell their Exchange Notes or the price at which such Holders would be able to sell their Exchange Notes. If a market were to exist, the Exchange Notes could trade at prices that may be lower than the initial offering price of the Original Notes for which they were exchanged, depending on many factors, including prevailing interest rates and the markets for similar securities, general economic conditions and the financial condition and performance of, and prospects for, the Company. SENSITIVITY TO GENERAL ECONOMIC AND WEATHER CONDITIONS The Company believes that the equipment rental business is sensitive to changes in general economic conditions and may be temporarily disrupted 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 18 conditions, including changes in construction and industrial activity, or increases in prevailing interest rates, or (ii) adverse weather conditions that may temporarily decrease construction and industrial activity in any one particular geographic area. PENDING MERGER WITH U.S. RENTALS IS SUBJECT TO CERTAIN CONDITIONS The Merger is subject to the satisfaction or waiver of certain conditions. See "Certain Information Concerning Pending Merger." Consequently, although the Company expects that the Merger will be completed, there can be no assurance of this. ACQUIRED COMPANIES NOT HISTORICALLY OPERATED AS A COMBINED BUSINESS The Acquired Companies have been in existence an average of 21 years and some have been in existence for more than 50 years. However, the businesses of these companies have not historically been operated on a combined basis and 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 manage effectively 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. 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 53 additional companies in the first seven 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 do not fully reflect its current operations in view of the fact that (i) acquisitions completed after the commencement of a period are reflected in the Company's results for only a portion of the period and (ii) acquisitions completed subsequent to the end of a period are not reflected in the Company's results for such period. RISKS RELATING TO GROWTH STRATEGY The Company's growth strategy includes continued expansion through its ongoing acquisition program, the start-up of new locations, and internal growth. However, there can be no assurance that the Company will successfully implement its growth strategy or that this strategy will result in continued profitability. In addition, under the terms of the Indenture and the agreements governing the Credit Facility and the Term Loan, 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. Competition for acquisitions could have the effect of increasing prices required to be paid for such acquisitions. 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. 19 NEED TO INTEGRATE NEW OPERATIONS Realization of the anticipated benefits of completed and future acquisitions (including the pending Merger with U.S. Rentals) will depend, in part, upon the efficient, effective and timely integration of acquired operations. Accordingly, the Company intends to continue 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. 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 for a start-up location to become profitable. Although start-ups can generate long-term growth, there can be no assurance that any start-up location will become profitable within any specific time period, 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 Company's borrowing facilities is not sufficient to fund the Company's capital requirements, the Company will require additional debt and/or equity financing. 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 and 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 of the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 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. In connection with acquisitions, the Company seeks to minimize the impact of these liabilities by obtaining indemnities and warranties from the sellers 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 agreements governing the Credit Facility and Term Loan provide 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. 20 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. 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. 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." 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 period not meeting expectations, which could have a material adverse impact on the price of the Notes. 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 the Company's 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 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 21 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. CONCENTRATED CONTROL The executive officers and directors of the Company own in the aggregate shares of Common Stock which represent approximately 46.6% of the Company's outstanding Common Stock on a pro forma basis giving effect to the exercise of all currently exercisable options and warrants owned by such executive officers and directors (49.6% giving effect to the exercise of all options and warrants, including options that are not currently exercisable). 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. RESTRICTIVE COVENANTS The Indenture and the other agreements governing the Company's existing long-term indebtedness contain, and future agreements governing the Company's long-term indebtedness may also contain, certain restrictive financial and operating covenants which affect, and in many respects significantly limit or prohibit, among other things, the ability of the Company to incur indebtedness, make prepayments of certain indebtedness, make investments, create liens, make acquisitions, sell assets and engage in mergers and consolidations. These covenants may significantly limit the operating and financial flexibility of the Company and may limit its ability to respond to changes in its business or competitive activities. The failure by the Company to comply with such covenants could result in an event of default under the applicable instrument, which could permit acceleration of the debt under such instrument and in some cases acceleration of debt under other instruments that contain cross-default or cross-acceleration provisions. 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." RISKS RELATED TO INTERNATIONAL OPERATIONS The Company's operations outside the United States are subject to risks normally associated with international operations, including currency conversion risks and complying with foreign laws. 22 THE EXCHANGE OFFER The following summary of certain terms of the Exchange Offer is qualified in its entirety by reference to the full text of the documents underlying the Exchange Offer, including the Letter of Transmittal and the Registration Rights Agreement, copies of which are filed as exhibits to the Registration Statement of which this Prospectus is a part. Participation in the Exchange Offer is voluntary, and Holders should carefully consider whether to accept. Holders are urged to consult their financial and tax advisors in making their decision on what action to take. PURPOSE OF THE EXCHANGE OFFER; EFFECT ON HOLDERS OF ORIGINAL NOTES The Exchange Offer is being made in order to satisfy certain of the Company's obligations under the Registration Rights Agreement. See "Registration Rights Agreement." Upon consummation of the Exchange Offer, the Holders of Original Notes will not have any further registration rights under the Registration Rights Agreement (subject to limited exceptions as described under "Registration Right Agreement--Shelf Registration Statement"). Holders of the Original Notes who do not tender their Original Notes in the Exchange Offer will continue to hold such Original Notes and will be entitled to all the rights and will be subject to all the limitations applicable thereto under the Indenture. All Original Notes that remain outstanding upon consummation of the Exchange Offer will continue to be subject to the restrictions on transfer provided for in the Original Notes and the Indenture. In general, the Original Notes may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. To the extent that the Original Notes are tendered and accepted in the Exchange Offer, the trading market for untendered Original Notes could be adversely affected. REQUIRED REPRESENTATIONS In connection with any tender of Original Notes pursuant to the Exchange Offer, the Book-Entry Holder of such Original Notes will be required to make certain representations in the Letter of Transmittal, including that (i) it is not an affiliate of the Company, (ii) it is not a broker-dealer that purchased such Original Notes directly from the Company, (iii) any Exchange Notes that it acquires in the Exchange Offer will be acquired by it in the ordinary course of its business and (iv) it has no arrangement with any person to participate in the distribution of the Exchange Notes; provided, however, that if the Book-Entry Holder is a broker-dealer that wishes to tender Original Notes that were acquired by it for its own account as a result of market- making activities or other trading activities, it may represent, in lieu of the representation set forth in clause (iv), that it has no arrangement or understanding with the Company, or any affiliate of the Company, to participate in the distribution of the Exchange Notes. In addition, a Book- Entry Holder that holds any Original Notes as nominee, will be required to confirm that the beneficial owner for which it is holding such Notes has made the representations provided for in the preceding sentence. RESALE OF EXCHANGE NOTES Based on interpretations by the staff of the Commission set forth in no- action letters issued to third parties, the Company believes that (except as provided in the following two paragraphs) the Exchange Notes issued pursuant to the Exchange Offer may be offered for resale, resold or otherwise transferred by any Holder thereof (other than an affiliate of the Company) without compliance with the registration and prospectus delivery provisions of the Securities Act (subject to the representations set forth under "--Required Representations" being made and being accurate). Any broker-dealer that receives Exchange Note in exchange for Original Notes that were acquired by it for its own account as a result of market-making activities or other trading activities, must deliver a prospectus meeting the requirements of the Securities Act in connection with any resales by it of any such Exchange Notes. 23 This Prospectus, as it may be amended or supplemented from time to time, may, if permitted by the Company, be used by a broker-dealer in order to satisfy such prospectus delivery requirements. The Company has agreed in the Registration Rights Agreement that, for a period of 30 days following consummation of the Exchange Offer (subject to extension under certain circumstances described under "Registration Rights Agreement"), it will make this Prospectus available to any broker-dealer for use in connection with any such resale (subject to the right of the Company to restrict the use of this Prospectus under certain circumstances). Each broker-dealer that participates in the Exchange Offer will be required to confirm that it will comply with the prospectus delivery requirements described above. A broker-dealer that delivers a prospectus in connection with the resale of any Exchange Notes will be subject to certain of the civil liability provisions under the Securities Act. See "Registration Right Agreement" and "Plan of Distribution." In the event that any of the required representations set forth under "-- Required Representations" is not true with respect to a Holder that receives Exchange Notes pursuant to the Exchange Offer, the Exchange Notes received by such Holder may be deemed to be restricted securities and, if so, such Exchange Notes may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. The conclusions set forth in the preceding three paragraphs are based on interpretations by the Staff of the Commission set forth in no-action letters issued to third parties. The Company does not intend to seek its own no-action letter with respect to the Exchange Offer and there is no assurance that the Staff of the Commission would make a similar determination with respect to the Exchange Offer as it has in such no-action letters to third parties. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal, the Company will accept for exchange all Original Notes properly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date. The Company will issue $1,000 principal amount of Exchange Notes in exchange for each $1,000 principal amount of outstanding Original Notes accepted in the Exchange Offer. Holders may tender some or all of their Original Notes pursuant to the Exchange Offer in denominations of $1,000 and integral multiples thereof. The Exchange Offer is not conditioned upon any minimum aggregate principal amount of Original Notes being tendered. The terms of the Exchange Notes will be the same in all material respects as the Original Notes except that (i) the Exchange Notes will be registered under the Securities Act, and, therefore, will not bear legends restricting the transfer thereof and (ii) certain of the registration rights, under the Registration Rights Agreement, relating to the Exchange Notes are different than those relating to the Original Notes and, therefore, the defaults under the Registration Rights Agreement that may require the Company to pay additional interest will be different for the Exchange Notes and the Original Notes. See "Registration Rights Agreement--Certain Provisions Relating to Additional Interest." The Exchange Notes will evidence the same debt as the Original Notes and both series of Notes will be entitled to the benefits of the Indenture and treated as a single class of debt securities. In connection with the issuance of the Original Notes, the Company arranged for the Original Notes to be issued and transferable in book-entry form through the facilities of DTC, acting as depositary. The Exchange Notes will also be issuable and transferable in book-entry form through DTC. See "Description of the Notes--Book Entry; Delivery and Form." The Company shall be deemed to have accepted validly tendered Original Notes when, as and if the Company has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering Holders of Original Notes for the purposes of receiving the Exchange Notes from the Company and delivering Exchange Notes to such Holders. The Company's obligation to accept Original Notes for exchange pursuant to the Exchange Offer is subject to certain customary conditions as set forth under "-- Conditions." 24 If any tendered Original Notes are not accepted for exchange because of an invalid tender or the occurrence of certain other events set forth herein, such unaccepted Original Notes will be returned, without expense, to the tendering Holder thereof as promptly as practicable after the Expiration Date. Holders of Original Notes who tender pursuant to the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Original Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than certain applicable taxes, in connection with the Exchange Offer. See "--Solicitation of Tenders; Fees and Expenses." Holders do not have appraisal or dissenters' rights under the Delaware General Corporation Law or under the Indenture in connection with the Exchange Offer. The Company intends to conduct the Exchange Offer in accordance with the applicable requirements of Regulation 14E under the Exchange Act. NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY RECOMMENDATION TO HOLDERS OF ORIGINAL NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR ORIGINAL NOTES PURSUANT TO THE EXCHANGE OFFER. MOREOVER, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF ORIGINAL NOTES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF ORIGINAL NOTES TO TENDER, AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR ADVISORS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION AND REQUIREMENTS. EXPIRATION DATE; EXTENSIONS; AMENDMENTS The Exchange Offer will remain open for acceptance for a period of not less than 20 business days after the date notice of the Exchange Offer is mailed to Holders of the Original Notes (or longer if required by applicable law). The Expiration Date will be 5:00 p.m., New York City time, on , 1998, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the Expiration Date will be the latest business day to which the Exchange Offer is extended. In order to extend the Expiration Date, the Company will notify the Exchange Agent of any extension by oral or written notice and will mail to the record Holders an announcement thereof, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. During any such extension, all Original Notes previously tendered and not withdrawn as herein provided will remain subject to the Exchange Offer and may be accepted for exchange by the Company. INTEREST ON THE EXCHANGE NOTES Interest on the Notes is payable semi-annually on June 1 and December 1 of each year at the rate of 9 1/2% per annum. The Exchange Notes will bear interest from and including the last interest payment date on the Original Notes (or, if none has yet occurred, the date of issuance of such Original Notes). Accordingly, Holders of Original Notes that are accepted for exchange will not receive interest that is accrued but unpaid on the Original Notes at the time of tender, but such interest will be payable in respect of the Exchange Notes delivered in exchange for such Original Notes on the first interest payment date after the Expiration Date. PROCEDURES FOR TENDERING Only a Book-Entry Holder of Original Notes may tender such Original Notes pursuant to the Exchange Offer. To tender any Original Notes pursuant to the Exchange Offer, the Book-Entry Holder of such Original Notes must make book- entry delivery of such Original Notes by causing DTC to transfer such Original Notes to the account of the Exchange Agent at DTC in accordance with DTC's Automated Tender Offer Program ("ATOP") prior to 5:00 p.m., New York City time, on the Expiration Date. In addition, either (i) DTC must deliver an Agent's Message (as defined below) prior to 5:00 p.m., New York City time, on the Expiration Date, 25 indicating that DTC has received from such Book-Entry Holder an express acknowledgment that such Book-Entry Holder has received and agrees to be bound by the terms of the Letter of Transmittal or (ii) such Book-Entry Holder must complete, sign and date the Letter of Transmittal or a facsimile thereof, in accordance with the instructions contained herein and therein and deliver such Letter of Transmittal, or such facsimile, and any other required documentation to the Exchange Agent at the address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. The term "Agent's Message" means a message transmitted by DTC to, and received by, the Exchange Agent and forming part of the book-entry confirmation relating to a book-entry transfer of Original Notes through ATOP, which states that DTC has received an express acknowledgment from the DTC Participant that is tendering the Original Notes which are the subject of such book entry confirmation, that such DTC Participant has received and agrees to be bound by the terms of the Letter of Transmittal. The tender by a Holder of Original Notes and the acceptance thereof by the Company will constitute an agreement between such Holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL SHOULD BE SENT TO THE COMPANY. All questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered Original Notes and withdrawal of tendered Original Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Original Notes not properly tendered or any Original Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any irregularities or conditions of tender as to particular Original Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Original Notes must be cured within such time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Original Notes, nor shall any of them incur any liability for failure to give such notification. Tenders of Original Notes will not be deemed to have been made until such irregularities have been cured or waived. Any Original Notes received by the Exchange Agent that are not properly tendered or the tender of which is otherwise rejected by the Company and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the Book-Entry Holder that tendered such Original Notes (by crediting an account maintained at DTC designated by such Book-Entry Holder) as soon as practicable following the Expiration Date. WITHDRAWAL OF TENDERS Except as otherwise provided herein, tenders of Original Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To withdraw a tender of Original Notes pursuant to the Exchange Offer, the Book-Entry Holder that tendered such Original Notes must, prior to 5:00 p.m., New York City time, on the Expiration Date, either (i) withdraw such tender in accordance with the appropriate procedures of the ATOP system or (ii) deliver to the Exchange Agent a written or facsimile transmission notice of withdrawal at the address set forth herein. Any such notice of withdrawal must contain the name and number of the Book-Entry Holder, the amount of Original Notes to which such withdrawal relates, the account at DTC to be credited with the withdrawn Original Notes 26 and the signature of the Book-Entry Holder. All questions as to the validity, form and eligibility (including time of receipt) of such withdrawal notices will be determined by the Company in its sole discretion, whose determination will be final and binding on all parties. Any Original Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer, and no Exchange Notes will be issued with respect thereto unless the Original Notes so withdrawn are validly retendered. Any Original Notes which have been tendered but which are withdrawn will be returned by the Exchange Agent to the Book-Entry Holder that tendered such Original Notes (by crediting an account maintained at DTC designated by such Book-Entry Holder) as soon as practicable after withdrawal. Properly withdrawn Original Notes may be retendered at any time prior to the Expiration Date by following the procedures described under "--Procedures for Tendering." CONDITIONS Notwithstanding any other term of the Exchange Offer, the Company shall not be required to accept for exchange, or to exchange Exchange Notes for, any Original Notes, and may terminate or amend the Exchange Offer as provided herein before the acceptance of such Original Notes, if: (a) any action or proceeding is instituted or threatened in any court or by or before any governmental agency or regulatory authority or any injunction, order or decree is issued with respect to the Exchange Offer which, in the sole judgment of the Company, might impair the ability of the Company to proceed with the Exchange Offer; or (b) any law, statute, rule, regulation or interpretation by the Staff of the Commission is proposed, adopted or enacted, which, in the reasonable judgment of the Company, might materially impair the ability of the Company to proceed with the Exchange Offer; or (c) any governmental approval has not been obtained, which approval the Company, in its sole discretion, deems necessary for the consummation of the Exchange Offer; or (d) there shall have been proposed, adopted or enacted any law, statute, rule or regulation (or an amendment to any existing law, statute, rule or regulation) which, in the sole judgment of the Company, might materially impair the ability of the Company to proceed with the Exchange Offer. If the Company determines in its reasonable judgment that any of the conditions set forth above are not satisfied, the Company may (i) terminate the Exchange Offer and refuse to accept any Original Notes and return all tendered Original Notes to the tendering Holders, (ii) extend the Exchange Offer and retain all Original Notes tendered prior to the expiration of the Exchange Offer subject, however, to the rights of Holders to withdraw such Original Notes (see "--Withdrawals of Tenders") or (iii) waive such unsatisfied conditions with respect to the Exchange Offer and accept all properly tendered Original Notes which have not been withdrawn. Moreover, regardless of whether any of such conditions has occurred, the Company may amend the Exchange Offer in any manner which, in its good faith judgment, is advantageous to Holders of the Original Notes. The foregoing conditions are for the sole benefit of the Company and may be asserted by the Company regardless of the circumstances giving rise to any such condition or may be waived by the Company in whole or in part at any time and from time to time in its sole discretion. The failure by the Company at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. If a waiver constitutes a material change in the Exchange Offer, the Company will disclose such change by means of a supplement to this Prospectus that will be distributed to each Book-Entry Holder, and the Company will extend the Exchange Offer for a period of five to ten business days, depending upon the significance of the waiver and the manner of disclosure to the Book-Entry Holders, if the Exchange Offer would otherwise expire during such period. Any determination by the Company concerning the events described above will be final and binding upon all parties. In addition, the Company will not accept for exchange any Original Notes tendered, and no Exchange Notes will be issued in exchange for any such Original Notes, if at such time any stop order shall be threatened or in effect with respect to the Registration Statement of which this Prospectus is a part or the Indenture is not qualified 27 under the Trust Indenture Act of 1939, as amended. The Company is required to use every reasonable effort to obtain the withdrawal of any such stop order at the earliest possible time. The Exchange Offer is not conditioned upon any minimum principal amount of Original Notes being tendered for exchange. EXCHANGE AGENT State Street Bank and Trust Company, the Trustee under the Indenture, has been appointed as Exchange Agent for the Exchange Offer. In such capacity, the Exchange Agent has no fiduciary duties to the Holders of the Notes and will be acting solely on the basis of directions of the Company. All executed Letters of Transmittal must be directed to the Exchange Agent at the applicable address set forth below. Questions and requests for assistance and requests for additional copies of this Prospectus or the Letter of Transmittal should be directed to the Exchange Agent addressed as follows: By Mail: By Facsimile By Overnight or Hand Transmission: Delivery: (registered or certified (for Eligible recommended) Institutions only) State Street Bank and (617) 664-5290 State Street Bank and Trust Company Attention: Kellie Mullen Trust Company Corporate Trust Confirm by Telephone: Corporate Trust Department (617) 664-5587 Department P.O. Box 778 Two International Plaza Boston, MA 02102-0078 Boston, MA 02110-0078 Attention: Kellie Mullen Fourth Floor Attention: Kellie Mullen DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OR FACSIMILE NUMBER OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. SOLICITATION OF TENDERS; FEES AND EXPENSES The expenses of soliciting tenders pursuant to the Exchange Offer will be borne by the Company. The principal solicitation for tenders pursuant to the Exchange Offer is being made by mail; however, additional solicitations may be made by telegraph, facsimile, telephone or in person by officers and regular employees of the Company and its affiliates. The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to brokers, dealers or other persons soliciting acceptances of the Exchange Offer. The Company will, however, pay the Exchange Agent reasonable and customary fees for its services and will reimburse the Exchange Agent for its reasonable out-of-pocket expenses in connection therewith and pay other expenses of the Exchange Offer, including fees and expenses of the Trustee, filing fees, blue sky fees, accounting and legal fees and printing and distribution expenses. The Company may also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this Prospectus, Letters of Transmittal and related documents to the beneficial owners of the Original Notes and in handling or forwarding tenders for exchange. The Company will pay all transfer taxes, if any, applicable to the exchange of Original Notes pursuant to the Exchange Offer. If, however, Exchange Notes or Original Notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be registered or issued in the name of, any person other than the Book-Entry Holder of the Original Notes tendered, or if a transfer tax is imposed for any reason other than the exchange of Original Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the Book-Entry Holder or any other persons) will be payable by the tendering Holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering Holder. 28 ACCOUNTING TREATMENT The Exchange Notes will be recorded at the same carrying value as the Original Notes for which they are exchanged, which is the aggregate principal amount of the Original Notes, as reflected in the Company's accounting records on the date of exchange. Accordingly, no gain or loss for accounting purposes will be recognized in connection with the Exchange Offer. The cost of the Exchange Offer will be deferred and amortized over the term of the Exchange Notes. OTHER The Company may in the future seek to acquire untendered Original Notes, to the extent permitted by applicable law, in open market or privately negotiated transactions, through subsequent exchange offers or otherwise. The Company has no present plans to acquire any Original Notes that are not tendered in the Exchange Offer or to file a registration statement to permit resales of any untendered Original Notes. CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS The following is a general discussion of certain U.S. federal income tax consequences of the Exchange Offer. This discussion is based on the current provisions of the Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury regulations, judicial authority and administrative rulings and practice. This discussion is generally limited to the tax consequences to Holders of the Notes that hold the Notes as capital assets (within the meaning of Section 1221 of the Code). There can be no assurance that the Internal Revenue Service (the "Service") will not take a contrary view, and no ruling from the Service has been or will be sought. Legislative, judicial or administrative changes or interpretations may be forthcoming that could alter or modify the statements and conditions set forth herein. Any such changes or interpretations may or may not be retroactive and could affect the tax consequences to Holders. Certain Holders including insurance companies, tax- exempt organizations, financial institutions, broker-dealers, foreign corporations and persons who are not citizens or residents of the United States may be subject to special rules not discussed below. For U.S. federal income tax purposes, the exchange of Original Notes for Exchange Notes pursuant to the Exchange Offer should not be treated as a taxable transaction for federal income tax purposes. As a result, there should be no federal income tax consequences to Holders exchanging Original Notes for Exchange Notes pursuant to the Exchange Offer. A Holder should have the same adjusted basis and holding period in an Exchange Note as it had in an Original Note immediately prior to the exchange. THE FOREGOING DISCUSSION IS BASED ON THE PROVISIONS OF THE CODE, REGULATIONS, TREASURY REGULATIONS, RULINGS AND JUDICIAL DECISIONS NOW IN EFFECT, ALL OF WHICH ARE SUBJECT TO CHANGE. ANY SUCH CHANGES MAY BE APPLIED RETROACTIVELY IN A MANNER THAT COULD ADVERSELY AFFECT HOLDERS EXCHANGING NOTES. EACH HOLDER OF NOTES SHOULD CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO IT, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, OF EXCHANGING ORIGINAL NOTES FOR EXCHANGE NOTES PURSUANT TO THE EXCHANGE OFFER. 29 REGISTRATION RIGHTS AGREEMENT In connection with the issuance of the Original Notes, the Company entered into a Registration Rights Agreement with the Initial Purchasers (the "Registration Rights Agreement"). Set forth below is a summary of certain provisions of the Registration Rights Agreement. Such summary does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Registration Rights Agreement, a copy of which is filed as an exhibit to the Registration Statement of which this Prospectus forms a part. EXCHANGE OFFER The Company is obligated to (unless applicable law or Commission policy does not permit) (i) on or prior to 90 days after the date (the "Issue Date") the Original Notes were originally issued, file a registration statement (the "Exchange Registration Statement") with the Commission with respect to an offer to exchange the Original Notes for Exchange Notes, (ii) use its best efforts to cause the Exchange Registration Statement to become effective under the Securities Act on or prior to 150 days after the Issue Date, (iii) commence the exchange offer contemplated by the Exchange Registration Statement promptly after the registration statement is declared effective by the Commission and keep such exchange offer open for acceptance for a period (the "Exchange Period") of 20 business days after the date notice of the exchange offer is mailed to the Holders (or for such longer period as may be required by law), (iv) use its best efforts to issue, promptly after the end of the Exchange Period, Exchange Notes in exchange for all Original Notes that have been properly tendered for exchange during the Exchange Period and (v) use its best efforts to maintain the effectiveness of the Exchange Registration Statement during the Exchange Period and thereafter until such time as the Company has issued Exchange Notes in exchange for all Original Notes that have been properly tendered for exchange during the Exchange Period. The exchange offer contemplated by the Registration Rights Agreement will be deemed consummated, for purposes of the Registration Rights Agreement, if the Company makes such offer, such offer remains open for Exchange Period, and the Company issues Exchange Notes in respect of all Original Notes that are properly tendered during the Exchange Period. The Exchange Offer being made hereby is intended to satisfy the Company's obligations under the Registration Rights Agreement described in the preceding paragraph. SHELF REGISTRATION STATEMENT If (i) the Company is not permitted to file the Exchange Registration Statement or to consummate the exchange offer contemplated by the Registration Rights Agreement because such offer is not permitted by applicable law or Commission policy; (ii) for any other reason, the exchange offer contemplated by the Registration Rights Agreement is not consummated within 180 days after the Issue Date of the Original Notes; (iii) any Holder of Notes notifies the Company prior to the 20th day following consummation of the Exchange Offer that (a) due to a change in law or policy such Holder is not entitled to participate in the Exchange Offer, (b) due to a change in law or policy such Holder may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the prospectus contained in the Exchange Registration Statement is not appropriate or available for such resales by such Holder or (c) such Holder is a broker-dealer and owns Original Notes acquired directly from the Company or an affiliate of the Company; or (iv) the Holders of a majority in aggregate principal amount of the Original Notes are not eligible to participate in the Exchange Offer and to receive Exchange Notes that they may resell to the public without restriction under the Securities Act and without restriction under applicable blue sky or state securities laws, then the Company is required to file with the Commission a shelf registration statement ("Shelf Registration Statement") to cover resales of the Transfer Restricted Notes (as defined below) by the Holders thereof. If the Company is required to file the Shelf Registration Statement as described in the preceding paragraph, the Company is obligated (i) to use its best efforts to file the Shelf Registration Statement on or prior to the 90th day after such filing obligation arises (except that, if the obligation to file the Shelf Registration Statement arises because the exchange offer contemplated by the Registration Rights Agreement has not been consummated within 180 days after the Issue Date, then the Company will use its best efforts to file the Shelf Registration 30 Statement on or prior to the 30th day after such filing obligation arises), (ii) following the filing of the Shelf Registration Statement, to use its best efforts to cause the Shelf Registration Statement to be declared effective by the Commission on or prior to the 150th day after such filing obligation arises and (iii) after the Shelf Registration Statement is declared effective by the Commission, to use its best efforts to keep such Shelf Registration Statement continuously effective, supplemented and amended (including through a post-effective amendment on Form S-3 when the Company becomes eligible to file such Form) until the second anniversary of the effective date of the Shelf Registration Statement or such shorter period that will terminate when all the Transfer Restricted Notes covered by the Shelf Registration Statement have been sold pursuant thereto. The term "Transfer Restricted Notes" means (i) each Original Note and (ii) each Exchange Note that is issued to a broker-dealer in exchange for Original Notes that were acquired by such broker-dealer for its own account as a result of market-making activities or other trading activities; provided, however, that a Note shall cease to be a Transfer Restricted Note when (a) such Note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or Broker Shelf Registration Statement (as defined herein), or (b) such Note is eligible for distribution to the public pursuant to Rule 144(k) under the Securities Act (or any similar provision then in force, but not Rule 144A under the Securities Act), or (c) such Note shall have been otherwise transferred by the holder thereof and a new Note not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of such Note shall not require registration or qualification under the Securities Act or any similar state law then in force, or (d) such Note ceases to be outstanding or (e) in the case of an Exchange Note that is a Transfer Restricted Note, such Exchange Note is sold to a purchaser who receives from the seller on or prior to the date of such sale a copy of the prospectus contained in the Exchange Registration Statement, as amended or supplemented CERTAIN PROVISIONS RELATING TO BROKER-DEALERS A broker-dealer (a "Participating Broker-Dealer") that receives Exchange Notes in exchange for Original Notes that were acquired by it for its own account as a result of market-making activities or other trading activities, will be required to deliver a prospectus meeting the requirements of the Securities Act in connection with any resales by it of any such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may, if permitted by the Company, be used by a broker-dealer in order to satisfy such prospectus delivery requirements. The Company has agreed in the Registration Rights Agreement that it will use its best efforts to make this Prospectus available to any such broker-dealer for use in connection with any resales of such Exchange Notes (subject to the right of the Company to restrict the use of this Prospectus under certain circumstances specified in the Registration Rights Agreement). The obligation of the Company to make this Prospectus available as aforesaid will commence on the day that the Exchange Offer is consummated and continue in effect for a 30-day period (the "Broker Prospectus Period"); provided, however, that, if for any day during such period the Company restricts the use of such prospectus, the Broker Prospectus Period shall be extended on a day-for-day basis. If at the end of the Broker Prospectus Period any Participating Broker- Dealer continues to hold any Exchange Notes that it received in the Exchange Offer, the Company is required (within the time period specified below), if any such broker-dealer so requests within 60 days after the end of the Broker Prospectus Period, to file with the Commission a shelf registration statement (a "Broker Shelf Registration Statement") to cover the resale of such Exchange Notes by such broker-dealers and use its best efforts to have such registration statement declared effective by the Commission; provided, however, that (i) the Company may in lieu of filing such registration statement extend the Broker Prospectus Period by 60 days and (ii) the Company will not be required to file such registration statement until such time as the Company becomes eligible to use a Form S-3 for such registration statement. If the Company is required to file the Broker Shelf Registration Statement as described in the preceding paragraph, the Company is obligated to (i) file the Broker Shelf Registration Statement within 30 days following the date on which the Company first becomes eligible to use a Form S-3 for such registration statement (or, if later, within 30 days of the date the request for such registration statement is first made in accordance with the 31 Registration Rights Agreement) and (ii) use its best efforts to have the Broker Shelf Registration Statement declared effective by the Commission on or prior to the 90th day following the date on which the Company first becomes eligible to use a Form S-3 for such registration statement (or, if later, the 90th day following the date the request for such registration statement is first made in accordance with the Registration Rights Agreement). The Company will be required to use its best efforts to keep the Broker Shelf Registration Statement continuously effective, supplemented and amended for a 60-day period; provided, however, that, if for any day during such period such registration statement is not usable in connection with the resale of the Exchange Notes covered thereby, such period shall be extended on a day-for-day basis. CERTAIN PROVISIONS RELATING TO ADDITIONAL INTEREST If a Registration Default (as defined herein) exists, the interest rate on the Specified Notes (as defined below) will increase, with respect to the first 90-day period (or portion thereof) while a Registration Default is continuing immediately following the occurrence of such Registration Default, .25% per annum, such interest rate increasing by an additional .25% per annum at the beginning of each subsequent 90-day period (or portion thereof) while a Registration Default is continuing until all Registration Defaults have been cured, up to a maximum rate of additional interest of 1.00% per annum. Following the cure of all Registration Defaults the accrual of additional interest on the Specified Notes will cease and the interest rate will revert to the original rate. The Indenture will provide that additional interest as aforesaid will constitute liquidated damages and will be the exclusive monetary remedy available to Holders of the Notes in respect of any Registration Default. The Specified Notes mean the Original Notes (and not the Exchange Notes); provided, however, that the Specified Notes means the Exchange Notes (and not the Original Notes) with respect to (a) any Registration Default that arises pursuant to clause (i) or (ii) of the definition of such term and relates solely to the Broker Shelf Registration Statement and (b) any Registration Default that arises solely pursuant to clause (v) or (vi) of the definition of such term. A "Registration Default" will exist (subject to the following sentence) if (i) the Company fails to file any of the registration statements required by the Registration Rights Agreement on or prior to the date specified for such filing, (ii) any of such registration statements is not declared effective by the Commission on or prior to the date specified for such effectiveness, (iii) an exchange offer is required to be consummated under the Registration Rights Agreement and is not consummated within 180 days after the Issue Date, (iv) the Shelf Registration Statement is declared effective but thereafter, during the period for which the Company is required to maintain the effectiveness of such registration statement, it ceases to be effective or usable in connection with the resale of the Notes covered by such registration statement for a period of 60 days, whether or not consecutive, (v) the Exchange Offer Registration Statement is declared effective but thereafter, during the Broker Prospectus Period, it ceases to be effective (or the Company restricts the use of the prospectus included therein) for a period of 60 days, whether or not consecutive, or (vi) the Broker Shelf Registration Statement is declared effective but thereafter, during the period for which the Company is required to maintain the effectiveness of such registration statement, it ceases to be effective or usable in connection with the resale of the Exchange Notes covered by such registration statement for a period of 60 days, whether or not consecutive. Notwithstanding the foregoing, (a) any Registration Default specified in clause (i), (ii) or (iii) of the preceding sentence that relates to the Exchange Offer Registration Statement or the Exchange Offer shall be deemed cured at such time as the Shelf Registration Statement is declared effective by the Commission and (b) any Registration Default specified in clause (v) of the preceding sentence shall be deemed cured at such time as the Broker Shelf Registration Statement is declared effective by the Commission. 32 USE OF PROCEEDS The Company will not receive any cash proceeds from the issuance of the Exchange Notes. In consideration for issuing the Exchange Notes as contemplated in this Prospectus, the Company will receive in exchange Original Notes in like principal amount, which will be cancelled and as such will not result in any increase in indebtedness of the Company. RATIO OF EARNINGS TO FIXED CHARGES
PERIOD FROM AUGUST 14, 1997 THREE MONTHS PRO FORMA THREE (INCEPTION) THROUGH ENDED MONTHS ENDED DECEMBER 31, 1997 MARCH 31, 1998 MARCH 31, 1998 ------------------- -------------- --------------- Ratio of earnings to fixed charges (1)................ 1.1x 3.1x 2.3x
- -------- (1)For purposes of computing such ratio, (i) earnings consist of income before provision for income taxes plus fixed charges and (ii) fixed charges consist of interest expense, amortization of debt issuance costs and the estimated portion of rental expense attributable to interest. 33 CAPITALIZATION The following table sets forth the capitalization of the Company as of March 31, 1998, on an historical and pro forma basis. The following unaudited pro forma data as of March 31, 1998 gives effect to the 34 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 combined pro forma data as of March 31, 1998 gives effect to (i) the 34 acquisitions completed by the Company subsequent to such date and the financing of each such acquisition, (ii) the completion of the pending Merger with U.S. Rentals using the "pooling of interests" method of accounting and (iii) an increase in the size of the Credit Facility required in order to repay certain indebtedness of U.S. Rentals (see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Cash Requirements Relating to the Merger"), as if all such transactions had occurred on such date.
AS OF MARCH 31, 1998 ------------------------------ COMBINED ACTUAL PRO FORMA PRO FORMA -------- ---------- ---------- (DOLLARS IN THOUSANDS) Cash and cash equivalents....................... $ 54,785 $ 4,000 $ 10,344 ======== ========== ========== Debt (including current portion): Credit Facility(1)............................ $ 16,901 $ 195,429 $ 454,429 Term Loan .................................... -- 250,000 250,000 9 1/2% Senior Subordinated Notes.............. -- 200,000 200,000 Other Debt.................................... 9,593 9,593 30,793 -------- ---------- ---------- Total debt.................................. 26,494 655,022 935,222 Stockholders' equity............................ 384,633 421,727 631,936 -------- ---------- ---------- Total capitalization............................ $411,127 $1,076,749 $1,567,158 ======== ========== ==========
- -------- (1) As of July 17, 1998, the outstanding indebtedness under the Credit Facility was $287.0 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." 34 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 53 additional companies in the first seven months of 1998. On June 15, 1998, the Company entered into the Merger Agreement with U.S. Rentals which, subject to the terms and conditions set forth therein, provides for the Merger of a subsidiary of the Company into U.S. Rentals as a result of which U.S. Rentals will become a wholly owned subsidiary of the Company. The following tables present (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, balance sheet and other financial data for the Company. The historical income statement data for the Company for the period from August 14, 1997 (inception) to December 31, 1997 are derived from the audited Consolidated Financial Statements of the Company included elsewhere in this Prospectus. The historical income statement data for the three months ended March 31, 1998 and the balance sheet data as of March 31, 1998 for the Company are derived from the unaudited consolidated financial statements of the Company included elsewhere in this Prospectus. The following data should be read in conjunction with (i) the information set forth under "Use of Proceeds," "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," (ii) the Consolidated Financial Statements and the related notes thereto and Pro Forma Consolidated Financial Statements and the related notes thereto of the Company included elsewhere in this Prospectus and (iii) the financial statements of certain of the Acquired Companies and U.S. Rentals included elsewhere in this Prospectus. The pro forma data set forth below is provided for informational purposes only and does not purport to be indicative of the results that would have actually been obtained had the acquisition of each of the Acquired Companies and the Merger been completed at the beginning of the period presented or of the results that may be expected to occur in the future. INITIAL ACQUIRED COMPANIES
HISTORICAL ------------------------------------------------------- COMBINED INITIAL ACQUIRED COMPANIES ------------------------------------------------------- PERIOD FROM YEAR ENDED DECEMBER 31, JANUARY 1, ---------------------------------- 1997 THROUGH 1993 1994 1995 1996 ACQUISITION DATE(1) ------- ------- ------- ------- ------------------- (DOLLARS IN THOUSANDS) INCOME STATEMENT DATA: Total revenues.......... $32,549 $38,179 $44,159 $51,889 $49,200 Total cost of operations............. 22,961 24,829 28,563 34,737 32,677 ------- ------- ------- ------- ------- Gross profit............ 9,588 13,350 15,596 17,152 16,523 Selling, general and administrative expense................ 7,772 9,898 11,537 12,435 12,021 Non-rental depreciation and amortization....... 300 427 502 527 472 ------- ------- ------- ------- ------- Operating income........ 1,516 3,025 3,557 4,190 4,030 Interest expense........ 770 846 1,416 2,123 2,288 Other (income) expense, net.................... (336) (412) (306) (412) (382) ------- ------- ------- ------- ------- Income before income taxes.................. 1,082 2,591 2,447 2,479 2,124 Pro forma income taxes(2)............... 433 1,036 979 992 850 ------- ------- ------- ------- ------- Pro forma net income(2).............. $ 649 $ 1,555 $ 1,468 $ 1,487 $ 1,274 ======= ======= ======= ======= =======
HISTORICAL ------------------------------- COMBINED INITIAL ACQUIRED COMPANIES ------------------------------- AS OF DECEMBER 31, ------------------------------- 1993 1994 1995 1996 ------- ------- ------- ------- (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents...................... $ 2,374 $ 2,349 $ 4,193 $ 3,227 Rental equipment, net.......................... 10,730 14,270 20,244 27,145 Total assets................................... 20,380 25,254 37,022 43,681 Total debt..................................... 10,104 12,608 21,267 25,959 Stockholders' equity........................... 9,003 9,638 10,941 12,308
35 THE COMPANY The following unaudited pro forma income statement data and other financial data with respect to each period presented gives effect to each acquisition completed by the Company after the beginning of the period and the financing thereof, as if all such transactions had occurred at the beginning of the period. The following unaudited combined pro forma income statement data and other financial data with respect to each period presented gives effect to the foregoing and to completion of the Merger with U.S. Rentals using the "pooling of interests" method of accounting, as if all such transactions had occurred at the beginning of the period. The following unaudited pro forma balance sheet data as of March 31, 1998 gives effect to each acquisition completed by the Company subsequent to such date and the financing thereof, as if all such transactions had occurred on such date. The following unaudited combined pro forma balance sheet data as of March 31, 1998, gives effect to the foregoing and to the completion of the Merger with U.S. Rentals using the "pooling of interests" method of accounting, as if all such transactions had occurred on such date.
PERIOD FROM AUGUST 14, 1997 (INCEPTION) THREE MONTHS THROUGH ENDED YEAR ENDED THREE MONTHS ENDED DECEMBER 31, 1997 MARCH 31, 1998 DECEMBER 31, 1997 MARCH 31, 1998 ----------------- -------------- --------------------- -------------------- COMBINED COMBINED HISTORICAL HISTORICAL PRO FORMA PRO FORMA PRO FORMA PRO FORMA ----------------- -------------- --------- ---------- --------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Total revenues.............................. $10,633 $39,190 $605,461 $1,030,154 $132,906 $253,424 Total cost of operations.................... 6,822 25,037 373,118 680,111 86,491 180,452 ------- ------- -------- ---------- -------- -------- Gross profit................................ 3,811 14,153 232,343 350,043 46,415 72,972 Selling, general and administrative expense. 3,311 7,807 123,592 166,189 29,596 41,022 Non-rental depreciation and amortization.... 262 1,086 19,670 30,892 4,702 8,502 Termination cost of deferred compensation agreements................................. 20,290 ------- ------- -------- ---------- -------- -------- Operating income............................ 238 5,260 89,081 132,672 12,117 23,448 Interest expense............................ 454 1,173 50,985 58,355 11,629 15,315 Other (income) expense, net................. (270) (381) (5,804) (5,331) (910) (910) ------- ------- -------- ---------- -------- -------- Income before income taxes.................. 54 4,468 43,900 79,648 1,398 9,043 Income taxes................................ 20 1,830 17,999 47,406 574 3,647 ------- ------- -------- ---------- -------- -------- Net income.................................. $ 34 $ 2,638 $ 25,901 $ 32,242 $ 824 $ 5,396 ======= ======= ======== ========== ======== ======== Basic earnings per share.................... $ 0.00 $ 0.10 $ 0.75 $ 0.51 $ 0.02 $ 0.08 ======= ======= ======== ========== ======== ======== Diluted earnings per share.................. $ 0.00 $ 0.09 $ 0.71 $ 0.50 $ 0.02 $ 0.08 ======= ======= ======== ========== ======== ======== Supplemental basic earnings per share(3).... $ 0.94 ========== Supplemental diluted earnings per share(3).. $ 0.91 ==========
PERIOD FROM AUGUST 14, 1997 (INCEPTION) THREE MONTHS THROUGH ENDED YEAR ENDED THREE MONTHS ENDED DECEMBER 31, 1997 MARCH 31, 1998 DECEMBER 31, 1997 MARCH 31, 1998 -------------------- -------------- -------------------- ------------------- COMBINED COMBINED HISTORICAL HISTORICAL PRO FORMA PRO FORMA PRO FORMA PRO FORMA -------------------- -------------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS) OTHER FINANCIAL DATA: EBITDA(4)............... $1,539 $10,930 $181,559 $325,893 $34,631 $71,207 EBITDA margin(5)........ 14.5% 27.9% 30.0% 31.6% 26.1% 28.1% Interest expense(6)..... $ 454 $ 1,173 $ 50,985 $ 58,355 $11,629 $15,315 Depreciation and amortization........... 1,301 5,670 92,478 172,931 22,514 47,759 Ratio of EBITDA to interest expense....... 3.4x 9.3x 3.6x 5.6x 3.0x 4.6x
36
AS OF MARCH 31, 1998 -------------------------------- COMBINED HISTORICAL PRO FORMA PRO FORMA ---------- ---------- ---------- (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents. $54,785 $ 4,000 $ 10,344 Rental equipment, net..... 140,744 424,673 865,875 Total assets.............. 450,127 1,176,421 1,826,343 Total debt................ 26,494 655,022 935,222 Stockholders' equity...... 384,633 421,727 631,936
- -------- (1) Acquisition Date 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) In connection with the initial public offering of U.S. Rentals (the "U.S. Rentals IPO") and a related recapitalization, U.S. Rentals in 1997 incurred a $20.3 million non-recurring charge (the "U.S. Rentals Non- Recurring Charge") arising from the termination of deferred compensation agreements with certain executives. See Note 1 of the Financial Statements of U.S. Rentals included elsewhere herein. Supplemental basic and diluted earnings per share gives effect to the U.S. Rentals IPO as if it had occurred during 1996 and (i) eliminates the U.S. Rentals Non-Recurring Charge, (ii) eliminates the interest expense of debt that was repaid from the proceeds of the U.S. Rentals IPO and (iii) reflects a provision for income taxes as if U.S. Rentals were liable for federal and state income taxes as a taxable corporate entity for all of 1997. (4) EBITDA is defined as net income (calculated excluding non-operating income and expense and excluding the $20.3 million Non-Recurring U.S. Rentals Charge) plus interest expense, income taxes and depreciation and amortization. EBITDA is presented to provide additional information concerning the Company's ability to meet its future debt service obligations and capital expenditure and working capital requirements. EBITDA is not a measure of financial performance under generally accepted accounting principles and should not be considered as an alternative to either net income as an indicator of the Company's operating performance or cash flows as an indicator of the Company's liquidity. (5) EBITDA margin is defined as EBITDA as a percentage of revenues. (6) Interest expense excludes the amortization of deferred financing fees. 37 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated 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 53 additional companies in the first seven months of 1998. Each of the acquisitions completed by the Company to date has been accounted for as a purchase. The Company primarily derives 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. Cost of operations consists 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 two 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. Non-rental depreciation and amortization 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 $708.9 million and consisted of approximately $647.3 million in cash, 2,286,445 shares of Common Stock, a convertible note in the principal amount of $0.3 million, 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 $385.2 million. The Company also agreed in connection with nine of the acquisitions to pay additional amounts to the former owners based upon specified future revenues (such amounts being limited to (i) $10.0 million, $2.8 million, $2.0 million $0.8 million, $0.5 million, $0.5 million, $0.4 million and Cdn$4.0 million, respectively, with respect to eight of such acquisitions and (ii) an amount based on the revenues of a single store with respect to the other acquisition). 38 HISTORICAL RESULTS OF OPERATIONS The Company believes that its historical results for each of the periods discussed below do not fully reflect its current operations in view of the fact that (i) acquisitions completed after the commencement of the period are reflected in the Company's results for only a portion of the period and (ii) acquisitions completed subsequent to the end of the period are not reflected in the Company's results for such period. THREE MONTHS ENDED MARCH 31, 1998 Revenues. Total revenues were $39.2 million for the three months ended March 31, 1998. Equipment rental revenues accounted for 68.3% of such revenues. Gross Profit. For the three months ended March 31, 1998, the gross profit margin was (i) 41.0% from equipment rentals, (ii) 45.0% from sales of rental equipment and (iii) 19.5% from sales of new equipment, merchandise and other revenues. Selling, General and Administrative Expense. For the three months ended March 31, 1998, selling, general and administrative expense ("SG&A") was $7.8 million or 19.9% of total revenues. Non-rental Depreciation and Amortization. For the three months ended March 31, 1998, non-rental depreciation and amortization was $1.1 million or 2.8% of total revenues. Interest Expense. For the three months ended March 31, 1998, interest expense was $1.2 million. Interest expense principally related to borrowings made under the Credit Facility in order to fund a portion of the purchase price of the acquisitions completed in the first quarter of 1998. Income Taxes. For the three months ended March 31, 1998, the Company's effective income tax rate was 41.0%. Net Income. For the three months ended March 31, 1998, net income was $2.6 million. PERIOD FROM AUGUST 14, 1997 (INCEPTION) THROUGH DECEMBER 31, 1997 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, 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 Credit Facility in order to fund a portion of the purchase price of the six acquisitions completed in 1997. Income Taxes. For the period from August 14, 1997 through December 31, 1997, the Company's effective income tax rate was 37.9%. Net Income. For the period from August 14, 1997 through December 31, 1997, net income was $34,000. 39 PRO FORMA RESULTS OF OPERATIONS The pro forma income statement data with respect to each period discussed below gives effect to each acquisition completed by the Company after the beginning of such period and the financing of each such acquisition, as if all such transactions had occurred at the beginning of the period. Such pro forma income statement data, however, does 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 costs incurred subsequent to the end of the period in connection with installing the Company's integrated information technology system. In addition, the pro forma income statement data for 1997 does not reflect 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 pro forma income statement data discussed below does not purport to be indicative of the results that would have actually been obtained had the acquisition of each of the Acquired Companies and the financing of each such acquisition been completed at the beginning of the period discussed or of the results that may be expected to occur in the future. THREE MONTHS ENDED MARCH 31, 1998 Revenues. Total revenues were $132.9 million for the three months ended March 31, 1998. Equipment rental revenues accounted for 64.0% of such revenues. Gross Profit. For the three months ended March 31, 1998, the gross profit margin was (i) 36.7% from equipment rentals and (ii) 31.8% from sales of equipment and merchandise and other revenues. Selling, General and Administrative Expense. For the three months ended March 31, 1998, SG&A was $29.6 million or 22.3% of total revenues. Non-rental Depreciation and Amortization. For the three months ended March 31, 1998, non-rental depreciation and amortization was $4.7 million or 3.5% of total revenues. Interest Expense. For the three months ended March 31, 1998, interest expense was $11.6 million. Interest expense principally related to borrowings made under the Credit Facility in order to fund a portion of the purchase price for the Acquired Companies. Income Taxes. For the three months ended March 31, 1998, the Company's effective income tax rate was 41.0%. Net Income. For the three months ended March 31, 1998, net income was $824,000. YEAR ENDED DECEMBER 31, 1997 Revenues. Total revenues were $605.5 million for the year ended December 31, 1997. Equipment rental revenues accounted for 64.9% of such revenues. Gross Profit. For the year ended December 31, 1997, the gross profit margin was (i) 45.4% from equipment rentals and (ii) 25.4% from sales of equipment and merchandise and other revenues. Selling, General and Administrative Expense. For the year ended December 31, 1997, SG&A was $123.6 million or 20.4% of total revenues. Non-rental Depreciation and Amortization. For the year ended December 31, 1997, non-rental depreciation and amortization was $19.7 million or 3.2% of total revenues. 40 Interest Expense. Interest expense was $51.0 million for the year ended December 31, 1997. Interest expense principally related to borrowings made under the Credit Facility in order to fund a portion of the purchase price of the Acquired Companies. Income Taxes. For the year ended December 31, 1997, pro forma income taxes was computed using an estimated rate of 41.0%. Net Income. For the year ended December 31, 1997, net income was $25.9 million. LIQUIDITY AND CAPITAL RESOURCES GENERAL 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 Common Stock in the Company's initial public offering in December 1997 and in an additional public offering in March 1998 for aggregate consideration of $309.5 million (after deducting the underwriting discounts), (iv) the sale of $200 million of Notes in May 1998 for aggregate consideration of $194.5 million (after deducting the initial purchasers' discount), (v) borrowings under the Company's $300 million revolving Credit Facility, (vi) the proceeds of a $250 million Term Loan that the Company received in July 1998 and (vii) cash generated from operations and from the sale of equipment. The Company generated cash from operations of $1.1 million and $7.6 million during the period from August 14, 1997 (inception) through December 31, 1997, and the first three months of 1998, respectively. The Company's principal existing sources of cash are (i) borrowings available under the $300 million Credit Facility and (ii) cash generated from operations. The Company estimates that it will require additional financing, in the range of $500 million to $600 million, in order to fund the cash outlays that will be required in connection with the Merger (as described below) and to support the Company's operations following the Merger. Accordingly, the Company will seek to obtain a new revolving credit facility that will provide the requisite additional financing. In addition, the Company may pursue other financing alternatives. CASH REQUIREMENTS RELATING TO THE MERGER The principal cash outlays that the Company expects will be required in connection with the Merger are discussed below. Repayment of U.S. Rentals' Credit Facility. Upon completion of the Merger, U.S. Rentals' $300 million credit facility will terminate and U.S. Rentals will be required to immediately repay all outstanding indebtedness thereunder. As of July 10, 1998, there was approximately $95 million of indebtedness outstanding under such credit facility. Prepayment of U.S. Rentals' Senior Notes. There is currently outstanding $252 million of senior unsecured notes that were issued by U.S. Rentals. Pursuant to the terms of such notes, U.S. Rentals may not consummate the Merger unless it first offers to prepay such notes and, to the extent that such offer is accepted, prepays such notes concurrently with the closing of the Merger. The Company and U.S. Rentals are seeking to obtain waivers which would relieve U.S. Rentals of its obligation to make such prepayment offer and enable the Company to assume such notes. There can be no assurance, however, that such waivers will be obtained. Other Cash Expenditures. The Company estimates that other cash expenditures in connection with the Merger will be in the range of $50 million to $70 million (excluding non-cash charges of $10 million to $20 million). These include expenditures for (i) accelerated deferred compensation for certain employees of U.S. Rentals, (ii) severance for certain employees of U.S. Rentals, and (iii) professional fees and investment banking fees. 41 GENERAL CASH REQUIREMENTS RELATED TO OPERATIONS The Company is seeking to obtain a new credit facility (as described above) that will provide the additional financing that the Company will require as a result of the Merger. Assuming that the Company obtains this new credit facility, the Company estimates that borrowings under such credit facility and cash generated from operations will be sufficient to fund the cash required for the Company's existing operations (including the existing U.S. Rentals operations to be acquired in the Merger) for at least 12 months following completion of the Exchange Offer. However, new acquisitions and start-up locations that are not currently under development may require additional financing as discussed below. The Company expects that its principal needs for cash relating to its operations will be to fund (i) operating activities and working capital, (ii) the purchase of rental 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 and (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. The Company estimates that equipment expenditures for its existing locations (including the existing U.S. Rentals locations to be acquired in the Merger) will be in the range of $350 million to $400 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 equipment expenditures that will be required in connection with new acquisitions. Principal elements of the Company's strategy include continued 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 it will require additional financing for future acquisitions and, consequently, the Company's indebtedness may increase as the Company implements its growth strategy. The Company is pursuing various alternatives in order to obtain the additional financing required to support future acquisitions. There can be no assurance, however, that any additional financing will be available or, if available, will be on terms satisfactory to the Company. The Company is in the process of developing four start-up locations. See "Business--Start-up Locations." In addition, U.S. Rentals is in the process of developing two start-up locations. The Company estimates that the aggregate costs associated with such start-up locations will be in the range of $5 million to $9 million (including expenditures of approximately $0.5 million incurred to date). The Company has recently installed a new integrated information technology system as described under "Business--Information Technology System." The cost of installing such system was approximately $7.4 million. The Company estimates that the cost of extending the system to U.S. Rentals' locations will be approximately $4.0 million. The Company's software vendors have advised the Company that the system is year 2000 compliant. Based upon the terms of the Company's currently outstanding indebtedness (including currently outstanding indebtedness of U.S. Rentals that will be assumed in the Merger), the Company is scheduled to repay approximately $1.2 million of indebtedness during the balance of 1998 and $3.7 million during 1999. (Such amounts are in addition to the amounts that the Company will be required to repay in connection with the Merger as described above under "-- Cash Requirements Relating to Merger"). In addition, the Company may be required at any time to repay a $21 million demand note that the Company will assume in connection with the Merger. DESCRIPTION OF CREDIT FACILITY AND CERTAIN INDEBTEDNESS Set forth below is certain information concerning the Credit Facility and certain other indebtedness of the Company. The agreements governing the Credit Facility and such other indebtedness contain various covenants (which vary from agreement to agreement) that restrict the Company's ability to, among other things, (i) incur 42 additional indebtedness, (ii) permit liens to attach to its assets, (iii) pay dividends or make other restricted payments on its common stock and certain other securities and (iv) make acquisitions unless certain financial conditions are satisfied (such covenant being provided for only in the agreement governing the Credit Facility). In addition, the agreement governing the Credit Facility and the agreement governing the Term Loan described below (a) require the Company to maintain certain financial ratios and (b) provide that 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 unless replacement officers satisfactory to the lenders are appointed. Existing Credit Facility. The Company's credit facility (the "Credit Facility") is with a group of financial institutions, for which Bank of America National Trust and Savings Association acts as U.S. agent and Bank of America Canada acts as Canadian agent. Set forth below is certain information concerning the terms of the Credit Facility. As described above, the Company is seeking to obtain a new credit facility that will increase the Company's borrowing capacity. The terms of such new credit facility may be different than the terms of the existing Credit Facility. The Credit Facility enables the Company to borrow up to $300 million on a revolving basis and permits the Canadian Subsidiary to directly borrow up to $40 million under the Credit Facility (provided that the aggregate borrowings of the Company and the Canadian Subsidiary do not exceed $300 million). Up to $10 million of the Credit Facility is available in the form of letters of credit. The Credit Facility terminates on March 30, 2001, at which time all outstanding indebtedness is due. As of July 17, 1998, there was approximately $287.0 million of outstanding indebtedness under the Credit Facility (not including undrawn outstanding letters of credit in the amount of $1.4 million). Borrowings by the Company under the Credit Facility accrue interest, at the Company's option, at either (a) the Base Rate (which is equal to the greater of (i) the Federal Funds Rate plus 0.5% and (ii) Bank of America's reference rate) or (b) the Eurodollar Rate (which for borrowings by the Company is equal to Bank of America's reserve adjusted eurodollar rate) plus a margin ranging from 0.950% to 1.625% per annum. Borrowings by the Canadian Subsidiary under the Credit Facility accrue interest, at such subsidiary's option, at either (x) the Prime Rate (which is equal to Bank of America Canada's prime rate), (y) the BA Rate (which is equal to Bank of America Canada's BA Rate) plus a margin ranging from 0.950% to 1.625% per annum or (z) the Eurodollar Rate (which for borrowing by the Canadian Subsidiary is equal to Bank of America Canada's reserve adjusted eurodollar rate) plus a margin ranging from 0.950% to 1.625% per annum. If at any time an event of default (as defined in the agreement governing the Credit Facility) exists, the interest rate applicable to each loan will increase by 2% per annum. The Company is also required to pay the banks an annual facility fee equal to 0.375% of the banks' $300 million aggregate lending commitment under the Credit Facility (which fee may be reduced to 0.300% for periods during which the Company maintains a specified funded debt to cash flow ratio). The obligations of the Company under the Credit Facility are secured by substantially all of its assets, the stock of its United States subsidiaries and a portion of the stock of a Canadian subsidiary. The obligations of the Canadian Subsidiary under the Credit Facility are guaranteed by the Company and secured by substantially all of the assets of the Canadian Subsidiary and the stock of the subsidiaries of the Canadian Subsidiary. Term Loan. In July 1998, the Company obtained a $250 million term loan from a group of financial institutions (the "Term Loan"). The Term Loan matures on June 30, 2005. Prior to maturity, quarterly installments of principal in the amount of $625,000 are due on the last day of each calendar quarter, commencing September 30, 1999. The amount due at maturity is $235,625,000. The Term Loan accrues interest, at the Company's option, at either (a) the Base Rate (as defined above with respect to the Credit Facility) plus a margin ranging from 0% to 0.5% per annum, or (b) the Eurodollar Rate (as defined above with respect to the Credit Facility for borrowings by the Company) plus a margin ranging from 1.875% to 2.375% per annum. The Term Loan is secured pari passu with the Credit Facility. The agreement governing the Term Loan contains restrictive covenants substantially similar to those provided by the Credit Facility. 9 1/2% Senior Subordinated Notes. For information concerning the Notes, see "Description of the Notes." 43 FLUCTUATIONS IN OPERATING RESULTS The Company expects that its revenues and operating results may fluctuate from quarter to quarter due to a number of factors, including: seasonal rental patterns of the Company's customers (with rental activity tending to be lower in the winter); changes in general economic conditions in the Company's markets; the timing of acquisitions and the opening of start-up locations and related costs; the effect of the integration of acquired businesses and start- up locations; the timing of expenditures for new equipment and the disposition of used equipment; and price changes in response to competitive factors. The Company is continually involved in the investigation and evaluation of potential acquisitions. In accordance with generally accepted accounting principles, the Company capitalizes certain direct out-of-pocket expenditures (such as legal and accounting fees) relating to potential or pending acquisitions. Indirect acquisition costs, such as executive salaries, general corporate overhead, public affairs and other corporate services, are expensed as incurred. The Company's policy is to charge against earnings any capitalized expenditures relating to any potential or pending acquisition that the Company determines will not be consummated. There can be no assurance that the Company in future periods will not be required to incur a charge against earnings in accordance with such policy, which charge, depending upon the magnitude thereof, could adversely affect the Company's results of operations. The Company will be required to incur significant start-up expenses in connection with establishing each start-up location. Such expenses may include, among others, pre-opening expenses related to setting up the facility, training employees, installing information systems and marketing. The Company expects that in general start-up locations will initially operate at a loss or at less than normalized profit levels. Consequently, the opening of a start-up location may negatively impact the Company's margins until the location achieves normalized profitability. There may be a lag between the time that the Company purchases new equipment and begins to incur the related depreciation and interest expenses and the time that the equipment begins to generate revenues at normalized rates. As a result, the purchase of new equipment, particularly equipment purchased in connection with expanding and diversifying the Company's rental equipment, may periodically reduce margins. GENERAL ECONOMIC CONDITIONS AND INFLATION The Company's operating results may be adversely affected by (i) changes in general economic conditions, including changes in construction and industrial activity, or increases in interest rates, or (ii) adverse weather conditions that may temporarily decrease construction and industrial activity in a particular geographic area. 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." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in a primary financial statement. The Company adopted SFAS No. 130 during the period ended March 31, 1998. The adoption of SFAS No. 130 did not have a material effect on the consolidated financial position, results of operations or cash flows of the Company. 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. The Company is required to adopt SFAS No. 131 by December 31, 1998. 44 BUSINESS United Rentals is a large, geographically diversified equipment rental company with 210 rental locations in 28 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 other individuals. The Company also sells used rental equipment, acts as a distributor for certain new equipment, and sells related merchandise and parts. The Company commenced equipment rental operations in October 1997 by acquiring six established companies and acquired 53 additional companies in the first seven months of 1998. During the year ended December 31, 1997, the Company rented equipment to approximately 360,000 customers (with the top ten customers representing approximately 1% of total revenues) and had pro forma revenues and EBITDA of $605.5 million and $181.6 million, respectively. The types of rental equipment offered by the Company include a broad range of light to heavy construction and industrial equipment (such as backhoes, forklifts, aerial lifts, skid-steer loaders, compressors, pumps and generators), general tools and equipment (such as hand tools and garden and landscaping equipment) and, to a lesser extent, 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 July 10, 1998, the Company's rental equipment included approximately 105,000 units (not including special event equipment), had an original purchase price of approximately $606 million and had a weighted average age (based on original purchase price) of approximately 32 months. 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 23% from 1992 through 1997 (based upon 1992 revenues and 1997 pro forma revenues, giving effect to certain acquisitions completed after the beginning of 1997, reported by the Rental Equipment Register, an industry trade publication). The Company believes growth in the equipment rental industry 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. 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. 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 1997: (i) there were only 10 equipment rental companies that had 1997 equipment rental revenues in excess of $100 million (with the largest company having had 1997 equipment rental revenues of approximately $460 million), (ii) the largest 100 45 equipment rental companies combined had less than a 22% share of the market based on 1997 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 1997 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 continue to expand its operations in North America. The Company believes that it has competitive advantages relative to many 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, greater flexibility to transfer equipment among locations in response to customer demand, and greater ability to efficiently dispose of used equipment through direct sales to customers. The Company's plan for achieving this objective includes the following key elements: Execute Disciplined Acquisition Program. The Company intends to continue to expand through a disciplined acquisition program. The Company is seeking to make acquisitions of varying size, including acquisitions of smaller companies to complement existing or anticipated locations and combinations with relatively large companies that have an established presence in one or more regions. 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 focuses 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 seeks 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, cross-marketing between locations that offer different equipment categories, 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 continue to diversify geographically and to focus on a broad range of equipment categories and customer markets within the equipment rental industry. The Company believes that this will allow it to participate in the overall growth of the equipment rental industry and reduce the Company's sensitivity to fluctuations in regional economic conditions, adverse weather impacting a particular region or changes that affect particular market segments. In order to achieve this diversification, the Company will continue to seek expansion opportunities in North America and will pursue acquisition candidates with varying equipment mixes and customer specializations. 46 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. COMPLETED ACQUISITIONS The table below provides certain information concerning the 59 acquisitions completed by the Company to date:
NUMBER OF YEARS IN 1997 COMPANY LOCATIONS RENTAL SITES BUSINESS REVENUES - ------- ------------------------------ ------------ -------- --------------------- 1997 ACQUISITIONS: (DOLLARS IN MILLIONS) 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, Inc. 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: Equipment Supply Alabama; Delaware; 22 21 101.1 Company, Inc. and Georgia; Indiana; affiliates Maryland; Michigan; New Jersey; North Carolina; Pennsylvania; Virginia; Kentucky; Ohio Access Rentals, Inc. and affiliates Connecticut; Florida; 19 23 52.3 Indiana; Minnesota; New Jersey; New York; Pennsylvania; South Carolina; Tennessee; Washington; Ontario, Canada Power Rental Co., Inc. Idaho; Oregon; Washington 18 28 40.5 BNR Equipment Limited and affiliates New York; Ontario, Canada 8 23 24.0 ADCO Equipment, Inc. and affiliate California 2 43 23.3 Industrial Lift, Inc. Maryland; New Jersey; Virginia 4 15 21.5 Grand Valley Equipment and affiliate Michigan 2 24 19.5 Rental Equipment, Inc. and affiliates California 6 38 19.3 Valley Rentals, Inc. Washington 3 37 15.6 Gaedcke Equipment Company Texas 4 38 14.1 Perco Limited Quebec, Canada 10 61 13.6 Bear Associates, Inc. Delaware; Maryland 4 13 13.2
47
NUMBER OF YEARS IN 1997 COMPANY LOCATIONS RENTAL SITES BUSINESS REVENUES - ------- --------------------------- ------------ -------- --------------------- (DOLLARS IN MILLIONS) Reitzel Rentals Ltd. Ontario, Canada 10 52 12.4 High Reach, Inc. and affiliate Oregon; Washington 3 16 11.0 Channel Equipment Holding, Inc. and affiliates Texas 4(a) 20 10.8 Paul E. Carlson, Inc. (dba Carlson Equipment) Minnesota 3 42 10.7 West Main Rentals & Sales, Inc. California; Oregon 6 18 9.8 Select Equipment Ltd. Ontario, Canada 2 20 9.3 Mission Valley Rentals, Inc. California 4 22 8.6 Western Rental & Sales, Utah 4 21 7.6 Inc. and affiliate Dealers Service Company New Jersey 2 27 7.2 Yankee Equipment Corpo- ration Connecticut 2(a) 22 6.9 Ace Rental & Sales Com- pany, Inc. Kentucky 3 18 6.3 Pro Rentals, Inc. Washington 6 12 5.9 ASC Equipment Company, Inc. North Carolina 3 21 5.5 B&H Equipment, Inc. Texas 2 6 5.5 Equipment Rental and Sales of Monroe, Inc. North Carolina 1 24 5.2 Sky-King Holdings Equipment Ltd. Ontario, Canada 3 13 5.0 Equipment Capital Corporation (dba Owens Equipment Company) Colorado 1 10 4.6 Nevada High Reach Equipment, Inc. and affiliate Nevada 3 13 4.5 Windham Construction Corp. (dba Windham Equipment Company) New York 2 13 4.3 C.T.R. Rental Center, Inc. Texas 3 27 4.3 Palmer Equipment Company, Inc. Michigan 1 21 3.7 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 Rental Service, Inc. California 1 36 3.2 Quarry & Drill Supply, Connecticut; Massachusetts; Inc. (dba Premier Tool) New York 3 8 3.2 Madison Equipment Rentals and Sales, Inc. Alabama 3 11 3.2 MISCO Rents, Inc. Indiana 2 8 3.1 Santa Fe Supply & Rental, Inc. Colorado 1 11 2.3 Archer Construction Equipment, Inc. (dba Ace Equipment) North Carolina 1 30 2.2 Dirt & Rock Rentals & Equipment LLC Kentucky 2 15 2.1 Rentals Unlimited, Inc. Rhode Island 2 30 1.7 Darien Rental Services Company Connecticut 1 31 1.7 Pearson Equipment Rentals, Limited Ontario, Canada 1 33 1.4 Rents Et. Al., Inc. California 1 10 1.4 Salisbury Rental Center, Inc. North Carolina 1 10 1.3 Carson Tahoe Rents, Inc. California; Nevada 3 33 1.1 CC Rentals, Inc. Nevada 1 2 1.1 Anchor Rental, Inc. Connecticut 1 15 1.0 Georgian Sales and Construction Ontario, Canada 1 30 0.7 A-1 Rents of Galveston, Inc. Texas 1 16 0.6 M&S Sales, Inc. Rhode Island 1(b) 12 0.3
- -------- (a) One of these locations was shut down and the operations formerly conducted at such location were consolidated with another location. (b) This location was shut down and the operations formerly conducted at this location were consolidated with another location. 48 The aggregate consideration paid by the Company for the Acquired Companies was $708.9 million and consisted of approximately $647.3 million in cash, 2,286,445 shares of Common Stock, a convertible note in the principal amount of $0.3 million, 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 $385.2 million. The Company agreed in connection with nine acquisitions to pay former owners additional amounts based upon specified future revenues and/or new store openings (such amounts being limited to (i) $10.0 million, $2.8 million, $2.0 million, $0.8 million, $0.5 million, $0.5 million, $0.4 million, and Cdn$4.0 million, respectively, with respect to eight of such acquisitions and (ii) an amount based on a single store with respect to one acquisition). POTENTIAL ACQUISITIONS The Company is currently a party to 20 non-binding letters of intent relating to the possible acquisition by the Company of 20 additional companies having an aggregate of 68 rental locations. Based upon information provided to the Company in connection with its preliminary investigation of these companies, the Company estimates that the aggregate 1997 revenues of these companies were approximately $255.9 million. However, in view of the preliminary nature of this estimate, there can be no assurance that actual revenues did not differ. Based upon the terms contained in the letters of intent, the Company estimates that the aggregate purchase price for the 20 companies under letter of intent would be approximately $367.3 million plus the assumption of approximately $81.2 million of indebtedness. A portion of the purchase price may be paid in the form of Common Stock. In view of the fact that the letters of intent are non-binding and that the Company has not completed its due diligence investigations with respect to the companies under letter of intent, the Company cannot predict whether these letters of intent will lead to definitive agreements, whether the terms of any such definitive agreements will be the same as the terms contemplated by the letters of intent or whether any transaction contemplated by such letters of intent will be consummated. The Company is continuously involved in discussions relating to potential acquisitions of varying size and in due diligence investigations of potential acquisition candidates. In addition to the potential acquisitions that are currently under letter of intent, there are additional potential acquisitions with respect to which the Company is currently engaged in discussions or due diligence investigations. These potential acquisitions include the acquisition of smaller companies to complement existing or anticipated locations and combinations with large companies that have an established presence in one or more regions. START-UP LOCATIONS The Company has to date developed one start-up location (located in Florida) and is in the process of developing four additional start-up locations (two located in Texas, one in Washington and one in Quebec). 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 three of these locations will open in the third quarter of 1998 and one in the fourth quarter of 1998. OPERATIONS The Company currently operates 210 rental locations in 28 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, to a lesser extent, 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. 49 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 (such as boom and scissor lifts), air compressors, backhoes, ditching equipment, forklifts, generators, pumps and skid-steer loaders. General Tools and Equipment: garden and landscaping equipment, hand tools, high-pressure washers, paint sprayers, power tools and roto tillers. Special Event: lighting, staging and dance floors, tables and chairs, tents and canopies. As of July 10, 1998, the Company's rental equipment included approximately 105,000 units (excluding special event equipment) and had an original purchase price of approximately $606 million and a weighted average age (based on original purchase price) of approximately 32 months. The Company estimates that (based on original purchase price) construction and industrial equipment represents approximately 93% of the Company's rental equipment, general tools and equipment represents approximately 6%, and special event equipment represents approximately 1%. The Company also estimates that aerial lift equipment represents approximately 53% of the Company's rental equipment and accounted for approximately 35% 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 most 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. 50 CUSTOMERS AND SALES AND MARKETING The Company on a pro forma basis rented equipment to approximately 360,000 customers in 1997. No single customer accounted for more than 0.5% of the Company's pro forma revenues in 1997, and the Company's top 10 customers accounted for approximately 1% 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) revenues attributable to construction industry participants accounted for approximately 69% of the Company's pro forma revenues, (b) revenues attributable to industrial companies accounted for approximately 23% of the Company's pro forma revenues, and (c) revenues attributable 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 which, as of July 10, 1998, consisted of approximately 377 store-based salespeople and 344 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 SYSTEM The Company has recently installed a new integrated information technology system. The Company believes that this system should enable the Company to more effectively monitor and manage operations, improve equipment utilization, and facilitate the redeployment of under-utilized equipment to other locations. The new system replaces the separate systems heretofore used by the Acquired Companies. The Company's information technology system is currently operational at all of the Company's locations, except for certain locations that were acquired in the past 45 days. In general, it takes the Company three to five weeks to install the system at newly acquired locations. However, in view of the significant number of new locations that will be acquired in the Merger with U.S. Rentals, the Company estimates that it will take two to four months to install the system at all of such locations. Each of the Company's locations at which the system is operational is equipped with a workstation that is electronically linked to each of the Company's other locations and to the Company's centralized databases. All rental transactions are entered at these workstations and processed on a real- time basis through a centralized AS400 system located at corporate headquarters. Authorized personnel at each location are able to access the system 24 hours a day in order to determine equipment availability, monitor business activity on a real-time basis, and obtain a wide range of operating and financial data. The data available through the system includes: (i) inventory reports, (ii) accounts receivable information, (iii) customer and vendor information, (iv) price and sales trends by store, region, salesperson, equipment category, or customer, (v) fleet utilization by individual asset or asset class and (vi) financial results by store or region. The system also allows an employee at any location to locate a specific item of equipment throughout a region, determine when it will be available for rental, reserve it for a specific customer, and schedule delivery to the customer's job site or one of the Company's locations. 51 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., Rental Service Corporation and, prior to the Merger, U.S. Rentals); 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. PROPERTIES The Company currently operates 210 rental locations (175 in the United States and 35 in Canada). The rental locations in the United States are in the following 28 states: Alabama (4), California (22), Colorado (3), Connecticut (6), Delaware (4), Florida (3), Georgia (1), Idaho (1), Indiana (5), Kentucky (7), Maryland (5), Massachusetts (1), Michigan (4), Minnesota (5), Nevada (7), New Jersey (6), New York (10), North Carolina (11), Ohio (1), Oregon (19), Pennsylvania (5), Rhode Island (2), South Carolina (3), Tennessee (2), Texas (14), Utah (5), Virginia (4) and Washington (15). The rental locations in Canada are in Ontario (25) and Quebec (10). 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 owns 13 of its rental locations and leases the other locations. The leases for the Company's rental locations provide for various terms, including (i) 93 leases that provide for a remaining term of more than five years (of which 24 provide for a renewal option), (ii) 59 leases that provide for a remaining term of between one and five years (of which 21 provide for a renewal option), (iii) 33 leases that provide for a remaining term of less than one year (four of which provide for a renewal option) and (iv) 12 leases that are on a month-to-month basis. The Company is currently negotiating renewals for those leases that provide for a remaining term of less than one year and do not provide for renewal options. These leases were entered into (or assumed) 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. 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 July 10, 1998, this fleet included approximately 8,654 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 52 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 July 10, 1998, the Company employed 3,554 persons, including 51 corporate and regional management employees, 2,782 operational employees and 721 sales people. Of these employees, 1,003 are salaried personnel and 2,551 are hourly personnel. Collective bargaining agreements relating to 17 separate locations cover approximately 200 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. 53 CERTAIN INFORMATION CONCERNING PENDING MERGER GENERAL On June 15, 1998, the Company entered into the Merger Agreement which provides, subject to the terms and conditions set forth therein, for a subsidiary of the Company to be merged with and into U.S. Rentals as a result of which U.S. Rentals will become a wholly owned subsidiary of URI. At the effective time of the Merger, (i) each outstanding share of U.S. Rentals common stock would be converted into 0.9625 shares of Common Stock of United Rentals and (ii) all outstanding options to purchase shares of U.S. Rentals common stock will be assumed by United Rentals and converted into options to purchase Common Stock of United Rentals, subject to adjustment for the Exchange Ratio. U.S. Rentals is the second largest equipment rental company in the United States and the largest in the Western United States based on 1997 rental revenues. U.S. Rentals currently operates 127 equipment rental locations in 22 states and Mexico and generates an average of approximately 145,000 rental contracts per month from a diverse base of customers including commercial and residential construction, industrial and homeowner customers. U.S. Rentals management estimates that more than 280,000 customers did business with U.S. Rentals in 1997. U.S. Rentals owns more than 100,000 pieces of rental equipment comprised of approximately 600 equipment categories including aerial work platforms, forklifts, paving and concrete equipment, compaction equipment, air compressors, hand tools, plumbing, landscaping and gardening equipment. U.S. Rentals management believes that U.S. Rentals' fleet, which had a weighted average age of approximately 23 months and an original equipment cost of approximately $725 million at June 30, 1998, is one of the most comprehensive and well-maintained equipment rental fleets in the industry. U.S. Rentals also sells new equipment manufactured by nationally known companies, used equipment from its rental fleet and rental-related merchandise, parts and supplies. CERTAIN ADDITIONAL INFORMATION CONCERNING THE MERGER Set forth below is certain additional information concerning the terms of the Merger. Such information does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Merger Agreement. SHARES TO BE ISSUED IN THE MERGER Based upon the number of shares of U.S. Rentals common stock outstanding as of June 15, 1998, United Rentals will issue approximately 29.6 million shares of its common stock to U.S. Rentals stockholders in the Merger and such shares will constitute approximately 46.2% of the outstanding shares of United Rentals common stock after the Merger. CONDITIONS TO THE MERGER The Merger is subject to the satisfaction or waiver of a number of conditions. These include, but are not limited to, (i) the adoption of the Merger Agreement by the stockholders of U.S. Rentals; (ii) the approval by the stockholders of United Rentals of (a) the issuance of Common Stock of United Rentals contemplated by the Merger Agreement and (b) an amendment to United Rental's certificate of incorporation to increase the authorized shares of United Rental's common stock to 250,000,000 shares; (iii) the absence of any law, regulation or order making the Merger illegal or prohibiting the Merger; (iv) termination or expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; and (v) the receipt of letters from the companies' independent accountants regarding such accountants' concurrence with the conclusions of management of the respective companies as to the appropriateness of "pooling of interests" accounting for the Merger if consummated in accordance with the Merger Agreement. GOVERNMENTAL APPROVALS On June 26, 1998, the Company and U.S. Rentals each filed under the Hart- Scott-Rodino Antitrust Improvements Act of 1976, as amended, a premerger notification with the Department of Justice and the Federal 54 Trade Commission in respect of the Merger. On July 9, 1998, the Company and U.S. Rentals were advised that early termination of the waiting period under such Act had been granted. TERMINATION The Company and U.S. Rentals mutually can agree to terminate the Merger Agreement at any time, whether before or after the receipt of stockholder approval, without completing the Merger. In addition, either company can terminate the Merger Agreement if: (i) the Merger is not completed before December 31, 1998; (ii) a governmental authority prohibits the Merger; (iii) the stockholders of U.S. Rentals do not adopt the Merger Agreement; (iv) the stockholders of United Rentals do not approve the matters required as a condition to the Merger as described above; (v) the other party materially breaches or fails to comply with any of its representations, warranties, covenants or agreements set forth in the Merger Agreement; (vi) after October 14, 1998 and before a special meeting of its stockholders is held relating to the Merger, under certain circumstances, the Board of Directors of either party withdraws or modifies its recommendations to its stockholders in accordance with the Merger Agreement or accepts a superior offer from a third party. TERMINATION FEES The Merger Agreement requires the Company or U.S. Rentals to pay the other certain fees if the Merger Agreement is terminated under the following circumstances: (i) $15 million if the Merger Agreement is terminated because of a non-willful breach of the Merger Agreement; (ii) $30 million if the Merger Agreement is terminated because of a willful breach of the Merger Agreement; or (iii) $30 million if the Merger Agreement is terminated upon the occurrence of certain other events specified in the Merger Agreement. CERTAIN INFORMATION CONCERNING THE COMBINED OPERATIONS OF THE COMPANY AND U.S. RENTALS Set forth below is certain information concerning the operations of United Rentals and U.S. Rentals on a combined basis (the "Combined Company"). All financial and operating data set forth below with respect to the year ended December 31, 1997 is on a pro forma basis giving effect to the Merger and all acquisitions completed by either company subsequent to January 1, 1997. LOCATIONS The Combined Company currently operates 337 rental locations (301 in the United States, 35 in Canada and one in Mexico). The number of locations in each state (or province) is shown below: United States. Alabama (9), Arizona (2), Arkansas (3), California (72), Colorado (3), Connecticut (6), Delaware (4), Florida (19), Georgia (2), Idaho (2), Indiana (5), Kansas (2), Kentucky (7), Louisiana (3), Maryland (5), Massachusetts (1), Michigan (5), Minnesota (5), Missouri (2), Nebraska (1), Nevada (12), New Jersey (6), New Mexico (2), New York (10), North Carolina (12), Ohio (1), Oklahoma (2), Oregon (21), Pennsylvania (5), Rhode Island (2), South Carolina (8), Tennessee (2), Texas (30), Utah (6), Virginia (8) and Washington (16). Canada: Ontario (25), Quebec (10) Mexico: Nuevo Leon (1) EQUIPMENT As of July 10, 1998, the Combined Company's rental equipment included approximately 205,000 units (excluding special event equipment) and had an original purchase price of approximately $1,331.4 million and a weighted average age (based on original purchase price) of approximately 27 months. CUSTOMERS AND SALES AND MARKETING The Combined Company rented equipment to over 640,000 customers in 1997. No single customer accounted for more than 0.4% of the Combined Company's revenues in 1997, and the Combined Company's 55 top 10 customers accounted for less than 2% of the Combined Company's revenues in 1997. The Company estimates that in 1997 (a) revenues attributable to construction industry participants accounted for approximately 63% of the Combined Company's revenues, (b) revenues attributable to industrial companies accounted for approximately 25% of the Combined Company's revenues, and (c) revenues attributable to homeowners and others accounted for approximately 12% of the Combined Company's revenues. The Combined Company markets its products and services through a sales force which, as of July 10, 1998, consisted of approximately 705 store-based salespeople and 728 field-based salespeople. EMPLOYEES At July 10, 1998, the Combined Company employed 6,733 persons, including 70 corporate and regional management employees, 5,230 operational employees and 1,433 sales people. Of these employees, 1,620 are salaried personnel and 5,113 are hourly personnel. Collective bargaining agreements relating to 18 separate locations cover approximately 208 of the Combined Company's employees. 56 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. CURRENT OFFICERS AND DIRECTORS The table below identifies, and provides certain information concerning, the current officers and directors of the Company. Upon completion of the pending Merger which U.S. Rentals, certain changes relating to the Company's Board of Directors and officers will be made as described under "--Changes to Officers and Directors Upon Completion Of Pending Merger."
NAME AGE POSITIONS(1) ---- --- ------------ Bradley S. Jacobs....... 41 Chairman, Chief Executive Officer and Director(2) Wayland R. Hicks........ 55 President, Chief Operating Officer and Director(3) John N. Milne........... 39 Vice Chairman, Chief Acquisition Officer, Secretary and Director(2) Michael J. Nolan........ 37 Chief Financial Officer(2) Robert P. Miner......... 48 Vice President, Strategic Planning(4) Sandra E. Welwood....... 42 Vice President, Corporate Controller(2) Kurtis T. Barker........ 37 Regional Vice President, Operations(5) Daniel E. Imig.......... 52 Regional Vice President, Operations(5) Robert P. Krause........ 37 Regional Vice President, Operations(6) Joseph J. Kondrup, Jr. ................... 39 Vice President, Acquisitions(2) Kai E. Nyby............. 45 Vice President, Acquisitions(2) Richard A. Volonino..... 55 Vice President, Acquisitions(2) Ronald M. DeFeo......... 46 Director(5) Richard J. Heckmann..... 54 Director(5) Gerald Tsai, Jr. ....... 69 Director(7)
- -------- (1) For information concerning the term served by directors, see "-- Classification of Board of Directors." (2) The indicated person has held such position(s) since September 1997. (3) Mr. Hicks has served as President and Chief Operating Officer since November 1997 and as a director since June 1998. (4) Mr. Miner was appointed Vice President, Strategic Planning in July 1998. From September 1997 until July 1998, he served as Vice President, Finance. (5) The indicated person has held such position since October 1997. (6) Mr. Krause has served as Regional Vice President, Operations since May 1998. (7) Mr. Tsai has served as a director since December 1997. 57 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. Robert P. Krause held various management positions with Hertz Equipment Rental Corporation prior to joining the Company in 1998, including Regional Operations Manager of Hertz's Western Region from 1995 until 1998 and Branch Manager from 1990 until 1995. 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 58 Mountain Region. From July 1987 until March 1996, he was Division President of a subsidiary of Waste Management, Inc. Kai E. Nyby was a senior member of United Waste's acquisition team from 1995 until August 1997, with responsibility for acquisitions and business development in the company's Midwest Region. From 1981 to 1995, Mr. Nyby was the Regional Manager, Midwest Group for Waste Management, Inc. From 1973 to 1980, Mr. Nyby was General Manager, Operations for a subsidiary of Waste Management, Inc. Richard A. Volonino was a senior executive officer of United Waste from November 1991 until August 1997, serving as Chief Operating Officer from 1991 to 1992 and thereafter as Executive Vice President--Acquisitions. From May 1988 to October 1991, Mr. Volonino held various positions, including Vice President, Operations, with Chambers Development Company, Inc., and from 1986 to December 1987, was District Manager at Laidlaw, Inc. Ronald M. DeFeo is the Chief Executive Officer, President, Chief Operating Officer and a director of Terex Corporation, a leading global provider of equipment for the manufacturing, mining and construction industries. Mr. DeFeo joined Terex in 1992 as President of the Terex heavy equipment group and was appointed President and Chief Operating Officer in 1993 and Chief Executive Officer in 1995. From 1984 to 1992, Mr. DeFeo held various management positions at Tenneco, Inc., including Senior Vice President and Managing Director. 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. CHANGES TO OFFICERS AND DIRECTORS UPON COMPLETION OF PENDING MERGER Pursuant to the Merger Agreement, it is expected that the changes described below relating to the Company's Board of Directors and officers will be made upon consummation of the Merger. The Board of Directors will consist of the six current members plus four new members. Two of the new members are expected to be Richard D. Colburn (who will become Chairman Emeritus of the Company and will be a member of the class of directors whose term expires in 2001) and William F. Berry (who will be a member of the class of directors whose term expires in 2000). The other new members have not yet been identified. The officers of the Company will change as follows: (i) Wayland R. Hicks will become Vice Chairman of the Company while continuing as Chief Operating Officer of the Company, (ii) William F. Berry, President and Chief Executive Officer of U.S. Rentals, will become President of the Company, and (iii) John S. McKinney, Chief Financial Officer of U.S. Rentals, will become Vice President, Finance of the Company. Set forth below is certain information concerning the persons named above that are expected to become officers and/or directors upon completion of the Merger. Richard D. Colburn, 86, purchased U.S. Rentals (under its previous name of Leasing Enterprises, Inc.) on December 31, 1975, and has been Chairman of the Board of U.S. Rentals since that date. Mr. Colburn is a private investor. 59 William F. Berry, 45, has been an employee of U.S. Rentals and one of its predecessors since 1966, became U.S. Rentals' President and Chief Executive Officer in January 1987 and became a director in 1996. In his more than 30 years with U.S. Rentals and its predecessor, Mr. Berry has held numerous operational and managerial positions, including Profit Center Manager, Division Manager and Regional Vice President. John S. McKinney, 43, has been the Vice President-Finance and Chief Financial Officer of U.S. Rentals since 1990 and became a director of U.S. Rentals in 1996. Mr. McKinney joined U.S. Rentals in 1988 as Controller, and held that position until being promoted to his current positions. Prior to joining U.S. Rentals, Mr. McKinney served as the controller of an electrical wholesale company, held various financial positions at Iomega Corporation, including Assistant Controller, and held various positions at the accounting firm of Arthur Andersen & Co. 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 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. Hicks and Mr. Tsai) will expire at the annual meeting of stockholders following January 1, 1998, 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 January 1, 1998, 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 January 1, 1998. 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. 60 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. During 1997, Messrs. DeFeo, Heckmann and Tsai were each granted options to purchase an aggregate of 20,000 shares of Common Stock at an exercise price of $15.00 per share. COMPENSATION OF CERTAIN OFFICERS The following table sets forth information concerning the compensation of the Chief Executive Officer of the Company and each of the other executive officers of the Company during the period August 14, 1997 (inception) through December 31, 1997. SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION AWARDS ------------ SECURITIES UNDERLYING NAME AND PRINCIPAL POSITION SALARY($) 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's employment with the Company commenced on November 14, 1997. 61 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 were granted options in 1997. 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% compound 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. VALUE OF OPTIONS AT DECEMBER 31, 1997
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT NAME DECEMBER 31, 1997 DECEMBER 31, 1997 - ---- ------------------------------- ------------------------- EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE -------------- ----------------- ----------- ------------- Wayland R. Hicks........ -- 450,000 -- $3,475,000
EMPLOYMENT AGREEMENTS AGREEMENTS CURRENTLY IN EFFECT 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 62 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 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, after Mr. Hicks becomes a director, 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. AGREEMENTS TO BE ENTERED INTO UPON CLOSING OF PENDING MERGER Pursuant to the Merger Agreement, the Company will enter into employment agreements with each of Messrs. Berry and McKinney. Such agreements will be entered into concurrently with the closing of the Merger. Certain information with regard to these agreements is set forth below. The agreements provide for Mr. Berry to serve as President and Mr. McKinney to serve as Vice President-Finance of the Company. The agreements provide for an annual base salary of $225,000 for Mr. Berry and $175,000 for Mr. McKinney, subject to possible annual upward 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 agreement with Mr. Berry provides for the Company to reimburse him for certain relocation expenses up to a maximum of $100,000. The term of each agreement will commence upon the closing of the Merger and continue for three years (unless terminated earlier as provided therein), provided that the term thereunder will automatically renew so that at no time will the balance of the term of the agreement be less than two years. Under each of the agreements, the Company or the employee may at any time terminate the agreement, with or without cause, 63 provided that if the Company terminates the agreement without cause (as defined in the agreement), the employee will be entitled to receive from the Company his then current monthly base salary and benefits over the remaining term of the employment agreement. The agreements provide for the grant (i) to Mr. Berry of options to purchase 200,000 shares and Mr. McKinney of options to purchase 100,000 shares of Common Stock, in each case, at a price per share equal to the closing price per share of Common Stock as reported on the NYSE on the closing date of the Merger (the "Specified Price") and (ii) to Mr. Berry of options to purchase 75,000 shares and Mr. McKinney of options to purchase 37,500 shares of Common Stock, in each case, at a price per share equal to the greater of (x) 125% of the Specified Price and (y) $45. All of such options shall vest over a three year term. The agreements provide that all stock options at any time granted to the employee will automatically vest upon a change of control of the Company (as defined in the agreement) or if the employee is terminated without good cause or resigns for good reason (as defined in the agreement). COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION At the time the employment agreements with Messrs. Jacobs and Milne were approved by the Board of Directors, the sole members of the Board were Messrs. Jacobs and Milne. No compensation committee interlocks with other companies have existed. STOCK OPTION PLAN The Board of Directors has adopted the Company's 1997 Stock Option Plan (the "Stock Option Plan") which provides for the granting of options to purchase not more than an aggregate of 5,000,000 shares of Common Stock. The Company expects that, prior to completion of the Merger, the Stock Option Plan will be amended to increase the number of options that may be granted to 15,000,000. Some or all of the options issued under the Stock Option Plan 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. As of July 10, 1998, the Company had granted under the Stock Option Plan options to purchase an aggregate of 4,429,775 shares of Common Stock. These options have a weighted average exercise price of $20.65 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. CERTAIN TRANSACTIONS The Company has from time to time purchased equipment from Terex Corporation ("Terex") and may do so in the future. Ronald M. DeFeo, a director of the Company, is the chief executive officer, and a director, of Terex. During 1997, the Company purchased approximately $1.1 million of equipment from Terex. 64 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 Exchange Act) of the Common Stock of the Company 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 NAME BENEFICIALLY OWNED(1)(2) STOCK OWNED(2) - ---- ------------------------ ----------------- Bradley S. Jacobs................... 15,000,100(3)(4) 38.0% Wayland R. Hicks.................... 103,591(5) * John N. Milne....................... 2,142,857(6) 6.1% Michael J. Nolan.................... 857,244(7) 2.5% Robert P. Miner..................... 428,571(8) 1.2% Ronald M. DeFeo..................... 63,000(9) * Richard J. Heckmann................. 80,000(10) * Gerald Tsai, Jr..................... 360,000(11) 1.0% All executive officers and directors as a group (8 persons)........................ 19,035,363(12) 46.6%
- -------- *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. Does not include 1,200,000 shares issuable upon exercise of options which are not currently exercisable. (4) Mr. Jacobs has certain rights relating to the disposition of the shares and Warrants owned by certain of the other officers of the Company. By virtue of such rights, Mr. Jacobs is deemed to share beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of the shares owned by such other officers of the Company as described under "--Certain Agreements Relating to Securities Held by Officers." 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 19,133,672 shares of Common Stock (comprised of 12,790,814 outstanding shares and 6,342,858 shares issuable upon the exercise of outstanding Warrants.) (5) Consists of 103,591 outstanding shares. Does not include unissued shares that the Company is required to pay Mr. Hicks as part of his base salary as described under "Management--Employment Agreements." Does not include 675,000 shares issuable upon exercise of options which are not currently exercisable. (6) Consists of 1,428,571 outstanding shares and 714,286 shares issuable upon the exercise of currently exercisable Warrants. Does not include 300,000 shares issuable upon exercise of options which are not currently exercisable. 65 (7) Consists of 571,529 outstanding shares and 285,715 shares issuable upon the exercise of currently exercisable Warrants. Does not include 225,000 shares issuable upon exercise of options which are not currently exercisable. (8) Consists of 285,714 outstanding shares and 142,857 shares issuable upon the exercise of currently exercisable Warrants. Does not include 40,000 shares issuable upon exercise of options which are not currently exercisable. (9) Consists of 3,000 outstanding shares and 60,000 shares issuable upon the exercise of currently exercisable options. (10) Consists of 20,000 outstanding shares and 60,000 shares issuable upon exercise of currently exercisable options. (11) Consists of 300,000 outstanding shares and 60,000 shares issuable upon exercise of currently exercisable options. (12) Consists of 12,712,505 outstanding shares, 6,142,858 shares issuable upon the exercise of currently exercisable Warrants and 180,000 shares issuable upon the exercise of currently exercisable options. Does not include 2,440,000 shares issuable upon exercise of options which are not currently exercisable. 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 (i) in the case of Messrs. Milne, Nolan and Miner, $9.125 per share of Common Stock and $0.625 per Warrant plus an amount representing a 4% annual return on such amounts from the date on which such securities were purchased and (ii) in the case of the other officers, 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 the 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." 66 DESCRIPTION OF THE NOTES The Exchange Notes offered hereby will be issued, and the Original Notes were issued, under an Indenture dated as of May 22, 1998 (the "Indenture"), among the Company, the Guarantors and State Street Bank & Trust Company, as trustee (the "Trustee"). References to the Notes include both the Original Notes and the Exchange Notes. Upon the effectiveness of the Registration Statement of which this Prospectus is a part, the Indenture will be subject to and governed by the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The following summary of the material provisions of the Indenture and the Notes does not purport to be complete and is subject to, and qualified in its entirety by, reference to the provisions of the Indenture and the Notes, including the definitions of certain terms contained therein and those terms made part of the Indenture by reference to the Trust Indenture Act. The definition of certain capitalized terms used in the following summary are set forth below under "--Certain Definitions." All references to the Company in the following summary refer exclusively to the Issuer, and not to any of its subsidiaries. ORIGINAL NOTES AND EXCHANGE NOTES WILL REPRESENT SAME DEBT The Exchange Notes will be issued solely in exchange for an equal principal amount of Original Notes pursuant to the Exchange Offer. The Exchange Notes will evidence the same debt as the Original Notes and both series of Notes will be entitled to the benefits of the Indenture and treated as a single class of debt securities. The terms of the Exchange Notes will be the same in all material respects as the Original Notes except that (i) the Exchange Notes will be registered under the Securities Act, and therefore, will not bear legends restricting the transfer thereof and (ii) certain of the registration rights, under the Registration Rights Agreement, relating to the Exchange Notes are different than those relating to the Original Notes and, therefore, the defaults under the Registration Rights Agreement that may require the Company to pay additional interest will be different for the Exchange Notes and the Original Notes. See "Registration Rights Agreement--Certain Provisions Relating to Additional Interest" and "--Additional Interest." If the Exchange Offer is consummated, holders of Original Notes who do not exchange their Original Notes for Exchange Notes will vote together with holders of the Exchange Notes for all relevant purposes under the Indenture. Accordingly, all references herein to specified percentages in aggregate principal amount of the outstanding Notes shall be deemed to mean, at any time after the Exchange Offer is consummated, such percentages in aggregate principal amount of the Original Notes and the Exchange Notes then outstanding. GENERAL The Notes are unsecured senior subordinated obligations of the Company limited to $200 million aggregate principal amount, and are guaranteed by each of the Guarantors on a senior subordinated basis as described below. The Notes may be issued only in registered form without coupons, in denominations of $1,000 and integral multiples thereof. Principal of, premium, if any, and interest on the Notes is payable, and the Notes are transferable, at the corporate trust office or agency of the Trustee in the City of New York maintained for such purposes. In addition, interest may be paid at the option of the Company by check mailed to the person entitled thereto as shown on the security register. No service charge will be made for any transfer, exchange or redemption of Notes, except in certain circumstances for any tax or other governmental charge that may be imposed in connection therewith. MATURITY, INTEREST AND PRINCIPAL The Notes will mature on June 1, 2008. Interest on the Notes accrue at the rate of 9 1/2% per annum and is payable semi-annually in arrears on each June 1 and December 1, commencing December 1, 1998, to the holders of record of Notes at the close of business on the May 15 and November 15, respectively, immediately preceding such interest payment date. Interest on the Exchange Notes will accrue from the most recent date to which interest has been paid on the Exchange Notes or, if no interest has been paid on the Exchange Notes, from the most recent date on which interest was paid on the Original Notes (or, if no interest has been paid on the Original Notes, from the Issue Date of the Original Notes). Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. 67 ADDITIONAL INTEREST As discussed under "Registration Rights Agreement," the interest rate on the Notes is subject to increase under certain circumstances if the Company is not in compliance with its obligations under the Registration Rights Agreement. See "Registration Rights Agreement." OPTIONAL REDEMPTION Optional Redemption. The Notes are redeemable at the option of the Company, in whole or in part, at any time on or after June 1, 2003, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, to the redemption date, if redeemed during the 12-month period beginning June 1 of the years indicated below:
REDEMPTION YEAR PRICE ---- ---------- 2003................................... 104.750% 2004................................... 103.167% 2005................................... 101.583% 2006 and thereafter.................... 100.000%
In addition, at any time, or from time to time, on or prior to June 1, 2001, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings (as defined below) to redeem Notes, at a redemption price equal to 109.5% of the principal amount thereof plus accrued and unpaid interest, if any, thereon to the redemption date; provided that not less than $130 million principal amount of Notes remains outstanding immediately after the occurrence of such redemption. In order to effect the foregoing redemption with the proceeds of any Public Equity Offering the Company shall send a redemption notice to the Trustee not later than 90 days after the consummation of any such Public Equity Offering. As used in the preceding paragraph, "Public Equity Offering" means an underwritten public offering of Common Stock of the Company pursuant to a registration statement filed with the Commission in accordance with the Securities Act. Selection and Notice. In the event that less than all of the Notes are to be redeemed at any time, selection of such Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not then listed on a national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate (subject to the rules of DTC); provided, however, that Notes shall only be redeemable in principal amounts of $1,000 or an integral multiple of $1,000. Notice of redemption shall be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in a principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon surrender for cancellation of the original Note. On and after the redemption date, interest will cease to accrue on Notes or portions thereof called for redemption, unless the Company defaults in the payment of the redemption price. SINKING FUND The Notes are entitled to the benefit of any mandatory sinking fund. CHANGE OF CONTROL Upon the occurrence of a Change of Control, the Company shall be obligated to make an offer to purchase (a "Change of Control Offer"), on a business day (the "Change of Control Purchase Date") not more than 60 nor less than 30 days following the occurrence of the Change of Control, all of the then outstanding Notes tendered at a purchase price in cash (the "Change of Control Purchase Price") equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, thereon to the Change of Control Purchase Date. The Company shall be required to purchase all Notes tendered into the Change of Control Offer and not withdrawn. The Change of Control Offer is required to remain open for at least 20 business days. 68 In order to effect such Change of Control Offer, the Company shall, not later than the 30th day after the Change of Control, mail to each holder of Notes notice of the Change of Control Offer, which notice shall govern the terms of the Change of Control Offer and shall state, among other things, the procedures that holders of Notes must follow to accept the Change of Control Offer. If a Change of Control Offer is made, there can be no assurance that the Company will have available funds sufficient to pay the Change of Control Purchase Price for all of the Notes that might be delivered by holders of Notes seeking to accept the Change of Control Offer. In addition, there can be no assurance that the Company's debt instruments will permit such offer to be made. The Credit Facility does not permit the Company to make a Change of Control Offer and, in order to make such offer, the Company would be required to pay off the Credit Facility in full or seek a waiver from the lenders under the Credit Facility to allow the Company to make the Change of Control Offer. The occurrence of a Change of Control is also an event of default under the agreement governing the Credit Facility and would entitle the lenders thereunder to accelerate all amounts owing under the Credit Facility. Failure to make a Change of Control Offer, even if prohibited by the Company's debt instruments, would constitute a default under the Indenture. See "Risk Factors--Possible Inability to Repurchase Notes upon Change of Control." The Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. The definition of "Change of Control" excludes certain transactions by Permitted Holders, including a direct or indirect sale, lease, exchange or other transfer of all or substantially all of the assets of the Company to Permitted Holders. The provisions of the Indenture may not afford Noteholders protection in the event of a highly leveraged transaction, reorganization, restructuring, merger or similar transaction involving the Company if such transaction is not a transaction defined as a "Change of Control." The use of the term "all or substantially all" in provisions of the Indenture such as clause (b) of the definition of "Change of Control" and under "--Consolidation, Merger, Sale of Assets, Etc." has no clearly established meaning under New York law (which governs the Indenture) and has been the subject of limited judicial interpretation in only a few jurisdictions. Accordingly, there may be a degree of uncertainty in ascertaining whether any particular transaction would involve a disposition of "all or substantially all" of the assets of a person. The Company will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder, to the extent such laws or regulations are applicable, in the event that a Change of Control occurs and the Company is required to purchase Notes as described above. SUBORDINATION The indebtedness evidenced by the Notes is subordinated in right of payment to the prior payment in full in cash of all Senior Indebtedness. The Notes are senior subordinated indebtedness of the Company ranking senior to all existing and future Subordinated Indebtedness of the Company. The Indenture provides that in the event of any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relating to the Company or its assets, or any liquidation, dissolution or other winding-up of the Company, whether voluntary or involuntary, or any assignment for the benefit of creditors or other marshalling of assets or liabilities of the Company, all Senior Indebtedness (including, in the case of Designated Senior Indebtedness, any interest accruing subsequent to the filing of a petition for bankruptcy regardless of whether such interest is an allowed claim in the bankruptcy proceeding) must be paid in full in cash before any payment is made on account of the principal of, premium, if any, or interest on the Notes. During the continuance of any default in the payment of principal, premium, if any, or interest on any Senior Indebtedness, when the same becomes due, and after receipt by the Trustee and the Company from representatives of holders of such Senior Indebtedness of written notice of such default, no direct or indirect 69 payment (other than payments from trusts previously created pursuant to the provisions described under "--Defeasance or Covenant Defeasance of Indenture") by or on behalf of the Company of any kind of character (excluding certain permitted equity or subordinated securities) may be made on account of the principal of, premium, if any, or interest on, or the purchase, redemption or other acquisition of, the Notes unless and until such default has been cured or waived or has ceased to exist or such Senior Indebtedness shall have been discharged or paid in full in cash, after which the Company shall resume making any and all required payments in respect of the Notes, including any missed payments. In addition, during the continuance of any other default with respect to any Designated Senior Indebtedness that permits, or would permit with the passage of time or the giving of notice or both, the maturity thereof to be accelerated (a "Non-payment Default") and upon the earlier to occur of (a) receipt by the Trustee and the Company from the representatives of holders of such Designated Senior Indebtedness of a written notice of such Non-payment Default or (b) if such Non-payment Default results from the acceleration of the maturity of the Notes, the date of such acceleration, no payment (other than payments from trusts previously created pursuant to the provisions described under "--Defeasance or Covenant Defeasance of Indenture") of any kind or character (excluding certain permitted equity or subordinated securities) may be made by the Company on account of the principal of, premium, if any, or interest on, or the purchase, redemption, or other acquisition of, the Notes for the period specified below (the "Payment Blockage Period"). The Payment Blockage Period shall commence upon the receipt of notice of a Non-payment Default by the Trustee and the Company from the representatives of holders of Designated Senior Indebtedness or the date of the acceleration referred to in clause (b) of the preceding paragraph, as the case may be, and shall end on the earliest to occur of the following events: (i) 179 days have elapsed since the receipt of such notice or the date of the acceleration referred to in clause (b) of the preceding paragraph (provided the maturity of such Designated Senior Indebtedness shall not theretofore have been accelerated), (ii) such default is cured or waived or ceases to exist or such Designated Senior Indebtedness is discharged or paid in full in cash, or (iii) such Payment Blockage Period shall have been terminated by written notice to the Company or the Trustee from the representatives of holders of Designated Senior Indebtedness initiating such Payment Blockage Period, after which the Company shall promptly resume making any and all required payments in respect of the Notes, including any missed payments. Only one Payment Blockage Period with respect to the Notes may be commenced within any 360 consecutive day period. No Non-payment Default with respect to Designated Senior Indebtedness that existed or was continuing on the date of the commencement of any Payment Blockage Period will be, or can be, made the basis for the commencement of a second Payment Blockage Period, whether or not within a period of 360 consecutive days, unless such default has been cured or waived for a period of not less than 90 consecutive days. In no event will a Payment Blockage Period extend beyond 179 days from the date of the receipt by the Trustee of the notice or the date of the acceleration initiating such Payment Blockage Period and there must be a 180 consecutive day period in any 360 day period during which no Payment Blockage Period is in effect. If the Company fails to make any payment on the Notes when due on account of the payment blockage provisions referred to above, such failure would constitute an Event of Default under the Indenture and would enable the holders of the Notes to accelerate the maturity thereof. See "--Events of Default." By reason of such subordination, in the event of liquidation or insolvency, creditors of the Company who are holders of Senior Indebtedness may recover more, ratably, than the holders of the Notes, and funds which would be otherwise payable to the holders of the Notes will be paid to the holders of Senior Indebtedness to the extent necessary to pay the Senior Indebtedness in full, and the Company may be unable to meet its obligations fully with respect to the Notes. At March 31, 1998, on a pro forma basis (after giving effect to all acquisitions completed by the Company subsequent to such date and the financing thereof), there was outstanding $447.1 million of Senior Indebtedness. The Indenture limits, but not prohibit, the incurrence by the Company of additional Indebtedness which is senior to the Notes and prohibits the incurrence by the Company of Indebtedness which is subordinated in right of payment to any other Indebtedness of the Company and senior in right of payment to the Notes. The Company at July 17, 1998, had $11.6 million of borrowing capacity available under the Credit Facility. 70 "Designated Senior Indebtedness" means (i) all Indebtedness under the Credit Facility and (ii) any other issue of Senior Indebtedness which (a) at the time of the determination is equal to or greater than $25 million in aggregate principal amount and (b) is specifically designated by the Company in the instrument evidencing such Senior Indebtedness as "Designated Senior Indebtedness." "Senior Indebtedness" means the principal of, premium, if any, and interest on any Indebtedness of the Company, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Notes. Without limiting the generality of the foregoing, (x) "Senior Indebtedness" shall include the principal of, premium, if any, and interest on all obligations of every nature of the Company from time to time owed to the lenders under the Credit Facility, including, without limitation, principal of and interest on, and all fees, indemnities and expenses payable under the Credit Facility, and (y) in the case of Designated Senior Indebtedness, "Senior Indebtedness" shall include interest accruing thereon subsequent to the occurrence of any Event of Default specified in clause (vii) or (viii) under "--Events of Default" relating to the Company, whether or not the claim for such interest is allowed under any applicable Bankruptcy Code. Notwithstanding the foregoing, "Senior Indebtedness" shall not include (a) Indebtedness evidenced by the Notes, (b) Indebtedness that is expressly subordinate or junior in right of payment to any Indebtedness of the Company, (c) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to the Company, (d) Indebtedness which is represented by Redeemable Capital Stock, (e) Indebtedness for goods, materials or services purchased in the ordinary course of business or Indebtedness consisting of trade payables or other current liabilities (other than any current liabilities owing under the Credit Facility, or the current portion of any long-term Indebtedness which would constitute Senior Indebtedness but for the operation of this clause (e)), (f) Indebtedness of or amounts owed by the Company for compensation to employees or for services rendered to the Company, (g) any liability for federal, state, local or other taxes owed or owing by the Company, (h) Indebtedness of the Company to a Subsidiary of the Company or any other Affiliate of the Company or any of such Affiliate's Subsidiaries, (i) that portion of any Indebtedness which is incurred by the Company in violation of the Indenture and (j) amounts owing under leases. GUARANTEES Each Guarantor has fully and unconditionally guaranteed, on a senior subordinated basis, jointly and severally, to each holder and the Trustee, the full and prompt performance of the Company's obligations under the Indenture and the Notes, including the payment of principal of and interest on the Notes. The Guarantees are subordinated to Guarantor Senior Indebtedness on the same basis as the Notes are subordinated to Senior Indebtedness. The obligations of each Guarantor are limited to the maximum amount which, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to its contribution obligations under the Indenture, will result in the obligations of such Guarantor under the Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. See "Risk Factors--Fraudulent Transfer Considerations." Each Guarantor that makes a payment or distribution under a Guarantee shall be entitled to a contribution from each other Guarantor in an amount pro rata, based on the net assets of each Guarantor, determined in accordance with GAAP. Each Guarantor may consolidate with or merge into or sell its assets to the Company or another Guarantor without limitation, or with other persons upon the terms and conditions set forth in the Indenture. See "--Consolidation, Merger, Sale of Assets, Etc." In the event all or substantially all of the assets or the capital stock of a Guarantor is sold and the sale complies with the provisions set forth in "--Certain Covenants--Limitation on Asset Sales," the Guarantor's Guarantee will be automatically discharged and released. 71 "Guarantor Senior Indebtedness" of a Guarantor means the principal of, premium, if any, and interest on any Indebtedness of such Guarantor, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Notes or such Guarantor's Guarantee. Without limiting the generality of the foregoing, (x) "Guarantor Senior Indebtedness" shall include the principal of, premium, if any, and interest on all obligations of every nature of such Guarantor from time to time owed to the lenders under the Credit Facility, including, without limitation, principal of and interest on, and all fees, indemnities and expenses payable under the Credit Facility, and (y) in the case of amounts owing under the Credit Facility and guarantees of Designated Senior Indebtedness, "Guarantor Senior Indebtedness" shall include interest accruing thereon subsequent to the occurrence of any Event of Default specified in clause (vii) or (viii) under "--Events of Default" relating to such Guarantor, whether or not the claim for such interest is allowed under any applicable Bankruptcy Code. Notwithstanding the foregoing, "Guarantor Senior Indebtedness" shall not include (a) Indebtedness evidenced by the Notes or the Guarantees, (b) Indebtedness that is expressly subordinate or junior in right of payment to any Indebtedness of such Guarantor, (c) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to such Guarantor, (d) Indebtedness which is represented by Redeemable Capital Stock, (e) Indebtedness for goods, materials or services purchased in the ordinary course of business or Indebtedness consisting of trade payables or other current liabilities (other than any current liabilities owing under the Credit Facility, or the current portion of any long-term Indebtedness which would constitute Guarantor Senior Indebtedness but for the operation of this clause (e)), (f) Indebtedness of or amounts owed by such Guarantor for compensation to employees or for services rendered to such Guarantor, (g) any liability for federal, state, local or other taxes owed or owing by such Guarantor, (h) Indebtedness of such Guarantor to the Company or a Subsidiary of the Company or any other Affiliate of the Company or any of such Affiliate's Subsidiaries, (i) that portion of any Indebtedness which is incurred by such Guarantor in violation of the Indenture and (j) amounts owing under leases. CERTAIN COVENANTS The Indenture contains the following covenants, among others: Limitation on Indebtedness. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or in any manner become directly or indirectly liable, contingently or otherwise (in each case, to "incur"), for the payment of any Indebtedness (including any Acquired Indebtedness) other than Permitted Indebtedness; provided, however, that (i) the Company and any Guarantor will be permitted to incur Indebtedness (including Acquired Indebtedness), and (ii) a Restricted Subsidiary will be permitted to incur Acquired Indebtedness, if in each case, after giving pro forma effect to (1) the incurrence of such Indebtedness and (if applicable) the application of the net proceeds therefrom, including to refinance other Indebtedness, as if such Indebtedness were incurred at the beginning of the four full fiscal quarters immediately preceding such incurrence, taken as one period; (2) the incurrence, repayment or retirement of any other Indebtedness by the Company and its Restricted Subsidiaries since the first day of such four-quarter period as if such Indebtedness was incurred, repaid or retired at the beginning of such four- quarter period (except that, in making such computation, the amount of Indebtedness under any revolving credit facility shall be computed based upon the average daily balance of such Indebtedness during such four-quarter period); and (3) any Asset Sale or Asset Acquisition occurring since the first day of such four-quarter period (including to the date of calculation) as if such acquisition or disposition occurred at the beginning of such four-quarter period, the Consolidated Fixed Charge Coverage Ratio of the Company is at least 2:1. Limitation on Restricted Payments. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (a) declare or pay any dividend or make any other distribution or payment on or in respect of Capital Stock of the Company or any of its Restricted Subsidiaries or make any payment to the direct or indirect 72 holders (in their capacities as such) of Capital Stock of the Company or any of its Restricted Subsidiaries (other than dividends or distributions payable solely in Capital Stock of the Company (other than Redeemable Capital Stock) or in options, warrants or other rights to purchase Capital Stock of the Company (other than Redeemable Capital Stock)) (other than the declaration or payment of dividends or other distributions to the extent declared or paid to the Company or any Restricted Subsidiary), (b) purchase, redeem, defease or otherwise acquire or retire for value any Capital Stock of the Company or any of its Restricted Subsidiaries or any options, warrants, or other rights to purchase any such Capital Stock (other than any such securities owned by the Company or a Restricted Subsidiary), (c) make any principal payment on, or purchase, defease, repurchase, redeem or otherwise acquire or retire for value, prior to any scheduled maturity, scheduled repayment, scheduled sinking fund payment or other Stated Maturity, any Subordinated Indebtedness (other than any such Subordinated Indebtedness owned by the Company or a Restricted Subsidiary), or (d) make any Investment (other than any Permitted Investment) in any person (such payments or Investments described in the preceding clauses (a), (b), (c) and (d) are collectively referred to as "Restricted Payments"), unless, after giving effect to the proposed Restricted Payment (the amount of any such Restricted Payment, if other than cash, shall be the Fair Market Value of the asset(s) proposed to be transferred by the Company or such Restricted Subsidiary, as the case may be, pursuant to such Restricted Payment), (A) no Default or Event of Default shall have occurred and be continuing, (B) immediately after giving effect to such Restricted Payment, the Company would be able to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) (assuming a market rate of interest with respect to such additional Indebtedness) and (C) the aggregate amount of all Restricted Payments declared or made from and after the Issue Date would not exceed the sum of: (1) 50% of the aggregate Consolidated Net Income of the Company accrued on a cumulative basis during the period beginning on the Issue Date and ending on the last day of the fiscal quarter of the Company immediately preceding the date of such proposed Restricted Payment (or, if such aggregate cumulative Consolidated Net Income of the Company for such period shall be a deficit, minus 100% of such deficit); (2) the aggregate net cash proceeds received by the Company as capital contributions to the Company after the Issue Date and which constitute shareholders' equity of the Company in accordance with GAAP; (3) the aggregate net cash proceeds received by the Company from the issuance or sale of Capital Stock (excluding Redeemable Capital Stock) of the Company to any person (other than to a Subsidiary of the Company) after the Issue Date; (4) the aggregate net cash proceeds received by the Company from any person (other than a Subsidiary of the Company) upon the exercise of any options, warrants or rights to purchase shares of Capital Stock (other than Redeemable Capital Stock) of the Company after the Issue Date; (5) the aggregate net cash proceeds received after the Issue Date by the Company from any person (other than a Subsidiary of the Company) for debt securities that have been converted or exchanged into or for Capital Stock of the Company (other than Redeemable Capital Stock) (to the extent such debt securities were originally sold for cash) plus the aggregate amount of cash received by the Company (other than from a Subsidiary of the Company) in connection with such conversion or exchange; (6) in the case of the disposition or repayment of any Investment constituting a Restricted Payment after the Issue Date, an amount equal to the lesser of the return of capital with respect to such Investment and the initial amount of such Investment, in either case, less the cost of the disposition of such Investment; and 73 (7) so long as the Designation thereof was treated as a Restricted Payment made after the Issue Date, with respect to any Unrestricted Subsidiary that has been redesignated as a Restricted Subsidiary after the Issue Date in accordance with "--Limitation on Designations of Unrestricted Subsidiaries" below, the Fair Market Value of the Company's interest in such Subsidiary, provided that such amount shall not in any case exceed the Designation Amount with respect to such Restricted Subsidiary upon its Designation, minus: the Designation Amount (measured as of the date of Designation) with respect to any Restricted Subsidiary of the Company which has been designated as an Unrestricted Subsidiary after the Issue Date in accordance with "--Limitations on Designations of Unrestricted Subsidiaries" below. For purposes of the preceding clause (C)(4), the value of the aggregate net proceeds received by the Company upon the issuance of Capital Stock upon the exercise of options, warrants or rights will be the net cash proceeds received upon the issuance of such options, warrants or rights plus the incremental amount received by the Company upon the exercise thereof. None of the foregoing provisions will prohibit, so long, in the case of clauses (ii), (iii), (v) and (vi) below, as there is no Default or Event of Default continuing, (i) the payment of any dividend or distribution within 60 days after the date of its declaration, if at the date of declaration such payment would be permitted by the first paragraph of this covenant; (ii) the redemption, repurchase or other acquisition or retirement of any shares of any class of Capital Stock of the Company in exchange for, or out of the net cash proceeds of, a substantially concurrent issue and sale of other shares of Capital Stock of the Company (other than Redeemable Capital Stock) to any person (other than to a Subsidiary of the Company); provided, however, that such net cash proceeds are excluded from clause (C) of the first paragraph of this covenant; (iii) any redemption, repurchase or other acquisition or retirement of Subordinated Indebtedness by exchange for, or out of the net cash proceeds of, a substantially concurrent issue and sale of (1) Capital Stock (other than Redeemable Capital Stock) of the Company to any person (other than to a Subsidiary of the Company); provided, however, that any such net cash proceeds are excluded from clause (C) of the first paragraph of this covenant; or (2) Indebtedness of the Company so long as such Indebtedness is Subordinated Indebtedness which (w) has no scheduled principal payment prior to the 91st day after the Maturity Date, (x) has an Average Life to Stated Maturity greater than the remaining Average Life to Stated Maturity of the Notes and (y) is subordinated to the Notes in the same manner and to the same extent as the Subordinated Indebtedness so purchased, exchanged, redeemed, acquired or retired; (iv) Investments constituting Restricted Payments made as a result of the receipt of non-cash consideration from any Asset Sale or other sale of assets or property made pursuant to and in compliance with the Indenture; (v) payments to purchase Capital Stock of the Company from officers of the Company, pursuant to agreements in effect as of the Issue Date, in an amount not to exceed $15 million in the aggregate, (vi) payments (other than those covered by clause (v)) to purchase Capital Stock of the Company from management or employees of the Company or any of its Subsidiaries, or their authorized representatives, upon the death, disability or termination of employment of such employees, in aggregate amounts under this clause (vi) not to exceed $1 million in any fiscal year of the Company, and (vii) the payment of any dividend or distribution by a Restricted Subsidiary to the holders of its Capital Stock on a pro rata basis. Any payments made pursuant to clauses (i), (v) or (vi) of this paragraph shall be taken into account in calculating the amount of Restricted Payments made from and after the Issue Date. Limitation on Liens. The Company will not, and will not permit any of its Restricted Subsidiaries to, create, incur, assume or suffer to exist any Liens of any kind against or upon any of its property or assets, or any proceeds therefrom, unless the Notes are equally and ratably secured (except that Liens securing Subordinated Indebtedness shall be expressly subordinate to Liens securing the Notes to the same extent such Subordinated Indebtedness is subordinate to the Notes), except for (a) Liens securing Senior Indebtedness; (b) Liens securing the Notes; (c) Liens in favor of the Company on assets of any Subsidiary of the Company; (d) Liens securing Indebtedness which is incurred to refinance Indebtedness which has been secured by a Lien permitted under the Indenture and which has been incurred in accordance with the provisions of the Indenture; provided, however, 74 that such Liens do not extend to or cover any property or assets of the Company or any its Restricted Subsidiaries not securing the Indebtedness so refinanced; and (e) Permitted Liens. Disposition of Proceeds of Asset Sales. The Company will not, and will not permit any of its Restricted Subsidiaries to, make any Asset Sale unless (a) the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the shares or assets sold or otherwise disposed of and (b) at least 75% of such consideration consists of cash or Cash Equivalents or Replacement Assets; provided, however, that the amount of any liabilities (as shown on the most recent balance sheet of the Company or such Restricted Subsidiary) of the Company or such Restricted Subsidiary that are assumed by the transferee of such assets and any securities, notes or other obligations received by the Company or such Restricted Subsidiary from such transferee that are converted within 30 days into cash or Cash Equivalents (to the extent of the cash or Cash Equivalents received) shall be deemed to be cash for the purposes of this provision; provided further, that the 75% limitation referred to in clause (b) will not apply to any Asset Sale in which the cash or Cash Equivalent portion of the consideration received therefrom, determined in accordance with the foregoing provision, is equal to or greater than what the after-tax proceeds would have been had such Asset Sale complied with the aforementioned 75% limitation. To the extent that the Net Cash Proceeds of any Asset Sale are not required to be applied to repay, and permanently reduce the commitments under, the Credit Facility, or are not so applied, the Company or such Restricted Subsidiary, as the case may be, may apply the Net Cash Proceeds from such Asset Sale, within 360 days of such Asset Sale, to an investment in properties and assets that replace the properties and assets that were the subject of such Asset Sale or in properties and assets that are used or useful in the business of the Company and its Restricted Subsidiaries conducted at such time or in businesses reasonably related thereto or in Capital Stock of a person, the principal portion of whose assets consist of such property or assets ("Replacement Assets"). Any Net Cash Proceeds from any Asset Sale that are neither used to repay, and permanently reduce the commitments under, the Credit Facility nor invested in Replacement Assets within such 360-day period constitute "Excess Proceeds" subject to disposition as provided below. When the aggregate amount of Excess Proceeds equals or exceeds $10 million, the Company shall make an offer to purchase (an "Asset Sale Offer"), from all holders of the Notes, an aggregate principal amount of Notes equal to such Excess Proceeds, at a price in cash equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest, if any, to the purchase date (the "Asset Sale Offer Price"). To the extent that the aggregate principal amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use such deficiency for general corporate purposes. The Notes shall be purchased by the Company, at the option of the holder thereof, in whole or in part in integral multiples of $1,000, on a date that is not earlier than 30 days and not later than 60 days from the date the notice is given to holders, or such later date as may be necessary for the Company to comply with the requirements under the Exchange Act. If the aggregate principal amount of Notes validly tendered and not withdrawn by holders thereof exceeds the Excess Proceeds, Notes to be purchased will be selected on a pro rata basis. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be reset to zero. The Company will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder, to the extent such laws and regulations are applicable, in the event that an Asset Sale occurs and the Company is required to purchase Notes as described above. Limitation on Preferred Stock of Restricted Subsidiaries. The Company will not permit any Restricted Subsidiary to issue any Preferred Stock other than Preferred Stock issued to the Company or a Wholly-Owned Restricted Subsidiary. The Company will not sell, transfer or otherwise dispose of Preferred Stock issued by a Restricted Subsidiary of the Company or permit a Restricted Subsidiary to sell, transfer or otherwise dispose of Preferred Stock issued by a Restricted Subsidiary, other than to the Company or a Wholly-Owned Restricted Subsidiary. Notwithstanding the foregoing, nothing in such covenant will prohibit Preferred Stock (other than Redeemable Capital Stock) issued by a person prior to the time (A) such person becomes a Restricted Subsidiary of the Company, (B) such person merges with or into a Restricted Subsidiary of the Company or (C) a Restricted 75 Subsidiary of the Company merges with or into such person; provided that such Preferred Stock was not issued or incurred by such person in anticipation of a transaction contemplated by subclause (A), (B), or (C) above. Limitation on Transactions with Affiliates. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into any transaction or series of related transactions (including, without limitation, the sale, transfer, disposition, purchase, exchange or lease of assets, property or services) with, or for the benefit of, any of its Affiliates (other than Restricted Subsidiaries), except (a) on terms that are no less favorable to the Company or such Subsidiary, as the case may be, than those which could have been obtained in a comparable transaction at such time from persons who are not Affiliates of the Company, (b) with respect to a transaction or series of related transactions involving aggregate payments or value equal to or greater than $2 million, the Company shall have delivered an officer's certificate to the Trustee certifying that such transaction or transactions comply with the preceding clause (a), and (c) with respect to a transaction or series of related transactions involving aggregate payments or value equal to or greater than $5 million, such transaction or transactions shall have been approved by a majority of the Disinterested Members of the Board of Directors of the Company. Notwithstanding the foregoing, the restrictions set forth in this covenant shall not apply to (i) transactions with or among the Company and the Restricted Subsidiaries, (ii) customary directors' fees, indemnification and similar arrangements, consulting fees, employee salaries, bonuses or employment agreements, compensation or employee benefit arrangements and incentive arrangements with any officer, director or employee of the Company or any Restricted Subsidiary entered into in the ordinary course of business, (iii) any dividends made in compliance with "--Limitation on Restricted Payments" above, (iv) loans and advances to officers, directors and employees of the Company or any Restricted Subsidiary for travel, entertainment, moving and other relocation expenses, in each case made in the ordinary course of business, (v) the incurrence of intercompany Indebtedness which constitutes Permitted Indebtedness, (vi) transactions pursuant to agreements in effect on the Issue Date, and (vii) the purchase of equipment for its Fair Market Value from Terex Corporation or its Affiliates in the ordinary course of business of each of Terex Corporation and the Company. Limitation on Dividends and other Payment Restrictions Affecting Restricted Subsidiaries. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary of the Company to (a) pay dividends, in cash or otherwise, or make any other distributions on or in respect of its Capital Stock or any other interest or participation in, or measured by, its profits, (b) pay any Indebtedness owed to the Company or any other Restricted Subsidiary of the Company, (c) make loans or advances to the Company or any other Restricted Subsidiary of the Company, (d) transfer any of its properties or assets to the Company or any other Restricted Subsidiary of the Company or (e) guarantee any Indebtedness of the Company or any other Restricted Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of (i) applicable law or any applicable rule, regulation or order, (ii) customary non-assignment provisions of any contract or any lease governing a leasehold interest of the Company or any Restricted Subsidiary of the Company, (iii) customary restrictions on transfers of property subject to a Lien permitted under the Indenture, (iv) the Credit Facility as in effect on the Issue Date, (v) any agreement or other instrument of a person acquired by the Company or any Restricted Subsidiary of the Company in existence at the time of such acquisition (but not created in contemplation thereof), which encumbrance or restriction is not applicable to any person, or the properties or assets of any person, other than the person, or the property or assets of the person, so acquired, (vi) an agreement entered into for the sale or disposition of Capital Stock or assets of a Restricted Subsidiary or an agreement entered into for the sale of specified assets (in either case, so long as such encumbrance or restriction, by its terms, terminates on the earlier of the termination of such agreement or the consummation of such agreement and so long as such restriction applies only to the Capital Stock or assets to be sold), (vii) any agreement in effect on the Issue Date, (viii) the Indenture and the Guarantees, and (ix) any agreement that amends, extends, refinances, renews or replaces any agreement described in the foregoing clauses, provided that the terms and conditions of any such agreement are not materially less favorable to the holders of the Notes with respect to such dividend and payment restrictions than those under or pursuant to the agreement amended, extended, refinanced, renewed or replaced. 76 Limitation on Designations of Unrestricted Subsidiaries. The Company may designate after the Issue Date any Restricted Subsidiary as an "Unrestricted Subsidiary" under the Indenture (a "Designation") only if: (i) no Default shall have occurred and be continuing at the time of or after giving effect to such Designation; (ii) the Company would be permitted to make an Investment (other than a Permitted Investment, except a Permitted Investment covered by clause (x) of the definition thereof) at the time of Designation (assuming the effectiveness of such Designation) pursuant to the first paragraph of "-- Limitation on Restricted Payments" above in an amount (the "Designation Amount") equal to the Fair Market Value of the Company's interest in such Subsidiary on such date calculated in accordance with GAAP; and (iii) the Company would be permitted under the Indenture to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the covenant described under "--Limitation on Indebtedness" at the time of such Designation (assuming the effectiveness of such Designation). In the event of any such Designation, the Company shall be deemed to have made an Investment constituting a Restricted Payment pursuant to the covenant "--Limitation on Restricted Payments" for all purposes of the Indenture in the Designation Amount. The Company shall not, and shall not cause or permit any Restricted Subsidiary to, at any time (x) provide credit support for or subject any of its property or assets (other than the Capital Stock of any Unrestricted Subsidiary) to the satisfaction of, any Indebtedness of any Unrestricted Subsidiary (including any undertaking, agreement or instrument evidencing such Indebtedness), (y) be directly or indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z) be directly or indirectly liable for any Indebtedness which provides that the holder thereof may (upon notice, lapse of time or both) declare a default thereon or cause the payment thereof to be accelerated or payable prior to its final scheduled maturity upon the occurrence of a default with respect to any Indebtedness of any Unrestricted Subsidiary (including any right to take enforcement action against such Unrestricted Subsidiary), except any non-recourse guarantee given solely to support the pledge by the Company or any Restricted Subsidiary of the Capital Stock of an Unrestricted Subsidiary. All Subsidiaries of Unrestricted Subsidiaries shall automatically be deemed to be Unrestricted Subsidiaries. The Company may revoke any Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation") if: (i) no Default shall have occurred and be continuing at the time of and after giving effect to such Revocation; and (ii) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately following such Revocation would, if incurred at such time, have been permitted to be incurred for all purposes of the Indenture. In the event the Company or a Restricted Subsidiary makes any Investment in any person which was not previously a Subsidiary and such person thereby becomes a Subsidiary, such person shall automatically be an Unrestricted Subsidiary and the Company may designate such Subsidiary as a Restricted Subsidiary only if it meets the foregoing requirements. All Designations and Revocations must be evidenced by Board Resolutions of the Company delivered to the Trustee certifying compliance with the foregoing provisions. Limitation on the Issuance of Subordinated Indebtedness. The Company will not, directly or indirectly, incur any Indebtedness (including Acquired Indebtedness) that is subordinate in right of payment to any Indebtedness of the Company and senior in right of payment to the Notes. 77 Additional Subsidiary Guarantees. If the Company or any of its Restricted Subsidiaries acquires, creates or designates another domestic Restricted Subsidiary, then such newly acquired, created or designated Restricted Subsidiary shall, within 30 days after the date of its acquisition, creation or designation, whichever is later, execute and deliver to the Trustee a supplemental indenture in form reasonably satisfactory to the Trustee pursuant to which such Subsidiary shall unconditionally guarantee all of the Company's obligations under the Notes and the Indenture on the terms set forth in the Indenture. Thereafter, such Subsidiary shall be a Guarantor for all purposes of the Indenture. Reporting Requirements. For so long as the Notes are outstanding, whether or not the Company is subject to Section 13(a) or 15(d) of the Exchange Act, or any successor provision thereto, the Company shall file with the Commission (if permitted by Commission practice and applicable law and regulations) the annual reports, quarterly reports and other documents which the Company would have been required to file with the Commission pursuant to such Section 13(a) or 15(d) or any successor provision thereto if the Company were so subject, such documents to be filed with the Commission on or prior to the respective dates (the "Required Filing Dates") by which the Company would have been required so to file such documents if the Company were so subject. The Company shall also in any event (a) within 15 days after each Required Filing Date (whether or not permitted or required to be filed with the Commission) (i) transmit (or cause to be transmitted) by mail to all holders of Notes, as their names and addresses appear in the Note register, without cost to such holders, and (ii) file with the Trustee, copies of the annual reports, quarterly reports and other documents which the Company would be required to file with the Commission if the Notes were then registered under the Exchange Act. In addition, for so long as any Notes remain outstanding, the Company will furnish to the holders of Notes and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act, and, to any beneficial holder of Notes, if not obtainable from the Commission, information of the type that would be filed with the Commission pursuant to the foregoing provisions upon the request of any such holder. CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. The Company will not, in any transaction or series of transactions, merge or consolidate with or into, or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets as an entirety to, any person or persons, and the Company will not permit any of its Restricted Subsidiaries to enter into any such transaction or series of transactions if such transaction or series of transactions, in the aggregate, would result in a sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the properties and assets of the Company or the Company and its Restricted Subsidiaries, taken as a whole, to any other person or persons, unless at the time and after giving effect thereto (a) either (i) if the transaction or transactions is a merger or consolidation, the Company or such Restricted Subsidiary, as the case may be, shall be the surviving person of such merger or consolidation, or (ii) the person formed by such consolidation or into which the Company, or such Restricted Subsidiary, as the case may be, is merged or to which the properties and assets of the Company or such Restricted Subsidiary, as the case may be, substantially as an entirety, are transferred (any such surviving person or transferee person being the "Surviving Entity") shall be a corporation organized and existing under the laws of the United States of America, any state thereof or the District of Columbia and shall expressly assume by a supplemental indenture executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Notes, the Indenture and the Registration Rights Agreement, and in each case, the Indenture shall remain in full force and effect; (b) immediately after giving effect to such transaction or series of transactions on a pro forma basis (including, without limitation, any Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction or series of transactions), no Default or Event of Default shall have occurred and be continuing; and (c) except in the case of any merger of the Company with any wholly-owned Subsidiary of the Company or any merger of Guarantors (and, in each case, no other persons), the Company or the Surviving Entity, as the case may be, after giving effect to such transaction or series of transactions on a pro forma basis (including, without limitation, any Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction or series of transactions), could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) (assuming a market rate of interest with respect to such additional Indebtedness). 78 In connection with any consolidation, merger, transfer, lease, assignment or other disposition contemplated hereby, the Company shall deliver, or cause to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an officers' certificate and an opinion of counsel, each stating that such consolidation, merger, transfer, lease, assignment or other disposition and the supplemental indenture in respect thereof comply with the requirements under the Indenture. Upon any consolidation or merger, or any sale, assignment, conveyance, transfer, lease or disposition of all or substantially all of the properties and asset of the Company in accordance with the immediately preceding paragraphs, the successor person formed by such consolidation or into which the Company or a Restricted Subsidiary, as the case may be, is merged or the successor person to which such sale, assignment, conveyance, transfer, lease or disposition is made shall succeed to, and be substituted for, and may exercise every right and power of the Company under the Notes, the Indenture and/or the Registration Rights Agreement, as the case may be, with the same effect as if such successor had been named as the Company in the Notes, the Indenture and/or in the Registration Rights Agreement, as the case may be and, except in the case of a lease, the Company or such Restricted Subsidiary shall be released and discharged from its obligations thereunder. The Indenture will provide that for all purposes of the Indenture and the Notes (including the provision of this covenant and the covenants described in "--Certain Covenants--Limitation on Indebtedness," "--Limitation on Restricted Payments," and "--Limitation on Liens"), Subsidiaries of any surviving person shall, upon such transaction or series of related transactions, become Restricted Subsidiaries unless and until designated Unrestricted Subsidiaries pursuant to and in accordance with "--Limitation on Designations of Unrestricted Subsidiaries" and all Indebtedness, and all Liens on property or assets, of the Company and the Restricted Subsidiaries in existence immediately after such transaction or series of related transactions will be deemed to have been incurred upon such transaction or series of related transactions. EVENTS OF DEFAULT The following will be "Events of Default" under the Indenture: (i) default in the payment of the principal of or premium, if any, when due and payable, on any of the Notes (at Stated Maturity, upon optional redemption, required purchase or otherwise); or (ii) default in the payment of an installment of interest on any of the Notes, when due and payable, for 30 days; or (iii) (a) default in the performance, or breach, of any covenant or agreement of the Company under the Indenture (other than a default in the performance or breach of a covenant or agreement which is specifically dealt with in clauses (i), (ii) or (iv)) and such default or breach shall continue for a period of 30 days after written notice has been given, by certified mail, (x) to the Company by the Trustee or (y) to the Company and the Trustee by the holders of at least 25% in aggregate principal amount of the outstanding Notes; or (iv) (a) there shall be a default in the performance or breach of the provisions of "--Consolidation, Merger and Sale of Assets, Etc."; (b) the Company shall have failed to make or consummate an Offer in accordance with the provisions of the Indenture described under "--Certain Covenants-- Dispositions of Proceeds of Asset Sales"; or (c) the Company shall have failed to make or consummate a Change of Control Offer in accordance with the provisions of the Indenture described under "--Change of Control"; or (v) default or defaults under one or more agreements, instruments, mortgages, bonds, debentures or other evidences of Indebtedness under which the Company or any Restricted Subsidiary of the Company then has outstanding Indebtedness in excess of $15 million, individually or in the aggregate, and either (a) such Indebtedness is already due and payable in full or (b) such default or defaults have resulted in the acceleration of the maturity of such Indebtedness; or (vi) one or more judgments, orders or decrees of any court or regulatory or administrative agency of competent jurisdiction for the payment of money in excess of $15 million, either individually or in the 79 aggregate, shall be entered against the Company or any Restricted Subsidiary of the Company or any of their respective properties and shall not be discharged and there shall have been a period of 60 days after the date on which any period for appeal has expired and during which a stay of enforcement of such judgment, order or decree, shall not be in effect; or (vii) the entry of a decree or order by a court having jurisdiction in the premises (A) for relief in respect of the Company or any Significant Subsidiary in an involuntary case or proceeding under the Federal Bankruptcy Code or any other federal, state or foreign bankruptcy, insolvency, reorganization or similar law or (B) adjudging the Company or any Significant Subsidiary bankrupt or insolvent, or seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any Significant Subsidiary under the Federal Bankruptcy Code or any other similar federal, state or foreign law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or any Significant Subsidiary or of any substantial part of any of their properties, or ordering the winding up or liquidation of any of their affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or (viii) the institution by the Company or any Significant Subsidiary of a voluntary case or proceeding under the Federal Bankruptcy Code or any other similar federal, state or foreign law or any other case or proceedings to be adjudicated a bankrupt or insolvent, or the consent by the Company or any Significant Subsidiary to the entry of a decree or order for relief in respect of the Company or any Significant Subsidiary in any involuntary case or proceeding under the Federal Bankruptcy Code or any other similar federal, state or foreign law or to the institution of bankruptcy or insolvency proceedings against the Company or any Significant Subsidiary, or the filing by the Company or any Significant Subsidiary of a petition or answer or consent seeking reorganization or relief under the Federal Bankruptcy Code or any other similar federal, state or foreign law, or the consent by it to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of any of the Company or any Significant Subsidiary or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due or the taking of corporate action by the Company or any Significant Subsidiary in furtherance of any such action; or (ix) any of the Guarantees ceases to be in full force and effect or any of the Guarantees is declared to be null and void and unenforceable or any of the Guarantees is found to be invalid or any of the Guarantors denies its liability under its Guarantee (other than by reason of release of a Guarantor in accordance with the terms of the Indenture). If an Event of Default (other than those covered by clause (vii) or (viii) above with respect to the Company) shall occur and be continuing, the Trustee, by notice to the Company and the representative of the banks under the Credit Facility, or the holders of at least 25% in aggregate principal amount of the Notes then outstanding, by notice to the Trustee, the Company and the representative of the banks under the Credit Facility, may declare the principal of, premium, if any, and accrued and unpaid interest, if any, on all of the outstanding Notes due and payable immediately, upon which declaration, all amounts payable in respect of the Notes shall be due and payable as of the date which is five business days after the giving of such notice to the representative of the banks under the Credit Facility. If an Event of Default specified in clause (vii) or (viii) above with respect to the Company occurs and is continuing, then the principal of, premium, if any, and accrued and unpaid interest, if any, on all the outstanding Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holder of Notes. After a declaration of acceleration under the Indenture, but before a judgment or decree for payment of the money due has been obtained by the Trustee, the holders of a majority in aggregate principal amount of the outstanding Notes, by written notice to the Company and the Trustee, may rescind such declaration if (a) the Company has paid or deposited with the Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee under the Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, (ii) all overdue interest on all Notes, (iii) the principal of and premium, if any, 80 on any Notes which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Notes, and (iv) to the extent that payment of such interest is lawful, interest upon overdue interest and overdue principal at the rate borne by the Notes which has become due otherwise than by such declaration of acceleration; (b) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction; and (c) all Events of Default, other than the non-payment of principal of, premium, if any, and interest on the Notes that has become due solely by such declaration of acceleration, have been cured or waived. The holders of not less than a majority in aggregate principal amount of the outstanding Notes may on behalf of the holders of all the Notes waive any past defaults under the Indenture, except a default in the payment of the principal of, premium, if any, or interest on any Note, or in respect of a covenant or provision which under the Indenture cannot be modified or amended without the consent of the holder of each Note outstanding. No holder of any of the Notes has any right to institute any proceeding with respect to the Indenture or any remedy thereunder, unless the holders of at least 25% in aggregate principal amount of the outstanding Notes have made written request, and offered reasonable indemnity, to the Trustee to institute such proceeding as Trustee under the Notes and the Indenture, the Trustee has failed to institute such proceeding within 45 days after receipt of such notice and the Trustee, within such 45-day period, has not received directions inconsistent with such written request by holders of a majority in aggregate principal amount of the outstanding Notes. Such limitations do not apply, however, to a suit instituted by a holder of a Note for the enforcement of the payment of the principal of, premium, if any, or interest on such Note on or after the respective due dates expressed in such Note. During the existence of an Event of Default, the Trustee is required to exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise thereof as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. Subject to the provisions of the Indenture relating to the duties of the Trustee, whether or not an Event of Default shall occur and be continuing, the Trustee under the Indenture is not under any obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the holders unless such holders shall have offered to the Trustee reasonable security or indemnity. Subject to certain provisions concerning the rights of the Trustee, the holders of a majority in aggregate principal amount of the outstanding Notes have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee under the Indenture. If a Default or an Event of Default occurs and is continuing and is known to the Trustee, the Trustee shall mail to each holder of the Notes notice of the Default or Event of Default within 30 days after obtaining knowledge thereof. Except in the case of a Default or an Event of Default in payment of principal of, premium, if any, or interest on any Notes, the Trustee may withhold the notice to the holders of such Notes if a committee of its trust officers in good faith determines that withholding the notice is in the interest of the Noteholders. The Company is required to furnish to the Trustee annual and quarterly statements as to the performance by the Company of its obligations under the Indenture and as to any default in such performance. The Company is also required to notify the Trustee within five days of any event which is, or after notice or lapse of time or both would become, an Event of Default. NO LIABILITY FOR CERTAIN PERSONS No director, officer, employee or stockholder of the Company, nor any director, officer or employee of any Guarantor, as such, will have any liability for any obligations of the Company or any Guarantor under the Notes, the Guarantees or the Indenture based on or by reason of such obligations or their creation. Each holder by accepting a Note waives and releases all such liability. The foregoing waiver and release are an integral part of the consideration for the issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws. 81 DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE The Company may, at its option and at any time, terminate the obligations of the Company with respect to the outstanding Notes ("defeasance") to the extent set forth below. Such defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, except for (i) the rights of holders of outstanding Notes to receive payment in respect of the principal of, premium, if any, and interest on such Notes when such payments are due, (ii) the Company's obligations to issue temporary Notes, register the transfer or exchange of any Notes, replace mutilated, destroyed, lost or stolen Notes and maintain an office or agency for payments in respect of the Notes, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and (iv) the defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to terminate the obligations of the Company with respect to certain covenants that are set forth in the Indenture, some of which are described under "--Certain Covenants" above, and any subsequent failure to comply with such obligations shall not constitute a Default or an Event of Default with respect to the Notes ("covenant defeasance"). In order to exercise either defeasance or covenant defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the holders of the Notes, cash in United States dollars, U.S. Government Obligations (as defined in the Indenture), or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Notes to redemption or maturity (except lost, stolen or destroyed Notes which have been replaced or paid); (ii) the Company shall have delivered to the Trustee an opinion of counsel to the effect that the holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance or covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance or covenant defeasance had not occurred (in the case of defeasance, such opinion must refer to and be based upon a ruling of the Internal Revenue Service or a change in applicable federal income tax laws); (iii) no Default or Event of Default shall have occurred and be continuing on the date of such deposit; (iv) such defeasance or covenant defeasance shall not cause the Trustee to have a conflicting interest with respect to any securities of the Company; (v) such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, any agreement or instrument to which the Company is a party or by which it is bound; (vi) the Company shall have delivered to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (vii) the Company shall have delivered to the Trustee an officers' certificate stating that the deposit was not made by the Company with the intent of preferring the holders of the Notes over the other creditors of the Company with the intent of hindering, delaying or defrauding creditors of the Company or others; (viii) no event or condition shall exist that would prevent the Company from making payments of the principal of, premium, if any, and interest on the Notes on the date of such deposit or at any time ending on the 91st day after the date of such deposit; and (ix) the Company shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent under the Indenture to either defeasance or covenant defeasance, as the case may be, have been complied with. SATISFACTION AND DISCHARGE The Indenture will be discharged and will cease to be of further effect (except as to surviving rights or registration of transfer or exchange of the Notes, as expressly provided for in the Indenture) as to all outstanding Notes when (i) either (a) all the Notes theretofore authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or repaid and Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the Trustee for cancellation or (b) all Notes not theretofore delivered to the Trustee for cancellation (except lost, stolen or destroyed Notes which have been replaced or paid) have become due and payable and the Company has irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay and discharge the entire Indebtedness on the Notes not theretofore delivered to the 82 Trustee for cancellation, for principal of, premium, if any, and interest on the Notes to the date of deposit together with irrevocable instructions from the Company directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; (ii) the Company has paid all other sums payable under the Indenture by the Company; and (iii) the Company has delivered to the Trustee an officers' certificate and an opinion of counsel stating that all conditions precedent under the Indenture relating to the satisfaction and discharge of the Indenture have been complied with. AMENDMENTS AND WAIVERS From time to time, the Company, when authorized by a resolution of its Board of Directors, and the Trustee may, without the consent of the holders of any outstanding Notes, amend, waive or supplement the Indenture or the Notes for certain specified purposes, including, among other things, curing ambiguities, defects or inconsistencies, qualifying, or maintaining the qualification of, the Indenture under the Trust Indenture Act, or making any change that does not adversely affect the rights of any holder of Notes. Other amendments and modifications of the Indenture or the Notes may be made by the Company and the Trustee with the consent of the holders of not less than a majority of the aggregate principal amount of the outstanding Notes; provided, however, that no such modification or amendment may, without the consent of the holder of each outstanding Note affected thereby, (i) reduce the principal amount of, extend the fixed maturity of or alter the redemption provisions of, the Notes, (ii) change the currency in which any Notes or any premium or the interest thereon is payable, (iii) reduce the percentage in principal amount of outstanding Notes that must consent to an amendment, supplement or waiver or consent to take any action under the Indenture or the Notes, (iv) impair the right to institute suit for the enforcement of any payment on or with respect to the Notes, (v) waive a default in payment with respect to the Notes, (vi) amend, change or modify the obligation of the Company to make and consummate a Change of Control Offer in the event of a Change of Control or make and consummate the offer with respect to any Asset Sale or modify any of the provisions or definitions with respect thereto, (vii) reduce or change the rate or time for payment of interest on the Notes or (viii) to modify or change any provision of the Indenture affecting the ranking of the Notes in a manner adverse to the holders of the Notes. THE TRUSTEE The Indenture provides that, except during the continuance of an Event of Default, the Trustee thereunder will perform only such duties as are specifically set forth in the Indenture. If an Event of Default has occurred and is continuing, the Trustee will exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. The Indenture and provisions of the Trust Indenture Act incorporated by reference therein contain limitations on the rights of the Trustee thereunder, should it become a creditor of the Company, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claims, as security or otherwise. The Trustee is permitted to engage in other transactions; provided, however, that if it acquires any conflicting interest (as defined in such Act) it must eliminate such conflict or resign. GOVERNING LAW The Indenture and the Notes will be governed by the laws of the State of New York, without regard to the principles of conflicts of law. CERTAIN DEFINITIONS "Acquired Indebtedness" means Indebtedness of a person (a) assumed in connection with an Asset Acquisition from such person or (b) existing at the time such person becomes a Subsidiary of any other person and not incurred in connection with, or in contemplation of, such Asset Acquisition or such person becoming a Subsidiary. 83 "Affiliate" means, with respect to any specified person, (i) any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person, (ii) any other person that owns, directly or indirectly, 10% or more of such specified person's Capital Stock, or (iii) any officer or director of (A) any such specified person, (B) any Subsidiary of such specified person or (C) any person described in clauses (i) or (ii) above. "Asset Acquisition" means (a) an Investment by the Company or any Restricted Subsidiary of the Company in any other person pursuant to which such person shall become a Restricted Subsidiary of the Company or any Restricted Subsidiary of the Company, or shall be merged with or into the Company or any Restricted Subsidiary of the Company, or (b) the acquisition by the Company or any Restricted Subsidiary of the Company of the assets of any person which constitute all or substantially all of the assets of such person, any division or line of business of such person or any other properties or assets of such person other than in the ordinary course of business. "Asset Sale" means any sale, issuance, conveyance, transfer, lease or other disposition by the Company or any Restricted Subsidiary of the Company to any person other than the Company or a Restricted Subsidiary of the Company, of (a) any Capital Stock of any Restricted Subsidiary of the Company; (b) all or substantially all of the properties and assets of any division or line of business of the Company or any Restricted Subsidiary of the Company; or (c) any other properties or assets of the Company or any Restricted Subsidiary of the Company, other than (i) sales of obsolete, damaged or used equipment or other equipment or inventory sales in the ordinary course of business, (ii) sales of assets in one or a series of related transactions for an aggregate consideration of less than $1 million, (iii) sales of Permitted Investments, and (iv) sales of accounts receivable for financing purposes. For the purposes of this definition, the term "Asset Sale" shall not include any sale, issuance, conveyance, transfer, lease or other disposition of properties or assets that is governed by the provisions described under "--Consolidation, Merger, Sale of Assets, Etc." "Average Life to Stated Maturity" means, with respect to any Indebtedness, as at any date of determination, the quotient obtained by dividing (i) the sum of the products of (a) the number of years from such date to the date or dates of each successive scheduled principal payment (including, without limitation, any sinking fund requirements) of such Indebtedness and (b) the amount of each such principal payment by (ii) the sum of all such principal payments. "Board of Directors" means the board of directors of a company or its equivalent, including managers of a limited liability company, general partners of a partnership or trustees of a business trust, or any duly authorized committee thereof. "Capital Stock" means, with respect to any person, any and all shares, interests, participations, rights in or other equivalents (however designated) of such person's capital stock or equity participations, and any rights (other than debt securities convertible into capital stock), warrants or options exchangeable for or convertible into such capital stock and, including, without limitation, with respect to partnerships, limited liability companies or business trusts, ownership interests (whether general or limited) and any other interest or participation that confers on a person the right to receive a share of the profits and losses of, or distributions of assets of, such partnerships, limited liability companies or business trusts. "Capitalized Lease Obligation" means any obligation under a lease of (or other agreement conveying the right to use) any property (whether real, personal or mixed) that is required to be classified and accounted for as a capital lease obligation under GAAP, and, for the purpose of the Indenture, the amount of such obligation at any date shall be the capitalized amount thereof at such date, determined in accordance with GAAP. "Cash Equivalents" means, at any time, (i) any evidence of Indebtedness, 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 rated at least A-1 by Standard & Poor's Ratings Group or P-1 by Moody's Investors Service, Inc., (c) any certificate of 84 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 million, (d) any repurchase agreement entered into with any 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 commercial banking institution thereunder, (e) investments in short term asset management accounts managed by any bank party to the Credit Facility which are invested in indebtedness of any state or municipality of the United States or of the District of Columbia and which are rated under one of the two highest ratings then obtainable from Standard & Poor's Ratings Group or by Moody's Investors Service, Inc. or investments of the types described in clauses (a) through (d) above, and (f) investments in funds investing primarily in investments of the types described in clauses (a) through (e) above. "Change of Control" means the occurrence of any of the following events: (a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), excluding Permitted Holders, is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the total Voting Stock of the Company; provided, however, that a "Change of Control" shall not be deemed to have occurred under this subclause (a) unless the Permitted Holders do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors of the Company; (b) the Company consolidates with, or merges with or into, another person or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any person, or any person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which the outstanding Voting Stock of the Company is converted into or exchanged for cash, securities or other property, other than any such transaction where (i) the outstanding Voting Stock of the Company is converted into or exchanged for Voting Stock (other than Redeemable Capital Stock) of the surviving or transferee corporation and (ii) immediately after such transaction no "person" or "group" (as such terms are used in Section 13(d) and 14(d) of the Exchange Act), excluding Permitted Holders, is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the total Voting Stock of the surviving or transferee corporation; (c) during any consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of 66-2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; or (d) the Company is liquidated or dissolved or adopts a plan of liquidation; provided, however, that a transaction effected to create a holding company of the Company, pursuant to which the Company becomes a wholly-owned Subsidiary of such holding company, and as a result of which the holders of Voting Stock of such holding company upon consummation of such transaction are substantially the same as the holders of the Voting Stock of the Company immediately prior to such transaction, shall not be deemed to involve a "Change of Control." "Common Stock" means the common stock of the Company, par value $.01 per share. "Consolidated Cash Flow Available for Fixed Charges" means, with respect to any person for any period, (i) the sum of, without duplication, the amounts for such period, taken as a single accounting period, of (a) Consolidated Net Income, (b) Consolidated Non-cash Charges, (c) Consolidated Interest Expense, (d) Consolidated Income Tax Expense (other than income tax expense (either positive or negative) attributable to extraordinary gains or losses), (e) one- third of Consolidated Rental Payments and (f) if any Asset Sale or Asset 85 Acquisition shall have occurred since the first day of any four quarter period for which "Consolidated Cash Flow Available for Fixed Charges" is being calculated (including to the date of calculation) (A) the cost of any compensation, remuneration or other benefit paid or provided to any employee, consultant, Affiliate or equity owner of the entity involved in any such Asset Acquisition to the extent such costs are eliminated or reduced (or public announcement has been made of the intent to eliminate or reduce such costs) prior to the date of such calculation and not replaced and (B) the amount of any reduction in general, administrative or overhead costs of the entity involved in any such Asset Acquisition, to the extent such amounts under clauses (A) and (B) would be permitted to be eliminated in a pro forma income statement prepared in accordance with Rule 11-02 of Regulation S-X, less (ii)(x) non-cash items increasing Consolidated Net Income and (y) all cash payments during such period relating to non-cash charges that were added back in determining Consolidated Cash Flow Available for Fixed Charges in the most recent Four Quarter Period. "Consolidated Fixed Charge Coverage Ratio" means, with respect to any person, the ratio of the aggregate amount of Consolidated Cash Flow Available for Fixed Charges of such person for the four full fiscal quarters, treated as one period, for which financial information in respect thereof is available immediately preceding the date of the transaction (the "Transaction Date") giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (such four full fiscal quarter period being referred to herein as the "Four Quarter Period") to the aggregate amount of Consolidated Fixed Charges of such person for the Four Quarter Period. In calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (i) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; and (ii) if interest on any Indebtedness actually incurred on the Transaction Date may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rates, then the interest rate in effect on the Transaction Date will be deemed to have been in effect during the Four Quarter Period. If such person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third person, the above clause shall give effect to the incurrence of such guaranteed Indebtedness as if such person or such Subsidiary had directly incurred or otherwise assumed such guaranteed Indebtedness. "Consolidated Fixed Charges" means, with respect to any person for any period, the sum of, without duplication, the amounts for such period of (i) Consolidated Interest Expense, (ii) the aggregate amount of dividends and other distributions paid or accrued during such period in respect of Redeemable Capital Stock of such person and its Restricted Subsidiaries on a consolidated basis and (iii) one-third of Consolidated Rental Payments. "Consolidated Income Tax Expense" means, with respect to any person for any period, the provision for federal, state, local and foreign income taxes of such person and its Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Interest Expense" means, with respect to any person for any period, without duplication, the sum of (i) the interest expense of such person and its Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP, including, without limitation, (a) any amortization of debt discount, (b) the net cost under Interest Rate Protection Obligations (including any amortization of discounts), (c) the interest portion of any deferred payment obligation, (d) all commissions, discounts and other fees and charges owed with respect to letters of credit, bankers' acceptance financing or similar facilities and (e) all accrued interest and (ii) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such person and its Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means, with respect to any person, for any period, the consolidated net income (or loss) of such person and its Restricted Subsidiaries for such period as determined in accordance with GAAP, adjusted, to the extent included in calculating such net income, by excluding, without duplication, (i) all 86 extraordinary gains or losses (net of fees and expenses relating to the transaction giving rise thereto), (ii) the portion of net income of such person and its Restricted Subsidiaries allocable to minority interests in unconsolidated persons or to Investments in Unrestricted Subsidiaries to the extent that cash dividends or distributions have not actually been received by such person or one of its Restricted Subsidiaries, (iii) net income (or loss) of any person combined with such person or one of its Restricted Subsidiaries on a "pooling of interests" basis attributable to any period prior to the date of combination, (iv) gains or losses in respect of any Asset Sales by such person or one of its Restricted Subsidiaries (net of fees and expenses relating to the transaction giving rise thereto), on an after-tax basis, (v) the net income of any Restricted Subsidiary of such person to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is not at the time permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulations applicable to that Restricted Subsidiary or its stockholders and (vi) any gain or loss realized as a result of the cumulative effect of a change in accounting principles. "Consolidated Non-cash Charges" means, with respect to any person for any period, the aggregate depreciation, amortization (including amortization of goodwill and other intangibles) and other non-cash expenses of such person and its Restricted Subsidiaries reducing Consolidated Net Income of such person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP (excluding any such charges constituting an extraordinary item or loss). "Consolidated Rental Payments" of any person means, for any period, the aggregate rental obligations of such person and its Restricted Subsidiaries (not including taxes, insurance, maintenance and similar expenses that the lessee is obligated to pay under the terms of the relevant leases), determined on a consolidated basis in accordance with GAAP, payable in respect of such period (net of income from subleases thereof, not including taxes, insurance, maintenance and similar expenses that the sublessee is obligated to pay under the terms of such sublease), whether or not such obligations are reflected as liabilities or commitments on a consolidated balance sheet of such person and its Restricted Subsidiaries or in the notes thereto, excluding, however, in any event, (i) that portion of Consolidated Interest Expense of such person representing payments by such person or any of its Restricted Subsidiaries in respect of Capitalized Lease Obligations (net of payments to such person or any of its Restricted Subsidiaries under subleases qualifying as capitalized lease subleases to the extent that such payments would be deducted in determining Consolidated Interest Expense) and (ii) the aggregate amount of amortization of obligations of such person and its Restricted Subsidiaries in respect of such Capitalized Lease Obligations for such period (net of payments to such person or any of its Restricted Subsidiaries and subleases qualifying as capitalized lease subleases to the extent that such payments could be deducted in determining such amortization amount). "control" when used with respect to any specified person means the power to direct the management and policies of such person, directly or indirectly, whether through ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Credit Facility" means the Third Amended and Restated Credit Agreement dated as of May 12, 1998 among the Company, United Rentals of Canada, Inc., various financial institutions, BankBoston, N.A., Comerica Bank, Credit Lyonnais New York Branch, Deutsche Bank AG and Fleet Bank N.A., as Co-Agents, Bank of America Canada, as Canadian Agent, and Bank of America National Trust and Savings Association, as U.S. Agent, including any notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended (including any amendment and restatement thereof), modified, renewed, refunded, replaced or refinanced from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including increasing the amount of available borrowings thereunder or adding Subsidiaries of the Company as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agents, lender or group of lenders. "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default. 87 "Disinterested Member of the Board of Directors of the Company" means, with respect to any transaction or series of transactions, a member of the Board of Directors of the Company other than a member who has any material direct or indirect financial interest in or with respect to such transaction or series of transactions or is an Affiliate, or an officer, director or an employee of any person (other than the Company) who has any direct or indirect financial interest in or with respect to such transaction or series of transactions. "Event of Default" has the meaning set forth under "--Events of Default" herein. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fair Market Value" means, with respect to any asset, the price which could be negotiated in an arm's- length free market transaction, for cash, between a willing seller and a willing buyer, neither of which is under pressure or compulsion to complete the transaction. Fair Market Value shall be determined by the Board of Directors of the Company in good faith. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States of America, which are applicable at the date of the Indenture. "guarantee" means, as applied to any obligation, (i) a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of such obligation and (ii) an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of nonperformance) of all or any part of such obligation, including, without limiting the foregoing, the payment of amounts available to be drawn down under letters of credit of another person. "Indebtedness" means, with respect to any person, without duplication, (a) all liabilities of such person for borrowed money or for the deferred purchase price of property or services, excluding any trade payables and other accrued current liabilities incurred in the ordinary course of business, but including, without limitation, all obligations, contingent or otherwise, of such person in connection with any letters of credit, banker's acceptance or other similar credit transaction, (b) all obligations of such person evidenced by bonds, notes, debentures or other similar instruments, (c) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such person (even if the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), but excluding trade accounts payable arising in the ordinary course of business, (d) all Capitalized Lease Obligations of such person, (e) all Indebtedness referred to in the preceding clauses of other persons and all dividends of other persons, the payment of which is secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon property (including, without limitation, accounts and contract rights) owned by such person, even though such person has not assumed or become liable for the payment of such Indebtedness (the amount of such obligation being deemed to be the lesser of the value of such property or asset or the amount of the obligation so secured), (f) all guarantees of Indebtedness referred to in this definition by such person, (g) all Redeemable Capital Stock of such person valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued dividends, (h) all obligations under or in respect of Interest Rate Protection Obligations of such person, and (i) any amendment, supplement, modification, deferral, renewal, extension, refinancing or refunding of any liability of the types referred to in clauses (a) through (h) above; provided, however, that Indebtedness shall not include (i) any holdback or escrow of the purchase price of property, services, businesses or assets or (ii) any contingent payment obligations incurred in connection with the acquisition of assets or businesses, which are contingent on the performance of the assets or businesses so acquired. For purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on any date on which Indebtedness shall be 88 required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the fair market value of such Redeemable Capital Stock, such fair market value shall be approved in good faith by the board of directors of the issuer of such Redeemable Capital Stock. In the case of Indebtedness of other persons, the payment of which is secured by a Lien on property owned by a person as referred to in clause (e) above, the amount of the Indebtedness of such person attributable to such Lien at any date shall be the lesser of the Fair Market Value at such date of any asset subject to such Lien and the amount of the Indebtedness secured. "Interest Rate Protection Agreement" means, with respect to any person, any arrangement with any other person whereby, directly or indirectly, such person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include without limitation, interest rate swaps, caps, floors, collars and similar agreements. "Interest Rate Protection Obligations" means the obligations of any person pursuant to any Interest Rate Protection Agreements. "Investment" means, with respect to any person, any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any other person. "Lien" means any mortgage, charge, pledge, lien (statutory or other), security interest, hypothecation, assignment for security, claim, or preference or priority or other encumbrance upon or with respect to any property of any kind. A person shall be deemed to own subject to a Lien any property which such person has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement. "Maturity Date" means June 1, 2008. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds thereof in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (except to the extent that such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary of the Company) net of (i) brokerage commissions and other fees and expenses (including, without limitation, fees and expenses of legal counsel and investment bankers, recording fees, transfer fees and appraisers' fees) related to such Asset Sale, (ii) provisions for all taxes payable as a result of such Asset Sale, (iii) amounts required to be paid to any person (other than the Company or any Restricted Subsidiary of the Company) owning a beneficial interest in the assets subject to the Asset Sale (iv) payments made to retire Indebtedness where payment of such Indebtedness is secured by the assets or properties the subject of such Asset Sale, and (v) appropriate amounts to be provided by the Company or any Restricted Subsidiary of the Company, as the case may be, as a reserve required in accordance with GAAP against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary of the Company, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as reflected in an officers' certificate delivered to the Trustee. "Permitted Holder" means Bradley S. Jacobs, John N. Milne, Michael J. Nolan and their respective Affiliates, and trusts established for the benefit of a Permitted Holder or members of his immediate family. "Permitted Indebtedness" means, without duplication: (a) Indebtedness of the Company and the Guarantors evidenced by up to $200 million principal amount of the Notes and the Guarantees; 89 (b) Indebtedness of the Company and Restricted Subsidiaries under the Credit Facility in an aggregate principal amount at any one time outstanding not to exceed the greater of (i) $450 million or (ii) 100% of Tangible Assets, less, in either case, any amounts permanently repaid in accordance with the covenant described under "--Certain Covenants-- Disposition of Proceeds of Asset Sales"; (c) Indebtedness of the Company or any Restricted Subsidiary outstanding on the Issue Date; (d) Indebtedness of the Company or any Restricted Subsidiary of the Company incurred in respect of performance bonds, bankers' acceptances and letters of credit in the ordinary course of business, including Indebtedness evidenced by letters of credit issued in the ordinary course of business consistent with past practice to support the insurance or self- insurance obligations of the Company or any of its Restricted Subsidiaries (including to secure workers' compensation and other similar insurance coverages), in the aggregate amount not to exceed $10 million at any time; but excluding letters of credit issued in respect of or to secure money borrowed; (e) (i) Interest Rate Protection Obligations of the Company covering Indebtedness of the Company and (ii) Interest Rate Protection Obligations of any Restricted Subsidiary covering Permitted Indebtedness of such Restricted Subsidiary provided that, in the case of either clause (i) or (ii), (x) any Indebtedness to which any such Interest Rate Protection Obligations correspond bears interest at fluctuating interest rates and is otherwise permitted to be incurred under the "Limitation on Indebtedness" covenant and (y) the notional principal amount of any such Interest Rate Protection Obligations that exceeds the principal amount of the Indebtedness to which such Interest Rate Protection Obligations relate shall not constitute Permitted Indebtedness; (f) Indebtedness of a Restricted Subsidiary owed to and held by the Company or another Restricted Subsidiary, except that (i) any transfer of such Indebtedness by the Company or a Restricted Subsidiary (other than to the Company or another Restricted Subsidiary) and (ii) the sale, transfer or other disposition by the Company or any Restricted Subsidiary of the Company of Capital Stock of a Restricted Subsidiary (other than to the Company or a Restricted Subsidiary) which is owed Indebtedness of another Restricted Subsidiary shall, in each case, be an incurrence of Indebtedness by such Restricted Subsidiary subject to the other provisions of the Indenture; (g) Indebtedness of the Company owed to and held by a Restricted Subsidiary which is unsecured and subordinated in right of payment to the payment and performance of the obligations of the Company under the Indenture and the Notes, except that (i) any transfer of such Indebtedness by the Company or a Restricted Subsidiary (other than to another Restricted Subsidiary) and (ii) the sale, transfer or other disposition by the Company or any Restricted Subsidiary of the Company (other than to the Company or a Restricted Subsidiary) of Capital Stock of a Restricted Subsidiary which is owed Indebtedness of the Company shall, in each case, be an incurrence of Indebtedness by the Company, subject to the other provisions of the Indenture; (h) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within five business days of incurrence; (i) Indebtedness of the Company or any Restricted Subsidiary under equipment purchase or lines of credit or for Capitalized Lease Obligations not to exceed $25 million in aggregate principal amount outstanding at any time; (j) Indebtedness of the Company or any Restricted Subsidiary, in addition to that described in clauses (a) through (i) of this definition, in an aggregate principal amount outstanding at any time not to exceed $15 million; (k) (i) Indebtedness of the Company the proceeds of which are used solely to refinance (whether by amendment, renewal, extension or refunding) Indebtedness of the Company or any of its Restricted Subsidiaries and (ii) Indebtedness of any Restricted Subsidiary of the Company the proceeds of which are 90 used solely to refinance (whether by amendment, renewal, extension or refunding) Indebtedness of such Restricted Subsidiary, provided, however, that (x) the principal amount of Indebtedness incurred pursuant to this clause (k) (or, if such Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the maturity thereof, the original issue price of such Indebtedness) shall not exceed the sum of principal amount of Indebtedness so refinanced, plus the amount of any premium required to be paid in connection with such refinancing pursuant to the terms of such Indebtedness or the amount of any premium reasonably determined by the Company as necessary to accomplish such refinancing by means of a tender offer or privately negotiated purchase, plus the amount of expenses in connection therewith, and (y) in the case of Indebtedness incurred by the Company pursuant to this clause (k) to refinance Subordinated Indebtedness, such Indebtedness (A) has no scheduled principal payment prior to the 91st day after the Maturity Date, (B) has an Average Life to Stated Maturity greater than the remaining Average Life to Stated Maturity of the Notes and (C) is subordinated to the Notes in the same manner and to the same extent that the Subordinated Indebtedness being refinanced is subordinated to the Notes; (l) Indebtedness arising from agreements of the Company or any Restricted Subsidiary providing for indemnification, adjustment or holdback of purchase price or similar obligations, in each case, incurred or assumed in connection with the acquisition or disposition of any business, assets or a Subsidiary, other than guarantees of Indebtedness incurred by any person acquiring all or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition; and (m) Guarantees by the Company or a Restricted Subsidiary of Indebtedness that was permitted to be incurred under the Indenture. "Permitted Investments" means any of the following: (i) Investments in the Company or in a Restricted Subsidiary; (ii) Investments in another person, if as a result of such Investment (A) such other person becomes a Restricted Subsidiary or (B) such other person is merged or consolidated with or into, or transfers or conveys all or substantially all of its assets to the Company or a Restricted Subsidiary; (iii) Investments representing Capital Stock or obligations issued to the Company or any of its Restricted Subsidiaries in settlement of claims against any other person by reason of a composition or readjustment of debt or a reorganization of any debtor of the Company or such Restricted Subsidiary; (iv) Investments in Interest Rate Protection Agreements on commercially reasonable terms entered into by the Company or any of its Subsidiaries in the ordinary course of business in connection with the operations of the business of the Company or its Restricted Subsidiaries to hedge against fluctuations in interest rates on its outstanding Indebtedness; (v) Investments in the Notes; (vi) Investments in Cash Equivalents; (vii) Investments acquired by the Company or any Restricted Subsidiary in connection with an Asset Sale permitted under "--Certain Covenants--Disposition of Proceeds of Asset Sales" to the extent such Investments are non-cash proceeds as permitted under such covenant; (viii) advances to employees or officers of the Company in the ordinary course of business; (ix) any Investment to the extent that the consideration therefor is Capital Stock (other than Redeemable Capital Stock) of the Company and (x) other Investments not to exceed $5 million at any time outstanding. "Permitted Liens" means the following types of Liens: (a) any Lien existing as of the date of the Indenture; (b) Liens securing Indebtedness under the Credit Facility in accordance with the provisions thereof in effect on the date of the Indenture; (c) any Lien securing Acquired Indebtedness created prior to (and not created in connection with, or in contemplation of) the incurrence of such Indebtedness by the Company or any Restricted Subsidiary, if such Lien does not attach to any property or assets of the Company or any Restricted Subsidiary other than the property or assets subject to the Lien prior to such incurrence; (d) Liens in favor of the Company or a Restricted Subsidiary; (e) Liens on and pledges of the Capital Stock of any Unrestricted Subsidiary securing any Indebtedness of such Unrestricted Subsidiary; 91 (f) Liens for taxes, assessments or governmental charges or claims either (i) not delinquent or (ii) contested in good faith by appropriate proceedings and as to which the Company or its Restricted Subsidiaries shall have set aside on its books such reserves as may be required pursuant to GAAP; (g) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; (h) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (i) judgment Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; (j) easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; (k) any interest or title of a lessor under any Capitalized Lease Obligation or operating lease; (l) purchase money Liens to finance property or assets of the Company or any Restricted Subsidiary of the Company acquired in the ordinary course of business; provided, however, that (i) the related purchase money Indebtedness shall not be secured by any property or assets of the Company or any Subsidiary of the Company other than the property and assets so acquired and (ii) the Lien securing such Indebtedness shall be created within 90 days of such acquisition; (m) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof; (n) Liens securing refinancing Indebtedness permitted under clause (k) of the definition of "Permitted Indebtedness," provided such Liens do not exceed the Liens replaced in connection with such refinanced Indebtedness; (o) Liens incurred in the ordinary course of business by the Company or any Restricted Subsidiary with respect to obligations that do not exceed $5 million at any time outstanding; (p) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual, or warranty requirements of the Company or any of its Restricted Subsidiaries, including rights of offset and set- off; and (q) Liens securing Interest Rate Protection Obligations which Interest Rate Protection Obligations relate to Indebtedness that is secured by Liens otherwise permitted under this Indenture. "person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Stock," as applied to any person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such person, over shares of Capital Stock of any other class of such person. 92 "Redeemable Capital Stock" means any class or series of Capital Stock that, either by its terms, by the terms of any security into which it is convertible or exchangeable or by contract or otherwise, is or upon the happening of an event or passage of time would be, required to be redeemed prior to the Maturity Date or is redeemable at the option of the holder thereof at any time prior to the Maturity Date, or is convertible into or exchangeable for debt securities at any time prior to the Maturity Date; provided that Capital Stock will not constitute Redeemable Capital Stock solely because the holders thereof have the right to require the Company to repurchase or redeem such Capital Stock upon the occurrence of a Change of Control or an Asset Sale. "Restricted Subsidiary" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "Significant Subsidiary" of any person, as of any date of determination, means a Restricted Subsidiary of such person which would be a significant subsidiary of such person as determined in accordance with the definition in Rule 1-02(w) of Article 1 of Regulation S-X promulgated by the Commission and as in effect on the date of the Indenture. "Stated Maturity" means, when used with respect to any Note or any installment of interest thereon, the date specified in such Note as the fixed date on which the principal of such Note or such installment of interest is due and payable, and when used with respect to any other Indebtedness, means the date specified in the instrument governing such Indebtedness as the fixed date on which the principal of such Indebtedness, or any installment of interest thereon, is due and payable. "Subordinated Indebtedness" means, with respect to the Company, Indebtedness of the Company which is expressly subordinated in right of payment to the Notes. "Subsidiary" means, with respect to any person, (i) a corporation a majority of whose Voting Stock is at the time, directly or indirectly, owned by such person, by one or more Subsidiaries of such person or by such person and one or more Subsidiaries thereof and (ii) any other person (other than a corporation), including, without limitation, a partnership, limited liability company, business trust or joint venture, in which such person, one or more Subsidiaries thereof or such person and one or more Subsidiaries thereof, directly or indirectly, at the date of determination thereof, has at least majority ownership interest entitled to vote in the election of directors, managers or trustees thereof (or other person performing similar functions). For purposes of this definition, any directors' qualifying shares or investments by foreign nationals mandated by applicable law shall be disregarded in determining the ownership of a Subsidiary. "Tangible Assets" means all assets of the Company and its Subsidiaries, excluding all Intangible Assets. For purposes of the foregoing, "Intangible Assets" means goodwill, patents, trade names, trade marks, copyrights, franchises, organization expenses and any other assets properly classified as intangible assets in accordance with GAAP. "Unrestricted Subsidiary" means each Subsidiary of the Company designated as such pursuant to and in compliance with the covenant described under "-- Certain Covenants--Limitation on Designations of Unrestricted Subsidiaries." "Voting Stock" means any class or classes of Capital Stock pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of any person (irrespective of whether or not, at the time, stock of any other class or classes shall have, or might have, voting power by reason of the happening of any contingency). "Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary of the Company of which 100% of the outstanding Capital Stock is owned by the Company or another Wholly-Owned Restricted Subsidiary of the Company. For purposes of this definition, any directors' qualifying shares or investments by foreign nationals mandated by applicable law shall be disregarded in determining the ownership of a Subsidiary. 93 BOOK-ENTRY; DELIVERY AND FORM The Original Notes are represented by two permanent, global notes (the "Original Global Securities"), in definitive, fully registered book-entry form, and the Exchange Notes will be represented by a single, permanent global note (the "Exchange Global Security"), in definitive, fully registered book- entry form. The Original Global Securities are, and the Exchange Global Security will be, registered in the name of a nominee of DTC. Pursuant to procedures established by DTC, interests in the Original Global Securities and the Exchange Global Security (collectively, the "Global Securities") will be shown on, and the transfer of such interest will be effected only through, records maintained by DTC or its nominee (with respect to interest of Participants) and the records of Participants (with respect to interests of persons other than Participants). So long as DTC or its nominee is the registered owner or holder of the Global Securities, DTC or such nominee will be considered the sole owner or holder of the Notes represented by the Global Securities for all purposes under the Indenture and under the Notes represented thereby. No beneficial owner of an interest in the Global Securities will be able to transfer such interest except in accordance with the applicable procedures of DTC in addition to those provided for under the Indenture. The laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interest in a Global Security to such persons will be limited to that extent. Because DTC can act only on behalf of Participants, which in turn act on behalf of Indirect Participants (as defined herein), the ability of a person having beneficial interests in a Global Security to pledge such interests to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests. Payments of the principal of, premium, if any, and interest on the Notes represented by the Global Securities will be made to DTC or its nominee, as the case may be, as the registered owner thereof. None of the Company, the Trustee or any paying agent under the Indenture will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Securities or for maintaining, supervising or reviewing any records relating to such beneficial ownership interest. The Company expects that DTC or its nominee, upon receipt of any payment of the principal of, premium, if any, and interest on the Notes represented by the Global Securities, will credit Participants' accounts with payments in amounts proportionate to their respective beneficial interests in the Global Securities as shown in the records of DTC or its nominee. The Company also expects that payments by Participants to owners of beneficial interests in the Global Securities held through such Participants will be governed by standing instructions and customary practice as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payment will be the responsibility of such Participants. DTC has advised the Company that DTC will take any action permitted to be taken by a Holder of Notes (including the presentation of Notes for exchange as described below) only at the direction of one or more Participants to whose account the DTC interests in the Global Securities are credited and only in respect of the aggregate principal amount as to which such Participant or Participants has or have given such direction. DTC has advised the Company as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its Participants and facilitate the clearance and settlement of securities transactions between Participants through electronic book-entry changes in accounts of its Participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and certain other organizations. Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly ("Indirect Participants"). 94 Although DTC is expected to follow the foregoing procedures in order to facilitate transfers of interests in the Global Securities among Participants of DTC, it is under no obligation to perform such procedures, and such procedures may be discontinued at any time. Neither the Company nor the Trustee will have any responsibility for the performance by DTC or its direct or indirect Participants of their respective obligations under the rules and procedures governing their operations. Interests in the Global Securities will be exchanged for certificated securities if (i) DTC notifies the Company that it is unwilling or unable to continue as depositary for the Global Securities, or DTC ceases to be a "Clearing Agency" registered under the Exchange Act, and a successor depositary is not appointed by the Company within 90 days, or (ii) an Event of Default has occurred and is continuing with respect to the Notes. Upon the occurrence of any of the events described in the preceding sentence, the Company will cause the appropriate certificated securities to be delivered. 95 PLAN OF DISTRIBUTION Any broker-dealer (a "Participating Broker-Dealer") that, pursuant to the Exchange Offer, receives Exchange Notes in exchange for Original Notes that were acquired by it for its own account as a result of market-making activities or other trading activities, will be required to deliver a prospectus meeting the requirements of the Securities Act in connection with any resales by it of any such Exchange Notes. Each Participating Broker-Dealer will be required to acknowledge in the Letter of Transmittal that it will comply with such prospectus delivery requirement in connection with any resale of Exchange Notes. The Letter of Transmittal states that by making such acknowledgment a Participating Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Based on interpretations by the Staff of the Commission set forth in no- action letters issued to third parties, the Company believes that this Prospectus, as it may be amended or supplemented from time to time, may, if permitted by the Company, be used by Participating Broker-Dealers in order to satisfy the prospectus delivery requirements applicable to Participating Broker-Dealers in connection with the resale of Exchange Notes as described above. The Company has agreed in the Registration Rights Agreement that it will use its best efforts to make this Prospectus available to each Participating Broker-Dealer for use in connection with any resales of such Exchange Notes (subject to the right of the Company to restrict the use of this Prospectus under certain circumstances specified in the Registration Rights Agreement). The obligation of the Company to make this Prospectus available as aforesaid will commence on the day that the Exchange Offer is consummated and continue in effect for a 30-day period (the "Broker Prospectus Period"); provided, however, that, if for any day during such period the Company restricts the use of such prospectus, the Broker Prospectus Period shall be extended on a day-for-day basis. See "Description of Registration Rights Agreement." Any sale of Exchange Notes by Participating Broker-Dealers will be for their own account, and the Company will not receive any proceeds of such sales. Participating Broker-Dealers may from time to time sell Exchange Notes that were received by them in the Exchange Offer in one or more transactions in the over-the-counter market, in privately negotiated transactions, through the writing of options on the Exchange Notes or otherwise, and such sales may be made at the market price prevailing at the time of sale, a price related to such prevailing market price or a negotiated price. Such sales of Exchange Notes may be made directly to purchasers or, alternatively, may be offered from time to time through agents, brokers, dealers or underwriters, who may receive compensation in the form of concessions or commissions from the Participating Broker-Dealers or purchasers of the Exchange Notes (which compensation may be in excess of customary commissions). Any agents, brokers or dealers that participate in the distribution of the Exchange Notes may be deemed to be underwriters and any commissions received by them and any profit on the resale of such Exchange Notes sold by them might be deemed to be underwriting discounts and commissions under the Securities Act. During the Broker Prospectus Period, the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any Participating Broker-Dealer that requests such documents (subject to the right of the Company to restrict the use of this Prospectus under certain circumstances specified in the Registration Rights Agreement). Any such requests should be directed to United Rentals, Inc., Attention: Corporate Secretary, Four Greenwich Office Park, Greenwich, Connecticut 06830, telephone: (203) 622-3131. The Company has agreed in the Registration Rights Agreement to indemnify each Participating Broker-Dealer that resells Exchange Notes pursuant to this Prospectus, and their officers, directors and controlling persons, against certain liabilities in connection with the offer and sale of the Exchange Notes, including liabilities under the Securities Act, or to contribute to payments that such Participating Broker-Dealers may be required to make in respect thereof. 96 LEGAL MATTERS Certain legal matters in connection with the issue and sale of the Exchange Notes 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. 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, the financial statements of Mission Valley Rentals, Inc. at June 30, 1996 and 1997 and for the years then ended, the financial statements of Power Rental Co., Inc. at July 31, 1997 and for the year then ended, the combined financial statements of Valley Rentals, Inc. at December 31, 1997 and for the year then ended, the financial statements of Pro Rentals, Inc. at December 31, 1997 and for the year then ended, the combined financial statements of Able Equipment Rental, Inc. at December 31, 1997 and for the year then ended, the combined financial statements of Channel Equipment Holding, Inc. at December 31, 1997 and for the year then ended, and the financial statements of ASC Equipment Company at December 31, 1997 and for the year then ended, appearing in this Registration Statement and Prospectus 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 and October 31, 1996, 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. The financial statements of West Main Rentals & Sales, Incorporated as of December 31, 1997, and the year then ended have been audited by Moss Adams LLP, independent certified public accountants, 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. 97 The financial statements of U.S. Rentals, Inc. as of December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997 included herein have been so included upon reliance on the report of Price Waterhouse LLP, independent accountants given on the authority of said firm as experts in accounting and auditing. The combined financial statements of Equipment Supply Co., Inc. and Affiliates included in this Prospectus and in the Registration Statement have been audited by BDO Seidman, LLP, independent certified public accountants, to the extent and for the periods set forth in their report appearing elsewhere herein and in the Registration Statement, and are included in reliance upon such reports given upon the authority of said firm as experts in auditing and accounting. 98 INDEX TO FINANCIAL STATEMENTS
PAGE ---- I. Pro Forma Consolidated Financial Statements of United Rentals, Inc. Introduction......................................................... F-6 Pro Forma Consolidated Balance Sheets--March 31, 1998 (unaudited).... F-7 Pro Forma Consolidated Statements of Operations for the Three Months Ended March 31, 1998 (unaudited).................................... F-8 Pro Forma Consolidated Statements of Operations for the Year Ended December 31, 1997 (unaudited)....................................... F-9 Pro Forma Consolidated Statements of Operations for the Year Ended December 31, 1996 (unaudited)....................................... F-10 Pro Forma Consolidated Statements of Operations for the Year Ended December 31, 1995 (unaudited)....................................... F-11 Notes to Pro Forma Consolidated Financial Statements................. F-12 II. Consolidated Financial Statements of United Rentals, Inc. Report of Independent Auditors....................................... F-15 Consolidated Balance Sheet--December 31, 1997........................ F-16 Consolidated Statement of Operations for the period from August 14, 1997 (Inception) to December 31, 1997............................... F-17 Consolidated Statement of Stockholders' Equity for the period from August 14, 1997 (Inception) to December 31, 1997.................... F-18 Consolidated Statement of Cash Flows for the period from August 14, 1997 (Inception) to December 31, 1997............................... F-19 Notes to Consolidated Financial Statements........................... F-20 III. Unaudited Consolidated Financial Statements of United Rentals, Inc. Consolidated Balance Sheet--March 31, 1998 (unaudited) and December 31, 1997............................................................ F-28 Consolidated Statement of Operations for the Three Months Ended March 31, 1998 (unaudited)................................................ F-29 Consolidated Statement of Stockholders' Equity for the Three Months Ended March 31, 1998 (unaudited).................................... F-30 Consolidated Statement of Cash Flows for the Three Months Ended March 31, 1998 (unaudited)................................................ F-31 Notes to Unaudited Consolidated Financial Statements................. F-33 IV. Financial Statements of U.S. Rentals, Inc. Report of Independent Accountants.................................... F-36 Balance Sheets--December 31, 1996 and 1997........................... F-37 Statements of Operations for the Years Ended December 31, 1995, 1996 and 1997............................................................ F-38 Statements of Stockholders' Equity for the Years Ended December 31, 1995, 1996 and 1997................................................. F-39 Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997............................................................ F-40 Notes to Financial Statements........................................ F-41 V. Unaudited Financial Statements of U.S. Rentals, Inc. Balance Sheets--March 31, 1998 (unaudited) and December 31, 1997..... F-51 Statements of Operations for the Three Months Ended March 31, 1998 and 1997 (unaudited)................................................ F-52 Statements of Cash Flows for the Three Months Ended March 31, 1998 and 1997 (unaudited)................................................ F-53 Statement of Changes in Stockholders' Equity for the Three Months Ended March 31, 1998 (unaudited).................................... F-54 Notes to Financial Statements........................................ F-55
F-1 VI. Combined Financial Statements of Equipment Supply Co., Inc. and Af- filiates Report of Independent Certified Public Accountants................... F-57 Combined Balance Sheets--December 31, 1997 and 1996 and March 31, 1998 (unaudited).................................................... F-58 Combined Statements of Income for the Years Ended December 31, 1997, 1996 and 1995 and for the Three Months Ended March 31, 1998 and 1997 (unaudited)......................................................... F-59 Combined Statements of Stockholders' Equity for the Years Ended December 31, 1995, 1996 and 1997 and for the Three Months Ended March 31, 1998 (unaudited).......................................... F-60 Combined Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 and for the Three Months Ended March 31, 1998 and 1997 (unaudited)................................................ F-61 Notes to Combined Financial Statements............................... F-62 VII. Consolidated and Combined Financial Statements of Access Rentals, Inc. and subsidiary and affiliate Report of Independent Accountants.................................... F-74 Consolidated and Combined Balance Sheets--March 31, 1996 and 1997 and December 31, 1997 (unaudited)....................................... F-75 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-76 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-77 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-78 Notes to Financial Statements........................................ F-79 VIII. Financial Statements of Power Rental Co., Inc. Report of Independent Auditors....................................... F-89 Balance Sheets--July 31, 1997 and April 30, 1998 (unaudited)......... F-90 Statements of Operations for the Year Ended July 31, 1997 and for the Nine Months Ended April 30, 1997 and 1998 (unaudited)............... F-91 Statements of Stockholders' Equity for the Year Ended July 31, 1997 and for the Nine Months Ended April 30, 1998 (unaudited)............ F-92 Statements of Cash Flows for the Year Ended July 31, 1997 and for the Nine Months Ended April 30, 1997 and 1998 (unaudited)............... F-93 Notes to Financial Statements........................................ F-94 IX. Combined Financial Statements of BNR Group of Companies Report of Independent Auditors....................................... F-100 Combined Balance Sheets--March 31, 1996 and 1997 and December 31, 1997 (unaudited).................................................... F-101 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-102 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-103 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-104 Notes to Combined Financial Statements............................... F-105
F-2 X. Financial Statements of Industrial Lift, Inc. Report of Independent Auditors....................................... F-114 Balance Sheets--December 31, 1996 and 1997 and as of March 31, 1998 (unaudited)......................................................... F-115 Statements of Income and Retained Earnings for the Years Ended December 31, 1996 and 1997 and for the Three Months Ended March 31, 1997 and 1998 (unaudited)........................................... F-116 Statements of Cash Flows for the Years Ended December 31, 1996 and 1997 and for the Three Months Ended March 31, 1997 and 1998 (unaudited)......................................................... F-117 Notes to Financial Statements........................................ F-118 XI. Combined Financial Statements of Able Equipment Rental, Inc. Report of Independent Auditors....................................... F-123 Combined Balance Sheets--December 31, 1997 and February 28, 1998 (unaudited)......................................................... F-124 Combined Statements of Income for the Year Ended December 31, 1997 and for the Two Months Ended February 28, 1997 and 1998 (unaudited)......................................................... F-125 Combined Statements of Stockholders' Equity and Partners' Capital for the Year Ended December 31, 1997 and for the Two Months Ended February 28, 1998 (unaudited)....................................... F-126 Combined Statements of Cash Flows for the Year Ended December 31, 1997 and for the Two Months Ended February 28, 1997 and 1998 (unaudited)......................................................... F-127 Notes to Combined Financial Statements............................... F-128 XII. Combined Financial Statements of Valley Rentals, Inc. Report of Independent Auditors....................................... F-133 Combined Balance Sheets--December 31, 1997 and March 31, 1998 (unaudited)......................................................... F-134 Combined Statements of Income for the Year Ended December 31, 1997 and for the Three Months Ended March 31, 1997 and 1998 (unaudited).. F-135 Combined Statements of Stockholders' Equity and Partners' Capital for the Year Ended December 31, 1997 and for the Three Months Ended March 31, 1998 (unaudited).......................................... F-136 Combined Statements of Cash Flows for the Year Ended December 31, 1997 and for the Three Months Ended March 31, 1997 and 1998 (unaudited)......................................................... F-137 Notes to Combined Financial Statements............................... F-138 XIII. Combined Financial Statements of Channel Equipment Holding, Inc. Report of Independent Auditors....................................... F-142 Combined Balance Sheet--December 31, 1997............................ F-143 Combined Statement of Operations for the Year Ended December 31, 1997................................................................ F-144 Combined Statement of Stockholders' Equity (Deficit) for the Year Ended December 31, 1997............................................. F-145 Combined Statements of Cash Flows for the Year Ended December 31, 1997................................................................ F-146 Notes to Combined Financial Statements............................... F-147 XIV. Financial Statements of West Main Rentals and Sales, Incorporated Independent Auditor's Report......................................... F-151 Balance Sheet--December 31, 1997 and March 31, 1998 (unaudited)...... F-152 Statement of Income for the Year Ended December 31, 1997 and for the Three Months Ended March 31, 1998 and 1997 (unaudited).............. F-153 Statement of Stockholders' Equity for the Year Ended December 31, 1997 and for the Three Months Ended March 31, 1998 (unaudited)...... F-154 Statement of Cash Flows for the Year Ended December 31, 1997 and for the Three Months Ended March 31, 1998 and 1997 (unaudited).......... F-155 Notes to Financial Statements........................................ F-156
F-3 XV. Financial Statements of Mission Valley Rentals, Inc. Report of Independent Auditors....................................... F-162 Balance Sheets--June 30, 1996 and 1997 and December 31, 1997 (unaudited)......................................................... F-163 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-164 Statements of Stockholders' Equity for the Years Ended June 30, 1996 and 1997 and for the Six Months Ended December 31, 1997 (unaudited)......................................................... F-165 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-166 Notes to Financial Statements........................................ F-167 XVI. Financial Statements of Pro Rentals, Inc. Report of Independent Auditors....................................... F-173 Balance Sheet--December 31, 1997..................................... F-174 Statement of Income for the Year Ended December 31, 1997............. F-175 Statement of Stockholders' Equity for the Year Ended December 31, 1997................................................................ F-176 Statement of Cash Flows for the Year Ended December 31, 1997......... F-177 Notes to Financial Statements........................................ F-178 XVII. Financial Statements of ASC Equipment Company Report of Independent Auditors....................................... F-182 Balance Sheet--December 31, 1997..................................... F-183 Statement of Income for the Year Ended December 31, 1997............. F-184 Statement of Stockholders' Equity for the Year Ended December 31, 1997................................................................ F-185 Statement of Cash Flows for the Year Ended December 31, 1997......... F-186 Notes to Financial Statements........................................ F-187 XVIII. Financial Statements of MERCER Equipment Company Independent Auditor's Report......................................... F-190 Balance Sheets--December 31, 1996 and October 24, 1997............... F-191 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-192 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-193 Notes to Financial Statements........................................ F-194 XIX. Consolidated Financial Statements of A&A Tool Rentals & Sales, Inc. and subsidiary Report of Independent Auditors....................................... F-199 Consolidated Balance Sheets--October 31, 1996 and October 19, 1997 and July 31, 1997 (unaudited)....................................... F-200 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-201 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-202 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-203 Notes to Consolidated Financial Statements........................... F-204
F-4 XX. Financial Statements of J&J Rental Services, Inc. Report of Independent Auditors....................................... F-211 Balance Sheets--December 31, 1996 and October 22, 1997 .............. F-212 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-213 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-214 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-215 Notes to Financial Statements........................................ F-216 XXI. Combined Financial Statements of Coran Enterprises, Inc. dba A-1 Rents and Monterey Bay Equipment Rental, Inc. Report of Independent Certified Public Accountants................... F-223 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-224 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-225 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-226 Notes to Combined Financial Statements............................... F-227 XXII. Financial Statements of Bronco Hi-Lift, Inc. Report of Independent Auditors....................................... F-229 Balance Sheets--December 31, 1996 and October 24, 1997 .............. F-230 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-231 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-232 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-233 Notes to Financial Statements........................................ F-234
F-5 UNITED RENTALS, INC. PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The data set forth under the column heading "Pro Forma United Rentals, Inc." in the accompanying unaudited pro forma consolidated balance sheets of the Company give effect to the 34 acquisitions completed by the Company subsequent to March 31, 1998 and the financing thereof, as if all such transactions had occurred on March 31, 1998. The data contained under the column heading "Combined Pro Forma" in such balance sheets gives effect to the foregoing and to completion of the Merger with U.S. Rentals using the "pooling of interests" method of accounting (as described in the notes to the Pro Forma Consolidated Financial Statements). The data set forth under the column heading "Pro Forma United Rentals, Inc." with respect to the three months ended March 31, 1998 and the year ended December 31, 1997, in the accompanying unaudited pro forma consolidated statements of operations of the Company, gives effect to each acquisition completed by the Company after the beginning of the period and the financing thereof, as if all such transactions had occurred at the beginning of the period. The data with respect to such periods set forth under the column heading "Combined Pro Forma" in the accompanying unaudited pro forma consolidated statements of operations of the Company give effect to the foregoing and to completion of the Merger with U.S. Rentals using the "pooling of interests" method of accounting (as described in the notes to the Pro Forma Consolidated Financial Statements). The data set forth under the column heading "Combined Pro Forma" with respect to the year ended December 31, 1996 and the year ended December 31, 1995, in the accompanying unaudited pro forma consolidated statements of operations of the Company, gives effect to completion of the Merger with U.S. Rentals using the "pooling of interests" method of accounting (as described in the notes to the Pro Forma Consolidated Financial Statements). The Company was not in existence during these periods and, accordingly, no historical data of the Company is presented for these periods. 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 (i) the Company's historical Consolidated Financial Statements and related Notes included elsewhere in this Offering Circular and (ii) U.S. Rentals' Consolidated Financial Statements and related Notes included elsewhere in this Offering Circular. F-6 UNITED RENTALS, INC. PRO FORMA CONSOLIDATED BALANCE SHEETS MARCH 31, 1998 (UNAUDITED)
PRO FORMA UNITED PRO FORMA UNITED U.S. COMBINING COMBINED RENTALS, INC. ACQUISITIONS ADJUSTMENTS RENTALS, INC. RENTALS, INC. ADJUSTMENTS PRO FORMA ------------- ------------ ----------- ------------- ------------- ----------- ---------- (IN THOUSANDS) ASSETS Cash and cash equiva- lents.................. $ 54,785 $ 8,334 $ (59,119)(a) $ 4,000 $ 6,344 $ 10,344 Accounts receivable, net.................... 31,443 52,061 83,504 61,533 145,037 Inventory............... 14,934 31,674 46,608 17,234 63,842 Rental equipment, net... 140,744 269,135 14,794 (b) 424,673 441,202 865,875 Property and equipment, net.................... 11,901 28,660 (1,495)(c) 39,066 83,575 122,641 Intangible assets, net.. 186,314 4,803 362,991 (d) 554,108 25,378 579,486 Prepaid expenses and other assets........... 10,006 14,456 24,462 14,656 39,118 -------- -------- --------- ---------- -------- ------- ---------- Total assets......... $450,127 $409,123 $ 317,171 $1,176,421 $649,922 $1,826,343 ======== ======== ========= ========== ======== ======= ========== LIABILITIES AND STOCK- HOLDERS' EQUITY Liabilities Accounts payable, accrued expenses and other current liabilities........... $ 38,455 $ 60,672 $ 99,127 $ 74,744 $60,000 (i) $ 233,871 Debt................... 26,494 240,678 $(240,678)(e) 655,022 280,200 935,222 628,528 (f) Deferred taxes......... 545 545 24,769 25,314 -------- -------- --------- ---------- -------- ------- ---------- Total liabilities.... 65,494 301,350 387,850 754,694 379,713 60,000 1,194,407 -------- -------- --------- ---------- -------- ------- ---------- Stockholders' equity Common stock........... 333 2,973 (2,973)(g) 345 308 (12)(j) 641 12 (h) Additional paid-in capital............... 381,630 3,001 (3,001)(g) 418,712 244,461 12 (j) 663,185 37,082 (h) Retained earnings (deficit)............. 2,670 101,799 (101,799)(g) 2,670 25,440 (60,000)(i) (31,890) -------- -------- --------- ---------- -------- ------- ---------- Total stockholders' equity.............. 384,633 107,773 (70,679) 421,727 270,209 (60,000) 631,936 -------- -------- --------- ---------- -------- ------- ---------- Total liabilities and stockholders' equity.............. $450,127 $409,123 $ 317,171 $1,176,421 $649,922 $ -- $1,826,343 ======== ======== ========= ========== ======== ======= ==========
The accompanying notes are an integral part of these pro forma consolidated financial statements. F-7 UNITED RENTALS, INC. PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
PRO FORMA UNITED PRO FORMA UNITED U.S. COMBINED RENTALS, INC. ACQUISITIONS ADJUSTMENTS RENTALS, INC. RENTALS, INC. PRO FORMA ------------- ------------ ----------- ------------- ------------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues Equipment rentals...... $26,780 $58,256 $85,036 $92,641 $177,677 Sales of equipment and merchandise and other revenue............... 12,410 35,460 47,870 27,877 75,747 ------- ------- ------- ------- ------- -------- Total revenues....... 39,190 93,716 132,906 120,518 253,424 Cost of revenues Cost of equipment rentals, excluding depreciation.......... 11,222 24,787 36,009 55,377 91,386 Rental equipment depreciation.......... 4,584 17,113 $(3,885)(a) 17,812 21,445 39,257 Cost of sales and other operating expenses.............. 9,231 23,439 32,670 17,139 49,809 ------- ------- ------- ------- ------- -------- Total cost of revenues............ 25,037 65,339 (3,885) 86,491 93,961 180,452 ------- ------- ------- ------- ------- -------- Gross profit............ 14,153 28,377 3,885 46,415 26,557 72,972 Selling, general and administrative expenses............... 7,807 27,151 (5,159)(c) 29,596 11,426 41,022 (203)(d) Non-rental depreciation and amortization....... 1,086 1,275 2,341 (e) 4,702 3,800 8,502 ------- ------- ------- ------- ------- -------- Operating income........ 5,260 (49) 6,906 12,117 11,331 23,448 Interest expense........ 1,173 5,090 (5,090)(f) 11,629 3,686 15,315 10,456 (g) Other (income) expense, net.................... (381) (529) (910) (910) ------- ------- ------- ------- ------- -------- Income (loss) before provision for income taxes.................. 4,468 (4,610) 1,540 1,398 7,645 9,043 Provision for income taxes.................. 1,830 (2,718) 1,462 (h) 574 3,073 3,647 ------- ------- ------- ------- ------- -------- Net income (loss)....... $ 2,638 $(1,892) $ 78 $ 824 $ 4,572 $ 5,396 ======= ======= ======= ======= ======= ======== Basic earnings per share.................. $ 0.10 $ 0.02 $ 0.08 ======= ======= ======== Diluted earnings per share.................. $ 0.09 $ 0.02 $ 0.08 ======= ======= ========
The accompanying notes are an integral part of these pro forma consolidated financial statements. F-8 UNITED RENTALS, INC. PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (UNAUDITED)
PRO FORMA UNITED 1997 1998 PRO FORMA UNITED U.S. COMBINED RENTALS, INC. ACQUISITIONS ACQUISITIONS ADJUSTMENTS RENTALS, INC. RENTALS, INC. PRO FORMA ------------- ------------ ------------ ----------- ------------- ------------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues Equipment rentals...... $ 7,019 $32,353 $353,585 $392,957 $340,507 $ 733,464 Sales of equipment and merchandise and other revenue............... 3,614 16,846 192,044 212,504 84,186 296,690 ------- ------- -------- -------- -------- -------- --------- Total revenues........ 10,633 49,199 545,629 605,461 424,693 1,030,154 Cost of revenues Cost of equipment rentals, excluding depreciation.......... 3,203 12,892 125,633 141,728 185,277 327,005 Rental equipment depreciation.......... 1,039 6,871 80,676 $(15,778)(a) 72,808 69,231 142,039 Cost of sales and other operating expenses.... 2,580 12,913 143,161 (72)(b) 158,582 52,485 211,067 ------- ------- -------- -------- -------- -------- --------- Total cost of revenues............. 6,822 32,676 349,470 (15,850) 373,118 306,993 680,111 ------- ------- -------- -------- -------- -------- --------- Gross profit............ 3,811 16,523 196,159 15,850 232,343 117,700 350,043 Selling, general and administrative expenses............... 3,311 12,021 126,550 (18,056)(c) 123,592 42,597 166,189 (234)(d) Non-rental depreciation and amortization....... 262 472 7,192 11,744 (e) 19,670 11,222 30,892 Termination cost of deferred compensation agreements............. 20,290 20,290 ------- ------- -------- -------- -------- -------- --------- Operating income........ 238 4,030 62,417 22,396 89,081 43,591 132,672 Interest expense........ 454 2,287 28,961 (30,697)(f) 50,985 7,370 58,355 49,980 (g) Other (income) expense, net.................... (270) (382) (5,152) (5,804) 473 (5,331) ------- ------- -------- -------- -------- -------- --------- Income before provision for income taxes....... 54 2,125 38,608 3,113 43,900 35,748 79,648 Provision for income taxes.................. 20 390 6,637 10,952 (h) 17,999 29,407 47,406 ------- ------- -------- -------- -------- -------- --------- Net income.............. $ 34 $ 1,735 $ 31,971 $ (7,839) $ 25,901 $ 6,341 $ 32,242 ======= ======= ======== ======== ======== ======== ========= Basic earnings per share.................. $ 0.00 $ 0.75 $ 0.51 ======= ======== ========= Diluted earnings per share.................. $ 0.00 $ 0.71 $ 0.50 ======= ======== =========
The accompanying notes are an integral part of these pro forma consolidated financial statements. F-9 UNITED RENTALS, INC. PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
COMBINED UNITED U.S. PRO RENTALS, INC. RENTALS, INC. FORMA ------------- ------------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues Equipment rentals................... $257,486 $257,486 Sales of equipment and merchandise and other revenue.................. 48,351 48,351 -------- -------- -------- Total revenues.................... 305,837 305,837 Cost of revenues Cost of equipment rentals, excluding depreciation....................... 136,584 136,584 Rental equipment depreciation....... 56,105 56,105 Cost of sales and other operating expenses........................... 27,532 27,532 -------- -------- -------- Total cost of revenues............ 220,221 220,221 -------- -------- -------- Gross profit.......................... 85,616 85,616 Selling, general and administrative expenses............................. 35,934 35,934 Non-rental depreciation and amortization......................... 7,528 7,528 -------- -------- -------- Operating income...................... 42,154 42,154 Interest expense...................... 8,373 8,373 Other (income) expense, net........... 323 323 -------- -------- -------- Income before provision for income taxes................................ 33,458 33,458 Provision for income taxes............ 374 374 -------- -------- -------- Net income............................ $ 33,084 $ 33,084 ======== ======== ======== Basic earnings per share.............. $ 1.66 ======== Diluted earnings per share............ $ 1.66 ========
The accompanying notes are an integral part of these pro forma consolidated financial statements. F-10 UNITED RENTALS, INC. PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 (UNAUDITED)
COMBINED UNITED RENTALS, INC. U.S. RENTALS, INC. PRO FORMA -------------------- ------------------ --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues Equipment rentals...... $214,849 $214,849 Sales of equipment and merchandise and other revenue............... 27,998 27,998 ------- -------- -------- Total revenues....... 242,847 242,847 Cost of revenues Cost of equipment rentals, excluding depreciation.......... 107,876 107,876 Rental equipment depreciation.......... 43,885 43,885 Cost of sales and other operating expenses.... 16,111 16,111 ------- -------- -------- Total cost of revenues............ 167,872 167,872 ------- -------- -------- Gross profit............. 74,975 74,975 Selling, general and administrative expenses................ 31,440 31,440 Non-rental depreciation and amortization........ 5,513 5,513 ------- -------- -------- Operating income......... 38,022 38,022 Interest expense......... 5,310 5,310 Other (income) expense, net..................... 1,620 1,620 ------- -------- -------- Income before provision for income taxes........ 31,092 31,092 Provision for income taxes................... 468 468 ------- -------- -------- Net income (loss)........ $ 30,624 $ 30,624 ======= ======== ======== Basic earnings per share. $ 1.53 ======== Diluted earnings per $ 1.53 share................... ========
The accompanying notes are an integral part of these pro forma consolidated financial statements. F-11 UNITED RENTALS, INC. NOTES TO COMBINED 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 53 additional companies in the first seven 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 financial data for United Rentals, Inc. and U.S. Rentals, Inc. is derived from the respective historical financial statements of each company. The financial data for each of the acquisitions is derived from the respective historical financial statements of such companies. The results of operations for each acquisition acquired during a period presented includes the results of operations from the beginning of such period through the date of acquisition. 3. ACQUISITIONS Since its formation, the Company has completed a total of 59 acquisitions. These include the acquisition of the six Initial Acquired Companies in October 1997 and the acquisition of 53 additional companies in the elapsed portion of 1998. Based upon management's preliminary estimates, it is estimated that the carrying value of the assets and liabilities of the 34 companies acquired by the Company subsequent to March 31, 1998 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 price of each of the 34 companies acquired by the Company subsequent to March 31, 1998: Purchase price............................................. $484,062,069 Net assets acquired........................................ 107,772,950 Fair value adjustments: Rental equipment......................................... 14,794,218 Property and equipment................................... (1,495,876) ------------ Intangible assets recorded................................. $362,990,777 ============
4. PRO FORMA ADJUSTMENTS Balance sheet adjustments: a. Records the portion of the acquisition consideration and debt repayment paid from available cash on hand. b. 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 acquisition consideration over the estimated fair value of net assets acquired. F-12 e. Records the repayment of indebtedness of the acquired companies. f. Records the portion of the acquisition consideration and debt repayment funded by borrowing under the Company's credit facility, senior subordinated debt and term loan-B. g. Records the elimination of the stockholders' equity of the acquired companies. h. Records the portion of the acquisition consideration paid in the form of Common Stock. i. Records a charge to stockholders' equity and an increase in accrued liabilities for the estimated U.S. Rentals merger costs of $60 million. j. Adjusts the U.S. Rentals stockholders' equity accounts for the merger exchange ratio of 0.9625. 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.............................................. 2-10 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 acquisitions funded through borrowing under the Company's credit facility using a rate per annum of 7%, senior subordinated notes using a rate per annum of 9 1/2% and term loan-B using a rate per annum of 7.6%. h. Records a provision for income taxes at an estimated rate of 41%. F-13 5. EARNINGS PER SHARE Pro forma 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: UNITED RENTALS, INC. PRO FORMA:
THREE MONTHS ENDED YEAR ENDED MARCH 31, 1998 DECEMBER 31, 1997 -------------- ----------------- Basic: Shares outstanding at March 31, 1998.......... 33,313,708 33,313,708 Shares issued for acquisitions subsequent to March 31, 1998............................... 1,191,257 1,191,257 ---------- ---------- 34,504,965 34,504,965 ========== ========== Diluted: Shares outstanding at March 31, 1998.......... 33,313,708 33,313,708 Shares issued for acquisitions subsequent to March 31, 1998............................... 1,191,257 1,191,257 Common stock equivalents (based on the initial public offering price of $13.50 per share for 1997).......... 4,165,446 1,792,942 ---------- ---------- 38,670,411 36,297,907 ========== ==========
COMBINED PRO FORMA:
THREE MONTHS YEARS ENDED DECEMBER 31, ENDED ---------------------------------- MARCH 31, 1998 1997 1996 1995 -------------- ---------- ---------- ---------- Basic: United Rentals Pro Forma.... 34,504,965 34,504,965 U.S. Rentals weighted average shares............. 30,751,868 29,351,715 20,748,975 20,748,975 Reduction of U.S. Rentals shares for exchange ratio.. (1,153,195) (1,100,689) (778,087) (778,087) ---------- ---------- ---------- ---------- 64,103,638 62,755,991 19,970,888 19,970,888 ========== ========== ========== ========== Diluted: United Rentals Pro Forma.... 38,670,411 36,297,907 U.S. Rentals weighted average equivalent shares.. 31,526,109 29,843,752 20,748,975 20,748,975 Reduction of U.S. Rentals shares for exchange ratio.. (1,182,229) (1,119,141) (778,087) (778,087) ---------- ---------- ---------- ---------- 69,014,291 65,022,518 19,970,888 19,970,888 ========== ========== ========== ==========
F-14 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, except for Note 11, as to which the date is July 20, 1998 F-15 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-16 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-17 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-18 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-19 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. F-20 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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. 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. F-21 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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. 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. F-22 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 =========== 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 F-23 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 the Company's 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. 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 =======
F-24 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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. 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). F-25 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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. 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................................................. 18,172,153 =========== 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 F-26 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 53 equipment rental companies (the "Acquisitions") and the aggregate consideration paid by the Company for the Acquisitions was $651.2 million and consisted of approximately $593.7 million in cash, 1,967,733 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 and proceeds from the public offering noted below. On March 11, 1998, the Company completed a public offering of 8,625,000 shares of its Common Stock. Net proceeds of the offering were approximately $207.4 million. The purchase agreement relating to one of the 1997 acquisitions provides that the stock consideration paid by the Company in connection with such acquisition is subject to adjustment based upon the trading price of the Common Stock during the 60-day period commencing December 18, 1997. In accordance with such provision, the Company expects that 137,600 shares of Common Stock issued by the Company in connection with such acquisition will be cancelled. On May 19, 1998, the Company completed an offering of $200,000,000 of 9 1/2% Senior Subordinated Notes due 2008. Net proceeds of the offering were approximately $193.0 million. On June 15, 1998, the Company entered into an Agreement and Plan of Merger with U.S. Rentals, Inc. The Agreement calls for an exchange ratio of 0.9625 shares of the Company's Common Stock for each share of U.S. Rentals Common Stock. The pending Merger is subject to the satisfaction or waiver of a number of conditions, including, but not limited to, the adoption of the Merger Agreement by the stockholders of U.S. Rentals, Inc. and the Company's stockholders. The Company expects the Merger to be completed in the third quarter of 1998. F-27 UNITED RENTALS, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31 DECEMBER 31 1998 1997 ------------ ------------ ASSETS Cash and cash equivalents.......................... $ 54,785,007 $ 68,607,528 Accounts receivable, net of allowance for doubtful accounts of $3,813,000 in 1998 and $1,161,000 in 1997.............................................. 31,443,000 7,494,636 Inventory.......................................... 14,933,813 3,827,446 Prepaid expenses and other assets.................. 10,006,519 2,966,822 Rental equipment, net.............................. 140,743,703 33,407,561 Property and equipment, net........................ 11,900,686 2,272,683 Intangible assets, net of accumulated amortization of $1,235,000 in 1998 and $241,000 in 1997........ 186,314,455 50,533,736 ------------ ------------ $450,127,183 $169,110,412 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable................................. $ 28,149,318 $ 5,697,830 Debt............................................. 26,494,068 1,074,474 Deferred income taxes............................ 544,820 198,249 Accrued expenses and other liabilities........... 10,305,699 4,409,828 ------------ ------------ Total liabilities.............................. 65,493,905 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 in 1998 and 1997, 33,313,708 in 1998 and 23,899,119 in 1997 shares issued and outstanding..................................... 333,137 238,991 Additional paid-in capital....................... 381,629,839 157,457,418 Retained earnings................................ 2,671,973 33,622 Accumulated translation adjustments.............. (1,671) -- ------------ ------------ Total stockholders' equity..................... 384,633,278 157,730,031 ------------ ------------ $450,127,183 $169,110,412 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-28 UNITED RENTALS, INC. CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) Revenues: Equipment rentals............................................... $26,779,850 Sales of rental equipment....................................... 2,983,191 Sales of new equipment, merchandise and other revenues.......... 9,427,125 ----------- Total revenues................................................ 39,190,166 Cost of revenues: Cost of equipment rentals, excluding depreciation............... 11,221,504 Depreciation of rental equipment................................ 4,583,832 Cost of rental equipment sales.................................. 1,639,431 Cost of new equipment and merchandise sales and other operating costs.......................................................... 7,591,891 ----------- Total cost of revenues........................................ 25,036,658 ----------- Gross profit...................................................... 14,153,508 Selling, general and administrative expenses...................... 7,806,931 Non-rental depreciation and amortization.......................... 1,086,424 ----------- Operating income.................................................. 5,260,153 Interest expense.................................................. 1,172,718 Other (income) expense............................................ (380,703) ----------- Income before provision for income taxes.......................... 4,468,138 Provision for income taxes........................................ 1,829,787 ----------- Net income........................................................ $ 2,638,351 =========== Basic earnings per share.......................................... $ 0.10 =========== Diluted earnings per share........................................ $ 0.09 ===========
The accompanying notes are an integral part of these consolidated financial statements. F-29 UNITED RENTALS, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
COMMON STOCK -------------------- NUMBER ADDITIONAL ACCUMULATED OF PAID-IN RETAINED TRANSLATION SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENTS ---------- -------- ------------ ---------- ----------- Balance, December 31, 1997................... 23,899,119 $238,991 $157,457,418 $ 33,622 -- Issuance of common stock.................. 9,537,375 95,374 223,971,193 Translation adjustments............ $(1,671) Conversion of convertible note....... 14,814 148 199,852 Cancellation of common stock.................. (137,600) (1,376) 1,376 Net income.............. 2,638,351 ---------- -------- ------------ ---------- ------- Balance, March 31, 1998................... 33,313,708 $333,137 $381,629,839 $2,671,973 $(1,671) ========== ======== ============ ========== =======
The accompanying notes are an integral part of these consolidated financial statements. F-30 UNITED RENTALS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income..................................................... $ 2,638,351 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................................ 5,670,256 Gain on sale of rental equipment............................. (1,343,760) Deferred taxes............................................... 1,422,898 Changes in operating assets and liabilities: Accounts receivable.......................................... (474,469) Inventory.................................................... (2,918,253) Prepaid expenses and other assets............................ (4,917,023) Accounts payable............................................. 9,560,512 Accrued expenses and other liabilities....................... (2,064,894) ------------- Net cash provided by operating activities.................. 7,573,618 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of rental equipment.................................. (12,860,888) Purchases of property and equipment............................ (5,315,132) Proceeds from sales of rental equipment........................ 2,983,191 In-process acquisition costs................................... (758,771) Purchases of other companies................................... (138,170,090) ------------- Net cash used in investing activities...................... (154,121,690) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock, net of issuance costs.. 206,456,306 Proceeds from debt............................................. 149,576,408 Repayments of debt............................................. (222,652,100) Payment of debt financing costs................................ (655,063) ------------- Net cash provided by financing activities.................. 132,725,551 ------------- Net decrease in cash and cash equivalents...................... (13,822,521) Cash and cash equivalents at beginning of period............... 68,607,528 ------------- Cash and cash equivalents at end of period................. $ 54,785,007 =============
The accompanying notes are an integral part of these consolidated financial statements. F-31 UNITED RENTALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS--CON'T THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) Supplemental disclosure of cash flow information: Cash paid during the period: Interest................................................... $ 1,111,819 ============= Income taxes............................................... $ 106,500 ============= Supplemental disclosure of non cash investing and financing activities: During the period ended March 31, 1998 a convertible note in the principal amount of $200,000 was converted into 14,814 shares of common stock. The Company acquired the net assets and assumed certain liabilities of other companies as follows: Assets, net of cash acquired................................. 279,808,752 Liabilities assumed.......................................... (123,821,390) Less: Amounts paid in common stock and warrants.................. (17,817,272) ------------- Net cash paid............................................ $ 138,170,090 =============
The accompanying notes are an integral part of these consolidated financial statements. F-32 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 1. BASIS OF PRESENTATION The Consolidated Financial Statements of United Rentals, Inc. and its subsidiaries (the "Company") included herein are unaudited and, in the opinion of management, such financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to a fair statement of the results of the interim period presented. Interim financial statements do not require all disclosures normally presented in year-end financial statements, and, accordingly, certain disclosures have been omitted. Results of operations for the three month period ended March 31, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. The Consolidated Financial Statments included herein should be read in conjunction with the Company's Consolidated Financial Statements and related Notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. 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." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in a primary financial statement. The Company adopted SFAS No. 130 during the period ended March 31, 1998. The adoption of SFAS No. 130 did not have a material effect on the consolidated financial position, results of operations or cash flows of the Company. 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. The Company is required to adopt SFAS No. 131 by December 31, 1998. 2. COMMON STOCK On March 11, 1998, the Company completed a public offering of 8,625,000 shares of Common Stock (the "Offering"). The net proceeds to the Company from the Offering were approximately $207.4 million (after deducting the underwriting discount and estimated offering expenses). The Company used $132.7 million of the net proceeds from the Offering to repay all outstanding indebtedness under the Company's credit facility and used the balance of such net proceeds for acquisitions. The purchase agreement relating to the acquisition of one company acquired provides that the stock consideration paid by the Company in connection with such acquisition is subject to adjustment based upon the trading prices of the common stock during the 60-day period which commenced December 18, 1997. In accordance with such provisions, the Company canceled 137,600 shares of common stock issued by the Company in connection with such acquisition. 3. ACQUISITIONS During the three months ended March 31, 1998, the Company completed the acquisition of 19 equipment rental companies having an aggregate of 66 rental locations in 16 states and Ontario, Canada. The aggregate consideration paid by the Company for the acquisitions completed during the three months ended March 31, 1998 was $165.0 million and consisted of approximately $147.2 million in F-33 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) cash, 912,375 shares of Common Stock and warrants to purchase an aggregate of 30,000 shares of Common Stock. In addition, the Company repaid or assumed outstanding indebtedness of the companies acquired during the three months ended March 31, 1998 in the aggregate amount of $98.5 million. The Company also agreed in connection with two of the acquisitions to pay the former owners additional amounts based upon specified future revenues (such amounts being limited to (i) Cdn$4.0 million with respect to one acquisition and (ii) an amount based on the results of a single store with respect to the other acquisition). 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. The Company has not completed its valuation on all of its 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 three months ended March 31, 1998 as though each acquisition described above was made on January 1, 1998.
THREE MONTHS ENDED MARCH 31, 1998 ------------------ Revenues.................................................. $46,616,686 Net income................................................ 2,279,657 Basic earnings per share.................................. 0.09 Diluted earnings per share................................ 0.07
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. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share: Numerator: Net income.................................................... $ 2,638,351 =========== Denominator: Denominator for basic earnings per share--weighted-average shares....................................................... 26,278,462 Effect of dilutive securities: Employee stock options...................................... 434,402 Warrants.................................................... 3,731,044 ----------- Dilutive potential common shares Denominator for diluted earnings per share--adjusted weighted- average shares............................................... 30,443,908 =========== Basic earnings per share........................................ $ 0.10 =========== Diluted earnings per share...................................... $ 0.09 ===========
F-34 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 5. SUBSEQUENT EVENTS Subsequent to March 31, 1998, the Company completed the acquisition of 14 equipment rental companies consisting of 35 rental sites. The aggregate consideration paid by the Company for these acquisitions was $92.5 million and consisted of approximately $85.9 million in cash, and 307,906 shares of Common Stock. The Company also agreed in connection with one of the acquisitions to pay the former owner additional amounts based upon specified future revenues not to exceed $500,000. The Company funded a portion of the cash consideration for these acquisitions with cash on hand and the balance with borrowings under the Company's revolving credit facility. F-35 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF U.S. RENTALS, INC. In our opinion, the accompanying balance sheets and the related statements of operations, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of U.S. Rentals, Inc. at December 31, 1996 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of management of U.S. Rentals, Inc.; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP Sacramento, California January 28, 1998 F-36 U.S. RENTALS, INC. BALANCE SHEETS
DECEMBER 31, --------------------------------- 1996 1997 ---------------- ---------------- (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS Cash and cash equivalents.................... $ 2,906 $ 3,104 Accounts receivable, net..................... 35,653 60,906 Notes receivable from affiliate.............. 25,365 -- Notes receivable, other...................... 563 501 Inventories.................................. 5,841 17,379 Rental equipment, net........................ 205,982 390,598 Property and equipment, net.................. 42,345 78,014 Goodwill, net................................ 1,035 23,114 Prepaid expenses and other assets............ 4,758 12,195 ---------------- ---------------- Total assets............................. $324,448 $585,811 ================ ================ LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and other liabilities....... $ 57,008 $ 75,048 Notes payable to related parties............. 23,943 17,000 Notes payable, other......................... 162,767 203,300 Deferred taxes............................... -- 25,077 ---------------- ---------------- Total liabilities........................ 243,718 320,425 ---------------- ---------------- Commitments and contingencies (Note 8) Stockholders' equity: Common stock, $.01 par value; 100,000,000 shares authorized, 30,748,975 shares is- sued and outstanding...................... -- 307 Common stock at stated value; 2,500 shares authorized, 900 shares issued and out- standing.................................. 699 -- Paid-in capital............................ 13,186 244,211 Retained earnings.......................... 66,845 20,868 ---------------- ---------------- Total stockholders' equity............... 80,730 265,386 ---------------- ---------------- Total liabilities and stockholders' equi- ty...................................... $324,448 $585,811 ================ ================
Please see accompanying notes to financial statements. F-37 U.S. RENTALS, INC. STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, ------------------------------------- 1995 1996 1997 ----------- ----------- ----------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) REVENUES: Rental revenue......................... $ 214,849 $ 257,486 $ 340,507 Rental equipment sales................. 10,832 24,629 38,839 Merchandise and new equipment sales.... 17,166 23,722 45,347 ----------- ----------- ----------- Total revenues........................ 242,847 305,837 424,693 ----------- ----------- ----------- COST OF REVENUES: Rental equipment expense............... 51,370 65,102 87,209 Rental equipment depreciation.......... 43,885 56,105 69,231 Cost of rental equipment sales......... 4,693 10,109 19,065 Cost of merchandise and new equipment sales................................. 11,418 17,423 33,420 Direct operating expense............... 56,506 71,482 98,068 ----------- ----------- ----------- Total cost of revenues................ 167,872 220,221 306,993 ----------- ----------- ----------- Gross profit.......................... 74,975 85,616 117,700 Selling, general and administrative expense............................... 31,440 35,934 42,597 Non-rental depreciation and amortization.......................... 5,513 7,528 11,222 Termination cost of deferred compensation agreements............... -- -- 20,290 ----------- ----------- ----------- Operating income....................... 38,022 42,154 43,591 Interest expense....................... (4,575) (8,373) (6,680) Related party interest (expense) income, net........................... (735) 342 (690) Other expense, net..................... (1,620) (665) (473) ----------- ----------- ----------- Income before income taxes and extraordinary item.................... 31,092 33,458 35,748 Income tax expense..................... 468 374 29,407 ----------- ----------- ----------- Net income before extraordinary item... 30,624 33,084 6,341 Extraordinary item, net of tax benefit of $995............................... -- -- 1,511 ----------- ----------- ----------- Net income............................. $ 30,624 $ 33,084 $ 4,830 =========== =========== =========== Basic net income before extraordinary item per share........................ $ 1.48 $ 1.59 $ .22 =========== =========== =========== Diluted net income before extraordinary item per share........................ $ 1.48 $ 1.59 $ .21 =========== =========== =========== Basic net income per share............. $ 1.48 $ 1.59 $ .17 =========== =========== =========== Diluted net income per share........... $ 1.48 $ 1.59 $ .16 =========== =========== =========== Basic weighted average shares outstanding........................... 20,748,975 20,748,975 29,351,715 =========== =========== =========== Diluted weighted average shares outstanding........................... 20,748,975 20,748,975 29,843,752 =========== =========== =========== UNAUDITED PRO FORMA DATA (NOTE 7): Historical income before income taxes and extraordinary item................ $ 31,092 $ 33,458 $ 35,748 Pro forma income tax expense........... 12,780 13,456 14,371 ----------- ----------- ----------- Pro forma net income before extraordinary item.................... 18,312 20,002 21,377 Extraordinary item, net of benefit of $995.................................. -- -- 1,511 ----------- ----------- ----------- Pro forma net income................... $ 18,312 $ 20,002 $ 19,866 =========== =========== =========== Pro forma basic net income before extraordinary item per share.......... $ .88 $ .96 $ .73 =========== =========== =========== Pro forma diluted net income before extraordinary item per share.......... $ .88 $ .96 $ .72 =========== =========== =========== Pro forma basic net income per share... $ .88 $ .96 $ .68 =========== =========== =========== Pro forma diluted net income per share. $ .88 $ .96 $ .67 =========== =========== ===========
Please see accompanying notes to financial statements. F-38 U.S. RENTALS, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
TOTAL STATED/PAR PAID-IN RETAINED STOCKHOLDERS' SHARES VALUE CAPITAL EARNINGS EQUITY ---------- ---------- --------- -------- ------------- (IN THOUSANDS, EXCEPT SHARE DATA) --------------------------------------------------------- Balance at December 31, 1994................... 900 $ 699 $ 13,186 $ 44,066 $ 57,951 Net income............ -- -- -- 30,624 30,624 Dividends............. -- -- -- (5,498) (5,498) ---------- ----- --------- -------- --------- Balance at December 31, 1995................... 900 699 13,186 69,192 83,077 Net income............ -- -- -- 33,084 33,084 Dividends............. -- -- -- (35,431) (35,431) ---------- ----- --------- -------- --------- Balance at December 31, 1996................... 900 699 13,186 66,845 80,730 Net income............ -- -- -- 4,830 4,830 Recapitalization...... (900) (699) 699 -- -- Distribution of non-op- erating assets, net.... -- -- (4,219) -- (4,219) Dividends paid prior to initial public offering............... -- -- -- (1,905) (1,905) Contribution of earnings to paid-in capital..... -- -- 48,902 (48,902) -- Recapitalization due to initial public offering............... 20,748,975 207 (207) -- -- Initial public offering proceeds, net of issuance cost of $1,550................. 10,000,000 100 185,850 -- 185,950 ---------- ----- --------- -------- --------- Balance at December 31, 1997................... 30,748,975 $ 307 $ 244,211 $ 20,868 $ 265,386 ========== ===== ========= ======== =========
Please see accompanying notes to financial statements. F-39 U.S. RENTALS, INC. STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ---------------------------- 1995 1996 1997 -------- -------- -------- (IN THOUSANDS) OPERATING ACTIVITIES: Net income...................................... $ 30,624 $ 33,084 $ 4,830 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................. 49,398 63,633 80,453 Gain on sale of equipment..................... (6,342) (14,955) (20,692) Principal adjustment on notes receivable...... (220) (572) (146) Provision for doubtful accounts............... 3,441 4,075 7,773 Deferred income taxes......................... -- -- 25,077 Interest income not collected................. -- -- (294) Interest expense not paid..................... -- -- 495 Loss on early extinguishment of debt.......... -- -- 2,506 CHANGES IN OPERATING ASSETS AND LIABILITIES: Accounts receivable............................. (10,526) (9,799) (26,505) Inventories..................................... (1,413) (1,665) (4,989) Prepaid expenses and other assets............... (1,515) (1,466) (8,247) Accounts payable and other liabilities.......... 11,588 597 19,518 -------- -------- -------- Net cash provided by operating activities....... 75,035 72,932 79,779 -------- -------- -------- INVESTING ACTIVITIES: Acquisitions of rental operations............... -- (15,033) (64,076) Purchases of rental equipment................... (88,861) (106,501) (246,631) Proceeds from sale of rental equipment.......... 10,832 24,629 38,839 Purchases of property and equipment, net........ (10,764) (23,068) (45,971) (Funding) collection of notes receivable, net... (1,061) 2,537 122 -------- -------- -------- Net cash used in investing activities........... (89,854) (117,436) (317,717) -------- -------- -------- FINANCING ACTIVITIES: (Payments on) proceeds from line of credit, net. (28,200) 39,553 130,733 Proceeds from (payments on) senior notes........ 50,000 40,000 (92,506) Payments on other obligations, net.............. (718) (191) (138) Proceeds from related party note payable........ -- -- 17,000 Proceeds from issuance of common stock, net of issuance costs................................. -- -- 185,950 Cash retained by the Predecessor in connection with Recapitalization.......................... -- -- (998) Dividends paid.................................. (5,498) (35,431) (1,905) -------- -------- -------- Net cash provided by financing activities....... 15,584 43,931 238,136 -------- -------- -------- Net increase (decrease) in cash and cash equivalents.................................... 765 (573) 198 Cash and cash equivalents at beginning of year.. 2,714 3,479 2,906 -------- -------- -------- Cash and cash equivalents at end of year........ $ 3,479 $ 2,906 $ 3,104 ======== ======== ======== SUPPLEMENTAL NON-CASH FLOW INFORMATION: Net assets retained by the Predecessor in connection with Recapitalization............... $ 3,221 ========
Please see accompanying notes to financial statements. F-40 U.S. RENTALS, INC. NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization U.S. Rentals, Inc. (the "Company") is a Delaware corporation primarily involved in the short-term rental of general purpose construction equipment, and to a lesser extent, selling complementary parts, merchandise, new and used equipment to commercial and residential construction, industrial and homeowner customers. At December 31, 1997, the Company operated 123 equipment rental yards located in 21 states across the United States. Initial public offering The Company's initial public offering ("IPO") was declared effective on February 20, 1997. Prior to the IPO, the equipment rental business was operated by Ayr, Inc. (formerly known as USR Holdings, Inc.), a California corporation (the "Predecessor"). The Company did not have any operations prior to the IPO. Prior to closing of the IPO, the Predecessor transferred substantially all of its operating assets and associated liabilities to the Company for 20,748,975 shares of common stock of the Company, representing all of the outstanding capital stock prior to the IPO. The Predecessor retained only non-operating assets and liabilities, including approximately $25.7 million of notes receivable from an affiliate and $24.4 million of notes payable to related parties. These transactions are referred to as the "Recapitalization" in these financial statements. In conjunction with the Recapitalization, the Predecessor entered into an agreement to terminate deferred compensation agreements with certain executives. The Predecessor borrowed approximately $20.3 million under its bank line of credit to fund the cost of termination. The Company assumed the liability for the indebtedness under the bank line of credit as part of the Recapitalization. The non- recurring cost of the termination was expensed in 1997. Unless otherwise indicated, the Company also refers to the Predecessor prior to the IPO. Related party transactions As disclosed in these financial statements, the Company has participated in certain transactions with related parties during the current and previous years. In the opinion of management, all transactions with related parties have been conducted on terms which are fair and equitable; however, the transactions are not necessarily on the same terms as those which would have been made between wholly unrelated parties. Financial statement presentation The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Rental revenue Rental revenue is recognized upon the earliest occurrence of either the return of the equipment or the end of one month's rental term. Rental equipment Rental equipment is recorded at cost. Depreciation for rental equipment acquired prior to January 1, 1996, is computed using the straight-line method over an estimated five-year useful life with no F-41 U.S. RENTALS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) salvage value. Rental equipment acquired subsequent to January 1, 1996, is depreciated using the straight-line method over an estimated seven-year useful life, after giving effect to an estimated salvage value of 10%. Included in purchases of rental equipment are the costs of minor equipment which are fully depreciated in the month of acquisition. Accumulated depreciation on rental equipment was $161,765,000 and $190,213,000 at December 31, 1996 and 1997, respectively. Ordinary maintenance and repair costs are charged to operations as incurred. When rental equipment is disposed of, the related cost and accumulated depreciation are removed from the respective accounts. Proceeds from the disposal and the related net book value of the equipment are recognized in the period of disposal and reported as revenue from rental equipment sales and cost of rental equipment sales in the statement of operations. Property and equipment Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The estimated useful lives for property and equipment range from 10 to 39 years for buildings; 1 to 8 years for vehicles, delivery and yard equipment; and 5 to 10 years for fixtures and leasehold improvements. Ordinary maintenance and repairs costs are charged to operations as incurred. When property and equipment are disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gains or losses are included in results of operations. Inventories The Company's inventories primarily consist of items such as hand tools and accessories held for resale. Inventories are stated at the lower of cost, determined by the first-in, first-out method, or market. Self-insurance The Company is self-insured for general liability, workers' compensation, and group medical claims up to specified per claim and aggregate amounts. Self-insurance costs are accrued based upon the aggregate liability for reported claims incurred and an estimated liability for claims incurred but not reported. These liabilities are not discounted. Earnings per share Historical earnings per share is presented based on the weighted average number of outstanding common shares, after giving effect to the Recapitalization retroactively for all periods. Pro forma earnings per share is based on the weighted average number of outstanding common shares, after giving effect to the Recapitalization and the pro forma income tax expense as if the Company were a C corporation for all periods presented. Diluted weighted average shares outstanding were calculated using the treasury stock method and exceed basic weighted average shares outstanding by 492,037 due to 3,907,887 dilutive options outstanding at December 31, 1997. Basic and diluted earnings per share attributable to the extraordinary item totaled $.05 for the year ended December 31, 1997. F-42 U.S. RENTALS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Cash and cash equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Fair value of financial instruments The carrying amounts reported in the balance sheets for cash and cash equivalents, trade accounts receivable, and accounts payable and other liabilities approximated fair value due to the immediate short-term maturity of these financial instruments. The fair value of notes receivable and notes payable is determined using current interest rates for similar instruments as of December 31, 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. Concentrations of credit risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of trade accounts receivable from construction and industrial customers. Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of customers and the Company's geographic dispersion. The Company performs credit evaluations of its customers' financial condition and generally does not require collateral on accounts receivable. The Company maintains an allowance for doubtful accounts on its receivables based upon expected collectability. The allowance for doubtful accounts was $6,991,000 and $9,495,000 at December 31, 1996 and 1997, respectively. Advertising costs The Company advertises primarily through trade journals and the media. Advertising costs are expensed as incurred and totaled $3,094,000, $4,200,000, and $6,453,000 for each of the three years in the period ended December 31, 1997. Goodwill Amortization of goodwill is provided on a straight-line basis over forty years. Goodwill is presented net of accumulated amortization of $207,000 and $371,000 at December 31, 1996 and 1997. Long-lived assets Long-lived assets are recorded at the lower of amortized cost or fair value. As part of an ongoing review of the valuation of long-lived assets, management assesses the carrying value of such assets if facts and circumstances suggest they may be impaired. If this review indicates that the carrying value of these assets may not be recoverable, as determined by a nondiscounted cash flow analysis over the remaining useful life, the carrying value would be reduced to its estimated fair value. There have been no material impairments recognized in these financial statements. Income taxes Subsequent to the IPO and Recapitalization, the Company is assessed corporate income taxes for federal and state purposes. Income taxes are recorded under the liability approach; a current or deferred liability or asset is recognized for the current or deferred income tax consequences of all events that have been recorded in the financial statements. F-43 U.S. RENTALS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Prior to the IPO, the Predecessor had elected S corporation status under the U.S. Internal Revenue Code. Pursuant to this election (and similar elections in California and certain other states), the Predecessor's income, deductions, and credits are reported on the income tax return of the Predecessor's stockholder for federal purposes and, accordingly, no provision for federal income taxes has been made. California assesses a corporate level income tax on S corporations, and certain states in which the Predecessor does business do not recognize S corporation status. Therefore, the Predecessor remains subject to, and has made provision for, taxes in those states. Because of the Recapitalization, historical results of operations, including income taxes, are not, in all cases, indicative of future results. The unaudited pro forma income tax provision is computed using the liability approach as if the Company had been a C corporation for all periods presented. Pro forma income tax expense is lower than actual income tax expense in 1997 due to the recognition of a $7,520,000 deferred tax liability upon the Recapitalization and the pro forma benefit from the inclusion in pro forma taxable income of the net loss from January 1, 1997, to the closing date of the IPO attributable to the nonrecurring cost to terminate deferred compensation agreements. Stock Options The Company accounts for its stock option plan in accordance with the intrinsic value method, under which no compensation expense is recognized in the financial statements except where the fair market value of the stock exceeds the exercise price of the options granted on the date of grant. The Company has presented the pro forma disclosures of the compensation expense under the fair value method of Statement of Financial Accounting Standards Number 123 ("SFAS 123") in Note 9. Adoption of new accounting pronouncements In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards Number 128, Earnings per Share ("SFAS 128"), which changed the basis upon which earnings (or loss) per share is calculated. As required by this statement, the Company adopted the provisions of SFAS 128 for the year ended December 31, 1997, and retroactively for each of the preceding years presented in the financial statements. Reclassifications Certain prior year balances have been reclassified to conform to the 1997 presentation. 2. ACQUISITIONS During 1997, the Company acquired the assets of 9 businesses operating 33 rental locations throughout the United States. The acquisitions were financed through borrowings under the Company's line of credit and have been recorded using the purchase method of accounting. The results of operations for each location acquired have been included in the Company's results of operations from their respective acquisition dates. A summary of the purchase price and assets acquired is as follows (in thousands): Rental equipment................................................. $26,877 Inventories...................................................... 6,549 Accounts receivable.............................................. 6,521 Other assets..................................................... 2,704 Goodwill......................................................... 21,425 ------- $64,076 =======
F-4_4 U.S. RENTALS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The following unaudited pro forma data (in thousands) summarizes the results of operations of the periods indicated as if the acquisitions had been completed on January 1, 1996. The pro forma data gives effect to the actual operating results prior to acquisition and adjustments to goodwill. The pro forma results do not purport to be indicative of the results that would have actually been achieved if the acquisitions had occurred on January 1, 1996, or that may be achieved in the future.
1996 1997 -------- -------- (UNAUDITED) Total revenues......................................... $363,848 $459,649 Net income............................................. $ 22,288 $ 23,073
3. NOTES RECEIVABLE FROM AFFILIATE Prior to the Recapitalization, the Predecessor had notes receivable from an affiliate. As discussed in Note l, these notes were retained by the Predecessor. The Company earned interest income from the affiliate of $3,343,000, $3,420,000, and $555,000 for each of the three years in the period ended December 31, 1997, respectively. The notes provide for positive or negative annual adjustments of principal based on the change in the Consumer Price Index, limited to certain percentages of the affiliated entity's cumulative net income from December 31, 1984. The accompanying financial statements include principal adjustments in notes receivable and other income in the amounts of $220,000, $572,000, and $146,000 for each of the three years in the period ended December 31, 1997, respectively. 4. PROPERTY AND EQUIPMENT Property and equipment, net, consists of the following (in thousands):
DECEMBER 31, --------------------- 1996 1997 ------- ------- Land............................................... $14,099 $21,543 Buildings.......................................... 12,806 21,600 Vehicles and delivery equipment.................... 28,000 45,234 Yard equipment..................................... 3,000 3,674 Furniture and fixtures............................. 4,626 7,227 Leaseholds......................................... 8,942 15,666 ------- ------- 71,473 114,944 Less accumulated depreciation...................... (29,128) (36,930) ------- ------- $42,345 $78,014 ======= =======
5. ACCOUNTS PAYABLE AND OTHER LIABILITIES Accounts payable and other liabilities consist of the following (in thousands):
DECEMBER 31, --------------- 1996 1997 ------- ------- Trade payables and other accruals....................... $34,264 $50,716 Profit sharing accrual.................................. 8,742 12,667 Self-insurance reserve.................................. 14,002 11,665 ------- ------- $57,008 $75,048 ======= =======
F-45 U.S. RENTALS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 6. NOTES PAYABLE Notes payable consist of the following (in thousands):
DECEMBER 31, ----------------- 1996 1997 -------- -------- Notes payable to related parties: Subordinated note payable to The Colburn School of Performing Arts, interest payable quarterly at prime rate plus 5%........................................... $ 20,000 $ -- Demand notes payable to related parties, interest at various rates tied to the Predecessor's average bank borrowing rate......................................... 3,943 -- Demand note to majority stockholder, interest payable monthly at a rate tied to the Company's revolving line of credit (5.90% at December 31, 1997)................. -- 17,000 -------- -------- 23,943 17,000 -------- -------- Notes payable, other: Senior notes payable to various parties, interest payable semiannually ranging from 6.82% to 7.76%....... 90,000 -- Revolving line of credit, interest payable monthly at reference rate plus .125% (8.25% at December 31, 1996). 26,300 -- Revolving line of credit, interest payable monthly at money market rate (ranging from 6.03% to 6.34% at December 31, 1997)..................................... 43,000 203,000 Notes payable to a bank, interest and principal payable monthly at rates ranging from 5.74% to 9.51%........... 2,967 -- Notes payable related to the purchase of certain businesses, imputed interest averaging 7%, due through 1999................................................... 500 300 -------- -------- 162,767 203,300 -------- -------- $186,710 $220,300 ======== ========
The Company's agreement with the banks provides for an unsecured line of credit of $300,000,000 maturing no later than 2002. The revolving line of credit is unsecured and includes restrictions as to limitations upon certain ratios of liabilities to net worth and upon the minimum net worth of the Company. The Company is in compliance with covenants in all agreements. The Company pays a commitment fee ranging from .175% to .25% on the unused portion of the outstanding line of credit balance less outstanding letters of credit calculated quarterly based on the average daily balance. The senior and bank note agreements existing at December 31, 1996, were paid down with the proceeds from the IPO. Cash paid for interest was $7,545,000, $11,185,000, and $9,608,000 for each of the three years in the period ended December 31, 1997, respectively. Maturities of notes payable are as follows at December 31, 1997 (in thousands): 1998..................................... $220,000 1999..................................... 300 -------- $220,300 ========
F-46 U.S. RENTALS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 7. INCOME TAXES As discussed in Note 1, the Company was taxed as an S corporation prior to the Recapitalization. As such, the income tax provision was comprised of current state income tax expense of $468,000 and $374,000 for 1995 and 1996, respectively. Deferred taxes for such periods were immaterial. Cash payments for state income taxes made by the Company were $597,000 and $353,000 for 1995 and 1996, respectively. Cash payments for federal and state income taxes made by the Company were $11,407,000 in 1997. The following provision for income taxes for 1997 includes all state taxes recognized by the Predecessor as an S corporation prior to the Recapitalization and federal and state taxes recognized by the Company subsequent to the Recapitalization (in thousands).
1997 ------- Federal: Current....................................................... $ 3,765 Deferred...................................................... 14,281 Deferred tax recorded upon Recapitalization................... 6,141 ------- 24,187 ------- State: Current....................................................... 565 Deferred...................................................... 3,276 Deferred tax recorded upon Recapitalization................... 1,379 ------- 5,220 ------- $29,407 =======
The 1997 provision for income taxes differs from the amount as determined by applying the U.S. statutory federal tax rate of 35% to income before income taxes as a result of the following: Federal income taxes............................................... 35.0% State income taxes, net of federal benefit......................... 4.8% Cumulative deferred taxes recorded upon Recapitalization........... 21.0% Loss prior to Recapitalization excluded from taxable income........ 21.1% Other.............................................................. 0.4% ----- 82.3% =====
The unaudited pro forma provision for income taxes differs from the amount of income tax determined by applying the U.S. statutory federal income tax rate of 35% to income before income taxes as a result of the following:
YEARS ENDED DECEMBER 31, ----------------- 1995 1996 1997 ----- ----- ----- Federal income taxes................................... 35.0% 35.0% 35.0% State income taxes, net of federal benefit............. 5.3% 4.9% 4.8% Other.................................................. 0.8% 0.3% 0.4% ----- ----- ----- 41.1% 40.2% 40.2% ===== ===== =====
F-4_7 U.S. RENTALS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Deferred income tax assets and liabilities are computed based on temporary differences between the financial statement and income tax bases of assets and liabilities using the enacted marginal income tax rate in effect for the year in which the differences are expected to reverse. Deferred income tax expenses or credits are based on the changes in the deferred income tax assets or liabilities from period to period. Deferred tax assets (liabilities) are as follows (in thousands):
DECEMBER 31, 1997 ------------ Self-insurance reserves..................................... $ 4,944 Compensation related accruals............................... 1,674 Allowances for doubtful accounts............................ 2,079 State income taxes.......................................... 1,636 Others, net................................................. 924 -------- 11,257 Depreciation................................................ (36,334) -------- $(25,077) ========
8. COMMITMENTS AND CONTINGENCIES Operating leases The Company leases certain facilities under operating leases which contain renewal options and provide for periodic cost of living adjustments. Rental expense was $3,365,000, $3,681,000, and $5,374,000 for each of the three years in the period ended December 31, 1997, respectively. Future minimum rental commitments as of December 31, 1997, under noncancelable operating leases are (in thousands): 1998...................................... $ 6,445 1999...................................... 5,353 2000...................................... 4,439 2001...................................... 3,678 2002...................................... 2,545 Thereafter................................ 8,237 ------- $30,697 =======
Legal matters The Company is party to legal proceedings and potential claims arising in the ordinary course of its business. In the opinion of management, the Company has adequate legal defense, reserves, or insurance coverage with respect to these matters so that the ultimate resolution will not have a material adverse effect on the Company's financial position, results of operations, or cash flows. The Company has accrued $12,011,000 and $9,563,000 at December 31, 1996 and 1997, respectively, to cover the uninsured portion of possible costs arising from these pending claims and other potential unasserted claims. F-48 U.S. RENTALS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Environmental matters The Company and its operations are subject to various laws and related regulations governing environmental matters. Under such laws, an owner or lessee of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in, or emanating from, such property, as well as investigation of property damage. The Company incurs ongoing expenses associated with the removal of underground storage tanks and the performance of appropriate remediation at certain of its locations. The Company believes that such removal and remediation will not have a material adverse effect on the Company's financial position, results of operations, or cash flows. 9. STOCK OPTION PLAN Effective February 20, 1997, the Board of Directors of the Company adopted the 1997 Performance Award Plan under which stock options and other awards can be granted to key employees and directors at prices and terms established by the Board of Directors at the date of grant. The exercise price of all options issued during 1997 equaled the fair value of the stock on the grant date which ranged from $17.88 to $26.88. Accordingly, no compensation expense has been recognized. Options outstanding at December 31, 1997, vest ratably over periods ranging from five to ten years and expire in 2007. The following table summarizes the activity under the stock option plan:
WEIGHTED NUMBER AVERAGE OF SHARES EXERCISE PRICE --------- -------------- Shares under option: Outstanding at December 31, 1996..................... -- $ -- Granted: ($17.88-$20.00)........................... 3,867,387 $19.99 ($23.44-$26.88).................................... 206,500 $25.78 --------- Outstanding at December 31, 1997....................... 4,073,887 $20.29 =========
There were no vested options outstanding and 526,113 shares were available for future grants under the stock option plan at December 31, 1997. For purposes of the pro forma disclosures required by SAFS 123, the estimated fair value of options is amortized to expense over the options' vesting period. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly sensitive assumptions, including the expected stock price volatility, which are subject to change from time to time. For this reason, the resulting pro forma compensation costs are not necessarily indicative of costs to be expected in future years. Pro forma unaudited net income, pro forma basic unaudited net income per share, and pro forma diluted unaudited net income per share in 1997, after giving effect to the Recapitalization would be $18,065,000, $.62, and $.60, respectively, if the Company had accounted for its stock options using the fair value based method of accounting established by SFAS 123. The following weighted average assumptions were used in the option pricing model to determine the fair value of the options: dividend F-49 U.S. RENTALS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) yield of 0%, expected volatility of 32%, risk-free interest rate ranging from 5.84% to 6.61%, and expected lives ranging from 3 to 5.25 years. 10. EMPLOYEE BENEFIT PLANS The Company sponsors a defined contribution 401(k) retirement plan (the Plan) which is subject to the provisions of ERISA. Under the Plan, which was implemented in 1994, the Company matches a minimum of 50% of the participants' contributions up to a specified amount as determined by the Board of Directors. Company contributions to the Plan were $246,000, $122,000, and $136,000 for each of the three years in the period ended December 31, 1997, respectively. 11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Selected financial data The following table of quarterly financial information has been prepared from unaudited financial statements of the Company, and reflects adjustments which are, in the opinion of management, necessary for a fair presentation of the interim periods presented. The Company has determined that the one-time charge to establish the cumulative deferred tax liability as of the date of the Company's IPO associated with becoming subject to C corporation taxes should have been $7.5 million instead of $9.3 million as previously reported in Form 10-Q for the third quarter of 1997. The loss before extraordinary item and net loss presented below reflect this change.
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- -------- -------- Year ended December 31, 1997 Total revenues............................. $80,981 $96,434 $114,026 $133,252 Gross profit............................... 18,108 27,277 34,915 37,400 Income (loss) before extraordinary item.... (22,750) 8,015 10,857 10,219 Extraordinary item......................... 1,511 -- -- -- Net income (loss).......................... (24,261) 8,015 10,857 10,219 Year ended December 31, 1996 Total revenues............................. $58,643 $71,172 $ 86,647 $ 89,375 Gross profit............................... 14,262 18,292 25,244 27,818 Net income................................. 4,205 6,835 11,596 10,448
Price range of common stock The Company's common stock is traded on the New York Stock Exchange (NYSE) under the symbol USR. The following table provides the high and low closing sales prices of the common stock as reported by the NYSE for each quarter of 1997.
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- High...................................... $20.13 $27.50 $29.31 $27.38 Low....................................... $17.00 $15.38 $24.25 $23.13
F-50 U.S. RENTALS, INC. BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER MARCH 31, 31, 1998 1997 ---------- -------- (UNAUDITED) ASSETS Cash and cash equivalents................................. $ 6,344 $ 3,104 Accounts receivable, net.................................. 61,533 60,906 Inventories............................................... 17,234 17,379 Rental equipment, net..................................... 441,202 390,598 Property and equipment, net............................... 83,575 78,014 Goodwill, net............................................. 25,378 23,114 Prepaid expenses and other assets......................... 14,656 12,696 -------- -------- Total assets ......................................... $649,922 $585,811 ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and other liabilities....................... $ 74,744 $ 75,048 Note payable to related party................................ 21,000 17,000 Notes payable, other......................................... 259,200 203,300 Deferred taxes............................................... 24,769 25,077 -------- -------- Total liabilities........................................ 379,713 320,425 -------- -------- Stockholders' equity: Common stock, $.01 par value-- authorized 100,000,000 shares; issued and outstanding 30,759,975 shares as of March 31, 1998 and 30,748,975 shares as of December 31, 1997................................... 308 307 Paid-in capital............................................ 244,461 244,211 Retained earnings.......................................... 25,440 20,868 -------- -------- Total stockholders' equity............................... 270,209 265,386 -------- -------- Total liabilities and stockholders' equity .............. $649,922 $585,811 ======== ========
F-51 U.S. RENTALS, INC. STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ---------------------- 1998 1997 ---------- ---------- Revenues: Rental revenue....................................... $ 92,641 $ 65,330 Rental equipment sales............................... 13,066 7,201 Merchandise and new equipment sales.................. 14,811 8,450 ---------- ---------- Total revenues..................................... 120,518 80,981 ---------- ---------- Cost of revenues: Rental equipment expense............................. 22,000 17,498 Rental equipment depreciation........................ 21,445 14,313 Cost of rental equipment sales....................... 6,288 3,385 Cost of merchandise and new equipment sales.......... 10,851 6,494 Direct operating expense............................. 33,377 21,183 ---------- ---------- Total cost of revenues............................. 93,961 62,873 ---------- ---------- Gross profit......................................... 26,557 18,108 Selling, general and administrative expense............ 11,426 7,550 Non-rental depreciation................................ 3,725 1,929 Amortization of goodwill............................... 75 3 Termination cost of deferred compensation agreements... -- 20,290 ---------- ---------- Operating income..................................... 11,331 (11,664) Other expense, net..................................... -- (473) Interest expense, net.................................. (3,402) (1,553) Related party interest (expense) income, net........... (284) 52 ---------- ---------- Income before income taxes and extraordinary item.... 7,645 (13,638) Income tax expense..................................... 3,073 9,112 ---------- ---------- Income (loss) before extraordinary item.............. 4,572 (22,750) Extraordinary item, net of tax benefit of $995......... -- 1,511 ---------- ---------- Net income (loss).................................... $ 4,572 $ (24,261) ---------- ---------- Basic and diluted net income (loss) before extraordi- nary item per share................................... $ 0.15 $ (0.90) ---------- ---------- Basic and diluted extraordinary item per share......... $ -- $ (0.06) ---------- ---------- Basic and diluted net income (loss) per share.......... $ 0.15 $ (0.96) ---------- ---------- Basic weighted average shares outstanding.............. 30,751,868 25,144,579 ========== ========== Diluted weighted average shares outstanding............ 31,526,109 25,144,579 ========== ==========
F-52 U.S. RENTALS, INC. STATEMENTS OF CASH FLOW (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ------------------ 1998 1997 -------- -------- Operating activities: Net income (loss)....................................... $ 4,572 $(24,261) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization......................... 25,245 16,465 Gain on sale of equipment............................. (7,032) (3,902) Principal adjustment on notes receivable.............. -- (146) Provision for doubtful accounts....................... 2,127 1,472 Deferred taxes........................................ (308) 7,638 Interest income not collected......................... -- (294) Interest expense not paid............................. -- 495 Loss on early extinguishment of debt.................. -- 2,506 Changes in operating assets and liabilities Accounts receivable .................................. (2,409) (5,695) Inventories........................................... 585 147 Prepaid expenses and other assets..................... 75 (442) Accounts payable and other liabilities................ (304) 503 -------- -------- Net cash provided by (used in) operating activities....... 22,551 (5,514) -------- -------- Investing activities: Acquisition of rental operations........................ (8,070) (2,273) Purchases of rental equipment........................... (75,426) (28,253) Proceeds from sale of rental equipment.................. 13,066 7,201 Purchases of property and equipment, net................ (9,032) (6,046) -------- -------- Net cash used in investing activities..................... (79,462) (29,371) -------- -------- Financing activities: Proceeds from (payments on) line of credit, net......... 56,000 (58,267) Payments on senior notes................................ -- (92,506) Payments on other obligations, net...................... (100) (100) Proceeds from related party note payable................ 4,000 -- Proceeds from issuance of common stock, net of issuance costs ................................................. 251 185,950 Cash retained by the Predecessor in connection with Re- capitalization ........................................ -- (998) Dividends paid.......................................... -- (1,905) -------- -------- Net cash provided by financing activities................. 60,151 32,174 -------- -------- Net increase (decrease) in cash........................... 3,240 (2,711) Cash at beginning of period............................... 3,104 2,906 -------- -------- Cash at end of period..................................... $ 6,344 $ 195 ======== ======== Supplemental non-cash flow information: Distribution of net assets to stockholder .............. $ 3,221 ========
F-53 U.S. RENTALS, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
ADDITIONAL TOTAL COMMON PAID-IN RETAINED STOCKHOLDERS' SHARES STOCK CAPITAL EARNINGS EQUITY ---------- ------ ---------- -------- ------------- Balance at December 31, 1997...................... 30,748,975 $307 $ 244,211 $ 20,868 $265,386 Net income................. -- -- 4,572 4,572 Stock options exercised.... 11,000 1 219 -- 220 Income tax benefit from stock options exercised .. -- 31 -- 31 ---------- ---- --------- -------- -------- Balance at March 31, 1998 . 30,759,975 $308 $ 244,461 $ 25,440 $270,209 ========== ==== ========= ======== ========
F-54 U.S. RENTALS, INC. NOTES TO FINANCIAL STATEMENTS (TABLES IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) 1. INTRODUCTION The Registrant's initial public offering ("IPO") was declared effective on February 20, 1997. Prior to the IPO, the equipment rental business was operated by Ayr, Inc., a California corporation (the "Predecessor") that was treated as an S corporation under the Internal Revenue Code. The Registrant did not have any operations prior to its IPO. Prior to the closing of the IPO, the Predecessor transferred substantially all of its operating assets and associated liabilities to the Registrant in exchange for 20,748,975 shares of Common Stock of the Registrant, representing all of the Registrant's outstanding capital stock prior to the IPO. The Predecessor retained only non- operating assets and liabilities, including approximately $25.7 million of notes receivable from related parties and approximately $24.4 million of notes payable to related parties. These transactions are referred to as the "Recapitalization" in this report. Unless otherwise indicated, the "Company" means the Predecessor prior to the IPO and the Registrant on or after the IPO. 2. BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results of operations for the interim periods are not necessarily indicative of the results that may be expected for a full year. 3. BANK DEBT AND LONG-TERM OBLIGATIONS Bank debt and long-term obligations consist of the following:
MARCH 31, DECEMBER 31, 1998 1997 -------- ------------ Notes payable: Revolving line of credit, interest payable monthly at money market rates (6.09% at March 31, 1998 and 6.03% to 6.34% at December 31, 1997) ......................................... $259,000 $203,000 Notes payable related to the purchase of certain businesses, imputed interest averaging 7%, due through 1999................................... 200 200 -------- -------- 259,200 203,300 Note payable to related party: Demand note payable to the majority stockholder of Predecessor interest at a variable rate, payable monthly. 5.90% at March 31, 1998 and December 31, 1997.............................. 21,000 17,000 -------- -------- $280,200 $220,300 ======== ========
F-55 U.S. RENTALS, INC. NOTES TO FINANCIAL STATEMENTS (TABLES IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) On February 26, 1997, the Company repaid the bank notes, revolving line of credit and senior notes utilizing proceeds from its IPO. The early extinguishment of debt generated an extraordinary loss of $1,511,000 (net of income tax benefit of $995,000). On February 26, 1997, the Company entered into a $300,000,000 unsecured line of credit with a bank maturing no later than February 25, 2002. The Company believes it is in compliance with all covenants in the credit agreement. 4. INCOME TAXES Income tax expense consists of the following:
THREE MONTHS ENDED MARCH 31, ------------------- 1998 1997 --------- --------- One-time charge for cumulative deferred taxes as of the date of the IPO as if the Company had always been subject to taxes as a C corporation........... $ -- $ 7,520 Income tax provision for the period subsequent to the IPO............................................ 3,073 1,592 --------- --------- $ 3,073 $ 9,112 ========= =========
5. SUBSEQUENT EVENT On April 28, 1998, the Company completed a $252 million private placement of senior unsecured notes. The notes accrue interest at rates ranging from 6.71% to 6.93%. Interest is payable semi-annually on October 28th and April 28th. F-56 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Equipment Supply Co., Inc. and Affiliates Burlington, New Jersey We have audited the accompanying combined balance sheets of Equipment Supply Co., Inc. and Affiliates (see Note 1) as of December 31, 1997 and 1996, and the related combined statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Equipment Supply Co., Inc. and Affiliates as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. BDO Seidman, LLP Philadelphia, Pennsylvania June 19, 1998, except for Notes 9 and 15 which are as of July 10, 1998 F-57 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES COMBINED BALANCE SHEETS
DECEMBER 31, ------------------------- MARCH 31, 1997 1996 1998 ------------ ------------ ------------ (UNAUDITED) ASSETS Cash and cash equivalents............... $ 1,038,086 $ 4,015,527 $ 2,253,311 Marketable securities................... -- 1,103,354 -- Accounts receivable, net of allowance for possible losses of $2,241,339, $1,202,790 and $2,241,339......................... 16,087,730 14,592,845 14,599,776 Inventories............................. 3,234,402 3,249,010 3,283,658 Prepaid expenses and other assets....... 2,365,177 389,234 1,474,539 Due from stockholder.................... 4,310,190 1,637,628 4,941,130 Rental equipment, net................... 122,154,888 127,343,198 117,008,554 Property and equipment, net............. 6,548,778 5,401,275 5,544,829 Goodwill and other intangible assets, net.................................... 3,887,945 4,436,997 3,832,040 ------------ ------------ ------------ Total assets........................ $159,627,196 $162,169,068 $152,937,837 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Debt.................................. $ 94,870,512 $107,460,779 $ 91,322,072 Capital lease obligations............. 8,841,236 11,923,889 8,271,490 Accounts payable...................... 4,909,578 4,116,967 3,476,534 Income taxes payable.................. 1,209,251 1,393,548 1,442,884 Deferred income taxes................. 3,884,669 3,996,763 939,847 Deferred leasing costs................ 4,379,594 -- 5,128,033 Deferred rental income................ 2,404,500 2,016,607 1,929,760 Other liabilities..................... 1,599,427 2,335,963 2,534,049 ------------ ------------ ------------ Total liabilities................... 122,098,767 133,244,516 115,044,669 ------------ ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock, no par value Authorized 2,500 shares; Issued and outstanding 581 shares.... 1,500 1,500 1,500 Additional paid-in capital............ 363,808 326,294 363,808 Retained earnings..................... 37,163,121 28,596,758 37,527,860 ------------ ------------ ------------ Total stockholders' equity.......... 37,528,429 28,924,552 37,893,168 ------------ ------------ ------------ Total liabilities and stockholders' equity............................. $159,627,196 $162,169,068 $152,937,837 ============ ============ ============
See accompanying notes to combined financial statements. F-58 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES COMBINED STATEMENTS OF INCOME
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------------- ------------------------ 1997 1996 1995 1998 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) REVENUES Equipment rentals..... $78,141,502 $65,226,201 $40,905,725 $17,169,129 $17,769,357 Sales of rental equipment............ 8,102,210 11,935,375 7,968,205 1,442,049 1,566,460 Sales of new equipment, merchandise and other revenues............. 8,314,451 10,129,016 5,246,285 2,335,386 2,025,947 ----------- ----------- ----------- ----------- ----------- TOTAL REVENUES...... 94,558,163 87,290,592 54,120,215 20,946,564 21,361,764 ----------- ----------- ----------- ----------- ----------- COST OF REVENUES Cost of equipment rentals, excluding depreciation......... 23,509,529 19,225,581 14,222,651 6,170,748 4,554,823 Depreciation of rental equipment............ 20,397,030 15,383,114 7,844,434 5,356,340 5,261,674 Cost of rental equipment sold....... 5,049,876 9,834,128 3,291,409 638,780 1,417,600 Cost of new equipment and merchandise...... 6,312,172 6,263,969 2,250,037 2,141,918 1,163,879 ----------- ----------- ----------- ----------- ----------- TOTAL COST OF REVENUES........... 55,268,607 50,706,792 27,608,531 14,307,786 12,397,976 ----------- ----------- ----------- ----------- ----------- GROSS PROFIT............ 39,289,556 36,583,800 26,511,684 6,638,778 8,963,788 ----------- ----------- ----------- ----------- ----------- OPERATING EXPENSES General and administrative expenses............. 17,874,879 15,195,802 10,852,925 5,589,848 4,165,441 Nonrental depreciation and amortization..... 878,342 627,534 237,427 137,119 195,314 ----------- ----------- ----------- ----------- ----------- TOTAL OPERATING EXPENSES........... 18,753,221 15,823,336 11,090,352 5,726,967 4,360,755 ----------- ----------- ----------- ----------- ----------- INCOME FROM OPERATIONS.. 20,536,335 20,760,464 15,421,332 911,811 4,603,033 INTEREST EXPENSE........ (11,185,934) (7,508,226) (3,691,638) (2,360,419) (2,846,530) OTHER INCOME (EXPENSE).. 2,858,438 854,658 (28,356) 21,527 461,618 ----------- ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES.................. 12,208,839 14,106,896 11,701,338 (1,427,081) 2,218,121 PROVISION FOR INCOME TAX EXPENSE (BENEFIT)...... 1,242,142 2,073,617 1,517,539 (2,637,684) 205,373 ----------- ----------- ----------- ----------- ----------- NET INCOME.............. $10,966,697 $12,033,279 $10,183,799 $ 1,210,603 $ 2,012,748 =========== =========== =========== =========== ===========
See accompanying notes to combined financial statements. F-59 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK ADDITIONAL ------------- PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS TOTAL ------ ------ ---------- ----------- ----------- BALANCE, January 1, 1995.... 581 $1,500 $ -- $14,408,232 $14,409,732 Net income.................. -- -- -- 10,183,799 10,183,799 Stockholders' distributions. -- -- -- (3,861,677) (3,861,677) Capital contributions....... -- -- 170,406 -- 170,406 --- ------ -------- ----------- ----------- BALANCE, December 31, 1995.. 581 1,500 170,406 20,730,354 20,902,260 Net income.................. -- -- -- 12,033,279 12,033,279 Stockholders' distributions. -- -- -- (4,166,875) (4,166,875) Capital contributions....... -- -- 155,888 -- 155,888 --- ------ -------- ----------- ----------- BALANCE, December 31, 1996.. 581 1,500 326,294 28,596,758 28,924,552 Net income.................. -- -- -- 10,966,697 10,966,697 Stockholders' distributions. -- -- -- (2,937,557) (2,937,557) Capital contributions....... -- -- 37,514 -- 37,514 Adjustment related to affiliate with different fiscal year...... -- -- -- 537,223 537,223 --- ------ -------- ----------- ----------- BALANCE, December 31, 1997.. 581 1,500 363,808 37,163,121 37,528,429 Net income (unaudited)...... -- -- -- 1,210,603 1,210,603 Stockholders' distributions (unaudited)................ -- -- -- (845,864) (845,864) --- ------ -------- ----------- ----------- BALANCE, March 31, 1998 (un- audited)................... 581 $1,500 $363,808 $37,527,860 $37,893,168 === ====== ======== =========== ===========
See accompanying notes to combined financial statements. F-60 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES COMBINED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ---------------------------------------- ------------------------- 1997 1996 1995 1998 1997 ------------ ------------ ------------ ----------- ------------ (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income............. $ 10,966,697 $ 12,033,279 $ 10,183,799 $ 1,210,603 $ 2,012,748 Adjustments to reconcile net income to net cash flows provided by operating activities Depreciation and amortization........ 21,275,372 16,010,648 8,081,861 5,493,459 5,456,988 Provision for bad debts............... 1,038,549 374,056 828,734 -- -- Gain on sale of equipment........... (3,052,334) (2,101,247) (4,555,863) (803,269) (148,859) Gain on sale of marketable securities.......... (390,410) (126,747) (37,345) -- (110,040) Deferred income taxes............... (112,094) 743,691 961,861 (2,944,822) (127,772) Adjustment related to affiliate with different fiscal year................ 537,223 -- -- -- 537,223 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable.......... (2,533,434) (4,603,457) (4,789,132) 1,487,954 1,749,552 (Increase) decrease in inventories...... 14,608 (945,385) (824,220) (49,256) 213,198 (Increase) decrease in prepaid expenses and other assets.... (1,975,943) 122,694 587,072 890,638 (383,992) Increase (decrease) in accounts payable. 792,611 1,436,552 1,560,529 (1,433,044) 1,239,217 Increase (decrease) in income taxes payable............. (184,297) 1,076,242 689,302 233,633 (458,137) Increase in deferred leasing costs....... 4,379,594 -- -- 748,439 -- Increase (decrease) in deferred rental income.............. 387,893 627,699 499,251 (474,740) (170,403) Increase (decrease) in other liabilities......... (736,536) 914,657 1,015,997 934,622 (1,019,955) ------------ ------------ ------------ ----------- ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES... 30,407,499 25,562,682 14,201,846 5,294,217 8,789,768 ------------ ------------ ------------ ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES Purchases of equipment............. (21,445,901) (73,822,654) (32,957,168) (590,746) (11,204,907) Acquisitions of affiliated companies.. -- (11,807,987) (7,829,319) -- -- Proceeds from sale of equipment............. 8,102,210 11,935,375 7,741,552 2,107,330 1,566,460 Sales (purchases) of marketable securities............ 1,493,764 (414,665) 397,153 -- (423,442) ------------ ------------ ------------ ----------- ------------ NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES............. (11,849,927) (74,109,931) (32,647,782) 1,516,584 (10,061,889) ------------ ------------ ------------ ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from debt..... $ 12,869,925 $ 79,950,621 $ 28,777,004 $ 4,148,509 $ 9,010,170 Repayment of capital lease obligations..... (3,341,413) (4,419,085) (2,177,919) (569,746) (1,055,125) Repayment of debt...... (25,460,192) (18,525,872) (4,207,118) (7,696,949) (6,942,171) Payment of loan acquisition fees...... (28,728) (299,978) (88,493) (586) (90,223) (Increase) decrease in due to/from stockholders.......... (2,672,562) (1,673,052) 35,425 (630,940) (1,946,412) Capital contributions.. 37,514 155,887 170,406 -- -- Stockholders' distributions......... (2,937,557) (4,166,875) (3,861,677) (845,864) (928,530) ------------ ------------ ------------ ----------- ------------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES............. (21,535,013) 51,021,646 18,647,627 (5,595,576) (1,952,291) ------------ ------------ ------------ ----------- ------------ NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS............ (2,977,441) 2,474,397 201,691 1,215,225 (3,224,412) CASH AND CASH EQUIVALENTS, beginning of year................ $ 4,015,527 $ 1,541,130 $ 1,339,439 $ 1,038,086 $ 4,015,527 ------------ ------------ ------------ ----------- ------------ CASH AND CASH EQUIVALENTS, end of year................... $ 1,038,086 $ 4,015,527 $ 1,541,130 $ 2,253,311 $ 791,115 ============ ============ ============ =========== ============ SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCIAL ACTIVITIES Acquisition of equipment in exchange for capital lease obligations........... $ 260,760 $ 7,121,669 $ 6,997,926 $ -- $ -- Goodwill related to acquisitions.......... $ -- $ -- $ 1,897,761 $ -- $ -- Assets acquired from purchase of companies............. $ -- $ 13,165,000 $ 9,524,479 $ -- $ -- Liabilities assumed from purchase of companies............. $ -- $ 3,357,013 $ 3,151,101 $ -- $ -- ============ ============ ============ =========== ============ OTHER SUPPLEMENTAL DISCLOSURES Taxes paid............. $ 2,226,828 $ 315,814 $ 276,960 $ 92,314 $ 817,831 Interest paid.......... $ 11,116,164 $ 7,250,310 $ 3,568,958 $ 2,447,318 $ 2,861,016 ============ ============ ============ =========== ============
See accompanying notes to combined financial statements. F-61 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED) 1. ORGANIZATION AND BASIS OF PRESENTATION The combined financial statements include the accounts of Equipment Supply Co., Inc. ("Equipment Supply") and its affiliated companies: High Reach Co., Inc. ("High Reach") and Rylan, Inc. ("Rylan") (collectively the "Company") which have common ownership and activities. For financial reporting purposes, Equipment Supply has been treated as the parent company and the purchaser of both High Reach and Rylan during 1995. The 1995 acquisitions of the stock of these companies were made by the stockholders of Equipment Supply. The Company rents, sells and services aerial platform equipment throughout the mid-Atlantic region of the United States. The nature of the Company's business is such that short-term obligations are typically met by cash flow generated from long-term assets. Consequently, consistent with industry practice, the accompanying balance sheets are presented on an unclassified basis. All significant intercompany balances and transactions have been eliminated in combination. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Interim Financial Statements The combined balance sheet as of March 31, 1998 and the combined statements of income, stockholders' equity and cash flows for the three months ended March 31, 1998 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 the interim periods are not necessarily indicative of results for the full year. CASH EQUIVALENTS The Company considers all highly liquid instruments with a maturity of three months or less when purchased to be cash equivalents. MARKETABLE SECURITIES Statement of Financial Accounting Standards No. 115, "Accounting for Certain Debt and Equity Securities" requires investments in debt and equity securities to be classified into one of three categories based on the Company's intent. The Company has classified its investments in marketable securities as available for sale which requires the Company to record these investments at fair market value and record the unrealized gain or loss on the original investment as a separate component of stockholders' equity. Such unrealized gains or losses were not material in any period presented. INVENTORIES Inventories consisting of equipment and parts are stated at the lower of average weighted cost or market. DEPRECIATION AND AMORTIZATION All equipment and property is stated at cost. Depreciation of rental equipment is computed, using an estimated 5% residual value, by the straight- line method at rates adequate to allocate the cost of rental equipment over their estimated useful lives, ranging from five to ten years. F-62 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED) Depreciation of property and equipment and amortization of leasehold improvements are computed by the straight-line method at rates adequate to allocate the cost of applicable assets over their estimated useful lives. Ordinary maintenance and repair costs are charged to operations as incurred. DEFERRED FINANCING COSTS Deferred financing costs, which are incurred by the Company in connection with debt, are charged to operations over the life of the underlying indebtedness and are included in goodwill and other intangible assets. The net book value of deferred financing costs at December 31, 1997 and 1996 and March 31, 1998 is $369,421, $340,693 and $351,508, respectively. INCOME TAXES The Company adopted in 1995 the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS No. 109 requires a company to recognize deferred income tax liabilities and assets for the expected future tax consequences of events that have been recognized in a company's financial statements or tax returns. Under this method, deferred income tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. For all periods presented, Equipment Supply has elected, with the consent of its stockholders, to be taxed as an S Corporation for federal and certain state reporting purposes. In lieu of federal and certain state corporation income taxes, the stockholders are taxed on their proportionate share of the Company's taxable income. Provision has been made for state income taxes for those states not recognizing S Corporation status. During 1998, Rylan elected, with the consent of its stockholders, to be taxed as an S Corporation for federal and state income tax reporting purposes. Consequently, all applicable federal and state deferred income taxes have been reversed during the three months ended March 31, 1998. As a result, the effect on the 1998 combined statement of income was to increase net income by approximately $2.8 million. During 1997, High Reach elected, with the consent of its stockholders, to be taxed as an S Corporation for federal and state income tax reporting purposes. Provision has been made for state income taxes for those states not recognizing S Corporation status. A provision for federal and state income taxes has been recorded for all periods through September 30, 1997. As of October 1, 1997, all applicable federal and state deferred income taxes approximating $81,000 have been reversed in accordance with SFAS 109 and have been recorded in the statement of income. ACQUISITIONS High Reach On April 1, 1995, the stockholders of Equipment Supply purchased all of the capital stock of High Reach for an aggregate purchase price of approximately $3.1 million, of which approximately $2.5 million was paid in cash with the balance in the form of a note maturing no later than March 31, 1997, bearing interest at 7% per annum. F-63 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED) The High Reach acquisition was accounted for using the purchase method of accounting. Accordingly, the purchase price was allocated to the net assets acquired based on their estimated fair values. In accordance with SFAS 109, the Company recorded an additional increase to goodwill of approximately $737,000 and a corresponding increase to a deferred income tax liability, representing the difference between the financial and tax bases of certain assets acquired. The goodwill is being amortized over fifteen years on a straight-line basis. The results of operations of High Reach have been included in the Company's combined financials since the effective date of the acquisition. The stockholders borrowed approximately $2.5 million from the Company and such amounts have been recorded as part of the purchase price. Additionally, other amounts paid by the stockholders in connection with the acquisition have been treated as additional capital contributions and as part of the purchase price. During 1995 and 1996, High Reach was combined using its fiscal year end of September 30. In 1997, the Company reported the results of operations for High Reach on a calendar year basis. Net income for High Reach's three month period ended December 31, 1996 has been reflected as an adjustment to stockholders' equity. No unusual trends or transactions were noted in this three month period. Rylan On April 27, 1995, the stockholders of Equipment Supply purchased all of the capital stock of Rylan for an aggregate cash purchase price of $4.8 million. The Rylan acquisition was accounted for using the purchase method of accounting. Accordingly, the purchase price was allocated to the net assets acquired based on their estimated fair values. In accordance with SFAS 109, the Company recorded an additional increase to goodwill of approximately $1.2 million and a corresponding increase to a deferred income tax liability, representing the difference between the financial and tax bases of certain assets acquired. The results of operations of Rylan have been included in the Company's combined financial statement since the effective date of the acquisition. Total goodwill arising from the acquisition, in the amount of approximately $1.9 million, is being amortized over fifteen years on a straight-line basis. The stockholders financed the Rylan acquisition in the amount of $4.8 million by obtaining a term loan from a financial institution. Such debt has been recorded on the Company's financial statements, as the Company has been making the required principal and interest payments on behalf of the stockholders and have guaranteed this debt (see Note 9). Freestate Effective May 1, 1996, Rylan acquired substantially all of the assets and assumed certain liabilities of Freestate Industries, Inc. for approximately $11.8 million in cash. Such amount included payments specified for covenants not to compete for three key employees. The acquisition was accounted for using the purchase method of accounting. Accordingly, the purchase price was allocated to the net assets acquired based on their estimated fair values. Total goodwill and other intangible assets, amounting to approximately $2,000,000, are being amortized over a period ranging from five to fifteen years on a straight-line basis. The results of operations of Freestate have been included in the Company's combined financial statements since the effective date of the acquisition. F-64 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED) The Company borrowed approximately $10.8 million to finance a portion of the purchase price (see Note 9). REVENUE RECOGNITION The Company rents equipment to its customers under agreements not exceeding one month, consequently the rental agreements are classified as operating leases. Revenues from rental leases are recognized over the term of the respective agreements. Revenues from product sales are recognized when the product is shipped. Revenue from equipment repairs is recognized at the time of service. Revenues from maintenance contracts are recognized over the term of the respective contracts as service is provided. Amounts billed in advance are recorded as prebilled rentals which is classified as deferred rental income on the combined balance sheet. DEFERRED LEASING COSTS The Company receives volume rebates for leasing and purchasing certain equipment. The rebates related to operating leases are recognized as a reduction in lease expense over the terms of the respective leases, generally five years. Rebates related to purchased equipment are treated as a reduction in the cost of equipment. The Company amortizes the costs of its leases on a straight-line basis over the respective lease terms. 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. LONG-LIVED ASSETS The Company follows the provisions of Statement of Financial Accounting Standards No. 121 ("SFAS 121") "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. The Company reviews the carrying values of its long-lived and identifiable intangible assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable based on undiscounted estimated future operating cash flows. As of December 31, 1997, the Company has determined that no impairment has occurred. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued two new disclosure standards which are effective for financial statements for periods beginning after December 15, 1997. F-65 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED) Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS No. 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS No. 131, "Disclosure about Segments of a Business Enterprise and Related Information," which supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise," establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. SFAS No. 131 defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company believes that its operations compose a single segment and there are no components of comprehensive income. 3. FINANCIAL INVESTMENTS AND CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of periodic temporary investments of excess cash and trade receivables. The Company places its temporary excess cash investments in high quality short-term money market instruments and the carrying value approximates market value. A significant portion of the Company's rental sales and equipment sales are to customers in the construction industry and, as such, the Company is directly affected by the well-being of that industry. However, the credit risk associated with trade receivables is minimal due to the Company's large customer base, geographical dispersion and ongoing control procedures which monitor the credit worthiness of its customers. 4. DUE FROM STOCKHOLDERS From time to time, the Company makes advances to its stockholders. Generally, there are no formal repayment terms and the amounts are noninterest-bearing. 5. RENTAL EQUIPMENT Rental equipment consists of the following:
DECEMBER 31, ------------------------- MARCH 31, 1997 1996 1998 ------------ ------------ ------------ Rental equipment.................... $168,047,372 $156,891,144 $165,411,311 Less accumulated depreciation....... 45,892,484 29,547,946 48,402,757 ------------ ------------ ------------ $122,154,888 $127,343,198 $117,008,554 ============ ============ ============
F-66 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED) Depreciation expense amounted to $18,948,184, $14,385,916, $7,332,808, $4,947,931 and $4,982,873 for the years ended December 31, 1997, 1996 and 1995 and the three months ended March 31, 1998 and 1997, respectively. 6. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, ---------------------- MARCH 31, 1997 1996 1998 LIVES ----------- ---------- ----------- ----------- Shop equipment.................. $ 834,355 $ 760,669 $ 517,651 5-7 years Transportation equipment........ 9,134,757 6,887,232 8,065,840 5 years Furniture and fixtures.......... 1,288,479 962,474 1,020,384 5-7 year Building and lease hold improve- ments.......................... 635,895 590,132 635,895 15-39 years ----------- ---------- ----------- Total......................... 11,893,486 9,200,507 10,239,770 Less accumulated depreciation and amortization............... 5,344,708 3,799,232 4,694,941 ----------- ---------- ----------- $ 6,548,778 $5,401,275 $ 5,544,829 =========== ========== ===========
Depreciation and amortization amounted to $1,749,408, $1,180,285, $625,324, $489,037 and $330,505 for the years ended December 31, 1997, 1996 and 1995 and the three months ended March 31, 1998 and 1997, respectively. 7. CAPITAL LEASE OBLIGATIONS Capitalized leased assets include machinery and transportation equipment. Interest on the respective capital lease obligations range from 7.3% to 11.4% at December 31, 1997 and 1996 and March 31, 1998. Capital lease obligations, all of which are collateralized by the leased equipment, consist of the following:
DECEMBER 31, ---------------------- MARCH 31, 1997 1996 1998 ---------- ----------- ---------- Various equipment capital lease obligations, lease terms of 60 months with monthly lease payments of $512 to $52,463 ending April 1999 to June 2001.......................... $6,451,715 $8,807,391 $6,100,436 Various vehicle capital lease obligations, lease terms of 60 months with monthly lease payments of $590 to $10,751 ending August 1998 to April 2002......................... 2,204,559 2,826,490 2,016,170 Various vehicle capital lease obligations lease terms of 48 months with monthly lease payments of $578 to $4,049 ending January 1999 to June 2000.......................... 184,962 290,008 154,884 ---------- ----------- ---------- $8,841,236 $11,923,889 $8,271,490 ========== =========== ==========
F-67 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED) The future minimum lease payments under capital leases, together with the present value of the net minimum lease payments as of December 31, 1997 is as follows:
YEAR ENDING DECEMBER 31, AMOUNT -------- ----------- 1998........................................................ $ 3,628,913 1999........................................................ 3,416,347 2000........................................................ 2,478,665 2001........................................................ 845,860 2002........................................................ 9,965 ----------- Total minimum lease payments................................. 10,379,750 Less amount representing interest............................ 1,538,514 ----------- Capital lease obligations.................................... $ 8,841,236 ===========
The net book value of equipment under capital leases at December 31, 1997 and 1996 and March 31, 1998 amounted to $11,165,421, $13,800,349 and $10,719,521, respectively. 8. NOTES PAYABLE, BANK At March 31, 1998 and December 31, 1997, the Company had a line of credit with a bank for $1,500,000. Borrowings under the lines bear interest at a rate of 1/2% above the bank's prime rate (9%, at December 31, 1997 and March 31, 1998) and are secured by certain Company assets. At December 31, 1997 and March 31, 1998, $-0- and $1,128,250 was outstanding under this line, respectively. F-68 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED) 9. DEBT Debt consists of the following:
DECEMBER 31, ------------------------ MARCH 31, 1997 1996 1998 ----------- ------------ ----------- Notes payable to banks and finance compa- nies with fixed interest rates ranging from prime plus .5% to prime plus 2% (9% and 10.5% at December 31, 1997) due in monthly installments ranging from $546 to $211,242 ending in September 1999 to De- cember 2001 including interest. Collater- alized either by a specific security in- terest in equipment, a general lien on equipment or by all assets owned or here- after acquired by the Company............ $51,164,326 $ 64,098,599 $50,343,550 Term note payable to a finance company with interest of 9.93% due in monthly in- stallments of $221,314, including inter- est, through April 2002. Collateralized by a specific security interest in equip- ment and guaranteed by the President of the Company. (During 1998, the balance of the loan was converted to and is included in the note payable to a finance company noted below.)............................ 9,310,102 -- -- Note payable, bank, in connection with Rylan acquisition, due in monthly in- stallments of $99,519, including interest at 9.25%: collateralized by certain as- sets of Rylan and guaranteed by the stockholders and the Company; final pay- ment due July 2000....................... 391,362 2,041,928 -- Note payable, sellers in connection with the High Reach acquisition, due in monthly installments of $10,213 plus in- terest at 7% with final payment of $377,844 made during March 1997.......... -- 408,523 -- Note payable, bank (see Note 8).......... -- -- 1,128,250 Note payable to a finance company with an interest rate of LIBOR plus 3.25% (9.41% at December 31, 1997) due in varying monthly installments. Collateralized by a specific security interest in equipment and guaranteed by the President of the Company.................................. 34,004,722 40,911,729 39,850,272 ----------- ------------ ----------- $94,870,512 $107,460,779 $91,322,072 =========== ============ ===========
F-69 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED) At December 31, 1997, the aggregate maturities of debt are as follows:
YEARS ENDING DECEMBER 31, AMOUNT ------------ ------------ 1998.......................................................... $ 26,007,808 1999.......................................................... 25,586,393 2000.......................................................... 23,492,367 2001.......................................................... 18,116,590 2002.......................................................... 1,208,650 Thereafter.................................................... 458,704 ------------ $ 94,870,512 ============
Certain agreements require the Company to maintain specified minimum net worth and working capital and certain financial ratios. At December 31, 1997, the Company was in violation of certain covenants, including obtaining a specified level of minimum tangible net worth and a debt service coverage ratio. From the proceeds of the sale, more fully described in Note 15, the Company repaid substantially all of its debt. 10. INCOME TAXES Deferred income taxes reflect the net tax effect of differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred income taxes relate primarily to depreciation and amortization, differences in the accounting treatment of capital leases and bases of certain assets of acquired businesses. The components of income tax expense are summarized as follows:
YEAR ENDED DECEMBER 31, MARCH 31, --------------------------------- --------------------- 1997 1996 1995 1998 1997 ---------- ---------- ---------- ----------- -------- CURRENT INCOME TAXES Federal............... $ 482,568 $ 928,915 $ 277,900 $ -- $232,612 State................. 871,648 401,011 277,778 307,138 100,532 ---------- ---------- ---------- ----------- -------- TOTAL CURRENT INCOME TAX EXPENSE........ 1,354,216 1,329,926 555,678 307,138 333,144 ---------- ---------- ---------- ----------- -------- DEFERRED INCOME TAXES (BENEFIT) Federal............... 393,018 133,507 452,061 -- 311,611 State................. (424,092) 610,184 509,800 (20,000) (439,382) Reversal of deferred income taxes relating to sub S elections... (81,000) -- -- (2,924,822) -- ---------- ---------- ---------- ----------- -------- TOTAL DEFERRED INCOME TAX EXPENSE (BENEFIT).......... (112,074) 743,691 961,861 (2,944,822) (127,771) ---------- ---------- ---------- ----------- -------- TOTAL INCOME TAX EXPENSE (BENEFIT).. $1,242,142 $2,073,617 $1,517,539 $(2,637,684) $205,373 ========== ========== ========== =========== ========
F-70 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED) Differences which give rise to a significant portion of deferred income taxes are as follows:
DECEMBER 31, MARCH 31, ----------------------- ----------- 1997 1996 1998 ----------- ----------- ----------- DEFERRED INCOME TAX (ASSETS) LIABILITIES Depreciation and amortization....... $ 2,256,399 $ 2,393,302 $ 1,072,381 Reserves and allowances............. (269,491) (294,300) (132,534) Difference in basis of certain acquired assets.................... 1,897,761 1,897,761 -- ----------- ----------- ----------- $ 3,884,669 $ 3,996,763 $ 939,847 =========== =========== ===========
The differences between the income tax provision and the tax that would have resulted from applying federal statutory rates on income before taxes is primarily due to Equipment Supply being taxed as an S Corporation and High Reach being taxed as an S Corporation for the three months ended December 31, 1997. The effect of Rylan's conversion to an S Corporation in 1998 was for the Company to recognize a deferred income tax benefit of approximately $2.9 million. 11. RETIREMENT PLANS The Company participates in several defined contribution plans covering substantially all nonunion employees. The Plans allow matching contributions based on a percentage of the employees' contributions. The Company contributions for the years ended December 31, 1997, 1996 and 1995 and the three months ended March 31, 1998 and 1997 amounted to $139,572, $96,931, $30,821, $44,951 and $36,023, respectively. Additionally, the Company participates in a multi-employer plan that provides defined contributions to the Company's union employees. For collectively bargained, multi-employer pension plans, contributions are made in accordance with negotiated labor contracts and generally are based on the number of hours worked. With the passage of the Multi-Employer Pension Plan Amendments Act of 1980 (the "Act"), the Company may, under certain circumstances, become subject to liabilities in excess of contributions made under collective bargaining agreements. Generally, these liabilities are contingent upon the termination, withdrawal or partial withdrawal from the plans. Company contributions for the years ended December 31, 1997, 1996 and 1995 and the three months ended March 31, 1998 and 1997 amounted to $96,737, $75,930, $62,372, $28,465 and $12,415, respectively. On January 1, 1998, the Company terminated its defined contribution plans for Equipment Supply, High Reach and Rylan and established a combined defined contribution plan covering substantially all nonunion employees. The plan allows employees to make voluntary contributions processed through payroll deductions. For the three months ended March 31, 1998, the Company contributed approximately $51,700 to the Plan. 12. COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS The Company leases various facilities under lease agreements, including those with related parties. Some of these leases require the Company to pay property taxes and other related costs. F-71 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED) Future minimum lease payments, by year, and in the aggregate for noncancelable operating leases, including those with related parties, with initial or remaining terms of one year or more are as follows at December 31, 1997:
FACILITIES LEASES YEAR ENDED (SUBSTANTIALLY WITH EQUIPMENT TOTAL OPERATING DECEMBER 31, RELATED PARTIES) LEASES LEASES ------------ ------------------- ----------- --------------- 1998....................... $ 2,120,949 $11,035,372 $13,156,321 1999....................... 1,938,559 10,001,175 11,939,734 2000....................... 1,921,804 7,768,161 9,689,965 2001....................... 1,917,196 6,567,617 8,484,813 2002....................... 1,912,170 4,870,393 6,782,563 Thereafter................. 876,000 -- 876,000 ----------- ----------- ----------- $10,686,678 $40,242,718 $50,929,396 ----------- ----------- -----------
Rent expense under noncancelable operating leases for the years ended December 31, 1997, 1996 and 1995 and the three months ended March 31, 1998 and 1997 amounted to $10,210,657, $6,674,413, $1,179,277, $3,647,863 and $3,073,931, respectively. The following related party transactions including rent expense is summarized as follows:
YEAR ENDED THREE MONTHS DECEMBER 31, ENDED MARCH 31, ------------------------- ----------------- 1997 1996 1995 1998 1997 -------- -------- ------- -------- -------- Rent expense................... $963,600 $756,000 $18,168 $264,000 $241,500 Other expense.................. 79,190 109,173 58,689 18,060 29,889
The Company has guaranteed a personal loan of the stockholders, which is included as a liability in the financial statements. The loan proceeds were used to purchase Rylan (see Note 9). From time to time, the Company is a defendant in various lawsuits incident to the ordinary course of business. It is not possible to determine with any precision the probable outcome or the amount of liability, if any, under these lawsuits; however, in the opinion of the Company and its counsel, the disposition of these lawsuits will not have a material adverse effect on the Company's financial position, results of operations, or cash flows. 13. FINANCIAL INSTRUMENTS The carrying amounts reported in the balance sheet for accounts receivable, accounts payable and other liabilities approximate fair value due to the immediate to short-term maturity of these financial instruments. The fair value of debt approximates cost as interest rates approximate market. 14. SUPPLIER CONCENTRATION During 1997, two suppliers accounted for approximately 73% of total purchases and leased equipment costs. During 1996, three suppliers (of which two were the same in 1997) accounted for approximately 84% of total purchases and lease costs. During 1995, three suppliers (of which two were the same in 1996 and 1997) accounted for approximately 68% of total purchases and lease costs. F-72 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED) During 1997, volume activities with one vendor generated approximately $2 million in marketing rebates. Such amount has been recorded as other income. 15. SUBSEQUENT EVENT Sale of Business Operations Subsequent to December 31, 1997, the Company sold its principal business operations, a substantial portion of its net assets and certain stock for approximately $225 million. Additionally, the Company anticipates paying approximately $1.5 million in bonuses to certain of its employees. F-73 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-74 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-75 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-76 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-77 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-78 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. F-79 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 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. 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. F-80 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 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. 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 =========== =========== ===========
F-81 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 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 ========== ========== ==========
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 ========= ========= =========
F-82 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 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 =========== =========== ===========
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. F-83 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 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. 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. F-84 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 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 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. F-85 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 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 31, 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 $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%. F-86 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 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 31, 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. 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
F-87 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 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-88 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders Power Rental Co., Inc. We have audited the balance sheet of Power Rental Co., Inc. as of July 31, 1997 and the related statements of operations, 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 audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Power Rental Co., Inc. at July 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP MetroPark, New Jersey June 24, 1998 F-89 POWER RENTAL CO., INC. BALANCE SHEETS
JULY 31, APRIL 30, 1997 1998 ----------- ----------- (UNAUDITED) ASSETS Cash................................................... $ 53,462 $ -- Accounts receivable, net of allowance for doubtful accounts of $200,000 and $185,000 at 1997 and 1998, respectively.. 4,193,529 3,326,134 Due from related parties............................... 612,717 1,113,580 Inventory.............................................. 51,476 63,576 Rental equipment, net.................................. 35,575,067 37,958,651 Property and equipment, net............................ 7,301,836 8,378,203 Prepaid expenses and other assets...................... 1,413,651 1,981,771 Intangible assets, net................................. 378,269 339,587 ----------- ----------- Total assets....................................... $49,580,007 $53,161,502 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable, accrued expenses and other liabili- ties................................................ $ 4,831,620 $ 5,158,682 Debt................................................. 30,841,647 36,548,720 Deferred rent........................................ 72,200 84,800 Deferred income taxes................................ 2,921,231 2,393,231 ----------- ----------- Total liabilities.................................. 38,666,698 44,185,433 Commitments and contingencies Stockholders' equity: Common stock--Class A voting, $1.00 par value, 10,000 shares authorized, 10 issued and outstanding........ 10 10 Common stock--Class B non-voting, $1.00 par value, 90,000 shares authorized, 20,000 issued and outstanding......................................... 20,000 20,000 Additional paid in capital........................... 522,550 522,550 Retained earnings.................................... 10,370,749 8,433,509 ----------- ----------- Total stockholders' equity......................... 10,913,309 8,976,069 ----------- ----------- Total liabilities and stockholders' equity......... $49,580,007 $53,161,502 =========== ===========
See accompanying notes. F-90 POWER RENTAL CO., INC. STATEMENTS OF OPERATIONS
NINE MONTHS ENDED YEAR ENDED APRIL 30, JULY 31, ------------------------ 1997 1997 1998 ----------- ----------- ----------- (UNAUDITED) Revenues: Equipment rentals..................... $34,943,308 $25,404,600 $24,479,049 Sales of rental equipment............. 4,484,056 3,233,915 3,456,557 Sales of parts and supplies........... 1,462,391 1,099,033 1,025,287 ----------- ----------- ----------- Total revenues...................... 40,889,755 29,737,548 28,960,893 Cost of revenues: Cost of equipment rentals, excluding equipment rental depreciation........ 11,392,273 7,920,625 8,771,442 Depreciation, equipment rentals....... 9,753,507 7,335,000 8,710,280 Cost of sales of rental equipment..... 2,915,751 2,229,820 1,693,212 Cost of sales of parts and supplies... 1,316,267 915,469 857,161 ----------- ----------- ----------- Total cost of revenues.............. 25,377,798 18,400,914 20,032,095 ----------- ----------- ----------- Gross profit............................ 15,511,957 11,336,634 8,928,798 Selling, general and administrative expenses............................... 11,865,623 8,710,834 9,392,256 Non-rental depreciation................. 1,214,796 824,300 1,076,331 ----------- ----------- ----------- Operating income (loss)................. 2,431,538 1,801,500 (1,539,789) Interest expense........................ 2,171,959 1,404,334 1,884,720 Interest income......................... (176,612) (87,866) (133,707) Other (income), net..................... (398,159) (328,319) (165,562) ----------- ----------- ----------- Income (loss) before provision (benefit) for income taxes....................... 834,350 813,351 (3,125,240) Provision (benefit) for income taxes.... 317,053 309,070 (1,188,000) ----------- ----------- ----------- Net income (loss)....................... $ 517,297 $ 504,281 $(1,937,240) =========== =========== ===========
See accompanying notes. F-91 POWER RENTAL CO., INC. STATEMENTS OF STOCKHOLDERS' EQUITY
CLASS A CLASS B ADDITIONAL ------------- -------------- PAID IN RETAINED SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ------ ------ ------ ------- ---------- ---------- Balance at August 1, 1996.. 10 $10 20,000 $20,000 $522,550 $9,853,452 Net income............... 517,297 --- --- ------ ------- -------- ---------- Balance at July 31, 1997... 10 10 20,000 20,000 522,550 10,370,749 Net loss (unaudited)..... (1,937,240) --- --- ------ ------- -------- ---------- Balance at April 30, 1998 (unaudited)............... 10 $10 20,000 $20,000 $522,550 $8,433,509 === === ====== ======= ======== ==========
See accompanying notes. F-92 POWER RENTAL CO., INC. STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED YEAR ENDED APRIL 30, JULY 31, -------------------------- 1997 1997 1998 ------------ ------------ ------------ (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)................... $ 517,297 $ 504,281 $ (1,937,240) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization..... 11,018,848 8,190,183 9,825,293 Gain on equipment sales........... (1,294,474) (815,756) (1,603,959) Gain on property and equipment sales............................ (29,468) (47,940) (27,709) Deferred income taxes............. 87,846 86,530 (528,000) Changes in assets and liabilities: (Increase) decrease in accounts receivable..................... (135,231) 612,691 867,395 Decrease (increase) in inventory...................... 8,973 (21,226) (12,100) Increase in prepaid expenses and other assets................... (648,001) (194,009) (568,120) Increase (decrease) in accounts payable, accrued expenses and other liabilities 622,048 (109,060) 327,062 Increase in deferred rent....... 40,800 29,000 12,600 ------------ ------------ ------------ Total adjustments............. 9,671,341 7,730,413 8,292,462 ------------ ------------ ------------ Cash provided by operating activities......................... 10,188,638 8,234,694 6,355,222 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of rental equipment........ (1,769,523) (2,519,442) (245,790) Purchase of property and equipment.. (2,757,539) (2,115,320) (846,317) Intangibles associated with purchase of certain assets.................. (110,000) (110,000) Proceeds from sale of rental equipment.......................... 3,882,235 2,956,554 3,243,356 Proceeds from sale of property and equipment.......................... 139,723 65,562 204,980 ------------ ------------ ------------ Cash provided by (used in) investing activities......................... (615,104) (1,722,646) 2,356,229 CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on debt.......... (9,810,236) (7,115,253) (9,574,050) Principal payments on credit facility........................... (26,748,605) (19,096,555) (17,625,000) Borrowings on debt.................. 207,000 207,000 220,000 Borrowings under credit facility.... 26,726,605 19,579,955 18,715,000 Repayments from related parties..... 681,553 352,200 824,504 Advances to related parties......... (599,788) (461,550) (1,325,367) ------------ ------------ ------------ Cash used in financing activities... (9,543,471) (6,534,203) (8,764,913) ------------ ------------ ------------ Increase (decrease) in cash......... 30,063 (22,155) (53,462) Cash balance at beginning of period. 23,399 23,399 53,462 ------------ ------------ ------------ Cash balance at end of period....... $ 53,462 $ 1,244 $ -- ============ ============ ============
See accompanying notes. F-93 POWER RENTAL CO., INC. NOTES TO FINANCIAL STATEMENTS JULY 31, 1997 (THE INFORMATION AS OF APRIL 30, 1998 AND FOR THE NINE MONTHS ENDED APRIL 30, 1997 AND 1998 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Activity Power Rental Co., 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 eighteen locations and their principal market area is the Pacific Northwest of the United States. The nature of the Company's business is such that short-term obligations are typically met by cash flow generated from long-term assets. Consequently, consistent with industry practice, the balance sheets are presented on an unclassified basis. These financial statements are prepared on a historical cost basis and do not include any adjustments that may result from the acquisition of the Company by United Rentals, Inc. ("United") as more fully described in Note 10. Interim Financial Statements The accompanying balance sheet at April 30, 1998 and the statements of operations, stockholders' equity and cash flows for the nine-month periods ended April 30, 1997 and 1998 are unaudited and have been prepared on the same basis as the audited financial statements included herein. In the opinion of management, such unaudited financial statements include all adjustments necessary to present fairly the information set forth therein, which consist solely of normal recurring adjustments. The results of operations for such interim period are not necessarily indicative of results for the full year. Inventory Inventories consist primarily of general replacement parts 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 statement 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 ranging from three to seven years. Leasehold improvements are amortized using the straight-line method over the estimated lives of the improvements or the remaining life of the lease, whichever is shorter. F-94 POWER RENTAL CO., INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) JULY 31, 1997 (THE INFORMATION AS OF APRIL 30, 1998 AND FOR THE NINE MONTHS ENDED APRIL 30, 1997 AND 1998 IS UNAUDITED) 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 of $372,480 and covenants not to compete of $207,000. Accumulated amortization at July 31, 1997 and April 30, 1998 is $201,211 and $239,893, respectively. Goodwill is being amortized by the straight-line method over its estimated useful life of forty years. The covenants not to compete reflect agreements made regarding confidentiality and restricting competitive activity and are being amortized by the straight-line method over the period of the agreements, which is 5 years. Amortization expense was $50,545, $30,883 and $38,682 for the year ended July 31, 1997 and for the nine months ended April 30, 1997 and 1998, respectively. Rental Revenue Rental revenue is recorded as earned under the operating method. Advertising Costs The Companies advertise primarily through sponsorships, trade journals, trade associations and phone directories. All advertising costs are expensed as incurred. Advertising expense amounted to approximately $714,680, $551,700 and $597,810 in the year ended July 31, 1997 and for the nine months ended April 30, 1997 and 1998, 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 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. F-95 POWER RENTAL CO., INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) JULY 31, 1997 (THE INFORMATION AS OF APRIL 30, 1998 AND FOR THE NINE MONTHS ENDED APRIL 30, 1997 AND 1998 IS UNAUDITED) 3. RENTAL EQUIPMENT Rental equipment and related accumulated depreciation consisted of the following:
JULY 31, APRIL 30, 1997 1998 ----------- ----------- (UNAUDITED) Rental equipment.................................. $61,168,264 $68,578,382 Less accumulated depreciation..................... 25,593,197 30,619,731 ----------- ----------- Rental equipment, net............................. $35,575,067 $37,958,651 =========== ===========
4. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
JULY 31, APRIL 30, 1997 1998 ----------- ----------- (UNAUDITED) Transportation equipment........................... $ 5,143,693 $ 5,984,589 Office and shop equipment.......................... 2,236,792 2,643,613 Leasehold improvements............................. 3,573,110 4,401,822 ----------- ----------- 10,953,595 13,030,024 Less accumulated depreciation and amortization..... 3,651,759 4,651,821 ----------- ----------- Property and equipment, net........................ $ 7,301,836 $ 8,378,203 =========== ===========
5. DEBT Debt consists of the following:
JULY 31, APRIL 30, 1997 1998 --------- ----------- (UNAUDITED) Caterpillar Credit-Note with a monthly payment of $1,668 including interest of 5.6%............................. $ 24,020 $ 9,758 Ingersoll Rand--Various non-interest bearing notes with combined monthly payments of $100,064 and $2,850 in 1997 and 1998, respectively............................ 289,690 33,025 Allegro Escrow--Two notes with combined monthly payments of $4,297 including interest of 9.0%................... 175,653 148,018 Associates Commercial--Various notes with combined monthly payments of $24,451 including interest from 7.6% to 8.9%........................................... 905,505 4,163,677 Case Credit--Various notes with combined monthly payments of $211,021 including interest from 4.9% to 8.9%................................................... 3,823,564 3,216,130 J.D. Fulwiler--Note with monthly payment of $3,134 including interest of 8.0%............................. 27,285 -- Concord Commercial--Various notes with combined monthly payments of $143,858 including interest from 8.1% to 8.9%................................................... 4,019,259 3,466,002 John Deere Credit--Various notes with combined monthly payments of $133,615 including interest from 6.9% to 9.7%................................................... 2,399,434 1,647,305 Ford Motor Credit--Various notes with combined monthly payments of $121,192 including interest from 8.2% to 9.2%................................................... 1,918,226 1,823,173
F-96 POWER RENTAL CO., INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) JULY 31, 1997 (THE INFORMATION AS OF APRIL 30, 1998 AND FOR THE NINE MONTHS ENDED APRIL 30, 1997 AND 1998 IS UNAUDITED)
JULY 31, APRIL 30, 1997 1998 ----------- ----------- (UNAUDITED) AT&T Credit--Note with monthly payment of $2,599 including interest of 10.6%........................... $ 101,393 $ 77,829 Navistar Financial--Various notes with combined monthly payments of $53,762 including interest from 7.3% to 9.0%.................................................. 1,271,686 958,393 Seafirst Bank--Various notes with combined monthly payments of $523,962 including interest from 7.3% to 8.5%.................................................. 12,075,932 13,975,794 Seafirst Bank--Line of credit up to $19,000,000, expiring in February 1999 with interest payable monthly at 8.5%....................................... 3,810,000 4,900,000 JCB Finance--Note with monthly payment of $8,529 including interest of 8.51%........................... -- 243,440 Pacific Atlantic--Note with monthly payment of $2,610 including interest of 10.9%........................... -- 76,108 PACCAR Financial--Note with monthly payment of $3,663 including interest of 7.8%...................................... -- 150,654 Deutsche Financial--Note with monthly payment of $28,932 including interest of 8.13%..................................... -- 1,439,414 Notes payable to related party--due on demand including interest of 8.5%...................................... -- 220,000 ----------- ----------- $30,841,647 $36,548,720 =========== ===========
Substantially all rental equipment collateralize the above notes. All debt was paid off in June 1998 in connection with the acquisition discussed in Note 10. 6. INCOME TAXES The provision (benefit) for income taxes consists of the following:
YEAR ENDED NINE MONTHS ENDED JULY 31, APRIL 30, 1997 1997 1998 ---------- -------- ----------- (UNAUDITED) Current: Federal................................. $229,197 $222,530 $ (660,000) State................................... 10 10 -------- -------- ----------- 229,207 222,540 (660,000) Deferred: Federal................................. 34,832 34,612 (493,200) State................................... 53,014 51,918 (34,800) -------- -------- ----------- 87,846 86,530 (528,000) -------- -------- ----------- $317,053 $309,070 $(1,188,000) ======== ======== ===========
F-97 POWER RENTAL CO., INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) JULY 31, 1997 (THE INFORMATION AS OF APRIL 30, 1998 AND FOR THE NINE MONTHS ENDED APRIL 30, 1997 AND 1998 IS UNAUDITED) Significant components of the Company's deferred tax liability at July 31, 1997 and April 30, 1998 are as follows: JULY 31, APRIL 30, 1997 1998 ---------- ----------- (UNAUDITED) Net operating loss carryforward................... $ (469,000) $(1,125,000) Cumulative tax depreciation in excess of book..... 3,390,231 3,518,231 ---------- ----------- Deferred tax liability, net....................... $2,921,231 $ 2,393,231 ========== ===========
At July 31, 1998, the Company has net operating loss carryforwards of $1,142,326 for income tax purposes that expire in 2012. 7. RELATED PARTY TRANSACTIONS During the year ended July 31, 1997 and the nine months ended April 30, 1997 and 1998, the Company paid $628,533, $515,765 and $497,049 for advertising expenses to a partnership controlled by the Company's president and principal stockholder. The accompanying financial statements at July 30, 1997 and April 30, 1998, reflect amounts receivable of $509,473 and $659,174, respectively, from the president of the Company. These advances are made within the framework of a special drawing and loan account which bears interest at 8%. In addition, the Company is owed amounts from relatives of and related entities controlled by the president of the Company totaling $103,244 and $454,406 at July 31, 1997 and April 30, 1998, respectively. These advances are non-interest bearing. The Company conducts its operations primarily from various separate facilities under noncancellable lease agreements. Three of these facilities are owned either by the Company's president and principal stockholder or related entities controlled by the president of the Company. Another facility is leased to a limited partnership in which the general partner is the Company's president and principal stockholder. These leases expire at various dates through the year 2001. All of these agreements require the payment by the Company of property taxes, maintenance and insurance. Total rent expense paid to related parties and charged to current operations totaled $630,000, $480,100 and $628,500 for the year ended July 31, 1997 and nine months ended April 30, 1997 and 1998, respectively. In connection with the acquisition discussed in Note 10, the lease terms with related parties have been renegotiated. The remaining lease agreements are with unrelated third parties. These leases expire at various dates through the year 2006. Most of these agreements contain certain renewal options and provide for first right of refusal toward purchase. These agreements generally require the Company to pay all utilities, insurance, taxes and maintenance. Total rent expense charged to operations on unrelated F-98 POWER RENTAL CO., INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) JULY 31, 1997 (THE INFORMATION AS OF APRIL 30, 1998 AND FOR THE NINE MONTHS ENDED APRIL 30, 1997 AND 1998 IS UNAUDITED) third party leases for the year ended July 31, 1997 and nine months ended April 30, 1997 and 1998 were $786,928, $526,118 and $589,620, respectively. Some leases include scheduled base rent increases over the term of the leases. The total amount of the base rent payments is being charged to expense on a straight-line method over the terms of the leases. The Company recorded a liability for deferred rent to reflect the excess of rent expense over cash payments which is included in the accompanying balance sheets. The future minimum lease commitments under all unrelated third party operating leases that have noncancellable lease terms in excess of one year are as follows: Fiscal 1998.............. $ 868,660 1999.................. 667,360 2000.................. 586,600 2001.................. 449,440 2002.................. 317,940 Thereafter............ 399,030 ---------- $3,289,030 ==========
At July 31, 1997 and April 30, 1998 the Company was contingently liable as a guarantor on bank loans in the amount of $1,662,098 and $1,544,070, respectively, owed to the bank by its president and principal stockholder. These bank loans are also secured by substantial personal and real property assets of such stockholder. 8. SUPPLEMENTAL CASH FLOW INFORMATION For the year ended July 31, 1997 and the nine months ended April 30, 1997 and 1998, total interest paid was $2,019,792, $1,398,861 and $1,887,730, respectively. For the year ended July 31, 1997 and the nine months ended April 30, 1997 and 1998, total taxes paid was $899,655, $899,655 and $0, respectively. For the year ended July 31, 1997 and the nine months ended April 30, 1997 and 1998, the Company purchased $17,555,968, $12,365,796 and $13,971,123, respectively, of equipment which was financed. 9. EMPLOYEE BENEFIT PLAN The Company has a defined contribution 401(k) pension plan which covers substantially all employees. The Company makes discretionary contributions. Company contributions to the plan were $300,000, $300,000 and $0 for the year ended July 31, 1997 and for the nine months ended April 30, 1997 and 1998, respectively. 10. SUBSEQUENT EVENT On June 8, 1998, under the terms of the stock purchase agreement, United purchased all of the issued and outstanding capital stock of the Company. F-99 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-100 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-101 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 tax- es.......................... 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-102 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-103 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 as- sets.................... (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 period for income taxes................... 231,521 332,816 183,030 143,383 =========== =========== =========== ===========
See accompanying notes to combined financial statements. F-104 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-105 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-106 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-107 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-108 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-109 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-110 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. F-111 BNR GROUP OF COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS EXPRESSED IN CANADIAN DOLLARS) 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
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. F-112 BNR GROUP OF COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS EXPRESSED IN CANADIAN DOLLARS) 14. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED): 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 ======== ======== ========== ==========
(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-113 REPORT OF INDEPENDENT AUDITORS To the Board of Directors Industrial Lift, Inc. Vincentown, New Jersey We have audited the accompanying balance sheets of Industrial Lift, Inc. (a New Jersey State Corporation) as of December 31, 1996 and 1997, and the related statements of income, retained earnings 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 Industrial Lift, Inc. as of December 31, 1996 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Schalleur & Surgent, LLC Devon, Pennsylvania February 26, 1998, except for Note J which is as of July 20, 1998 F-114 INDUSTRIAL LIFT, INC. BALANCE SHEETS ASSETS
DECEMBER 31, -------------------------- MARCH 31, 1996 1997 1998 ------------ ------------ ------------ (UNAUDITED) Current assets: Cash............................... $ 186,093 $ 533,499 $ 91,852 Accounts receivable--trade......... 1,853,061 2,485,668 2,422,607 Investment in sales--type leases (Note D).......................... 390,009 274,181 313,284 Inventory (Note C)................. 1,468,070 2,501,870 3,092,138 Prepaid expenses................... 45,361 39,289 58,298 ------------ ------------ ------------ Total current assets........... 3,942,594 5,834,507 5,978,179 ------------ ------------ ------------ Property, plant and equipment: (Note A) Rental equipment................... 17,660,046 18,533,702 18,328,329 Land............................... 40,393 40,393 40,393 Building........................... 650,000 650,000 650,000 Machinery and equipment............ 739,126 748,735 748,735 ------------ ------------ ------------ 19,089,565 19,972,830 19,767,457 Less: accumulated depreciation..... (11,049,573) (11,879,828) (11,883,961) ------------ ------------ ------------ Net property, plant and equip- ment............................ 8,039,992 8,093,002 7,883,496 ------------ ------------ ------------ Other assets: Security deposits.................. 4,443 8,412 8,412 Investment in sales--type leases (Note D).......................... 1,823,833 1,282,955 1,465,927 Notes receivable--officers (Note G)................................ 455,068 438,319 438,319 ------------ ------------ ------------ Total other assets............. 2,283,344 1,729,686 1,912,658 ------------ ------------ ------------ Total assets................... $ 14,265,930 $ 15,657,195 $ 15,774,333 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt (Note E).......................... $ 3,620,426 $ 5,398,778 $ 3,471,645 Accounts payable................... 590,032 352,571 172,331 Accrued expenses (Note F).......... 136,181 182,362 104,572 Deposits and credits............... 74,500 335,441 349,993 ------------ ------------ ------------ Total current liabilities........ 4,421,139 6,269,152 4,098,541 Long-term liabilities: Long-term debt, net of current por- tion (Note E)..................... 8,405,283 7,271,718 9,836,815 ------------ ------------ ------------ Total liabilities................ 12,826,422 13,540,870 13,935,356 ------------ ------------ ------------ Stockholders' equity: Capital stock, no par value, 1,000 shares authorized, 200 shares issued and outstanding............ 220,000 220,000 220,000 Retained earnings.................. 1,219,508 1,896,325 1,618,977 ------------ ------------ ------------ Total stockholders' equity....... 1,439,508 2,116,325 1,838,977 ------------ ------------ ------------ Total liabilities & equity....... $ 14,265,930 $ 15,657,195 $ 15,774,333 ============ ============ ============
See accountant's audit report and notes to the financial statements. F-115 INDUSTRIAL LIFT, INC. STATEMENTS OF INCOME AND RETAINED EARNINGS
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ----------------------- --------------------- 1996 1997 1997 1998 ----------- ----------- ---------- ---------- (UNAUDITED) Income Sales, rentals, services, and interest on leases........... $15,873,782 $21,502,996 $5,110,685 $4,610,735 Cost of sales Beginning inventory........... 1,341,337 1,468,070 1,468,070 2,501,870 Purchases..................... 5,527,726 11,027,711 1,908,456 2,663,128 Direct labor.................. 826,677 710,655 315,892 313,085 Cost of used equipment sales.. 471,293 900,367 258,416 188,400 Other costs................... 4,016,301 4,005,126 1,256,381 1,080,651 ----------- ----------- ---------- ---------- Total goods available for sale....................... 12,183,334 18,111,929 5,207,215 6,747,134 Less: ending inventory...... 1,468,070 2,501,870 1,477,705 3,092,138 ----------- ----------- ---------- ---------- Total cost of sales......... 10,715,264 15,610,059 3,729,510 3,654,996 ----------- ----------- ---------- ---------- Gross profit.................... 5,158,518 5,892,937 1,381,175 955,739 Operating expenses.............. 5,146,620 5,264,130 1,288,572 1,251,812 ----------- ----------- ---------- ---------- Net income (loss) from 11,898 628,807 92,603 (296,073) operations..................... ----------- ----------- ---------- ---------- Other income Gain on disposal of non-rental assets....................... 24,228 14,861 307 10,975 Miscellaneous income.......... 707 1,219 129 1,069 Interest income............... 18,909 31,930 280 6,681 ----------- ----------- ---------- ---------- Total other income.......... 43,844 48,010 716 18,725 ----------- ----------- ---------- ---------- Net income (loss)............... 55,742 676,817 93,319 (277,348) Retained earnings--beginning.... 1,163,766 1,219,508 1,219,508 1,896,325 ----------- ----------- ---------- ---------- Retained earnings--ending....... $ 1,219,508 $ 1,896,325 $1,312,827 $1,618,977 =========== =========== ========== ==========
See accountant's audit report and notes to the financial statements. F-116 INDUSTRIAL LIFT, INC. STATEMENTS OF CASH FLOWS
YEAR ENDED THREE MONTHS ENDED DECEMBER 31, MARCH 31, ------------------------ -------------------- 1996 1997 1997 1998 ----------- ----------- --------- --------- (UNAUDITED) Cash flows from operating activities: Net income (loss)........... $ 55,742 $ 676,817 $ 93,319 $(277,348) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation................ 1,717,389 1,639,844 393,123 366,010 Gain on sale of assets...... (436,420) (477,760) (181,111) (171,595) (Increase) decrease in: Accounts receivable--trade.. 136,810 (632,607) (580,055) 63,061 Inventory................... (126,733) (1,033,800) (9,635) (590,268) Prepaid expenses............ 4,682 6,072 17,489 (19,009) Security deposits........... (3,969) (4,013) -- Increase (decrease) in: Accounts payable............ (94,283) (237,461) (233,643) (180,240) Accrued expenses............ 22,068 46,181 (67,339) (77,790) Deposits and credits........ 74,500 260,941 (74,500) 14,552 ----------- ----------- --------- --------- Net cash provided by (used in) operating activities......... 1,353,755 244,258 (646,365) (872,627) ----------- ----------- --------- --------- Cash flows from investing activities: Capital expenditures-- property, plant and equipment.................. (2,066,163) (2,153,839) (130,886) (346,778) Proceeds on sale of equipment.................. 1,076,908 1,465,872 247,485 361,869 Investment in sales--type leases..................... (966,008) (185,545) (91,209) (295,984) Proceeds received on lease payments................... 352,191 315,124 77,967 73,909 ----------- ----------- --------- --------- Net cash provided by (used in) investing activities......... (1,603,072) (558,388) 103,357 (206,984) ----------- ----------- --------- --------- Cash flows from financing activities: Net borrowing/(repayments) on note payable............ 258,175 644,787 416,317 637,964 (Advances)/repayments on note receivable--officers.. (2,156) 16,749 -- -- ----------- ----------- --------- --------- Net cash provided by (used in) financing activities......... 256,019 661,536 416,317 637,964 ----------- ----------- --------- --------- Net increase (decrease) in cash and cash equivalents.... 6,702 347,406 (126,691) (441,647) Cash--Beginning of the year... 179,391 186,093 186,093 533,499 ----------- ----------- --------- --------- Cash--Ending of the year...... $ 186,093 $ 533,499 $ 59,402 $ 91,852 =========== =========== ========= ========= Supplementary disclosure of cash flow information: Interest paid............... $ 1,097,114 $ 1,179,133 $ 180,757 $ 346,658 =========== =========== ========= =========
See accountant's audit report and notes to the financial statements F-117 INDUSTRIAL LIFT, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1997 (THE INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS ACTIVITY Industrial Lift, Inc. (the Company) is engaged in selling, rental and leasing of commercial lift equipment. The Company's headquarters are located in Vincentown, New Jersey and also has plant locations in Odenton, Maryland, Newport News, Virginia, and Ashland, Virginia. INTERIM FINANCIAL STATEMENTS The accompanying balance sheet as of March 31, 1998 and the statements of income and retained earnings and cash flows for the three month period ended March 31, 1997 and 1998 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. METHOD OF ACCOUNTING The Company maintains its books and records, and files its tax returns on the accrual basis of accounting. The financial statements have been prepared on that basis, in which revenue and gains are recognized when earned and expenses and losses are recognized when incurred. Preparation of the financial statements in conformity with generally accepted accounting principles requires the use of management's estimates. INCOME TAXES The Company, with the consent of its shareholders, elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code, which provides that, in lieu of corporation income taxes, the stockholders are taxed on the Company's taxable income. Therefore, no provision or liability for income taxes is reflected in these financial statements. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Improvements and betterments that materially extend the life of the asset are capitalized. Expenditures for maintenance and repairs that do not add materially to productive capacity or extend the life of an asset are expensed as incurred. The Company computes depreciation for financial reporting purposes using the straight line method over the estimated useful lives of the related assets. Both the straight-line and accelerated methods are utilized for tax purposes. When non-rental assets are retired, sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any gain or loss thereon is reflected in the current year as other income. F-118 INDUSTRIAL LIFT, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1997 (THE INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) NOTE B--CONCENTRATION OF CREDIT RISK The Company has concentrated its credit risk for cash by maintaining deposits in banks located within the same geographic region. The maximum loss that would have resulted from that risk totaled $196,567 and $301,682 at December 31, 1996 and 1997, respectively, and $0 as of March 31, 1998 for the excess of the deposit liabilities reported by the banks over the amounts that would have been covered by federal insurance. The Company provides sales on credit to substantially all of their customers, the majority of which are construction companies. As of December 31, 1996 and 1997, outstanding credit to customers is $1,853,061 and $2,485,668, respectively, and $2,422,607 as of March 31, 1998. NOTE C--INVENTORIES Inventories, which are stated at the lower of cost (first in/first out) or market, consist of the following:
DECEMBER 31, MARCH 31, --------------------- ----------- 1996 1997 1998 ---------- ---------- ----------- (UNAUDITED) New equipment........................... $ 850,650 $1,892,561 $2,548,109 Used equipment.......................... 6,590 22,632 26,461 Parts, accessories and labor............ 610,830 586,677 517,568 ---------- ---------- ---------- Total................................. $1,468,070 $2,501,870 $3,092,138 ========== ========== ==========
NOTE D--INVESTMENT IN LEASES The Company leasing operations consist of leasing commercial lift equipment under short term and long term rental agreements. Certain of these long term leases fall under the classification as sales-type leases, whereby the lease gives rise to a dealers profit at the inception of the lease. The Company's net investment in sales-type leases consist of:
DECEMBER 31, MARCH 31, ---------------------- ----------- 1996 1997 1998 ---------- ---------- ----------- (UNAUDITED) Minimum lease payment receivable..... $1,576,242 $1,034,885 $1,136,081 Estimated residual value of leased property............................ 637,600 522,251 643,130 ---------- ---------- ---------- 2,213,842 1,557,136 1,779,211 Less current portion................. (390,009) (274,181) (313,284) ---------- ---------- ---------- $1,823,833 $1,282,955 $1,465,927 ========== ========== ==========
Future annual minimum lease payments receivable on these leases are: 1998..................................... $274,181 1999..................................... 235,026 2000..................................... 193,609 2001..................................... 152,611 2002..................................... 87,532
F-119 INDUSTRIAL LIFT, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1997 (THE INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) The Company retains title to the leased equipment. The lessees pay taxes, licenses and insurance costs on the equipment. SHORT-TERM RENTALS The value of future minimum rental payments under operating lease agreements is not determinable. The Company does not maintain the accounting to summarize this information due to the short term nature of the leases and the high volume of which leases are entered. NOTE E--NOTES PAYABLE The Company has entered into various security agreements whereby they finance the equipment they purchased for leasing, rental and resale. The maturity dates vary according to the purchase date of the equipment and range between three to eight years. Equipment financing agreements consist of the following:
DECEMBER 31, MARCH 31, ----------------------- ----------- 1996 1997 1998 ----------- ----------- ----------- (UNAUDITED) Security agreement with Gehl Company, pay- able in monthly installments of interest only payments, interest rate averaging between 8.0% to 10.0%, secured by inven- tory and accounts receivable............. $ 451,355 $ 968,098 $ 1,153,018 Security agreement with Associates Commer- cial Corporation, payable in monthly in- stallments, floating interest rate aver- aging between 7.5% to 9.5%, secured by inventory, accounts receivable and rights to equipment financed................................. 10,622,836 10,006,648 9,822,376 Security agreement with CitiCorp, payable in monthly installments, interest averag- ing between 8.0% to 10.0%, secured by new and used inventory and rights to equip- ment financed............................ 153,428 -- -- Mortgage payable to Associates Commercial Corporation payable in monthly install- ments of $9,544, interest at 10%, secured by property and plant. Effective April 1, 1998 the payment will be $8,870 as a re- sult of a change in the interest rate to 8.4%..................................... 798,089 761,728 752,058 Security agreement with Grove North Amer- ica is payable within 360 days of origi- nal invoice date. Interest is calculated by Grove North America when the invoice is issued based on 360 day repayment terms. Interest is calculated at 8.25%, secured by inventory..................... -- 934,022 1,581,008 ----------- ----------- ----------- 12,025,708 12,670,496 13,308,460 Less: Current Portion................... 3,620,426 5,398,776 3,471,645 ----------- ----------- ----------- $ 8,405,282 $ 7,271,720 $ 9,836,815 =========== =========== ===========
F-120 INDUSTRIAL LIFT, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1997 (THE INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) Long-Term Maturities at December 31, 1997 are as follows: 1999................................... $2,311,740 2000................................... 2,282,507 2001................................... 1,832,837 2002................................... 308,428 Thereafter............................. 536,208 ---------- $7,271,720 ==========
NOTE F--PROFIT SHARING CONTRIBUTION PAYABLE The Company has a profit sharing plan that provides coverage for all eligible employees who have been employed by the Company for at least six months at the end of the year. Each participant receives a proportionate share of the contribution based on his or her compensation to total compensation. The amount of the employer contributions is determined by the board of directors during the course of the year. Profit sharing contributions for the years ended December 31, 1996 and 1997 was $30,000 and $35,000, respectively, and $8,750 and $10,912 for the three months ended March 31, 1997 and 1998, respectively. NOTE G--RELATED PARTY TRANSACTIONS Included in other assets as of December 31, 1996 and 1997 and March 31, 1998 is $455,068, $438,319 and $438,319 in loans to shareholders including $34,694, $17,946 and $17,946 of accrued interest respectively. The notes have no repayment terms and are accruing interest at 4%. Repayment of $34,694 was made on the loans in 1997. NOTE H--OPERATING LEASES The Company, as lessee, leases certain equipment and plant facilities under operating lease agreements. The Company entered into a three year lease agreement in April, 1997 for its facilities located in Odenton, Maryland. This lease calls for monthly rental payments of $4,213 and $4,424 over the next two consecutive years of the lease. The Company also rents its facilities located in Newport News, Virginia. The two year lease agreement was entered into in August, 1996. Monthly payments for the next year lease is $3,800 per month. The Company has a lease agreement for their Ashland, Virginia facility which began in June, 1997. The monthly lease payments for the 1998-1999 lease year are $1,200 per month. F-121 INDUSTRIAL LIFT, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1997 (THE INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) Certain commercial lift equipment rented to customers under the company's leasing operations are leased under the following operating lease agreements: . Eighty-four month lease beginning in December, 1997--First two payments at $3,235 per month--Eighty-two payments at $9,185 per month . Seventy-two month lease beginning in December, 1997--First two payments at $18,858 per month--Seventy payments at $28,578 per month . Seventy-two month lease beginning in November, 1997--First two payments at $5,703 per month--Seventy payments at $18,598 per month The company has a lease agreement for their telephone and computer system which began in December, 1997. The agreement is for sixty months at $4,667 per month. Future rental payments under these operating leases is as follows: 1998................................... $1,094,000 1999................................... 1,002,460 2000................................... 857,531 2001................................... 805,448 2002................................... 795,580 Thereafter............................. 751,182 ---------- $5,306,201 ==========
NOTE I--LITIGATION In 1996 the Company settled a claim with the State of New Jersey and was assessed $1,700 in sales tax, which it paid. During 1995 the Company had been in a personal injury claim based upon theories of negligence, product liability, and willful and wanton disregard. This claim was settled in 1996 at no cost to the Company. NOTE J--SUBSEQUENT EVENT On May 12, 1998, United Rentals, Inc. purchased all of Industrial Lift, Inc.'s issued and outstanding common stock. F-122 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders Able Equipment Rental, Inc. We have audited the combined balance sheet of Able Equipment Rental, Inc. (See Note 1) (the "Companies") as of December 31, 1997 and the related combined statements of income, stockholders' equity and partners' capital and cash flows for the year then ended. These financial statements are the responsibility of the Companies' management. 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 combined financial statements referred to above present fairly, in all material respects, the combined financial position of Able Equipment Rental, Inc. at December 31, 1997 and the combined results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP MetroPark, New Jersey April 15, 1998 F-123 ABLE EQUIPMENT RENTAL, INC. COMBINED BALANCE SHEETS
DECEMBER FEBRUARY 31, 1997 28, 1998 ----------- ----------- (UNAUDITED) ASSETS Cash................................................... $ 489,330 $ 273,090 Accounts receivable, net of allowance for doubtful accounts of $166,000 and $181,000 in 1997 and 1998, respectively.......................................... 2,725,794 2,670,554 Unbilled receivables................................... 359,000 395,000 Inventory.............................................. 583,013 413,617 Rental equipment, net.................................. 9,413,628 9,518,678 Property and equipment, net............................ 696,070 1,008,900 Prepaid expenses and other assets...................... 145,742 116,589 ----------- ----------- Total assets....................................... $14,412,577 $14,396,428 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL Liabilities: Accounts payable, accrued expenses and other liabilities......................................... $ 989,038 $ 784,412 Debt................................................. 8,120,710 8,395,970 Stockholder loan..................................... 364,600 364,600 Deferred rent........................................ 18,247 18,247 Deferred tax liability............................... 86,348 113,735 ----------- ----------- Total liabilities.................................. 9,578,943 9,676,964 Commitments and contingencies Stockholders' equity and partners' capital: Stockholders' equity: Common stock......................................... 17,000 17,000 Additional paid-in capital........................... 102,978 102,978 Retained earnings.................................... 4,278,962 4,151,355 ----------- ----------- 4,398,940 4,271,333 Partners' capital..................................... 434,694 448,131 ----------- ----------- Total stockholders' equity and partners' capital... 4,833,634 4,719,464 ----------- ----------- Total liabilities and stockholders' equity and partners' capital..................................... $14,412,577 $14,396,428 =========== ===========
See accompanying notes. F-124 ABLE EQUIPMENT RENTAL, INC. COMBINED STATEMENTS OF INCOME
TWO MONTHS TWO MONTHS YEAR ENDED ENDED ENDED DECEMBER FEBRUARY 28, FEBRUARY 31, 1997 1997 28, 1998 ----------- ------------ ---------- (UNAUDITED) Revenues: Equipment rentals........................ $17,081,826 $1,631,226 $2,633,136 Sales of rental equipment................ 365,670 -- -- Sales of parts, supplies and new equipment............................... 1,847,708 503,961 757,212 ----------- ---------- ---------- Total revenues............................. 19,295,204 2,135,187 3,390,348 Cost of revenues: Cost of equipment rentals, excluding equipment rental depreciation........... 6,944,226 1,005,933 1,306,857 Depreciation, equipment rentals.......... 1,667,366 201,010 302,678 Cost of rental equipment sales........... 293,238 -- -- Cost of parts, supplies and new equipment sales................................... 1,518,807 239,576 272,657 ----------- ---------- ---------- Total cost of revenues..................... 10,423,637 1,446,519 1,882,192 ----------- ---------- ---------- Gross profit............................... 8,871,567 688,668 1,508,156 Selling, general and administrative expenses.................................. 6,438,632 627,098 1,241,182 Non-rental depreciation.................... 172,489 14,440 27,130 ----------- ---------- ---------- Operating income........................... 2,260,446 47,130 239,844 Interest expense........................... 591,701 42,099 113,995 ----------- ---------- ---------- Income before provision for income taxes... 1,668,745 5,031 125,849 Provision for income taxes................. 61,235 19,436 36,269 ----------- ---------- ---------- Net income (loss).......................... $ 1,607,510 $ (14,405) $ 89,580 =========== ========== ==========
See accompanying notes. F-125 ABLE EQUIPMENT RENTAL, INC. COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
COMMON STOCK ADDITIONAL -------------- PAID-IN RETAINED PARTNERS' SHARES AMOUNT CAPITAL EARNINGS CAPITAL ------ ------- ---------- ---------- --------- Balance at January 1, 1997.... 1,700 $17,000 $102,978 $3,290,014 $ 483,975 Capital contributions....... -- 6,000 Stockholders and capital distributions.............. (322,246) (351,597) Net income.................. 1,311,194 296,316 ----- ------- -------- ---------- --------- Balance at December 31, 1997.. 1,700 $17,000 $102,978 $4,278,962 $ 434,694 Stockholders distributions (unaudited)................ (203,750) -- Net income (unaudited)...... 76,143 13,437 ----- ------- -------- ---------- --------- Balance at February 28, 1998 (unaudited).................. 1,700 $17,000 $102,978 $4,151,355 $ 448,131 ===== ======= ======== ========== =========
See accompanying notes. F-126 ABLE EQUIPMENT RENTAL, INC. COMBINED STATEMENTS OF CASH FLOWS
TWO MONTHS ENDED YEAR ENDED FEBRUARY 28, DECEMBER 31, -------------------- 1997 1997 1998 ------------ --------- --------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................... $ 1,607,510 $ (14,405) $ 89,580 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation............................ 1,839,855 215,450 329,808 Gain on sale of property and equipment.. (72,432) (6,556) (559) Deferred tax liability.................. 26,340 19,436 27,387 Changes in assets and liabilities: (Increase) Decrease in accounts receivable........................... (956,085) 57,264 55,240 Increase in unbilled receivables...... (142,000) (23,000) (36,000) Increase (Decrease) in inventory...... (346,085) 102,170 169,396 Decrease (Increase) in prepaid expenses and other assets............ 5,467 (62,149) 29,153 Increase (Decrease) in accounts payable, accrued expenses and other liabilities.......................... 724,666 (29,375) (204,627) Increase in deferred rent............. 18,247 -- -- ----------- --------- --------- Cash provided by operating activities......................... 2,705,483 258,835 459,378 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of rental equipment.............. (5,395,221) (399,294) (407,728) Proceeds from sale of rental equipment.... 365,670 22,249 613 Purchases of property and equipment....... (468,927) (54,417) (340,014) ----------- --------- --------- Cash used in investing activities... (5,498,478) (431,462) (747,129) CASH FLOWS FROM FINANCING ACTIVITIES Capital contributions..................... 6,000 -- -- Stockholders and capital distributions.... (673,843) -- (203,750) Principal payments on debt................ (2,495,519) (343,900) (311,207) Borrowings under credit facility.......... 6,116,144 346,667 586,468 ----------- --------- --------- Cash provided by financing activities......................... 2,952,782 2,767 71,511 ----------- --------- --------- Increase (Decrease) in cash............... 159,787 (169,860) (216,240) Cash balance at beginning of period....... 329,543 329,543 489,330 ----------- --------- --------- Cash balance at end of period....... $ 489,330 $ 159,683 $ 273,090 =========== ========= =========
See accompanying notes. F-127 ABLE EQUIPMENT RENTAL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1997 (THE INFORMATION AS OF FEBRUARY 28, 1998 AND FOR THE TWO MONTHS ENDED FEBRUARY 28, 1997 AND 1998 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The combined financial statements of Able Equipment Rental, Inc. include the accounts of the following entities: Rental Equipment, Inc.; Butler & Son, Inc.; Butler & Derbyshire, Inc.; Butler & O'Connor; Butler & Butler; Butler, Rollins & Butler; Butler, Schlerf & Butler; Butler, Westbrook & Butler; Butler, Binder & Butler; Butler, Cook & Butler; Butler, Henkle & Butler; Butler, McKenney & Butler; Butler, Breitenstein & Butler; Butler, Escalante & Butler; and Butler, Paeper & Butler (collectively the "Companies"). The Companies are affiliated through common ownership. All significant intercompany accounts and transactions have been eliminated in combination. These combined financial statements are prepared on a historical cost basis and do not include any adjustments that may result from the acquisition of the Companies by United Rentals, Inc. ("United") as more fully described in Note 10. Business Activity The Companies rent, sell and repair construction equipment for use by contractor, industrial and homeowners markets. The rentals are on a daily, weekly or monthly basis. The Companies have six locations and their principal market area is Southern California. The nature of the Companies' 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. On March 29, 1997 Rental Equipment, Inc. acquired for $1,500,000 a substantial amount of rental equipment and fixed assets from Sam's-U-Rent, 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. Interim Financial Statements The accompanying combined balance sheet at February 28, 1998 and the combined statements of income, stockholders' equity and partners' capital and cash flows for the two-month periods ended February 28, 1997 and 1998 are unaudited and have been prepared on the same basis as the audited combined financial statements included herein. In the opinion of management, such unaudited combined financial statements include all adjustments 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, fuel and equipment held for resale 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 seven-year useful life with no salvage value. F-128 ABLE EQUIPMENT RENTAL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 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 rental equipment and cost of sales of rental equipment, respectively, in the combined statement of income. Property and Equipment Property and equipment is stated at cost. Depreciation of property and equipment is computed on the straight-line method over an estimated useful life of seven years. Leasehold improvements are amortized using the straight- line method over the estimated lives of the leasehold improvement or the remaining life of the lease, whichever is shorter. 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 Companies advertise primarily through trade journals, trade associations and phone directories. All advertising costs are expensed as incurred. Advertising expense amounted to approximately $144,000, $17,000 and $24,000 in the year ended December 31, 1997 and in the two months ended February 28, 1997 and 1998, respectively. Income Taxes Rental Equipment, Inc. and Butler & Son, Inc. have elected, by unanimous consent of their 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 Companies do not pay federal or state income taxes; instead, the shareholders are liable for individual income taxes on their profits. Butler & Derbyshire, Inc., a C Corporation for federal tax purposes, 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 combined financial statements. Deferred tax balances are determined by using tax rates to be in effect when the taxes will actually be paid or refunds received. All the other entities included in these combined financial statements are partnerships. No provision has been made in the accompanying financial statements for any federal, state, or local income taxes since they are the liability of the individual partners. 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. F-129 ABLE EQUIPMENT RENTAL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 2. CONCENTRATIONS OF CREDIT RISK The Companies maintain 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 Companies' customer base and their credit policy. 3. RENTAL EQUIPMENT Rental equipment and related accumulated depreciation consists of the following:
DECEMBER 31, FEBRUARY 28, 1997 1998 ------------ ------------ (UNAUDITED) Rental equipment................................... $16,709,153 $17,116,881 Less accumulated depreciation...................... 7,295,525 7,598,203 ----------- ----------- Rental equipment, net.............................. $ 9,413,628 $ 9,518,678 =========== ===========
4. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, FEBRUARY 28, 1997 1998 ------------ ------------ (UNAUDITED) Transportation equipment........................... $ 901,400 $1,228,870 Furniture and fixtures............................. 321,638 330,289 Leasehold improvements............................. 259,854 259,854 ---------- ---------- 1,482,892 1,819,013 Less accumulated depreciation...................... 786,822 810,113 ---------- ---------- Total............................................ $ 696,070 $1,008,900 ========== ==========
5. DEBT AND STOCKHOLDER LOAN Debt and stockholder loan consists of the following:
DECEMBER 31, FEBRUARY 28, 1997 1998 ------------ ------------ (UNAUDITED) Sanwa Bank--Various lines of credit with combined monthly payments of $122,452 and $163,958, in 1997 and 1998 respectively including interest from 8.1% to 9.5%............................... $8,120,710 $8,395,970 Stockholder Loan--No set principal payments. Loan is due on December 13, 1999. The loan accrues interest at a rate of 10% per year. ............ 364,600 364,600 ---------- ---------- $8,485,310 $8,760,570 ========== ==========
Substantially all rental equipment collateralized the above bank notes. All debt was paid off in connection with the acquisition discussed in Note 10. F-130 ABLE EQUIPMENT RENTAL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 6. INCOME TAXES The provision for income taxes consists of the following:
TWO MONTHS ENDED YEAR ENDED FEBRUARY 28, DECEMBER 31, --------------- 1997 1997 1998 ------------ ------- ------- (UNAUDITED) Current: Federal....................................... $20,009 $ -- $ 7,023 State......................................... 14,886 -- 1,859 ------- ------- ------- 34,895 -- 8,882 Deferred: Federal....................................... -- -- State......................................... 26,340 19,436 27,387 ------- ------- ------- 26,340 19,436 27,387 ------- ------- ------- $61,235 $19,436 $36,269 ======= ======= =======
Significant components of the Companies deferred tax liability are as follows:
DECEMBER 31, FEBRUARY 28, 1997 1998 ------------ ------------ (UNAUDITED) Difference in basis of accounting.................. $34,375 $ 54,566 Cumulative tax depreciation in excess of book...... 51,973 59,169 ------- -------- Deferred tax liability............................. $86,348 $113,735 ======= ========
7. OPERATING LEASES The Companies lease six store locations on long-term leases. The Companies are responsible for all operating expenses of the facilities including property taxes, assessments, insurance, repairs and maintenance. These leases have various terms and extend through May 2007 and include scheduled base rent increases over the term of the leases. The total amount of the base rent payments is being charged to expense on the straight-line method over the terms of the leases. The Companies recorded a liability for deferred rent to reflect the excess of rent expense over cash payments which is included in the accompanying combined balance sheet. Total rent expense for the year ended December 31, 1997 and for the two months ended February 28, 1997 and 1998 was approximately $846,000, $66,000 and $182,000, respectively. At December 31, 1997, minimum lease commitments under all operating leases, with initial or remaining lease terms of more than one year, are as follows: 1998......................................................... $ 918,000 1999......................................................... 851,000 2000......................................................... 810,000 2001......................................................... 810,000 2002......................................................... 810,000 Thereafter................................................... 3,230,000 ---------- Total...................................................... $7,429,000 ==========
F-131 ABLE EQUIPMENT RENTAL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 8. COMMON STOCK The common stock of the Companies at December 31, 1997 and February 28, 1998 (unaudited) is summarized as follows:
SHARES ---------------------- ISSUED AND PAR VALUE AUTHORIZED OUTSTANDING AMOUNT --------- ---------- ----------- ------- Rental Equipment, Inc. ............ $10 7,500 500 $ 5,000 Butler & Son, Inc. ................ no par 5,000 200 2,000 Butler & Derbyshire, Inc........... no par 5,000 1,000 10,000 ----- ------- 1,700 $17,000 ===== =======
9. SUPPLEMENTAL CASH FLOW INFORMATION For the year ended December 31, 1997 and for the two months ended February 28, 1997 and 1998, total interest paid was $554,701, $48,666 and $114,822, respectively. For the year ended December 31, 1997 and for the two months ended February 28, 1997 and 1998, total income taxes paid was $9,000, $0 and $0, respectively 10. SUBSEQUENT EVENT On March 23, 1998, under the terms of the stock purchase agreement, United purchased all of the issued and outstanding capital stock of Rental Equipment Inc., Butler & Son, Inc. and Butler & Derbyshire, Inc. as well as the net assets of the partnerships included herein. F-132 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders Valley Rentals, Inc. We have audited the combined balance sheet of Valley Rentals, Inc. (see Note 1) (the "Companies") as of December 31, 1997 and the related combined statements of income, stockholders' equity and partners' capital and cash flows for the year then ended. These financial statements are the responsibility of the Companies' management. 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 combined financial statements referred to above present fairly, in all material respects, the combined financial position of Valley Rentals, Inc. at December 31, 1997, and the combined results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP MetroPark, New Jersey April 20, 1998, except for Note 10, as to which the date is April 22, 1998 F-133 VALLEY RENTALS, INC. COMBINED BALANCE SHEETS
DECEMBER 31, MARCH 31, 1997 1998 ------------ ----------- (UNAUDITED) ASSETS Cash................................................. $ 663,540 $ 86,842 Accounts receivable, net of allowance for doubtful accounts of $117,275................................ 2,116,829 1,955,545 Inventory............................................ 169,514 171,114 Rental equipment, net................................ 9,696,900 9,846,963 Property and equipment, net.......................... 1,791,348 1,763,087 Prepaid expenses and other assets.................... 94,146 50,945 ----------- ----------- Total assets..................................... $14,532,277 $13,874,496 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL Liabilities: Accounts payable, accrued expenses and other liabilities....................................... $ 1,684,216 $ 1,436,169 Stockholder loan................................... 137,385 103,675 Debt............................................... 1,109,707 1,432,271 ----------- ----------- Total liabilities................................ 2,931,308 2,972,115 Commitments and contingencies Stockholders' equity and partners' capital: Stockholders' equity: Common stock, Valley Rentals, Inc., no par value, 10,000 shares authorized, 3,633 shares issued and outstanding............... 58,650 58,650 Additional paid-in capital......................... 1,854,431 1,854,431 Retained earnings.................................. 9,691,223 8,992,635 Partners' capital (deficit)--Valley Equipment Leasing, LLC ...................................... (3,335) (3,335) ----------- ----------- Total stockholders' equity and partners' capital. 11,600,969 10,902,381 ----------- ----------- Total liabilities and stockholders' equity and partners' capital............................... $14,532,277 $13,874,496 =========== ===========
See accompanying notes. F-134 VALLEY RENTALS, INC. COMBINED STATEMENTS OF INCOME
THREE MONTHS ENDED YEAR ENDED MARCH 31, DECEMBER 31, ---------------------- 1997 1997 1998 ------------ ---------- ---------- (UNAUDITED) Revenues: Equipment rentals....................... $12,998,863 $2,984,396 $2,835,547 Sales of rental equipment............... 663,776 201,797 351,103 Sales of parts, supplies and new equipment.............................. 1,965,431 203,804 226,372 ----------- ---------- ---------- Total revenues........................ 15,628,070 3,389,997 3,413,022 Cost of revenues: Cost of equipment rentals, excluding equipment rental depreciation.......... 3,809,895 834,400 1,051,236 Depreciation, equipment rentals......... 3,475,710 758,568 783,393 Cost of rental equipment sales.......... 336,664 186,153 170,128 Cost of parts, supplies and new equipment sales........................ 1,001,695 138,994 159,831 ----------- ---------- ---------- Total cost of revenues................ 8,623,964 1,918,115 2,164,588 ----------- ---------- ---------- Gross profit.......................... 7,004,106 1,471,882 1,248,434 Selling, general and administrative expenses................................. 4,725,084 1,159,283 1,226,219 Non-rental depreciation................... 304,895 69,072 91,525 ----------- ---------- ---------- Operating income (loss)............... 1,974,127 243,527 (69,310) Interest expense.......................... 159,488 23,739 12,321 Interest (income)......................... (61,651) (15,784) (19,445) Other (income), net....................... (37,427) 7,053 9,785 ----------- ---------- ---------- Net income (loss)..................... $ 1,913,717 $ 228,519 $ (71,971) =========== ========== ==========
See accompanying notes. F-135 VALLEY RENTALS, INC. COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
COMMON STOCK ADDITIONAL PARTNERS' -------------- PAID-IN RETAINED CAPITAL SHARES AMOUNT CAPITAL EARNINGS (DEFICIT) ------ ------- ---------- ----------- --------- Balance at January 1, 1997.... 3,633 $58,650 $1,854,431 $ 8,819,142 $(10,877) Net income.................. 1,906,175 7,542 Stockholder distributions... (1,034,094) ----- ------- ---------- ----------- -------- Balance at December 31, 1997.. 3,633 58,650 1,854,431 9,691,223 (3,335) Net loss (Unaudited)........ (71,971) Stockholder distributions (Unaudited)................ (626,617) ----- ------- ---------- ----------- -------- Balance at March 31, 1998 (Un- audited)..................... 3,633 $58,650 $1,854,431 $ 8,992,635 $ (3,335) ===== ======= ========== =========== ========
See accompanying notes. F-136 VALLEY RENTALS, INC. COMBINED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED YEAR ENDED MARCH 31, DECEMBER 31, ----------------------- 1997 1997 1998 ------------ ---------- ----------- (UNAUDITED) Cash flows from operating activities Net income (loss)...................... $ 1,913,717 $ 228,519 $ (71,971) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation......................... 3,780,605 827,640 874,918 Gain on rental equipment sales....... (327,112) (15,644) (180,975) Changes in assets and liabilities: (Increase) decrease in accounts re- ceivable........................... (245,964) (72,829) 161,284 Decrease (increase) in inventory.... 1,557 (2,500) (1,600) (Increase) decrease in prepaid ex- penses and other assets............ (27,197) 34,521 43,201 Decrease in accounts payable, accrued expenses and other liabilities........................ (26,197) (358,397) (248,047) ----------- ---------- ----------- Cash provided by operating activities.. 5,069,409 641,310 576,810 Cash flows from investing activities Purchase of rental equipment........... (3,479,228) (287,751) (1,006,687) Proceeds from sale of rental equipment. 663,776 201,797 351,103 Purchases of property and equipment.... (364,461) (127,632) (63,264) ----------- ---------- ----------- Cash used in investing activities...... (3,179,913) (213,586) (718,848) Cash flows from financing activities Stockholder distribution............... (1,034,094) (1,471,458) (626,617) Principal payments on debt............. (2,706,431) (178,032) (253,043) Borrowings under credit facilities..... 2,193,000 1,000,000 445,000 ----------- ---------- ----------- Cash used in financing activities...... (1,547,525) (649,490) (434,660) ----------- ---------- ----------- Increase (decrease) in cash............ 341,971 (221,766) (576,698) Cash balance at beginning of period.... 321,569 321,569 663,540 ----------- ---------- ----------- Cash balance at end of period.......... $ 663,540 $ 99,803 $ 86,842 =========== ========== ===========
See accompanying notes. F-137 VALLEY RENTALS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1997 (THE INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The combined financial statements of Valley Rentals, Inc. include the accounts of Valley Rentals, Inc. ("Valley") and Valley Equipment Leasing, LLC ("Valley Equipment") (collectively the "Companies"). The Companies are affiliated through common ownership. All significant intercompany accounts and transactions have been eliminated in combination. These combined financial statements are prepared on a historical cost basis and do not include any adjustments that may result from the acquisition of the Companies by United Rentals, Inc. ("United") as more fully described in Note 10. BUSINESS ACTIVITIES The Companies rent, sell and repair construction equipment for use by contractor, industrial and homeowners markets. The rentals are on a daily, weekly or monthly basis. The Companies have three locations (Longview, Vancouver and Turnwater) and the principal market area is Washington State. The nature of the Companies' 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. INTERIM FINANCIAL STATEMENTS The accompanying combined balance sheet at March 31, 1998 and the combined statements of income, stockholders' equity and partners' capital and cash flows for the three-month periods ended March 31, 1997 and 1998 are unaudited and have been prepared on the same basis as the audited 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 period are not necessarily indicative of results for the full year. INVENTORY Inventories consists primarily of equipment, 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. Rental equipment costing less than $1,500 is immediately expensed at the date of purchase. Depreciation for rental equipment is computed using the straight-line method over an estimated five to seven-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 rental equipment and cost of sales of rental equipment, respectively, in the combined statement of income. F-138 VALLEY RENTALS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) PROPERTY AND EQUIPMENT Property and equipment is stated at cost. The Company capitalizes all property and equipment purchases greater than $1,500. Depreciation of property and equipment is computed on the straight-line method over estimated useful lives of 5 to 10 years with no salvage value. Leasehold improvements are amortized using the straight-line method over the estimated lives of the improvements or the remaining life of the lease, whichever is shorter. 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 Companies advertise primarily through trade journals, trade associations and phone directories. All advertising costs are expensed as incurred. Advertising expense amounted to $250,984, $49,386 and $51,026 in the year ended December 31, 1997 and for the three months ended March 31, 1997 and 1998, respectively. INCOME TAXES Valley has elected, by unanimous consent of its shareholders, to be taxed under the provisions of Subchapter S of the Internal Revenue Code for federal purposes. Under those provisions, Valley does not pay federal income taxes; instead, the shareholders are liable for individual income taxes on Valley's profits. Valley Equipment, an LLC, is not a taxable entity and, therefore, incurs no income tax liability. Any profits and losses of Valley Equipment flow through to the individual members. 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 Companies maintain 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 Companies' customer base and their credit policy. 3. RENTAL EQUIPMENT Rental equipment and related accumulated depreciation consists of the following:
DECEMBER 31, MARCH 31, 1997 1998 ------------ ----------- (UNAUDITED) Rental equipment................................... $22,504,852 $22,858,436 Less accumulated depreciation...................... 12,807,952 13,011,473 ----------- ----------- Rental equipment, net.............................. $ 9,696,900 $ 9,846,963 =========== ===========
F-139 VALLEY RENTALS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 4. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, MARCH 31, 1997 1998 ------------ ----------- (UNAUDITED) Land................................................ $ 463,000 $ 463,000 Building and building improvements.................. 431,313 431,313 Transportation equipment............................ 1,360,766 1,424,030 Furniture, fixtures and equipment................... 487,153 487,153 Leasehold improvements.............................. 557,781 557,781 ---------- ---------- 3,300,013 3,363,277 Less accumulated depreciation....................... 1,508,665 1,600,190 ---------- ---------- Total............................................... $1,791,348 $1,763,087 ========== ==========
5. DEBT Debt consists of the following:
DECEMBER 31, MARCH 31, 1997 1998 ------------ ----------- (UNAUDITED) Columbia State Bank--Various notes with combined monthly payments of $21,148 including interest of 9%................................................ $ 779,050 $ 739,337 Columbia State Bank--Revolving line of credit loan of $1,500,000 expiring on June 1, 1998 and bearing interest at 0.5% over prime....................... 0 445,000 John Deere Credit--Various notes with combined monthly payments of $31,093 including interest from 5.5% to 5.9%................................. 262,918 206,202 Ingersoll Rand--Various non-interest bearing notes with combined monthly payments of $14,253......... 67,739 41,732 ---------- ---------- $1,109,707 $1,432,271 ========== ==========
Substantially all assets collateralize the above notes. All debt was paid off in connection with the acquisition discussed in Note 10. 6. OPERATING LEASES The Companies lease two store locations on long term leases. The Companies are responsible for all operating expenses of the facilities including property taxes, assessments, insurance, repairs and maintenance. These leases have various terms and extend through December 2001. Total rent expense for the year ended December 31, 1997 and for the three months ended March 31, 1997 and 1998 was approximately $136,100, $33,900 and $33,900, respectively. F-140 VALLEY RENTALS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) At December 31, 1997, minimum lease commitments under all operating leases, with initial or remaining lease terms of more than one year, are as follows: 1998................................................................ $225,452 1999................................................................ 218,252 2000................................................................ 204,300 2001................................................................ 58,710 2002................................................................ 0 -------- Total............................................................... $706,714 ========
7. RELATED PARTY TRANSACTIONS The Companies lease two of its three operating facilities from the president and a majority stockholder of the Companies on a five year lease basis expiring October 31, 2000 and December 31, 2001. The Companies are responsible for all operating expenses of the facilities including property taxes, assessment, insurance, repairs and maintenance. Total rent expense for the year ended December 31, 1997 and for the three months ended March 31, 1997 and 1998 was approximately $124,800, $31,200 and $31,200, respectively. In connection with the acquisition discussed in Note 10, the lease terms have been renegotiated. The Companies paid $50,000, $0 and $0 during the year ended December 31, 1997, and the three months ended March 31, 1997 and 1998, respectively, to the members of the board of directors, who are also shareholders. The Companies also have a note payable to its majority stockholder totaling $137,385 and $103,675 at December 31, 1997 and March 31, 1998, respectively, bearing interest at 8.75%. No repayment schedule has been established. In January and April 1998, the Companies made payments of $627,542 on behalf of its Stockholders to the Internal Revenue Service. 8. SUPPLEMENTAL CASH FLOW INFORMATION For the year ended December 31, 1997 and for the three months ended March 31, 1997 and 1998 total interest paid was $159,517, $25,499 and $14,050, respectively. During 1997 the Companies purchased $508,830 of equipment which was financed and $72,993 of equipment which was traded in like-kind exchanges. During the three months ended March 31, 1997 and 1998 the Companies purchased $187,737 and $96,897 of equipment, respectively, which was financed. 9. PENSION AND PROFIT-SHARING PLANS The Companies have a defined contribution 401(k) pension plan which covers substantially all employees. The Companies match 10% up to the first six percent of the employees contribution. Companies contributions to the plan were $9,773, $2,762 and $3,577 for the year ended December 31, 1997 and for the three months ended March 31, 1997 and 1998, respectively. In addition, Valley maintains a profit-sharing plan which covers substantially all employees. Valley's contributions are discretionary and amounted to $140,000, $30,000 and $34,500 for the year ended December 31, 1997 and for the three months ended March 31, 1997 and 1998, respectively. 10. SUBSEQUENT EVENT On April 22, 1998, under the terms of the stock purchase agreement, United purchased all of the issued and outstanding capital stock of the Companies. F-141 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders Channel Equipment Holding, Inc. We have audited the accompanying combined balance sheet of Channel Equipment Holding Inc. (see Note 1) (the "Companies") as of December 31, 1997 and the related combined statements of operations, stockholders' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Companies' management. 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 combined financial statements referred to above present fairly, in all material respects, the combined financial position of Channel Equipment Holding Inc. at December 31, 1997, and the combined results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP MetroPark, New Jersey April 21, 1998 F-142 CHANNEL EQUIPMENT HOLDING, INC. COMBINED BALANCE SHEET DECEMBER 31, 1997 ASSETS Cash ............................................................. $ 63,589 Accounts receivable, net of allowance for doubtful accounts of $244,787......................................................... 1,274,432 Inventory......................................................... 617,793 Rental equipment, net............................................. 8,233,933 Property and equipment, net....................................... 546,798 Prepaid expenses and other assets................................. 27,567 ----------- Total assets.................................................. $10,764,112 =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Liabilities: Accounts payable, accrued expenses and other liabilities........ $ 997,055 Due to stockholders............................................. 745,650 Debt............................................................ 9,241,162 Deferred gain................................................... 121,980 ----------- Total liabilities............................................. 11,105,847 Commitments and contingencies Stockholders' equity (deficit): Common stock, Channel Equipment, $1.00 par value, 1,000,000 shares authorized, 1,000 issued and outstanding; River City, $1.00 par value, 100,000 shares authorized, 1,000 issued and outstanding; and Contractors, $1.00 par value, 1,000,000 shares authorized, 1,250 issued and outstanding....................... 3,250 Additional paid-in capital...................................... 238,836 Retained earnings (deficit)..................................... (538,821) ----------- (296,735) Treasury stock.................................................. (45,000) ----------- Total stockholders' equity (deficit).......................... (341,735) ----------- Total liabilities and stockholders' equity (deficit).......... $10,764,112 ===========
See accompanying notes. F-143 CHANNEL EQUIPMENT HOLDING, INC. COMBINED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 Revenue: Equipment rentals............................................... $ 4,680,867 Rental equipment sales.......................................... 2,265,294 Sales of parts, supplies and new equipment...................... 3,836,954 ----------- Total revenues................................................ 10,783,115 Cost of revenues: Cost of equipment rentals, excluding equipment rental depreciation................................................... 1,459,268 Depreciation, equipment rentals................................. 2,092,035 Cost of rental equipment sales.................................. 2,016,654 Cost of parts, supplies and new equipment sales................. 3,138,237 ----------- Total cost of revenues........................................ 8,706,194 ----------- Gross profits................................................. 2,076,921 Selling, general and administrative expenses...................... 2,085,283 Non-rental depreciation........................................... 40,067 ----------- Operating loss.................................................... (48,429) Interest expense.................................................. 714,705 ----------- Loss before provisions for income taxes........................... (763,134) Provision for income taxes........................................ 3,040 ----------- Net loss.......................................................... $ (766,174) ===========
See accompanying notes. F-144 CHANNEL EQUIPMENT HOLDING, INC. COMBINED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK ADDITIONAL RETAINED -------------- PAID IN EARNINGS TREASURY SHARES AMOUNTS CAPITAL (DEFICIT) STOCK ------ ------- ---------- --------- -------- Balance at January 1, 1997....... 3,250 $3,250 $238,836 $ 227,353 $(45,000) Net loss....................... (766,174) ----- ------ -------- --------- -------- Balance at December 31, 1997..... 3,250 $3,250 $238,836 $(538,821) $(45,000) ===== ====== ======== ========= ========
See accompanying notes. F-145 CHANNEL EQUIPMENT HOLDING, INC. COMBINED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net loss......................................................... $ (766,174) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation................................................... 2,132,102 Gain on rental equipment sales................................. (248,640) Changes in assets and liabilities: Increase in accounts receivable............................... (254,454) Increase in inventory......................................... (176,462) Decrease in prepaid expenses and other assets................. 39,219 Increase in accounts payable, accrued expenses and other lia- bilities..................................................... 420,460 Increase in deferred gain..................................... 121,980 ----------- Cash provided by operating activities............................ 1,268,031 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of rental equipment..................................... (846,817) Proceeds from sale of rental equipment........................... 1,936,072 Purchases of property and equipment.............................. (40,712) ----------- Cash provided by investing activities............................ 1,048,543 CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on debt....................................... (4,525,576) Proceeds from stockholders loans................................. 411,600 Borrowings under credit facilities............................... 1,803,455 ----------- Cash used in financing activities................................ (2,310,521) ----------- Increase in cash................................................. 6,053 Cash balance at beginning of year................................ 57,536 ----------- Cash balance at end of year...................................... $ 63,589 ===========
See accompanying notes. F-146 CHANNEL EQUIPMENT HOLDING, INC. NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The combined financial statements of Channel Equipment Holding, Inc. include the accounts of Channel Equipment Holding, Inc. ("Channel"), River City Machinery Co., Inc. ("River City") and Contractors Sales & Rentals, Inc. ("Contractors") (collectively the "Companies"). The Companies are affiliated through common ownership. All significant intercompany accounts and transactions have been eliminated in combination. These combined financial statements are prepared on a historical cost basis and do not include any adjustments that may result from the acquisition of the Companies by United Rentals, Inc. ("United") as more fully described in Note 9. Business Activity The Companies rent, sell and repair construction equipment for use by contractor, industrial and homeowners markets. The rentals are on a daily, weekly or monthly basis. The Companies are located in three different cities (Houston, Austin and Georgetown) and their principal market area is the state of Texas. The nature of the Companies 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. Inventory Inventories consist primarily of general replacement parts, hydraulic tubing and equipment held for resale 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 combined statement 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 an estimated five-year useful life. Leasehold improvements are amortized using the straight-line method over the estimated lives of the improvements or the remaining life of the lease, whichever is shorter. 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 Companies advertise primarily through trade journals, trade associations and phone directories. All advertising costs are expensed as incurred. Advertising expense amounted to approximately $56,300 in the year ended December 31, 1997. F-147 CHANNEL EQUIPMENT HOLDING, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) Income Taxes Both Channel and River City have elected, by unanimous consent of its stockholders, to be taxed under the provisions of Subchapter S of the Internal Revenue Code, for federal purposes. Under those provisions both Channel and River City do not have to pay federal income taxes; instead, the stockholders are liable for individual income taxes on both Channel and River City's profits. Therefore, no provision for federal income taxes is included in the accompanying combined financial statements for Channel or River City. Contractors, a C Corporation for federal tax purposes 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 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 Companies maintain 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 Companies customer base and its credit policy. 3. RENTAL EQUIPMENT Rental equipment and related accumulated depreciation consisted of the following at December 31, 1997: Rental equipment................................................ $12,095,388 Less accumulated depreciation.................................. (3,861,455) ----------- Rental equipment, net.......................................... $ 8,233,933 ===========
4. PROPERTY AND EQUIPMENT Property and equipment consists of the following at December 31, 1997: Land............................................................... $218,428 Building........................................................... 213,736 Transportation equipment........................................... 134,443 Leasehold improvements............................................. 9,250 Furniture and fixtures............................................. 28,953 -------- 604,810 Less accumulated depreciation...................................... (58,012) -------- Total.............................................................. $546,798 ========
F-148 CHANNEL EQUIPMENT HOLDING, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 5. DEBT Debt consists of the following at December 31, 1997: AEL Leasing Co., Inc.--Various notes dated from February 1997 to June 1997 with annual interest rates ranging from 8% to 10.2% due in monthly installments ranging from $933 to $4,616........ $ 213,149 The Associates--Two notes dated October 1997 with an annual interest rate due in full in June 1998......................... 768,589 CIT Group--Various notes dated from April 1995 to August 1997 with annual interest rates ranging from 7.5% to 10.0% due in monthly installments ranging from $533 to $6,007............... 1,626,743 CAT Financial--Various notes dated from April 1995 to July 1997 with annual interest rates ranging from 5.1% to 8.1% due in monthly installments ranging from $912 to $6,180............... 619,776 Deutsche Financial--Various notes dated from April 1996 to April 1997 with annual interest rates ranging from 9.6% to 9.9% due in monthly installments ranging from $930 to $2,893............ 564,160 NICE International Corporation--Various notes dated November 1997 with annual interest rates ranging from 9.4% to 10.9% due in monthly installments ranging from $634 to $5,199............ 665,255 Chicago Pneumatic--Various notes dated from March 1997 to July 1997 with annual interest rates ranging from 7.5% to 9.5% due in monthly installments ranging from $427 to $1,827............ 39,095 debis Financial Services, Inc.--Non-interest bearing line-of- credit......................................................... 89,481 Newcourt Financial USA, Inc.--Various notes dated from June 1997 to September 1997 with an annual interest rate of 9.3% due in monthly installments ranging from $1,751 to $20,107............ 549,994 First Prosperity--Various notes dated from April 1995 to September 1997 with annual interest rates ranging from 7.8% to 10.0% due in monthly installments ranging from $415 to $1,178.. 144,631 Financial Federal--Various notes dated from January 1996 to November 1997 with an annual interest rate of 11% due in monthly installments ranging from $430 to $21,465.............. 2,984,398 Norwest Bank--Various notes dated November 1996 with an annual interest rate of 9% due in monthly installments ranging from $277 to $380................................................... 20,998 Case Credit--Various notes dated from August 1995 to November 1996 with annual interest rates ranging from 7.9% to 9.0% due in monthly installments ranging from $481 to $6,935............ 207,007 KDC Financial--Various notes dated from March 1995 to May 1997 with annual interest rates ranging from 7.5% to 10.0% due in monthly installments ranging from $722 to $4,576............... 571,885 JCB Financial--Various notes dated from June 1995 to October 1997 with annual interest rates ranging from 7.0% to 9.5% due in monthly installments ranging from $782 to $1,554............ 134,272 PACCAR--Note dated June 1997 with an annual interest rate of 8.0% due in monthly installments of $1,540..................... 41,729 ---------- $9,241,162 ==========
Substantially all rental equipment and fixed assets collateralize the above notes. All debt at December 31, 1997 was paid off in connection with the acquisition discussed in Note 9. F-149 CHANNEL EQUIPMENT HOLDING, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 6. RELATED PARTY TRANSACTIONS River City leases its Georgetown operating facility and Channel leases its operating facilities from its stockholders on a month to month basis. Both Channel and River City are responsible for all operating expenses of the facilities including property taxes, assessments, insurance, repairs and maintenance. Total rent expense for 1997 was approximately $160,100. In connection with the acquisition discussed in Note 9, the lease terms have been renegotiated. The Companies also had a non-interest bearing note payable from its stockholders totaling $745,650 at December 31, 1997. No repayment schedule has been established. 7. SUPPLEMENTAL CASH FLOW INFORMATION For the year ended December 31, 1997 total interest and income taxes paid were $705,700 and $3,040, respectively. During 1997 the Companies purchased $4,240,540 of equipment which was financed. 8. EMPLOYEE BENEFIT PLAN The Companies have a defined contribution 401(k) pension plan which covers substantially all employees. The Companies match 100% up to the first six percent of the employees contribution. The Companies contributions to the plan were $8,850 for the year ended December 31, 1997. 9. SUBSEQUENT EVENT On January 23, 1998, under the terms of the stock purchase agreement, United purchased all of the issued and outstanding capital stock of the Channel and River City. On January 23, 1998, under the terms of the asset purchase agreement, United purchased certain assets of Contractors. F-150 INDEPENDENT AUDITOR'S REPORT To the Board of Directors West Main Rentals and Sales, Incorporated We have audited the accompanying balance sheet of West Main Rentals and Sales, Incorporated (an S corporation) as of December 31, 1997, and the related 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 audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of West Main Rentals and Sales, Incorporated as of December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. Moss Adams LLP Eugene, Oregon April 22, 1998 F-151 WEST MAIN RENTALS AND SALES, INCORPORATED BALANCE SHEET ASSETS
DECEMBER 31, MARCH 31, 1997 1998 ------------ ----------- (UNAUDITED) CURRENT ASSETS Cash................................................. $ 134,924 $ 155,238 Accounts receivable.................................. 1,014,677 936,423 Inventory for resale................................. 634,249 630,729 Rental fleet expected to be sold..................... 402,000 402,000 Prepaid expenses..................................... 57,920 15,271 Current portion of notes receivable.................. 2,432 6,753 ---------- ---------- Total current assets............................... 2,246,202 2,146,414 ---------- ---------- NOTES RECEIVABLE, less current portion................. 55,954 69,160 ---------- ---------- PROPERTY AND EQUIPMENT Rental fleet......................................... 6,121,168 6,246,646 Leasehold improvements............................... 513,278 528,353 Equipment............................................ 1,246,218 1,344,013 Equipment held under capital leases.................. 1,067,217 1,067,217 ---------- ---------- 8,947,881 9,186,229 Less accumulated depreciation and amortization....... 3,554,875 3,739,962 ---------- ---------- 5,393,006 5,446,267 ---------- ---------- $7,695,162 $7,661,841 ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable....................................... $ 137,446 $ 414,808 Accrued liabilities.................................... 198,517 198,162 Notes payable.......................................... 478,616 428,198 Current portion: Long-term debt....................................... 1,145,640 1,210,636 Obligations under capital leases..................... 206,000 214,000 ---------- ---------- Total current liabilities.......................... 2,166,219 2,465,804 ---------- ---------- LONG-TERM DEBT, less current portion..................... 3,184,201 3,539,421 ---------- ---------- OBLIGATIONS UNDER CAPITAL LEASES, less current portion... 648,146 619,353 ---------- ---------- COMMITMENTS STOCKHOLDERS' EQUITY Common stock, no par value; 1,000 shares authorized, 100 shares issued and outstanding..................... 130,841 130,841 Retained earnings...................................... 1,565,755 906,422 ---------- ---------- 1,696,596 1,037,263 ---------- ---------- $7,695,162 $7,661,841 ========== ==========
See accompanying notes. F-152 WEST MAIN RENTALS AND SALES, INCORPORATED STATEMENT OF INCOME
THREE MONTHS ENDED YEAR ENDED MARCH 31, DECEMBER 31, ---------------------- 1997 1998 1997 ------------ ---------- ---------- (UNAUDITED) REVENUES Rental.................................. $7,167,252 $1,067,808 $1,208,955 Retail sales............................ 1,286,872 366,341 303,444 Other sales............................. 1,061,874 202,658 180,800 Gain on sale of rental equipment........ 238,793 47,209 82,399 ---------- ---------- ---------- 9,754,791 1,684,016 1,775,598 ---------- ---------- ---------- COST OF OPERATIONS Rental.................................. 5,064,324 1,267,400 848,479 Retail cost of sales.................... 916,670 279,002 212,656 Other cost of sales..................... 252,472 45,276 46,242 ---------- ---------- ---------- 6,233,466 1,591,678 1,107,377 ---------- ---------- ---------- GROSS PROFIT.............................. 3,521,325 92,338 668,221 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................................. 2,515,654 564,480 589,522 ---------- ---------- ---------- INCOME (LOSS) FROM OPERATIONS............. 1,005,671 (472,142) 78,699 ---------- ---------- ---------- OTHER INCOME (EXPENSE) Interest income......................... 6,094 1,576 1,952 Gain on sale of equipment............... 9,067 -- 1,117 Interest expense........................ (540,064) (141,267) (114,070) ---------- ---------- ---------- (524,903) (139,691) (111,001) ---------- ---------- ---------- NET INCOME (LOSS)......................... $ 480,768 $ (611,833) $ (32,302) ========== ========== ==========
See accompanying notes. F-153 WEST MAIN RENTALS AND SALES, INCORPORATED STATEMENT OF STOCKHOLDERS' EQUITY
COMMON RETAINED STOCK EARNINGS TOTAL -------- ---------- ---------- BALANCE, December 31, 1996..................... $130,841 $1,404,987 $1,535,828 Net income..................................... -- 480,768 480,768 Dividends...................................... -- (320,000) (320,000) -------- ---------- ---------- BALANCE, December 31, 1997..................... 130,841 1,565,755 1,696,596 Net loss (unaudited)........................... -- (611,833) (611,833) Dividends (unaudited).......................... -- (47,500) (47,500) -------- ---------- ---------- BALANCE, March 31, 1998 (unaudited)............ $130,841 $ 906,422 $1,037,263 ======== ========== ==========
See accompanying notes. F-154 WEST MAIN RENTALS AND SALES, INCORPORATED STATEMENT OF CASH FLOWS
YEAR ENDED THREE MONTHS ENDED DECEMBER MARCH 31, 31, ------------------- 1997 1998 1997 ----------- --------- -------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss).......................... $ 480,768 $(611,833) $(32,302) Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization............ 1,129,015 307,895 244,383 Net gain from sale of property........... (247,860) (47,209) (83,516) Changes in: Accounts receivable.................... (329,061) 78,254 5,396 Inventory for resale................... 32,228 3,520 (144,037) Prepaid expenses....................... (17,756) 42,649 (12,866) Accounts payable....................... (286,115) 277,362 (160,215) Accrued liabilities.................... 27,723 (355) 7,708 ----------- --------- -------- Net cash from operating activities......... 788,942 50,283 (175,449) ----------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment......... (2,261,854) (492,384) (608,559) Proceeds from sale of equipment............ 625,362 178,437 620,775 Net principal repayments (advances) on notes receivable.......................... 480 (17,527) 325 ----------- --------- -------- Net cash from investing activities......... (1,636,012) (331,474) 12,541 ----------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings (payments) on notes payable................................... 478,616 (50,418) 190,000 Proceeds from long-term borrowings and capital lease obligations................. 1,818,217 670,403 142,412 Principal payments on long-term debt and capital lease obligations................. (1,078,345) (270,980) (96,132) Dividends paid............................. (320,000) (47,500) -- ----------- --------- -------- Net cash from financing activities......... 898,488 301,505 236,280 ----------- --------- -------- NET INCREASE IN CASH......................... 51,418 20,314 73,372 CASH, beginning of period.................... 83,506 134,924 83,506 ----------- --------- -------- CASH, end of period.......................... $ 134,924 $ 155,238 $156,878 =========== ========= ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for interest... $ 532,245 $ 135,866 $110,846 =========== ========= ========
See accompanying notes. F-155 WEST MAIN RENTALS AND SALES, INCORPORATED NOTES TO FINANCIAL STATEMENTS NOTE 1--DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF OPERATIONS--The Company primarily rents heavy equipment to contractors. The Company provides wholesale and retail rental services and sales from four Oregon locations and two in California. The second California location was opened in May 1997. The Company extends credit to all customer types once a credit contract has been completed by the customer. This credit contract includes trade references, which are consulted, and personal guarantees, when deemed necessary. All charges are due in full 30 days from the transaction date. Past due items are assessed a carrying charge. Cash transactions require a deposit for a portion of the rental charge. A minimum of one day's rent is required. RESTATEMENT OF FINANCIAL INFORMATION--The Company has restated its 1997 financial statements primarily to capitalize certain equipment leases entered into during 1996 and 1997. In the opinion of management, all material adjustments necessary to correct the financial statements have been recorded. The impact of these adjustments did not have a material effect on beginning retained earnings. INTERIM FINANCIAL STATEMENTS--The accompanying financial statements as of March 31, 1998, and for the three months ended March 31, 1997 and 1998 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. REVENUE RECOGNITION--Revenues from the daily and monthly rental of equipment are accounted for as operating leases. Credit risk associated with accounts receivable is periodically reviewed by management and an allowance for doubtful accounts, if required, is established. The allowance was $20,000 at December 31, 1997 and March 31, 1998 (unaudited). INVENTORY FOR RESALE--The inventory for resale consists of equipment parts and supplies and is stated at the lower of cost or market. Cost is determined on the first-in, first-out (FIFO) method. RENTAL FLEET EXPECTED TO BE SOLD--An estimate of rental fleet equipment expected to be sold in the next year is presented as a current asset. PROPERTY AND EQUIPMENT--Property and equipment is stated at cost. Depreciation and amortization is computed using the straight-line method over the following estimated useful lives: Rental fleet............................................... 5 to 10 years Leasehold improvements..................................... 5 to 31 years Equipment.................................................. 3 to 10 years Equipment held under capital leases........................ 3 to 5 years
ADVERTISING AND PROMOTION--All costs associated with advertising and promotion are expensed as incurred. Advertising and promotion expense totaled $141,200 in 1997, and was $59,100 (unaudited) and $32,400 (unaudited) for the three month periods ended March 31, 1998 and 1997, respectively. F-156 WEST MAIN RENTALS AND SALES, INCORPORATED NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 1--DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES--The Company has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code, whereby income of the Company is taxable directly to the individual stockholders. Accordingly, no provision for income taxes is included in these financial statements. FAIR VALUE OF FINANCIAL INSTRUMENTS--The fair value of financial instruments, consisting of cash, receivables, accounts payable, and debt instruments, is based on interest rates available to the Company and discounted cash flow analysis. The fair value of these financial instruments approximates carrying value. 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 will differ from those estimates. RECENTLY ISSUED ACCOUNTING STANDARDS--In 1997, the Company implemented Statement of Financial Accounting Standards (SFAS) No. 129, "Disclosure of Information about Capital Structure," that continues the existing requirements to disclose pertinent rights and privileges of all securities other than common stock, but expands the number of companies subject to portions of its requirements. The Company's current capital structure does not require any additional disclosures as a result of this pronouncement. In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 130 "Reporting Comprehensive Income" which the Company is required to adopt for years beginning after December 15, 1997. This statement establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of financial statements. This statement will require that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. Other issued but not yet required FASB statements are not currently applicable to the Company's operations. NOTE 2--NOTES RECEIVABLE The Company has two unsecured notes receivable from stockholders. These notes require interest only payments with the balance due in 2000. The interest rate is fixed at 8%, requiring monthly payments of $361.
DECEMBER 31, MARCH 31, 1997 1998 ------------ ----------- (UNAUDITED) Stockholder notes receivable........................... $54,255 $54,255 Other notes receivable................................. 4,131 21,658 ------- ------- 58,386 75,913 Less current portion................................... 2,432 6,753 ------- ------- Long-term portion...................................... $55,954 $69,160 ======= =======
F-157 WEST MAIN RENTALS AND SALES, INCORPORATED NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 3--NOTES PAYABLE The Company has a revolving credit line available totaling $600,000 at prime plus 1% (9.5% at December 31, 1997 and March 31, 1998). Outstanding borrowings under the line of credit are subject to the same collateral and restrictive covenant provisions as the term notes described in Note 4, and totaled $430,000 at December 31, 1997 and $390,000 (unaudited) at March 31, 1998. The Company also has a short term note payable to a finance company. The outstanding balance on this note was $48,616 at December 31, 1997 and $38,198 (unaudited) at March 31, 1998. NOTE 4--LONG-TERM DEBT
DECEMBER 31, MARCH 31, 1997 1998 ------------ ----------- (UNAUDITED) Note payable to bank, payable in monthly (excepting January and February) installments of $33,334 plus interest at prime plus 1.25% (9.75% at December 31, 1997 and March 31, 1998), due December 1999......... $ 666,640 $ 633,306 Note payable to bank, payable in monthly installments of $20,934 including interest at 9.36%, due March 2001................................................ 704,108 657,444 Note payable to bank, payable in monthly (excepting January and February) installments of $7,000 plus interest at prime plus 1.25% (9.75% at December 31, 1997 and March 31, 1998), due December 1999......... 126,000 105,000 Unsecured notes payable to stockholders, payable in monthly interest only installments at 12%, due October 2000. Subordinated to the bank debt......... 591,162 591,162 Note payable to bank, payable in monthly installments of $5,334 plus interest at 10.7%, due November 1999................................................ 122,642 106,640 Unsecured notes payable to stockholders, all with interest at 10% payable annually, due October 2000. Subordinated to the bank debt....................... 114,545 114,545 Note payable to bank, payable in monthly installments of $16,667 beginning November 1997 plus interest at prime plus 1.25% (9.75% at December 31, 1997 and March 31, 1998), due October 2002................... 966,667 916,667 Note payable to bank, payable in monthly payments of $10,348 plus interest at 8.87%, due April 2002...... 427,566 396,523 Note payable to bank, payable in monthly interest only payments through March 1998, then in monthly installments of $11,231 including interest at prime plus 2.00% (10.50% at March 31, 1998), due March 2006................................................ -- 600,000 Other notes payable, due in varying installments including interest at various rates, collateral provided by equipment and vehicles.................. 610,511 628,770 ---------- ---------- 4,329,841 4,750,057 Less current portion................................. 1,145,640 1,210,636 ---------- ---------- $3,184,201 $3,539,421 ========== ==========
Substantially all cash, accounts receivable, inventories, property and equipment, and general intangibles are pledged as collateral for the Company's short and long-term borrowing arrangements. The stockholders have also personally guaranteed outstanding bank borrowings. In addition, the Company's bank loan agreements contain provisions which, among other things, require maintenance of certain financial ratios, restrict dividend payments and property and equipment purchases, and provide for prepayment penalties. F-158 WEST MAIN RENTALS AND SALES, INCORPORATED NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 4--LONG-TERM DEBT (CONTINUED) Annual payments of long-term debt for the years subsequent to December 31, 1997 are due as follows:
DECEMBER 31, 1998............................................................ $1,145,640 1999............................................................ 1,097,900 2000............................................................ 1,326,200 2001............................................................ 552,500 2002............................................................ 202,600 2003 and thereafter............................................. 5,001 ---------- $4,329,841 ==========
Interest expense to stockholders on notes payable and long-term debt totaled approximately $81,920 during 1997 and $20,600 (unaudited) and $20,500 (unaudited) for the three month periods ended March 31, 1998 and 1997, respectively. NOTE 5--OBLIGATIONS UNDER CAPITAL LEASES The Company leases equipment under long-term leases and has the option to purchase the equipment at the termination of the lease. Included in property and equipment are the following assets held under capital leases:
DECEMBER 31, MARCH 31, 1997 1998 ------------ ----------- (UNAUDITED) Equipment held under capital leases.................... $1,067,217 $1,067,217 Less accumulated amortization.......................... 222,011 282,320 ---------- ---------- $ 845,206 $ 784,897 ========== ==========
Future minimum lease payments for assets under capital leases at December 31, 1997 are as follows:
DECEMBER 31, 1998........................................................... $ 283,500 1999........................................................... 256,900 2000........................................................... 205,000 2001........................................................... 197,600 2002........................................................... 103,016 ---------- Total minimum lease payments..................................... 1,046,016 Less amount representing interest................................ 191,870 ---------- Present value of net minimum lease payments...................... 854,146 Less current maturities.......................................... 206,000 ---------- $ 648,146 ==========
F-159 WEST MAIN RENTALS AND SALES, INCORPORATED NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 6--COMMITMENTS RELATED PARTY LEASES--The Company leases facilities under five separate agreements from a partnership owned by the Company stockholders. These agreements expire between 1999 and 2011. The lease agreements provide for payment of a minimum amount plus taxes, insurance and other costs. The monthly rental payments can be adjusted annually. Total rents paid for the year ended December 31, 1997 were $220,350, and were $87,600 (unaudited) and $48,450 (unaudited) for the three month periods ended March 31, 1998 and 1997, respectively. GRANTS PASS, OREGON LEASE--The Company leased facilities in Grants Pass, Oregon under an agreement which expired in 1997. Rental expense on this lease was $34,930 in 1997, and was $8,700 (unaudited) for the three month period ended March 31, 1997. EUREKA, CALIFORNIA LEASE--During 1997, the Company began leasing facilities in Eureka, California under a month-to-month agreement. Monthly rent is $3,850. A long-term agreement at the current location is expected in 1998. Aggregate future minimum lease commitments for real property, substantially all of which are with related parties, are as follows:
DECEMBER 31, ------------ 1998............................................................ $ 350,400 1999............................................................ 283,100 2000............................................................ 174,000 2001............................................................ 54,000 2002............................................................ 54,000 Thereafter........................................................ 459,000 ---------- $1,374,500 ==========
EQUIPMENT LEASES--The Company leases equipment under several operating lease arrangements. Monthly payments on these leases total approximately $130,300, with maturities extending to 2002. Rental expense totaled $982,500 for the year ended December 31, 1997, and was $177,000 (unaudited) and $95,200 (unaudited) for the three months ended March 31, 1998 and 1997, respectively. A significant portion of the leased equipment is returnable to the vendor with thirty days' notice without penalty from the lessor. Additionally, the shareholders have guaranteed these lease commitments. Aggregate future minimum lease commitments for equipment are as follows:
DECEMBER 31, ------------ 1998............................................................ $1,303,000 1999............................................................ 1,274,100 2000............................................................ 1,256,400 2001............................................................ 942,600 2002............................................................ 293,600 ---------- $5,069,700 ==========
STOCK REPURCHASE AGREEMENT--The Company and the stockholders have entered into an agreement whereby the Company will purchase the shares of a deceased stockholder at a value to be determined as set forth in the agreement. F-160 WEST MAIN RENTALS AND SALES, INCORPORATED NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 7--RETIREMENT PLAN A defined contribution plan covers all employees who meet age and service requirements. The defined contribution plan is a 401(k) profit-sharing plan. The plan allows employee contributions. The Company, at its discretion, may also contribute to the plan. In 1997, the Company contributed $40,000; $24,400 was allocated to the profit-share portion of the plan and $15,600 was allocated to match employee contributions at 50%. There were no Company contributions for the three month periods ended March 31, 1998 and 1997. NOTE 8--SUBSEQUENT EVENTS DIVIDENDS--On January 2, 1998 the Board of Directors declared a dividend of $475 per share of outstanding common stock, payable to shareholders of record as of January 2, 1998. Also, on April 10, 1998 an additional dividend was declared of $750 per share, to shareholders of record on that date. NEW DEBT--On March 4, 1998 the Company obtained additional financing from its bank. This debt is in addition to existing bank liabilities. The new agreement provides for an aggregate commitment of $1,000,000 and expires in 2006. This note has been guaranteed by the stockholders. SALE OF COMPANY STOCK--On March 20, 1998 a Letter of Intent was received from United Rentals, Inc. to acquire all outstanding stock of the Company. Under the terms of the agreement, all indebtedness of the Company, including long-term debt and notes payable, but excluding leases, is to be paid in full at closing. The agreement also provided for real estate leases described in Note 6 to be extended for an additional ten years. This transaction was closed on April 22, 1998. Acquisition of the Company stock by United Rentals, Inc. resulted in the termination of the Company's election to be taxed under Subchapter S of the Internal Revenue Code. F-161 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-162 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-163 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-164 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-165 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-166 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-167 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-168 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-169 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-170 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 F-171 MISSION VALLEY RENTALS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) gross pay. The Company matches 20% of the employees contribution. Effective September 1997, the Company's match 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-172 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders Pro Rentals, Inc. We have audited the accompanying balance sheet of Pro Rentals, Inc. as of December 31, 1997 and the related 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 audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Pro Rentals, Inc. at December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP MetroPark, New Jersey April 22, 1998 F-173 PRO RENTALS, INC. BALANCE SHEET DECEMBER 31, 1997 ASSETS Cash................................................................ $ 2,700 Accounts receivable, net of allowance for doubtful accounts of $38,000............................................................ 582,034 Inventory........................................................... 499,826 Rental equipment, net............................................... 4,308,589 Property and equipment, net......................................... 210,889 Prepaid expenses and other assets................................... 5,315 Due from stockholder................................................ 60,643 ---------- Total assets.................................................... $5,669,996 ========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable.................................................. 334,829 Accrued expenses and other liabilities............................ 182,281 Debt.............................................................. 3,456,278 ---------- Total liabilities............................................... 3,973,388 Commitments and contingencies Stockholders' equity: Common stock, $4.00 par value, 50,000 shares authorized, 1,000 shares issued and outstanding.............................. 4,000 Retained earnings................................................. 1,692,608 ---------- Total stockholders' equity...................................... 1,696,608 ---------- Total liabilities and stockholders' equity...................... $5,669,996 ==========
See accompanying notes. F-174 PRO RENTALS, INC. STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1997 Revenues: Equipment rentals................................................. $3,980,013 Sales of rental equipment......................................... 581,820 Sales of parts, supplies and new equipment........................ 1,309,778 ---------- Total revenues.................................................. 5,871,611 Cost of revenues: Cost of equipment rentals, excluding equipment rental depreciation..................................................... 889,536 Depreciation, equipment rentals................................... 578,897 Cost of rental equipment sales.................................... 403,475 Cost of parts, supplies and new equipment sales................... 1,147,579 ---------- Total cost of revenues.......................................... 3,019,487 ---------- Gross profit.................................................... 2,852,124 Selling, general and administrative expenses........................ 2,137,103 Non-rental depreciation............................................. 58,327 ---------- Operating income.................................................... 656,694 Interest expense.................................................... 440,998 ---------- Net income...................................................... $ 215,696 ==========
See accompanying notes. F-175 PRO RENTALS, INC. STATEMENT OF STOCKHOLDERS' EQUITY
COMMON STOCK ------------- RETAINED SHARES AMOUNT EARNINGS ------ ------ ---------- Balance at January 1, 1997............................. 1,000 $4,000 $1,476,912 Net income........................................... 215,696 ----- ------ ---------- Balance at December 31, 1997........................... 1,000 $4,000 $1,692,608 ===== ====== ==========
See accompanying notes. F-176 PRO RENTALS, INC. STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 Cash flows from operating activities Net income....................................................... $ 215,696 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation................................................... 637,224 Gain on rental equipment sales................................. (178,345) Changes in assets and liabilities: Increase in accounts receivable.............................. (189,727) Decrease in inventory........................................ 676,854 Decrease in prepaid expenses and other assets................ 157,506 Decrease in accounts payable................................. (4,745) Increase in accrued expenses and other liabilities........... 69,357 ----------- Cash provided by operating activities............................ 1,383,820 Cash flows from investing activities Proceeds from sale of rental equipment........................... 581,820 Purchase of property and equipment............................... (2,399) ----------- Cash provided by investing activities............................ 579,421 Cash flows from financing activities Principal payments on debt....................................... (2,553,206) Borrowings under credit facility................................. 589,965 ----------- Cash used in financing activities................................ (1,963,241) ----------- Increase in cash................................................. -- Cash at beginning of year........................................ 2,700 ----------- Cash at end of year.............................................. $ 2,700 ===========
See accompanying notes. F-177 PRO RENTALS, INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS ACTIVITY The Company rents, sells and repairs construction equipment for use by contractor, industrial and homeowners markets. The rentals are on a daily, weekly or monthly basis. The Company has six locations (East Bremerton, West Bremerton, Port Angeles, Gig Harbor, Port Orchard and Lakewood) and the principal market area is Northern Washington. 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. These financial statements are prepared on a historical cost basis and do not include any adjustments that may result from the acquisition of the Company by United Rentals, Inc. ("United") as more fully described in Note 9. INVENTORY Inventories consists primarily of equipment, 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. Rental equipment costing less than $1,000 is immediately expensed at the date of purchase. Depreciation for rental equipment is computed using the straight-line method over an estimated seven-year useful life with a 35% 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 the sales of rental equipment and cost of sales of rental equipment, respectively, in the statement of income. PROPERTY AND EQUIPMENT Property and equipment is stated at cost. The company capitalizes all property and equipment purchases greater than $1,000. Depreciation of property and equipment is computed on the straight-line method over estimated useful lives of 5 to 10 years with no salvage value. Leasehold improvements are amortized using the straight-line method over the estimated lives of the improvements or the remaining life of the lease, whichever is shorter. 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 Companies advertise primarily through trade journals, trade associations and phone directories. All advertising costs are expensed as incurred. Advertising expense amounted to $61,405 in the year ended December 31, 1997. INCOME TAXES Pro Rentals has elected, by unanimous consent of its shareholders, to be taxed under the provisions of Subchapter S of the Internal Revenue Code for federal 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 profits. F-178 PRO RENTALS, 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 Companies maintain 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 Companies' customer base and their credit policy. 3. RENTAL EQUIPMENT Rental equipment and related accumulated depreciation consisted of the following at December 31, 1997: Rental equipment................................................. $6,326,420 Less accumulated depreciation.................................... 2,017,831 ---------- Rental equipment, net............................................ $4,308,589 ==========
4. PROPERTY AND EQUIPMENT Property and equipment consists of the following at December 31, 1997: Furniture and fixtures............................................. $ 30,363 Office equipment................................................... 237,868 Vehicles........................................................... 336,457 Leasehold improvements............................................. 11,218 -------- 615,906 Less accumulated depreciation ..................................... 405,017 -------- Total.............................................................. $210,889 ========
F-179 PRO RENTALS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 5. DEBT Debt consists of the following at December 31, 1997: Deutsche Financial Services--Various notes with combined monthly payments of $37,489 including interest from 7.9% to 10.25%..... $1,116,338 John Deere--Various notes with combined monthly payments of $10,699 including interest from 6.9% to 10.24%................. 558,677 American Equipment Leasing (AEL)--Various notes with combined monthly payments of $34,763 including interest from 8% to 12.25%......................................................... 648,835 Financial Federal Credit, Inc.--Various notes with combined monthly payments of $7,291 including interest of 10.25%........ 183,757 Associates Commercial Corporation--Various notes with combined monthly payments of $6,436 including interest from 8.3% to 10.25%......................................................... 166,780 AEL--$150,000 revolving line of credit due October 14, 1998 with monthly interest payments at prime plus 2.17%.................. 150,000 Kitsap Bank--$150,000 revolving line of credit due July 7, 1998 with monthly interest payments at prime plus 2%. This line is personally guaranteed by the Company's shareholders............ 75,000 Other........................................................... 556,891 ---------- Total....................................................... $3,456,278 ==========
Substantially all rental equipment and inventory collateralized the above notes. All debt at December 31, 1997 was paid off in connection with the acquisition discussed in Note 9. 6. OPERATING LEASES The Company leases six store locations. Three of the locations are on long term leases, while the other three are on a month-to-month basis. The Company is responsible for all operating expenses of the facilities including property taxes, assessments, insurance, repairs and maintenance. These leases have various terms and extend through December 2007 and include scheduled base rent increases over the term of the leases. The total amount of the base rent payments is being charged to expense on the straight-line method over the terms of the leases. Total rent expense for 1997 was approximately $294,893. At December 31, 1997, minimum lease commitments under all operating leases, with initial or remaining lease terms of more than one year are as follows: 1998.............................................................. $ 318,360 1999.............................................................. 299,037 2000.............................................................. 273,144 2001.............................................................. 223,364 Thereafter........................................................ 1,432,800 ---------- Total............................................................. $2,546,705 ==========
7. RELATED PARTIES Three of the Company's locations are leased from the Company's shareholders. Total rent paid to the shareholders under these leases amounted to $177,412 in 1997. At December 31, 1997 Pro Rentals has a non-interest bearing amount due from one of the Company's shareholders of $60,643. F-180 PRO RENTALS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 8. SUPPLEMENTAL CASH FLOW INFORMATION For the year ended December 31, 1997 total interest paid was $440,998. During 1997 the Companies purchased $607,902 of rental equipment and $524,333 of inventory which was financed. 9. SUBSEQUENT EVENT On January 22, 1998, under the terms of the stock purchase agreement, United purchased all of the issued and outstanding capital stock of the Company. F-181 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders ASC Equipment Company, Inc. We have audited the accompanying balance sheet of ASC Equipment Company, Inc. as of December 31, 1997 and the related 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 audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ASC Equipment Company, Inc. at December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP MetroPark, New Jersey April 22, 1998 F-182 ASC EQUIPMENT COMPANY, INC. BALANCE SHEET DECEMBER 31, 1997 ASSETS Cash............................................................... $ 13,365 Accounts receivable, net of allowance for doubtful accounts of $51,217........................................................... 623,370 Inventory.......................................................... 619,187 Rental equipment, net.............................................. 2,721,279 Property and equipment, net........................................ 313,827 Prepaid expenses and other assets.................................. 33,883 ---------- Total assets................................................... $4,324,911 ========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable, accrued expenses and other liabilities......... $ 490,454 Debt............................................................. 2,436,503 Deferred compensation............................................ 52,615 Deferred income taxes............................................ 206,109 ---------- Total liabilities.............................................. 3,185,681 Commitments and contingencies Stockholders' equity: Common stock, $1.00 par value, 100,000 shares authorized, 3,210 shares issued and outstanding................................... 3,210 Preferred stock, $1.00 par value, 1,000 shares authorized, 55 shares issued and outstanding................................... 55 Additional paid-in capital....................................... 19,595 Retained earnings................................................ 1,188,370 ---------- 1,211,230 Treasury stock................................................... (72,000) ---------- Total stockholders' equity..................................... 1,139,230 ---------- Total liabilities and stockholders' equity..................... $4,324,911 ==========
See accompanying notes. F-183 ASC EQUIPMENT COMPANY, INC. STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1997 Revenues: Equipment rentals............................................... $ 3,209,936 Rental equipment sales.......................................... 291,618 Sales of parts, supplies and new equipment...................... 1,963,901 ----------- Total revenues................................................ 5,465,455 Cost of revenues: Cost of equipment rentals, excluding equipment rental depreciation................................................... 1,248,757 Depreciation, equipment rentals................................. 949,526 Cost of rental equipment sales.................................. 136,712 Cost of parts, supplies and new equipment sales................. 1,480,339 ----------- Total cost of revenues........................................ 3,815,334 ----------- Gross profit.................................................. 1,650,121 Selling, general and administrative expenses...................... 1,328,977 Non-rental depreciation........................................... 105,503 ----------- Operating income.................................................. 215,641 Interest expense.................................................. 214,983 Other (income).................................................... (116,188) ----------- Income before provision for income taxes.......................... 116,846 Provision for income taxes........................................ 87,861 ----------- Net income........................................................ $ 28,985 ===========
See accompanying notes. F-184 ASC EQUIPMENT COMPANY, INC. STATEMENT OF STOCKHOLDERS' EQUITY
PREFERRED COMMON STOCK STOCK ADDITIONAL ------------- ------------- PAID IN RETAINED TREASURY SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK ------ ------ ------ ------ ---------- ---------- -------- --- Balance at January 1, 1997................... 3,210 $3,210 55 $55 $19,595 $1,159,385 $(72,000) Net income............ 28,985 ----- ------ --- --- ------- ---------- -------- Balance at December 31, 1997................... 3,210 $3,210 55 $55 $19,595 $1,188,370 $(72,000) ===== ====== === === ======= ========== ========
See accompanying notes. F-185 ASC EQUIPMENT COMPANY, INC. STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net income....................................................... $ 28,985 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation................................................... 1,055,029 Gain on rental equipment sales................................. (26,631) Deferred taxes................................................. 75,333 Changes in assets and liabilities: Increase in accounts receivable.............................. (123,786) Increase in inventory........................................ (57,506) Decrease in prepaid expenses and other assets................ 47,521 Increase in accounts payable accrued expenses and other liabilities................................................. 141,880 Increase in deferred compensation............................ 3,895 ----------- Cash provided by operating activities............................ 1,144,720 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of rental equipment..................................... (1,597,801) Proceeds from sale of rental equipment........................... 262,130 Purchases of property and equipment.............................. (190,245) ----------- Cash used in investing activities................................ (1,525,916) CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on debt....................................... (2,933,065) Borrowings under credit facilities............................... 3,325,064 ----------- Cash provided by financing activities............................ 391,999 ----------- Increase in cash................................................. 10,803 Cash balance at beginning of year................................ 2,562 ----------- Cash balance at end of year...................................... $ 13,365 ===========
See accompanying notes. F-186 ASC EQUIPMENT COMPANY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS ACTIVITY ASC Equipment Company, Inc. (the "Company") rents, sells and repairs construction equipment for use by contractor, industrial and homeowners markets. The rentals are on a daily, weekly or monthly basis. The Company has three locations (Fayetteville, Goldsboro and Jacksonville) and their principal market area is eastern North Carolina. 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. These financial statements are prepared on a historical cost basis and do not include any adjustments that may result from the acquisition of the Company by United Rentals, Inc. ("United") as more fully described in Note 10. INVENTORY Inventories consists primarily of general replacement parts and equipment held for resale 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 statement of income. PROPERTY AND EQUIPMENT Property and equipment is stated at cost. Depreciation of property and equipment is computed on the straight-line method over an estimated five-year useful life. Leasehold improvements are amortized using the straight-line method over the estimated lives of the improvements or the remaining life of the lease, whichever is shorter. 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 Companies advertise primarily through trade journals, trade associations and phone directories. All advertising costs are expensed as incurred. Advertising expense amounted to approximately $34,900 in the year ended December 31, 1997. 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 differences are expected to reverse. F-187 ASC EQUIPMENT COMPANY, 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, 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 at December 31, 1997: Rental equipment............................................... $ 5,640,041 Less accumulated depreciation.................................. (2,918,762) ----------- Rental equipment, net.......................................... $ 2,721,279 ===========
4. PROPERTY AND EQUIPMENT Property and equipment consists of the following at December 31, 1997: Transportation equipment.......................................... $ 571,054 Furniture and fixtures............................................ 36,317 Leasehold improvements............................................ 32,622 --------- 639,993 Less accumulated depreciation..................................... (326,166) --------- Total............................................................. $ 313,827 =========
5. DEBT Debt consists of the following at December 31, 1997: First Citizens Bank; three notes; payable in monthly installments of $37,770 including interest at prime 8.5% at December 31, 1997, collateralized by equipment and real estate........................................................ $ 936,404 First Citizens Bank; line of credit of $1,550,000; payable in monthly installments of interest only at prime, collateralized by equipment and inventory.................................... 1,446,292 Financial Federal; payable in monthly installments of $2,230 including interest at 6.75%; collateralized by equipment...... 53,807 ---------- $2,436,503 ==========
All debt at December 31, 1997 was paid off in connection with the acquisition discussed in Note 10. F-188 ASC EQUIPMENT COMPANY, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 6. INCOME TAXES The provision for income taxes consists of the following for the year ended December 31, 1997: Current: Federal............................................................ $10,270 State.............................................................. 2,258 ------- 12,528 Deferred: Federal............................................................ 61,773 State.............................................................. 13,560 ------- 75,333 ------- $87,861 =======
Significant components of the Company's deferred tax liability at December 31, 1997 are as follows: Difference in basis of accounting................................. $(20,487) Cumulative tax depreciation in excess of book..................... 226,596 -------- Deferred tax liability, net..................................... $206,109 ========
7. RELATED PARTY TRANSACTIONS The Company leases its three operating facilities from the president and a stockholder of the Company on a month to month basis. The Company is responsible for all operating expenses of the facilities including property taxes, assessments, insurance, repairs and maintenance. Total rent expense for 1997 was approximately $99,100. In connection with the acquisition discussed in Note 10, the lease terms have been renegotiated. The Company also had a non-interest bearing note receivable from its stockholders totaling $14,971 at December 31, 1997 and is included in prepaid expenses and other assets on the accompanying balance sheet. No repayment schedule has been established. 8. SUPPLEMENTAL CASH FLOW INFORMATION For the year ended December 31, 1997 total interest and income taxes paid were $200,457 and $29,000, respectively. During 1997, the Company purchased $72,500 of equipment which was financed. 9. EMPLOYEE BENEFIT PLAN The Company has a defined contribution 401(k) pension plan which covers substantially all employees. The Company matches 100% up to the first five percent of the employees contribution. Company contributions to the plan were $33,980 for the year ended December 31, 1997. 10. SUBSEQUENT EVENT On January 27, 1998, under the terms of the stock purchase agreement, United purchased all of the issued and outstanding capital stock of the Company. F-189 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-190 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-191 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-192 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-193 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-194 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-195 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 through 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 through 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-196 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-197 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-198 REPORT OF INDEPENDENT AUDITORS The Board of Directors A&A Tool Rentals & Sales, Inc.: We have audited the accompanying consolidated balance sheets of A&A Tool Rentals & Sales, Inc. and subsidiary as of October 31, 1996 and 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, 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-199 A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
OCTOBER 31, OCTOBER 19, JULY 31, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) ASSETS Cash....................................... $ 308,331 $ 108,327 $ 187,082 Trade accounts receivable, less allowance for doubtful accounts of $80,000 at Octo- ber 31, 1996 and at October 19, 1997, and $94,608 at July 31, 1997 (notes 2 and 3).. 1,416,142 1,415,775 1,324,684 Merchandise inventory...................... 847,035 862,200 906,969 Rental equipment, primarily machinery, at cost, net of accumulated depreciation and amortization of $5,909,751 at October 31, 1996, $6,822,441 at October 19, 1997, and $6,727,264 at July 31, 1997 (notes 2 and 3)........................... 3,190,093 2,780,854 3,133,863 Operating property and equipment, net of accumulated depreciation and amortization of $912,230 at October 31, 1996, $955,007 at October 19, 1997, and $975,498 at July 31, 1997 (notes 2 and 3).................. 384,759 281,593 306,415 Due from related party (note 5)............ 228,737 332,613 316,364 Prepaid expenses and other assets.......... 234,976 303,553 152,251 ---------- ---------- ---------- Total assets........................... $6,610,073 $6,084,915 $6,327,628 ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Short-term debt (note 2)................... $ 90,400 $ 449,670 $ 484,700 Accounts payable........................... 766,465 1,040,494 703,583 Accrued liabilities........................ 244,938 203,709 221,763 Income tax payable......................... 6,019 12,262 2,992 Long-term debt and capital lease obliga- tions (note 3)............................ 4,351,394 3,463,807 3,868,069 ---------- ---------- ---------- Total liabilities...................... 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 Common stock, Class B--nonvoting. Autho- rized 5,000,000 shares; issued and out- standing 277,172 shares at October 31, 1996, 272,491 shares at October 19, 1997, and 275,242 shares at July 31, 1997.................................... 395,201 378,714 393,058 Retained earnings........................ 683,656 464,259 581,463 ---------- ---------- ---------- Total stockholders' equity............. 1,150,857 914,973 1,046,521 ---------- ---------- ---------- Total liabilities and stockholders' equity................................ $6,610,073 $6,084,915 $6,327,628 ========== ========== ==========
See accompanying notes to consolidated financial statements. F-200 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, supplies and rental 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 depreciation 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-201 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, 1995................... 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-202 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 reconcile net income (loss) to net cash provided by operating activities: 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 receivables.......... (54,741) 748 (103,876) (30,385) (87,627) (Increase) decrease in merchandise inventory............ 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 operating 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 surrender value of officers' 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... $ 363,304 $ 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-203 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 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 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-204 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, 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, 1996, the Company had borrowed $90,400, on a credit facility that allows the Company to borrow up to $500,000 at the bank's prime rate (8.25% at October 31, 1996) plus 2%. Borrowings under this facility are collateralized by trade accounts receivable. F-205 A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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, 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................... $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............................. 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........... 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............................. 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-206 A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, OCTOBER 19, JULY 31, 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...... 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...... 515,184 349,235 346,540 John Deere--One note with a monthly payment of $885 including interest at 8.75%, due in 1998. Collateralized by equipment.............................. 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.............................. 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............ 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............ 196,194 148,508 158,329 Other................................... 80,773 62,181 105,030 ---------- ---------- ---------- Total long-term debt.................... 4,833,702 3,711,141 4,212,812 Less amounts representing interest...... 482,308 247,334 344,743 ---------- ---------- ---------- Long-term debt, net of interest......... $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-207 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, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) Current deferred tax assets: Allowance for bad debts............... $ 34,600 $ 34,600 $ 41,000 Inventory reserve..................... -- 6,600 -- Noncurrent deferred tax assets: Depreciation and amortization expense.............................. 12,000 14,000 11,300 Net operating loss.................... 188,300 236,800 198,800 Alternative minimum taxes............. 25,500 39,000 29,900 --------- --------- --------- Total deferred tax assets............. 260,400 331,000 281,000 Less: Valuation allowance............. (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-208 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, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) President and shareholder................ $228,737 $317,613 $316,364 Vice president and shareholder........... -- 15,000 -- -------- -------- -------- $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 F-209 A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) of the Company. Contributions to the ESOP are determined annually by the Board of Directors, however, in no case may the contribution exceed the lesser of (a) fifteen percent (15%) of the compensation of eligible employees, or (b) $30,000 for each participant. No contributions were made in the years ended October 31, 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 277,172, 272,491 and 275,242 allocated shares at October 31, 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, 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-210 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-211 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-212 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-213 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-214 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) operating 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-215 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, weekly or monthly basis. The Company has two locations in Houston, Texas and its F-216 J & J RENTAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 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-217 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-218 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-219 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. F-220 J & J RENTAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 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. 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-221 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. 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 paid 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-222 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 statements of earnings, stockholders' equity, and cash flows for the period from 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 from 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-223 CORAN ENTERPRISES, INC. DBA A-1 RENTS AND MONTEREY BAY EQUIPMENT RENTAL, INC. COMBINED STATEMENTS OF EARNINGS
PERIOD FROM 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-224 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-225 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-226 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-227 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-228 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-229 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 liabilities......................................... $ 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 outstanding 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-230 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-231 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-232 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-233 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-234 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-235 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. F-236 BRONCO HI-LIFT, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 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. 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-237 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NO BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE ISSUER OR ANY OF THE INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES OR GUARANTEES 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 AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGES IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE ISSUE SINCE THE DATE HEREOF. ----------------- TABLE OF CONTENTS
PAGE ---- Available Information..................................................... i Cautionary Notice Regarding Forward Looking Statements.................... iv Prospectus Summary........................................................ 2 Risk Factors.............................................................. 15 The Exchange Offer........................................................ 23 Use of Proceeds........................................................... 33 Ratio of Earnings to Fixed Charges........................................ 33 Capitalization............................................................ 34 Selected Historical and Pro Forma Consolidated Financial Information...... 35 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 38 Business.................................................................. 45 Certain Information Concerning Pending Merger............................. 54 Management................................................................ 57 Certain Transactions...................................................... 64 Principal Stockholders.................................................... 65 Description of the Notes.................................................. 67 Plan of Distribution...................................................... 96 Legal Matters............................................................. 97 Experts................................................................... 97 Index to Financial Statements............................................. F-1
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- $200,000,000 LOGO UNITED RENTALS UNITED RENTALS, INC. OFFER TO EXCHANGE 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B FOR 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A -------------------------------- PROSPECTUS -------------------------------- , 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ITEM 20 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. 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 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 2(a) Agreement and Plan of Merger dated as of June 15, 1998, among the Registrant, UL Acquisition Corporation and U.S. Rentals, Inc. 3(a) Amended and Restated Certificate of Incorporation of the Company, in effect as of the date hereof (incorporated by reference to the correspondingly numbered exhibit of the Registrant's Registration Statement on Form S-1, Registration No. 333-39117) 3(b) By-laws of the Company, in effect as of the date hereof (incorporated by reference to the correspondingly numbered exhibit of the Registrant's Registration Statement on Form S-1, Registration No. 333- 39117) 4(a) Form of Common Stock Certificate (incorporated by reference to the correspondingly numbered exhibit of the Registrant's Registration Statement on Form S-1, Registration No. 333-39117)
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 4(b) Indenture dated May 22, 1998, among the Registrant, the Guarantors named therein and State Street Bank and Trust Company, as trustee 4(c) Notes Registration Rights Agreement dated as of May 22, 1998, among the Registrant, the subsidiaries of the Registrant named therein, Merrill Lynch & Co. and the other initial purchasers named therein 5(a)* Opinion of Ehrenreich Eilenberg Krause & Zivian LLP 10(a) The following agreements (i) Second Amended and Restated Credit Agreement dated as of March 30, 1998, between the Company, various financial institutions, Bank of America Canada, as Canadian agent, and Bank of America National Trust and Savings Association, as U.S. agent (incorporated by reference to Exhibit 10.1 to the Registrant's Report on Form 10-Q for the quarterly period ended March 31, 1998), (ii) Third Amended and Restated Credit Agreement dated as of May 12, 1998, between the Company, various financial institutions, Bank of America Canada, as Canadian agent, and Bank of America National Trust and Savings Association, as U.S. agent (filed herewith) and (iii) First Amendment to Third Amended and Restated Credit Agreement dated as of July 10, 1998 (filed herewith) 10(b) 1997 Stock Option Plan (incorporated by reference to the correspondingly numbered exhibit of the Registrant's Registration Statement on Form S-1, Registration No. 333-39117) 10(c) Form of Warrant Agreement (incorporated by reference to the correspondingly numbered exhibit of the Registrant's Registration Statement on Form S-1, Registration No. 333-39117) 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, together with the form of Amendment No. 1 thereto (the Private Placement Purchase Agreement is incorporated by reference to the correspondingly numbered exhibit of the Registrant's Registration Statement on Form S-1, Registration No. 333-39117; and Amendment No. 1 is incorporated by reference to Exhibit 10.2 to the Registrant's Report on Form 10-Q for the quarterly period ended March 31, 1998)(2) 10(e) Form of Subscription Agreement for September 1997 Private Placement (incorporated by reference to the correspondingly numbered exhibit of the Registrant's Registration Statement on Form S-1, Registration No. 333-39117)(3) 10(f) Form of Indemnification Agreement for Officers and Directors of the Company (incorporated by reference to the correspondingly numbered exhibit of the Registrant's Registration Statement on Form S-1, Registration No. 333-39117) 10(g) Employment Agreement between the Company and Bradley S. Jacobs, dated as of September 19, 1997 (incorporated by reference to the correspondingly numbered exhibit of the Registrant's Registration Statement on Form S-1, Registration No. 333-39117) 10(h) Employment Agreement between the Company and John N. Milne, dated as of September 19, 1997 (incorporated by reference to the correspondingly numbered exhibit of the Registrant's Registration Statement on Form S-1, Registration No. 333-39117) 10(i) Employment Agreement between the Company and Michael J. Nolan, dated as of October 14, 1997 (incorporated by reference to the correspondingly numbered exhibit of the Registrant's Registration Statement on Form S-1, Registration No. 333-39117) 10(j) Employment Agreement between the Company and Robert P. Miner, dated as of October 10, 1997 (incorporated by reference to the correspondingly numbered exhibit of the Registrant's Registration Statement on Form S- 1, Registration No. 333-39117) 10(k) Stock Purchase Agreement, dated as of October 24, 1997, among the Company and the shareholders of Mercer Equipment Company (incorporated by reference to the correspondingly numbered exhibit of the Registrant's Registration Statement on Form S-1, Registration No. 333- 39117)+ 10(l) Stock Purchase Agreement, dated as of October 24, 1997, among the Company and the shareholders of Bronco Hi-Lift Inc. (incorporated by reference to the correspondingly numbered exhibit of the Registrant's Registration Statement on Form S-1, Registration No. 333-39117)+
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 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 (incorporated by reference to the correspondingly numbered exhibit of the Registrant's Registration Statement on Form S-1, Registration No. 333-39117)+ 10(n) Stock Purchase Agreement, dated as of October 24, 1997, among the Company and the shareholders of Rent-It Center, Inc. (incorporated by reference to the correspondingly numbered exhibit of the Registrant's Registration Statement on Form S-1, Registration No. 333-39117)+ 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 (incorporated by reference to the correspondingly numbered exhibit of the Registrant's Registration Statement on Form S-1, Registration No. 333-39117)+ 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. (incorporated by reference to the correspondingly numbered exhibit of the Registrant's Registration Statement on Form S-1, Registration No. 333-39117)+ 10(q) Convertible Note dated October 24, 1997 (incorporated by reference to the correspondingly numbered exhibit of the Registrant's Registration Statement on Form S-1, Registration No. 333-39117) 10(r) Subscription Agreement dated November 14, 1997, between Wayland R. Hicks and the Company (incorporated by reference to the correspondingly numbered exhibit of the Registrant's Registration Statement on Form S-1, Registration No. 333-39117) 10(s) Agreement dated November 14, 1997, between the Company and Wayland R. Hicks (incorporated by reference to the correspondingly numbered exhibit of the Registrant's Registration Statement on Form S-1, Registration No. 333-39117) 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., (incorporated by reference to Exhibit 10(t) to the Registrant's Registration Statement on Form S-1, Registration No. 333-45605)+ 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 (incorporated by reference to Exhibit 10(u) to the Registrant's Registration Statement on Form S-1, Registration No. 333- 45605)+ 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 (incorporated by reference to Exhibit 10(v) to the Registrant's Registration Statement on Form S-1, Registration No. 333- 45605)+ 10(w) Stock Purchase Agreement, dated as of June 9, 1998, among the Company and the shareholders of Power Rental Co., Inc. (incorporated by reference to Exhibit 10 to the Registrant's Report on Form 8-K dated June 18, 1998) 10(x) Form of U.S. Purchase Agreement for the public offering completed by the Company on March 11, 1998 (incorporated by reference to Exhibit 1(a) to the Registrant's Registration Statement on Form S-1, Registration No. 333-45605) 10(y) Form of International Repurchase Agreement for the public offering completed by the Company on March 11, 1998 (incorporated by reference to Exhibit 1(b) to the Registrant's Registration Statement on Form S- 1, Registration No. 333-45605) 10(z) Form of U.S. Purchase Agreement for the Company's initial public offering (incorporated by reference to Exhibit 1(a) to the Registrant's Registration Statement on Form S-1, Registration No. 333- 39117) 10(aa) Form of International Purchase Agreement for the Company's initial public offering (incorporated by reference to Exhibit 1(b) to the Registrant's Registration Statement on Form S-1, Registration No. 333- 39117)
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10(bb) Purchase Agreement dated May 19, 1998 relating to the initial sale by the Registrant of $200 million aggregate principal amount of 9 1/2% Senior Subordinated Notes due 2008 10(cc) Term Loan Agreement dated as of July 10, 1998 among the Registrant, various financial institutions and Bank of America National Trust and Savings Association, as Agent 10(dd) Agreement among the Registrant, United Rentals of New Jersey, Inc., HR Merger Corp., SMSV Acquisition Corp., Equipment Supply Company, Inc., High Reach Co., Inc., Space Maker of Va., Inc. and the Stockholders of Rylan, Inc., High Reach Co., Inc. and Space Maker Systems of Va., Inc., dated as of June 30, 1998+ 12(1) Statement re computation of ratios of earnings to fixed charges 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 Ernst & Young LLP 23(c)* Consent of KPMG Peat Marwick 23(d)* Consent of Webster Duke & Co. 23(e)* Consent of Grant Thornton LLP 23(f)* Consent of KPMG 23(g)* Consent of Battaglia, Andrews, & Moag, P.C. 23(h)* Consent of Moss Adams LLP 23(i)* Consent of Price Waterhouse LLP 23(j)* Consent of BDO Seidman, LLP 24(a) Power of Attorney (included in Part II of this Registration Statement under the caption "Signatures") 25(a) Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of State Street Bank and Trust Company 99(a) Form of Letter of Transmittal
- -------- *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 of the Company prior to December 18, 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 said 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." The Company entered into Amendment No. 1 with each of Mr. Milne, Mr. Nolan and Mr. Miner. (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 22. UNDERTAKINGS A. The registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; II-4 (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post- effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective Registration Statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; provided, however, that paragraphs (A)(1)(i) and (A)(1)(ii) do not apply if the registration statement is on Form S-3, Form S-8 or F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in this Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. B. (1) The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145, the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The registrant undertakes that every prospectus: (i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. C. 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 provisions described under Item 20 above, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expense 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 against the registrant 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. II-5 D. The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. C. The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-6 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 July 24, 1998. United Rentals, Inc. Michael J. Nolan By: _________________________________ MICHAEL J. NOLAN CHIEF 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. SIGNATURES TITLE DATE Bradley S. Jacobs Chairman, Chief July 24, 1998 - ------------------------------------- Executive Officer BRADLEY S. JACOBS and Director (Principal Executive Officer) John N. Milne Director July 24, 1998 - ------------------------------------- JOHN N. MILNE Wayland R. Hicks Director July 24, 1998 - ------------------------------------- WAYLAND R. HICKS Director July 24, 1998 - ------------------------------------- RONALD M. DEFEO Director July , 1998 - ------------------------------------- RICHARD J. HECKMANN Gerald Tsai, Jr. Director July 24, 1998 - ------------------------------------- GERALD TSAI, JR. Michael J. Nolan Chief Financial July 24, 1998 - ------------------------------------- Officer (Principal MICHAEL J. NOLAN Financial Officer) Sandra E. Welwood Vice President, July 24, 1998 - ------------------------------------- Corporate SANDRA E. WELWOOD Controller (Principal Accounting Officer) II-7 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, each co- registrant listed on the cover page of this Registration Statement 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, State of New York, on July 24, 1998. THE CO-REGISTRATION LISTED ON THE COVER PAGE OF THIS REGISTRATION STATEMENT By: Michael J. Nolan ---------------------------------- Michael J. Nolan Vice President of Each Co-Registrant 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. SIGNATURES TITLE DATE John N. Milne President and July 24, 1998 - ------------------------------------- Director of each JOHN N. MILNE Co-Registrant (Principal Executive Officer) Michael J. Nolan Vice President of July 24, 1998 - ------------------------------------- each Co-Registrant MICHAEL J. NOLAN (Principal Financial Officer) Sandra E. Welwood Vice President of July 24, 1998 - ------------------------------------- each Co-Registrant SANDRA E. WELWOOD (Principal Accounting Officer) II-8 EX-2.(A) 2 AGREEMENT AND PLAN OF MERGER EXHIBIT 2(a) EXECUTION COPY ================================================================================ AGREEMENT AND PLAN OF MERGER AMONG U.S. RENTALS, INC., UNITED RENTALS, INC. AND UR ACQUISITION CORPORATION DATED AS OF JUNE 15, 1998 ================================================================================ TABLE OF CONTENTS -----------------
Page ---- ARTICLE I THE MERGER Section 1.1 The Merger..................................................... 1 Section 1.2 Effective Time................................................. 2 Section 1.3 Closing of the Merger.......................................... 2 Section 1.4 Effects of the Merger.......................................... 2 Section 1.5 Certificate of Incorporation and By-laws....................... 2 Section 1.6 Directors...................................................... 2 Section 1.7 Officers....................................................... 2 Section 1.8 Conversion of Shares........................................... 2 Section 1.9 Exchange of Certificates....................................... 3 ARTICLE II REPRESENTATIONS AND WARRANTIES OF USR Section 2.1 Organization and Qualification................................. 5 Section 2.2 Subsidiaries................................................... 6 Section 2.3 Capitalization................................................. 6 Section 2.4 Authority; Approvals; Noncontravention; Compliance............. 7 Section 2.5 Reports and Financial Statements............................... 9 Section 2.6 Absence of Certain Changes or Events; Liabilities.............. 9 Section 2.7 Litigation..................................................... 10 Section 2.8 Registration Statement and Proxy Statement..................... 10 Section 2.9 Tax Matters.................................................... 10 Section 2.10 Employee Matters; ERISA; Labor................................. 12 Section 2.11 Environmental Protection....................................... 14 Section 2.12 Material Contracts............................................. 16 Section 2.13 Opinion of Financial Advisor................................... 16 Section 2.14 Vote Required.................................................. 16 Section 2.15 Reorganization and Accounting Matters.......................... 16 Section 2.16 Brokers........................................................ 17 ARTICLE III REPRESENTATIONS AND WARRANTIES OF URI AND MERGER SUB Section 3.1 Organization and Qualification................................. 17 Section 3.2 Subsidiaries................................................... 17 Section 3.3 Capitalization................................................. 18 Section 3.4 Authority; Approvals; Noncontravention; Compliance............. 19 Section 3.5 Reports and Financial Statements............................... 20
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Page Section 3.6 Absence of Certain Changes or Events; Liabilities............. 21 Section 3.7 Litigation.................................................... 21 Section 3.8 Registration Statement and Proxy Statement.................... 22 Section 3.9 Tax Matters................................................... 22 Section 3.10 Employee Matters; ERISA; Labor................................ 23 Section 3.11 Environmental Protection...................................... 25 Section 3.12 Material Contracts............................................ 26 Section 3.13 Opinion of Financial Advisor.................................. 26 Section 3.14 Vote Required................................................. 26 Section 3.15 Reorganization and Accounting Matters......................... 26 Section 3.16 Brokers....................................................... 27 ARTICLE IV CONDUCT OF BUSINESS PENDING THE MERGER Section 4.1 Covenants of the Parties...................................... 27 ARTICLE V ADDITIONAL AGREEMENTS Section 5.1 Access to Information......................................... 30 Section 5.2 Joint Proxy Statement and Registration Statement; Shareholders' Approval........................................ 31 Section 5.3 Regulatory Matters............................................ 32 Section 5.4 Directors' and Officers' Indemnification...................... 33 Section 5.5 Public Announcements.......................................... 34 Section 5.6 Affiliate Letters............................................. 34 Section 5.7 No Solicitations.............................................. 34 Section 5.8 Post-Merger Board of Directors................................ 36 Section 5.9 Post-Merger Officers; Employment Agreements................... 36 Section 5.10 Stock Option Plans............................................ 36 Section 5.11 Employee Benefit Plans........................................ 37 Section 5.12 Expenses...................................................... 37 Section 5.13 Reasonable Best Efforts; Further Assurances................... 38 Section 5.14 Cooperation with respect to Litigation........................ 38 Section 5.15 Subsidiaries.................................................. 38 ARTICLE VI CONDITIONS Section 6.1 Conditions to Each Party's Obligation to Effect the Merger.... 38 Section 6.2 Conditions to Obligations of URI and MERGER SUB to Effect the Merger............................... 39 Section 6.3 Conditions to Obligation of USR to Effect the Merger.......... 40
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Page ---- ARTICLE VII TERMINATION, AMENDMENT AND WAIVER Section 7.1 Termination.................................................... 42 Section 7.2 Effect of Termination.......................................... 43 Section 7.3 Termination Fees; Expenses..................................... 43 Section 7.4 Amendment...................................................... 45 Section 7.5 Waiver......................................................... 45 ARTICLE VIII GENERAL PROVISIONS Section 8.1 Non-Survival of Representations and Warranties................. 45 Section 8.2 Notices........................................................ 45 Section 8.3 Entire Agreement............................................... 47 Section 8.4 Governing Law.................................................. 47 Section 8.5 Interpretation................................................. 47 Section 8.6 Counterparts................................................... 47 Section 8.7 Binding Nature; Assignment..................................... 47 Section 8.8 WAIVER OF JURY TRIAL AND CERTAIN DAMAGES....................... 47 Section 8.9 Enforcement.................................................... 48 Exhibits - -------- Exhibit A - USR Voting Agreement Exhibit B - URI Voting Agreement Exhibit C - Form of USR Affiliate Letter Exhibit D - Form of URI Affiliate Letter Exhibit E - Forms of Employment Agreement Exhibit F - Form of Registration Rights Agreement
iii Index of Defined Terms ---------------------- Acquisition Proposal............................................. Section 5.7 Affiliates....................................................... Section 2.15 Agreement........................................................ Preamble APB 16........................................................... Section 2.15 Bankruptcy and Equity Exception.................................. Section 2.4 Certificates..................................................... Section 1.9 Certificate of Merger............................................ Section 1.2 Closing; Closing Date............................................ Section 1.3 Code............................................................. Whereas clauses Confidentiality Agreement........................................ Section 5.1 DGCL............................................................. Section 1.1 date hereof...................................................... Preamble Effective Time................................................... Section 1.2 Environmental Claim.............................................. Section 2.11 Environmental Laws............................................... Section 2.11 Environmental Permits............................................ Section 2.11 ERISA............................................................ Section 2.10 Exchange Act..................................................... Section 2.4 Exchange Agent................................................... Section 1.9 Exchange Fund.................................................... Section 1.9 Exchange Ratio................................................... Section 1.8 GAAP............................................................. Section 2.5 Governmental Authority........................................... Section 2.4 Hazardous Materials.............................................. Section 2.11 HSR Act.......................................................... Section 2.4 Joint Proxy/Registration Statement............................... Section 5.2 Merger........................................................... Whereas clauses person........................................................... Section 8.5 Proxy Statement.................................................. Section 2.8 Registration Statement........................................... Section 2.8 Release.......................................................... Section 2.11 Representatives.................................................. Section 5.1 SEC.............................................................. Section 2.5 Securities Act................................................... Section 2.4 Shares........................................................... Section 1.8 subsidiary....................................................... Section 2.1 Superior Proposal................................................ Section 5.7 Surviving Corporation............................................ Section 1.1 Taxes............................................................ Section 2.9 Tax Returns...................................................... Section 2.9 URI Common Stock................................................. Section 1.8 URI Disclosure Schedule.......................................... Section 3.2
iv URI Material Adverse Effect...................................... Section 3.1 URI SEC Reports.................................................. Section 3.5 URI Shareholders' Approval....................................... Section 3.14 USR Benefit Plans................................................ Section 2.10 USR Common Stock................................................. Section 1.8 USR Disclosure Schedule.......................................... Section 2.2 USR Material Adverse Effect...................................... Section 2.1 USR SEC Reports.................................................. Section 2.5 USR Shareholders' Approval....................................... Section 2.14 USR Stock Option................................................. Section 5.10 USR Stock Plan................................................... Section 2.3 WARN............................................................. Section 2.10
v AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of June 15, 1998 (referred to herein as the "date hereof"), by and among U.S. RENTALS, INC., a Delaware corporation ("USR"), UNITED RENTALS, INC., a Delaware corporation ("URI"), and UR ACQUISITION CORPORATION, a Delaware corporation and a direct wholly-owned subsidiary of URI ("MERGER SUB"). WHEREAS, USR and URI have determined to engage in a business combination whereby MERGER SUB will be merged with and into USR, with USR as the surviving corporation of such merger and a direct wholly-owned subsidiary of URI (the "Merger"); and WHEREAS, in furtherance thereof, the respective boards of directors of USR, URI and MERGER SUB have approved this Agreement and the Merger; and WHEREAS, in order to induce URI to enter into this Agreement, certain stock holders of USR have executed an agreement with URI in the form of Exhibit A hereto; and WHEREAS, in order to induce USR to enter into this Agreement, certain stock holders of URI have executed an agreement with USR in the form of Exhibit B hereto; and WHEREAS, it is intended that the Merger shall be recorded for accounting purposes as a pooling-of-interests; and WHEREAS, for United States federal income tax purposes, it is intended that the Merger shall qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and this Agreement is intended to be and is adopted as a plan of reorganization within the meaning of Section 368 of the Code. NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE I THE MERGER Section 1.1 The Merger. At the Effective Time (as defined in Section 1.2 below) and upon the terms and subject to the conditions of this Agreement and in accordance with the General Corporation Law of the State of Delaware (the "DGCL"), MERGER SUB shall be merged with and into USR. Following the Merger, USR shall continue as the surviving corporation (the "Surviving Corporation") and as a direct wholly-owned subsidiary of URI and the separate corporate existence of MERGER SUB shall cease. Section 1.2 Effective Time. Subject to the provisions of this Agreement, the parties hereto shall cause the Merger to be consummated by filing an appropriate certificate of merger (the "Certificate of Merger") with the Secretary of State of the State of Delaware in such form as required by, and executed in accordance with, the relevant provisions of the DGCL, as soon as practicable on or after the Closing Date (as defined in Section 1.3 below). The Merger shall become effective upon such filing or at such time thereafter as is provided in the Certificate of Merger (the "Effective Time"). Section 1.3 Closing of the Merger. The closing of the Merger (the "Closing") will take place at a time and on a date to be specified by the parties, which shall be no later than the second business day after satisfaction or waiver of the conditions set forth in Article VI (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions) (the "Closing Date"), at the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153, unless another time, date or place is agreed to in writing by the parties hereto. Section 1.4 Effects of the Merger. The Merger shall have the effects set forth in the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all properties, rights, privileges, powers and franchises of USR and MERGER SUB shall vest in the Surviving Corporation, and all debts, liabilities and duties of USR and MERGER SUB shall become the debts, liabilities and duties of the Surviving Corporation. Section 1.5 Certificate of Incorporation and By-laws. The certificate of incorporation and by-laws of USR in effect at the Effective Time shall be the certificate of incorporation and by-laws of the Surviving Corporation until respectively amended in accordance with their terms and applicable law. Section 1.6 Directors. The directors of MERGER SUB at the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the certificate of incorporation and by-laws of the Surviving Corporation until such director's successor is duly elected and qualified. Section 1.7 Officers. The persons listed on Schedule 1.7 hereto shall, as of the Effective Time, be the initial officers of the Surviving Corporation, each to hold the office set forth opposite his name on such Schedule in accordance with the certificate of incorporation and by-laws of the Surviving Corporation until such officer's successor is duly elected or appointed and qualified. Section 1.8 Conversion of Shares. (a) At the Effective Time, each share of common stock, par value $0.01 per share, of USR ("USR Common Stock") issued and 2 outstanding immediately prior to the Effective Time (individually a "Share" and collectively, the "Shares") (other than Shares held by URI, MERGER SUB or any other subsidiary of URI) shall, by virtue of the Merger and without any action on the part of USR, MERGER SUB or the holder thereof, be converted into the right to receive 0.9625 (the "Exchange Ratio") fully paid and nonassessable shares of common stock, par value $0.01 per share, of URI ("URI Common Stock"). If between the date hereof and the Effective Time the outstanding shares of URI Common Stock and/or USR Common Stock shall have been changed into a different number of shares or a different class by reason of any stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares, the amount of shares of URI Common Stock constituting the Exchange Ratio shall be correspondingly adjusted to reflect such stock dividend, subdivision, reclassification, recapitalization, split, combination, exchange of shares or other similar transaction. (b) At the Effective Time, each outstanding share of common stock, par value $0.01 per share, of MERGER SUB shall be converted into one share of common stock, par value $0.01 per share, of the Surviving Corporation. (c) At the Effective Time, each Share held by URI, MERGER SUB or any other subsidiary of URI immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of USR, URI, MERGER SUB or the holder thereof, be canceled, retired and cease to exist and no payment shall be made with respect thereto. (d) In accordance with Section 262 of the DGCL, no appraisal rights shall be available to holders of Shares in connection with the Merger. Section 1.9 Exchange of Certificates. (a) As of the Effective Time, URI shall make available to American Stock Transfer & Trust Company (the "Exchange Agent"), for the benefit of the holders of Shares, for exchange in accordance with this Article I, through the Exchange Agent: (i) certificates representing the appropriate number of shares of URI Common Stock issuable pursuant to Section 1.8 and (ii) cash to be paid in lieu of fractional shares of URI Common Stock pursuant to Section 1.9(f) (such shares of URI Common Stock and such cash are hereinafter referred to as the "Exchange Fund"). (b) As soon as reasonably practicable after the Effective Time, the Exchange Agent shall mail to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented outstanding Shares (the "Certificates") whose Shares were converted into the right to receive shares of URI Common Stock pursuant to Section 1.8: (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates 3 to the Exchange Agent and shall be in such form and have such other provisions as URI may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for certificates representing shares of URI Common Stock. Upon surrender of a Certificate for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by URI, together with such letter of transmittal, duly executed, the holder of such Certificate shall be entitled to receive in exchange therefor a certificate representing that number of whole shares of URI Common Stock and, if applicable, a check representing the cash consideration to which such holder may be entitled pursuant to Section 1.9(c) or Section 1.9(f), which such holder has the right to receive pursuant to the provisions of this Article I, and the Certificate so surrendered shall forthwith be canceled. The stock transfer books of USR shall be closed as of the Effective Time. In the event of a transfer of ownership of Shares which is not registered in the transfer records of USR, a certificate representing the proper number of shares of URI Common Stock may be issued to a transferee if the Certificate representing such Shares is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and by evidence that any applicable stock transfer taxes have been paid or are not applicable. Until surrendered as contemplated by this Section 1.9, each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the certificate representing shares of URI Common Stock and cash in lieu of any fractional shares of URI Common Stock as contemplated by this Section 1.9. (c) No dividends or other distributions declared or made after the Effective Time with respect to URI Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Certificate with respect to the shares of URI Common Stock issued with respect thereto pursuant to Article I and no cash payment in lieu of fractional shares shall be paid to any such holder pursuant to Section 1.9(f) until the holder of record of such Certificate shall surrender such Certificate. Subject to the effect of applicable laws, following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing whole shares of URI Common Stock issued in exchange therefor, without interest, (i) at the time of such surrender, the amount of any cash payable in lieu of a fractional share of URI Common Stock to which such holder is entitled pursuant to Section 1.9(f) and the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such whole shares of URI Common Stock, and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender payable with respect to such whole shares of URI Common Stock. (d) In the event that any Certificate shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange therefor, upon the making of an affidavit of that fact by the holder thereof, such shares of URI Common Stock and cash in lieu of fractional shares, if any, as may be required pursuant to this Agreement; provided, however, that URI may, at its discretion, require the delivery of a suitable bond or indemnity. 4 (e) All shares of URI Common Stock issued upon surrender of Certificates in accordance with the terms hereof (together with any cash paid pursuant to Section 1.9(c) or 1.9(f)) shall be deemed to have been issued in full satisfaction of all rights pertaining to the Shares formerly represented thereby and there shall be no further registration of transfers on the stock transfer books of USR or the Surviving Corporation of the Shares which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article I. (f) Notwithstanding Section 1.8 hereof, no fractions of a share of URI Common Stock shall be issued in connection with the Merger, but in lieu thereof each holder of Shares otherwise entitled to a fraction of a share of URI Common Stock shall, upon surrender of his or her Certificate or Certificates, be entitled to receive an amount of cash (without interest) determined by multiplying the average of the last reported sales price per share of URI Common Stock as reported by the New York Stock Exchange for the five trading days immediately preceding the Effective Time by the fractional share interest to which such holder would otherwise be entitled. The parties acknowledge that payment of the cash consideration in lieu of issuing fractional shares was not separately bargained for consideration but merely represents a mechanical rounding-off for purposes of simplifying the corporate and accounting problems which would otherwise be caused by the issuance of fractional shares. (g) Any portion of the Exchange Fund which remains undistributed to the former stockholders of USR for six months after the Effective Time shall be delivered to URI, upon demand, and any former stockholders of USR who have not theretofore complied with this Article I shall thereafter look only to URI for payment of their claim for URI Common Stock, for any cash in lieu of fractional shares of URI Common Stock and any dividends or distributions with respect to URI Common Stock, as the case may be. (h) None of URI, MERGER SUB or USR shall be liable to any person for shares of URI Common Stock (or dividends or distributions with respect thereto) or cash from the Exchange Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. 5 ARTICLE II REPRESENTATIONS AND WARRANTIES OF USR USR represents and warrants to URI and MERGER SUB as follows: Section 2.1 Organization and Qualification. USR and each of its subsidiaries (as defined below), is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its businesses as now being conducted, except where the failure to be so organized, existing and in good standing or to have such power and authority would not have a USR Material Adverse Effect (as defined below). As used in this Agreement, the term (a) "subsidiary" of a person shall mean any corporation or other entity (including partnerships, limited liability companies, trusts and other business associations) of which at least a majority of the voting power represented by the outstanding capital stock or other voting securities or interests having voting power under ordinary circumstances to elect directors or similar members of the governing body of such corporation or entity shall at the time be held or controlled, directly or indirectly, by such person; and (b) "USR Material Adverse Effect" shall mean any change or effect (i) that is materially adverse to the properties, business, results of operations or financial condition of USR and its subsidiaries, taken as whole, other than any change or effect arising out of general economic conditions or conditions generally affecting the equipment rental industry or (ii) that would impair the ability of USR to consummate the transactions contemplated by this Agreement. Section 2.2 Subsidiaries. Section 2.2 of the Disclosure Schedule previously delivered by USR to URI (the "USR Disclosure Schedule") sets forth a list as of the date hereof of all of USR's subsidiaries. Except as set forth in Section 2.2 of the USR Disclosure Schedule, (a) all of the issued and outstanding shares of capital stock of each of USR's subsidiaries are validly issued, fully paid, nonassessable and free of preemptive rights, and are owned, directly or indirectly, by USR free and clear of any liens, claims, encumbrances, security interests, charges and options of any nature whatsoever (other than liens in favor of USR's senior creditors as disclosed in USR's SEC Reports (as defined in Section 2.5)); (b) there are no outstanding subscriptions, options, calls, contracts, voting trusts, proxies or other commitments, understandings, restrictions, arrangements, rights or warrants, including any right of conversion or exchange under any outstanding security, instrument or other agreement, obligating USR or any such subsidiary of USR to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of any such subsidiary, or obligating it to grant, extend or enter into any such agreement or commitment; and (c) there are no outstanding commitments or obligations of USR or any of its subsidiaries to repurchase, redeem or otherwise acquire any outstanding shares of capital stock or other ownership interests in any subsidiary of USR. 6 Section 2.3 Capitalization. As of the date hereof, the authorized capital stock of USR consists of 100,000,000 shares of USR Common Stock and 10,000,000 shares of preferred stock, $.01 par value ("USR Preferred Stock"). At the close of business on June 15, 1998, (a) 30,774,975 shares of USR Common Stock were issued and outstanding, (b) not more than 4,600,000 shares of USR Common Stock were reserved for issuance pursuant to USR's 1997 Performance Award Plan (the "USR Stock Plan"), of which 4,138,387 shares of USR Common Stock were reserved for issuance upon exercise of outstanding stock options, (c) no shares of USR Common Stock were held by USR in its treasury or by its wholly owned subsidiaries, and (d) no shares of USR Preferred Stock were issued and outstanding. Except as set forth above or as set forth in Section 2.3 of the USR Disclosure Schedule, as of the date hereof, there are outstanding (i) no shares of capital stock or other voting securities of USR, (ii) no securities of USR or any of its subsidiaries convertible into or exchangeable for shares of capital stock or voting securities of USR, (iii) no options, warrants or other rights to acquire from USR or any of its subsidiaries, and no commitments or obligations of USR or any of its subsidiaries to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of USR, and (iv) no equity equivalents, interests in the ownership or earnings of USR or its subsidiaries or other similar rights (including stock appreciation rights) (collectively, "USR Securities"). There are no outstanding obligations of USR or its subsidiaries to repurchase, redeem or otherwise acquire any USR Securities. Except as set forth in Section 2.3 of the USR Disclosure Schedule, there are no stockholder agreements, voting trusts or other agreements or understandings to which USR is a party or to which it is bound relating to the voting of any USR Securities. Section 2.4 Authority; Approvals; Noncontravention; Compliance. (a) USR has all necessary corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by the board of directors of USR (the "USR Board") and no other corporate proceedings on the part of USR are necessary to authorize this Agreement or to consummate the transactions contemplated hereby (other than, with respect to the Merger, the USR Shareholders' Approval (as defined in Section 2.14 below)). This Agreement has been duly and validly executed and delivered by USR and constitutes the valid, legal and binding agreement of USR, enforceable against USR in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles (the "Bankruptcy and Equity Exception"). The USR Board has, by unanimous vote, duly and validly approved, and taken all corporate actions required to be taken by the USR Board for the consummation of, the transactions, including the Merger, contemplated hereby and resolved to recommend that the stockholders of USR adopt this Agreement. The Board of Directors of USR has taken all actions necessary under the DGCL, including approving the transactions contemplated by the Merger Agreement, to ensure that the restrictions on 7 Business Combinations (as defined in Section 203 of the DGCL) do not, and will not, apply to the transactions contemplated hereby if consummated in accordance with the terms hereof. (b) Except for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Securities Act of 1933, as amended (the "Securities Act"), Securities Exchange Act of 1934, as amended (the "Exchange Act"), state securities or blue sky laws, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the filing of the Certificate of Merger as required by the DGCL and as otherwise set forth in Section 2.4(b) of the USR Disclosure Schedule, no filing or registration with or notice to, and no permit, authorization, consent or approval of, any United States or foreign federal, state, provincial or local court or tribunal or administrative, governmental or regulatory body, agency, commission or authority (each, a "Governmental Authority") is necessary for the execution and delivery by USR of this Agreement or the consummation by USR of the transactions contemplated hereby, except where the failure to obtain such permits, authorizations, consents or approvals or to make such filings or give such notice would not have a USR Material Adverse Effect. (c) Except as set forth in Section 2.4(c) of the USR Disclosure Schedule, neither the execution, delivery and performance of this Agreement by USR nor the consummation by USR of the transactions contemplated hereby will (i) conflict with or result in any breach of any provision of the respective certificate or articles of incorporation or by-laws (or similar governing documents) of USR or any of its subsidiaries, (ii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration, lien or other encumbrance) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which USR or any of its subsidiaries is a party or by which any of them or any of their respective properties or assets may be bound, or (iii) violate any order, writ, injunction, decree, law, statute, rule or regulation applicable to USR or any of its subsidiaries or any of their respective properties or assets, except, in the case of clauses (ii) or (iii), for violations, breaches or defaults which would not have a USR Material Adverse Effect. (d) Except as set forth in Sections 2.4(d), 2.7, 2.10 and 2.11 of the USR Disclosure Schedule, or as disclosed in the USR SEC Reports filed prior to the date hereof, neither USR nor any of its subsidiaries is in violation of, or is, to the knowledge of USR, under investigation with respect to any violation of, or has been given notice or been charged with any violation of, any law, statute, order, rule, regulation, ordinance, decree or judgment (including any applicable environmental law, ordinance or regulation) of any Governmental Authority, except for possible violations which individually or in the aggregate would not have a USR Material Adverse Effect. Except as set forth in Section 2.4(d) of the USR Disclosure Schedule or as expressly disclosed in the USR SEC Reports filed prior to the date hereof, USR and its subsidiaries have all permits, licenses, franchises and other governmental 8 authorizations, consents and approvals necessary to conduct their businesses as presently conducted which are material to the operation of their businesses. Except as set forth in Section 2.4(d) of the USR Disclosure Schedule, USR and each of its subsidiaries is not in breach or violation of or in default in the performance or observance of any term or provision of, and no event has occurred which, with lapse of time or action by a third party, could result in a default by USR or any of its subsidiaries under (i) any contract, commitment, agreement, indenture, mortgage, loan agreement, note, lease, bond, license, approval or other instrument to which it is a party or by which it is bound or to which any of its property or assets is subject, except for possible violations, breaches or defaults which individually or in the aggregate would not have a USR Material Adverse Effect, or (ii) its certificate of incorporation or by-laws (or similar governing document). Section 2.5 Reports and Financial Statements. The filings required to be made by USR and its subsidiaries since March 1, 1997 under the Securities Act and the Exchange Act have been filed with the Securities and Exchange Commission (the "SEC"), including all forms, statements, reports, agreements, documents, exhibits, amendments and supplements appertaining thereto, and complied, as of their respective dates, in all material respects, with all applicable requirements of the appropriate statutes and the rules and regulations thereunder. USR has made available to URI a true and complete copy of each report, schedule, registration statement and definitive proxy statement filed with the SEC by USR and its subsidiaries pursuant to the requirements of the Securities Act or Exchange Act since March 1, 1997, including all amendments thereto (as such documents have since the time of their filing been amended, the "USR SEC Reports"). As of their respective dates, the USR SEC Reports did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The audited consolidated financial statements and unaudited interim financial statements of USR, its predecessors and its subsidiaries included in the USR SEC Reports have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis ("GAAP") (except as may be indicated therein or in the notes thereto and except with respect to unaudited statements as permitted by Form 10-Q of the SEC) and fairly present the financial position of USR and its subsidiaries as of the dates thereof and the results of their respective operations, cash flows and change in financial position for the periods then ended, subject, in the case of the unaudited interim financial statements, to normal, recurring audit adjustments. Since December 31, 1997, except as set forth in the USR SEC Reports, there has not been any change, or any application or request for any change, by USR or any of its subsidiaries in accounting principles, methods or policies for financial accounting or tax purposes. True, accurate and complete copies of the certificate of incorporation and by-laws of USR, as in effect on the date hereof, are included in the USR SEC Reports. USR has heretofore made available to URI a complete and correct copy of any material amendments or modifications, which have not yet been filed with the SEC, to agreements and other documents which had 9 previously been filed by USR with the SEC pursuant to the Securities Act or the Exchange Act. Section 2.6 Absence of Certain Changes or Events; Liabilities. Except as disclosed in the USR SEC Reports filed prior to the date hereof or as set forth in Section 2.6 of the USR Disclosure Schedule, since December 31, 1997, USR and each of its subsidiaries have conducted their business only, to USR's knowledge, in the ordinary course of business consistent with past practice and there has not been, and no fact or condition exists, and no events or changes have occurred and no liabilities or obligations of any nature (whether or not accrued, contingent or otherwise, and whether due or to become due or asserted or unasserted) have been incurred, in each case, which would have or, insofar as reasonably can be foreseen, could have, a USR Material Adverse Effect. Except as and to the extent publicly disclosed in the USR SEC Reports filed prior to the date hereof and except for liabilities incurred in connection with the transactions contemplated by this Agreement, USR and its subsidiaries have no liabilities or obligations of any nature, whether or not accrued, contingent or otherwise, and whether due or to become due or asserted or unasserted, which, individually or in the aggregate, would have a USR Material Adverse Effect. Section 2.7 Litigation. Except as disclosed in the USR SEC Reports filed prior to the date hereof or as set forth in Sections 2.7, 2.10 and 2.11 of the USR Disclosure Schedule, (a) there are no claims, suits, actions or proceedings by any Governmental Authority or arbitrator pending or, to the knowledge of USR, threatened, nor are there, to the knowledge of USR, any investigations or reviews by any Governmental Authority or any arbitrator pending or threatened against, relating to or affecting USR or any of its subsidiaries which would have a USR Material Adverse Effect, (b) to USR's knowledge, there have not been any significant developments since December 31, 1997 with respect to such disclosed claims, suits, actions, proceedings, investigations or reviews that would have a USR Material Adverse Effect and (c) there are no judgments, decrees, injunctions, rules or orders of any court, governmental department, commission, agency, instrumentality or authority or any arbitrator applicable to USR or any of its subsidiaries, except for such that would not have a USR Material Adverse Effect. Section 2.8 Registration Statement and Proxy Statement. None of the information supplied or to be supplied by or on behalf of USR and included or incorporated by reference in (a) the registration statement on Form S-4 to be filed with the SEC by URI in connection with the issuance of shares of URI Common Stock in connection with the Merger (the "Registration Statement") will, at the time the Registration Statement becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (b) the joint proxy statement, in definitive form, relating to the meetings of USR and URI stockholders to be held in connection with the Merger (the "Proxy Statement") will, at the dates mailed to stockholders and at the times of the meetings of stockholders to be 10 held in connection with the Merger, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Proxy Statement, insofar as it relates to the meeting of USR's stockholders, will comply as to form in all material respects with the applicable provisions of the Securities Act and the Exchange Act and the rules and regulations thereunder. Section 2.9 Tax Matters. Except as set forth in Section 2.9 of the USR Disclosure Schedule: (a) USR and its subsidiaries, and each affiliated group (within the meaning of Section 1504 of the Code) of which USR or any of its subsidiaries is or has been a member, has timely filed all federal and all other material Tax Returns (as defined below) required to be filed by them. All such Tax Returns are true and correct in all material respects. All material Taxes (as defined below) due and payable by USR and its subsidiaries have been timely paid in full. The most recent consolidated financial statements contained in the USR SEC Reports reflect an adequate reserve in accordance with GAAP for all Taxes payable by USR and its subsidiaries for all taxable periods and portions thereof through the date of such financial statements. (b) No material deficiencies for any Taxes have been proposed, asserted or assessed against USR or any of its subsidiaries that have not been fully paid or adequately provided for in the appropriate financial statements of USR and its subsidiaries, no requests for waivers of the time to assess any Taxes are pending, and no power of attorney with respect to any Taxes has been executed or filed with any taxing authority. No material issues relating to Taxes have been raised in writing by any Governmental Authority during any presently pending audit or examination. No claim has been made by any taxing authority in a jurisdiction where USR or any of its subsidiaries does not file a Tax Return, that it or any of its subsidiaries may be subject to any material Tax in that jurisdiction. (c) There are no material liens or encumbrances for Taxes on any of the assets of USR or its subsidiaries (other than for current Taxes not yet due and payable). (d) USR and its subsidiaries have complied in all material respects with all applicable laws, rules and regulations relating to the payment and withholding of Taxes. (e) None of USR or its subsidiaries has filed a consent under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply. (f) None of USR or its subsidiaries has made any payments, nor is any of them obligated to make any payments, and is not a party to any agreement that could obligate it to make any payments that would not be deductible by reason of Sections 280G or 162(m) of the Code. 11 (g) None of USR or its subsidiaries is a party to any tax allocation agreement, tax sharing agreement, tax indemnity agreement or similar agreement, arrangement or practice with respect to Taxes (including any advance pricing agreement, closing agreement or other agreement relating to Taxes with any taxing authority). (h) No federal, state, local or foreign audits or other administrative proceedings or court proceedings are presently pending with regard to any Taxes or Tax Returns of USR or its subsidiaries and neither USR nor any of its subsidiaries has received a written notice of any pending audit or proceeding, in any such case involving a material issue with respect to Taxes. (i) Neither USR nor any of its subsidiaries has agreed to or is required to make any material adjustment under Section 481(a) of the Code. (j) No property owned by USR or any of its subsidiaries (i) is property required to be treated as being owned by another person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect immediately prior to the enactment of the Tax Reform Act of 1986; (ii) constitutes "tax exempt use property" within the meaning of Section 168(h)(1) of the Code; or (iii) is tax exempt bond financed property within the meaning of Section 168(g) of the Code. (k) Neither USR nor any of its subsidiaries is or has ever been a "personal holding company" as defined under Section 542 of the Code. (l) For purposes of this Agreement, (i) the terms "Tax" or "Taxes" shall mean all taxes, charges, fees, imposts, levies or other assessments, including, without limitation, all net income, gross receipts, capital, sales, use, ad valorem, value added, transfer, franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation, property and estimated taxes, customs duties, fees, assessments and charges of any kind whatsoever, together with any interest and any penalties, fines, additions to tax or additional amounts imposed by any taxing authority (domestic or foreign) and shall include any transferee liability in respect of Taxes, any liability in respect of Taxes imposed by contract, tax sharing agreement, tax indemnity agreement or any similar agreement, and (ii) the term "Tax Return" shall mean any report, return, document, declaration or any other information or filing required to be supplied to any taxing authority or jurisdiction (foreign or domestic) with respect to Taxes, including, without limitation, information returns or any document with respect to or accompanying payments or estimated Taxes, or with respect to or accompanying requests for the extension of time in which to file any such report, return document, declaration or other information. 12 Section 2.10 Employee Matters; ERISA; Labor. (a) With respect to all the employee benefit plans (as that phrase is defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) maintained for, or contributed to, the benefit of any current or former employee, officer or director of USR or any of its subsidiaries ("USR ERISA Plans") and any other benefit or compensation plan, program or arrangement maintained for the benefit of any current or former employee, officer or director of USR or any of its subsidiaries (the USR ERISA Plans and such plans being collectively referred to as the "USR Benefit Plans"), except as set forth in Section 2.10(a) of the USR Disclosure Schedule: (i) none of the USR ERISA Plans is a "multiemployer plan" within the meaning of ERISA; (ii) none of the USR Benefit Plans promises or provides retiree medical or life insurance benefits to any person except as required by Section 601 of ERISA and Section 4980B of the Code; (iii) none of the USR Benefit Plans provides for payment of a benefit, the increase of a benefit amount, the payment of a contingent benefit, or the acceleration of the payment or vesting of a benefit by reason of the execution of this Agreement or the consummation of the transactions contemplated by this Agreement; (iv) neither USR nor any of its subsidiaries has an obligation to adopt, or is considering the adoption of, any new USR Benefit Plan or, except as required by law, the amendment of an existing USR Benefit Plan; (v) each USR ERISA Plan intended to be qualified under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service (the "IRS") that it is so qualified and, to the knowledge of USR, nothing has occurred since the date of such letter that could reasonably be expected to affect the qualified status of such USR ERISA Plan; (vi) each USR Benefit Plan has been operated in all respects in accordance with its terms and the requirements of all applicable law; (vii) neither USR nor any of its subsidiaries or members of their "controlled group" has incurred any direct or indirect liability under, arising out of or by operation of Title IV of ERISA in connection with the termination of, or withdrawal from, any USR ERISA Plan or other retirement plan or arrangement, and, to the knowledge of USR, no fact or event exists that could reasonably be expected to give rise to any such liability; (viii) the aggregate accumulated benefit obligations of each USR ERISA Plan subject to Title IV of ERISA (as of the date of the most recent actuarial valuation prepared for such USR ERISA Plan) does not exceed the fair market value of the assets of such USR ERISA Plan (as of the date of such valuation); and (ix) except for claims for benefits arising in the ordinary operation of the USR Benefit Plans, USR is not aware of any claims relating to the USR Benefit Plans; provided, however, that the failure of the representations set forth in clauses (v), (vi), (vii), (viii) and (ix) to be true and correct shall not be deemed to be a breach of any such representation unless any such failure, individually or in the aggregate, is reasonably likely to have a USR Material Adverse Effect. (b) Except as set forth in Section 2.10(b) of the USR Disclosure Schedule: (i) there are no labor or collective bargaining agreements which pertain to employees of USR or any of its subsidiaries; (ii) there are no pending strikes, work stoppages, slowdowns, lockouts, arbitrations or other material labor disputes against USR or any of its subsidiaries; 13 (iii) there are no pending complaints, charges or claims against the USR or any of its subsidiaries filed with any Governmental Authority based upon the employment or termination of employment of any of their employees; and (iv) USR and its subsidiaries are in compliance with all laws, regulations and orders relating to the employment of labor, including all such laws, regulations and orders relating to wages, hours, the Workers Adjustment and Retraining Notification Act ("WARN"), collective bargaining, discrimination, civil rights, safety and health, workers' compensation and the collection and payment of withholding and/or social security Taxes and any similar Tax; provided, however, that the failure of the representations set forth in clauses (iii) and (iv) to be true and correct shall not be deemed to be a breach of any representation unless any such failure, individually or in the aggregate, is reasonably likely to have a USR Material Adverse Effect. Section 2.11 Environmental Protection. (a) Except as set forth in Section 2.11 of the USR Disclosure Schedule or in the USR SEC Reports filed prior to the date hereof: (i) USR and each of its subsidiaries is in compliance with all applicable Environmental Laws (as defined below) except where the failure to so comply would not have a USR Material Adverse Effect, and neither USR nor any of its subsidiaries has received any communication from any person or Governmental Authority that alleges that USR or any of its subsidiaries is not in such compliance with applicable Environmental Laws. (ii) USR and each of its subsidiaries has obtained or has applied for all environmental, health and safety permits and governmental authorizations (collectively, the "Environmental Permits") necessary for the construction of their facilities or the conduct of their operations except where the failure to so obtain would not have a USR Material Adverse Effect, and all such Environmental Permits are in good standing or, where applicable, a renewal application has been timely filed and is pending agency approval, and USR and its subsidiaries are in material compliance with all terms and conditions of the Environmental Permits. (iii) There is no Environmental Claim (as defined below) pending or, to the best knowledge of USR, threatened (A) against USR or any of its subsidiaries, (B) against any person or entity whose liability for any Environmental Claim USR or any of its subsidiaries has or may have retained or assumed either contractually or by operation of law, or (C) against any real or personal property or operations which USR or any of its subsidiaries owns, leases or manages, in whole or in part, which, in any such case described in this clause (iii), would have a USR Material Adverse Effect. (iv) USR has no knowledge of any Releases (as defined below) of any Hazardous Material that would be reasonably likely to form the basis of any 14 Environmental Claim against USR or any of its subsidiaries, or against any person or entity whose liability for any Environmental Claim USR or any of its subsidiaries has retained or assumed either contractually or by operation of law or which would result in USR incurring liability under any Environmental Law, except for any Environmental Claim or liability which would not have a USR Material Adverse Effect. (v) USR has no knowledge, with respect to any predecessor of USR or any of its subsidiaries or any real property formerly owned, leased or operated by USR or any of its subsidiaries, of any Environmental Claim which would have a USR Material Adverse Effect pending or threatened, or of any Release of Hazardous Materials (as defined below) that would be reasonably likely to form the basis of any Environmental Claim which would have a USR Material Adverse Effect. (b) USR has made available to URI true and complete copies of all environmental audits, surveys, reports and assessments relating to real property owned, leased or operated by USR or any of its subsidiaries. (c) As used in this Agreement: (i) "Environmental Claim" means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, directives, claims, liens, investigations, proceedings or notices of noncompliance or violation (written or oral) by any person or entity (including any Governmental Authority) alleging potential liability (including potential responsibility for or liability for enforcement, investigatory costs, cleanup costs, governmental response costs, removal costs, remedial costs, natural resources damages, property damages, personal injuries or penalties) arising out of, based on or resulting from (A) the presence, Release or threatened Release into the environment of any Hazardous Materials at any location, whether or not owned, operated, leased or managed by USR or any of its subsidiaries (for purposes of this Section 2.11) or by URI or any of URI's subsidiaries (for purposes of Section 3.11); or (B) circumstances forming the basis of any violation or alleged violation of any Environmental Law or (C) any and all claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from the presence or Release of any Hazardous Materials. (ii) "Environmental Laws" means all applicable federal, state and local laws, rules and regulations relating to pollution, the environment (including ambient air, surface water, groundwater, land surface or subsurface strata), natural resources or protection of human health as it relates to the environment including laws and regulations relating to Releases or threatened Releases of Hazardous Materials, or 15 otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials. (iii) "Hazardous Materials" means (A) any petroleum or petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation and transformers or other equipment that contain dielectric fluid containing polychlorinated biphenyls ("PCBs"); (B) any chemicals, materials or substances which are now defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants," or words of similar import under any Environmental Law and (C) any other chemical, material, substance or waste, exposure to which is now prohibited, limited or regulated under any Environmental Law in a jurisdiction in which USR or any of its subsidiaries operates (for purposes of this Section 2.11) or in which URI or any of URI's subsidiaries operates (for purposes of Section 3.11). (iv) "Release" means any release, spill, emission, leaking, injection, deposit, disposal, discharge, dispersal, leaching or migration into the atmosphere, soil, surface water, groundwater or property. Section 2.12 Material Contracts. USR has filed as an exhibit to an Annual Report on Form 10-K or another document filed pursuant to the Securities Act or the Exchange Act, or has delivered or otherwise made available to URI true, correct and complete copies of all contracts and agreements to which USR or any of its subsidiaries is a party (a) that are required to be filed in an exhibit to an Annual Report on Form 10-K filed by USR with the SEC as of the date of this Agreement, (b) that purport to limit, curtail or restrict the ability of USR or any of its subsidiaries to operate or compete in any geographic area or line of business or (c) that provide for any severance or other agreement with any employee or consultant pursuant to which such person would be entitled to receive any additional compensation or an accelerated payment of compensation as a result of the consummation of the transactions contemplated hereby (collectively, the "USR Contracts"). Each of the USR Contracts is valid and enforceable in accordance with its terms (subject to the Bankruptcy and Equity Exception), and there is no default under any USR Contract so listed either by USR or any of its subsidiaries or, to the knowledge of USR, by any other party thereto, and no event has occurred that with the lapse of time or the giving of notice or both would constitute a default thereunder by USR or any such subsidiary or, to the knowledge of USR, any other party, in any such case in which such default or event would have a USR Material Adverse Effect. No party to any USR Contract has given notice to USR of or made a claim against USR with respect to any breach or default thereunder, in any such case in which such breach or default would have a USR Material Adverse Effect. 16 Section 2.13 Opinion of Financial Advisor. USR has received the opinion of Donaldson, Lufkin & Jenrette Securities Corporation, dated the date hereof, to the effect that, as of the date thereof, the Exchange Ratio is fair from a financial point of view to the holders of USR Common Stock. Section 2.14 Vote Required. The adoption of this Agreement by the holders of a majority of the votes entitled to be cast by all holders of the outstanding shares of USR Common Stock (the "USR Shareholders' Approval") is the only vote of the holders of any class or series of the capital stock of USR or any of its subsidiaries required to adopt this Agreement. Section 2.15 Reorganization and Accounting Matters. Neither USR nor, to USR's best knowledge, any of its Affiliates (as defined below) has taken or agreed to take any action that would (a) prevent the Merger from constituting a reorganization within the meaning of Section 368(a) of the Code or (b) prevent URI and the Surviving Corporation from accounting for the transactions to be effected pursuant to this Agreement as a pooling-of-interests in accordance with GAAP, Opinion 16 of the Accounting Principles Board ("APB 16") and applicable SEC regulations. USR has no reason to believe that the transaction contemplated by this Agreement will not qualify as a pooling-of-interest transaction in accordance with GAAP, APB 16 and applicable SEC regulations. As used in this Agreement, the term "Affiliate," except where otherwise defined herein, shall mean, as to any person, any other person which directly or indirectly controls, or is under common control with, or is controlled by, such person and, as used in this definition, "control" (and, with correlative meanings, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise). Section 2.16 Brokers. Except for Donaldson, Lufkin & Jenrette Securities Corporation, whose fees have been disclosed to URI prior to the date hereof, no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the Merger or the transactions contemplated by this Agreement based upon arrangements made by or on behalf of USR. ARTICLE III REPRESENTATIONS AND WARRANTIES OF URI AND MERGER SUB URI and MERGER SUB represent and warrant to USR as follows: Section 3.1 Organization and Qualification. URI and each of its subsidiaries (including MERGER SUB) is a corporation duly organized, validly existing and in good 17 standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its businesses as now being conducted, except where the failure to be so organized, existing and in good standing or to have such power and authority would not have a URI Material Adverse Effect (as defined below). As used in this Agreement, the term "URI Material Adverse Effect" shall mean any change or effect (i) that is materially adverse to the properties, business, results of operations or financial condition of URI and its subsidiaries, taken as whole, other than any change or effect arising out of general economic conditions or conditions generally affecting the equipment rental industry or (ii) that would impair the ability of URI and MERGER SUB to consummate the transactions contemplated by this Agreement. Section 3.2 Subsidiaries. Section 3.2 of the Disclosure Schedule previously delivered by URI to USR (the "URI Disclosure Schedule") sets forth a list as of the date hereof of all of URI's subsidiaries. Except as set forth in Section 3.2 of the URI Disclosure Schedule, (a) all of the issued and outstanding shares of capital stock of each of URI's subsidiaries (including MERGER SUB) are validly issued, fully paid, nonassessable and free of preemptive rights, and are owned, directly or indirectly, by URI free and clear of any liens, claims, encumbrances, security interests, charges and options of any nature whatsoever (other than liens in favor of URI's senior creditors as disclosed in URI's SEC Reports (as defined in Section 3.5)); (b) there are no outstanding subscriptions, options, calls, contracts, voting trusts, proxies or other commitments, understandings, restrictions, arrangements, rights or warrants, including any right of conversion or exchange under any outstanding security, instrument or other agreement, obligating URI or any such subsidiary of URI to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of any such subsidiary, or obligating it to grant, extend or enter into any such agreement or commitment; and (c) there are no outstanding commitments or obligations of URI or any of its subsidiaries to repurchase, redeem or otherwise acquire any outstanding shares of capital stock or other ownership interests in any subsidiary of URI. Section 3.3 Capitalization. As of the date hereof, the authorized capital stock of URI consists of 75,000,000 shares of URI Common Stock and 5,000,000 shares of preferred stock, $0.01 par value, of URI ("URI Preferred Stock"). At the close of business on June 15, 1998, (a) 34,387,856 shares of URI Common Stock were issued and outstanding, (b) not more than 5,000,000 shares of URI Common Stock were reserved for issuance pursuant to URI's 1997 Stock Option Plan of which 4,470,725 shares were reserved for issuance upon exercise of outstanding stock options, not more than 6,519,058 shares of URI Common Stock were reserved for issuance upon exercise of outstanding warrants and not more than 16,942 shares of URI Common Stock were reserved for issuance upon conversion of a convertible note of URI, (c) no shares of URI Common Stock were held by URI in its treasury or by its wholly owned subsidiaries, and (d) no shares of URI Preferred Stock were issued and outstanding. Except as set forth above, as contemplated by this Agreement or as set forth in Section 3.3 of the URI Disclosure Schedule, as of the date hereof, there are outstanding (i) 18 no shares of capital stock or other voting securities of URI, (ii) no securities of URI or any of its subsidiaries convertible into or exchangeable for shares of capital stock or voting securities of URI, (iii) no options, warrants or other rights to acquire from URI or any of its subsidiaries, and no commitments or obligations of URI or any of its subsidiaries to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of URI, and (iv) no equity equivalents, interests in the ownership or earnings of URI or its subsidiaries or other similar rights (including stock appreciation rights) (collectively, "URI Securities"). There are no outstanding obligations of URI or its subsidiaries to repurchase, redeem or otherwise acquire any URI Securities. Except as set forth in Section 3.3 of the URI Disclosure Schedule or the URI SEC Reports, there are no stockholder agreements, voting trusts or other agreements or understandings to which URI is a party or to which it is bound relating to the voting of any URI Securities. Section 3.4 Authority; Approvals; Noncontravention; Compliance. (a) Each of URI and MERGER SUB has all necessary corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by the board of directors of URI (the "URI Board") and the board of directors of MERGER SUB and no other corporate proceedings on the part of URI or MERGER SUB are necessary to authorize this Agreement or to consummate the transactions contemplated hereby (other than, with respect to the Merger, the URI Shareholders' Approval (as defined in Section 3.14 below)). This Agreement has been duly and validly executed and delivered by URI and MERGER SUB and constitutes the valid, legal and binding agreements of URI and MERGER SUB, enforceable against them in accordance with its terms, subject to the Bankruptcy and Equity Exception. The URI Board has, by unanimous vote, duly and validly approved, and taken all corporate actions required to be taken by the URI Board for the consummation of, the transactions, including the Merger, contemplated hereby, and resolved to recommend that the stockholders of URI approve the Charter Amendment and the Share Issuance (each as defined in Section 3.14 below). The Board of Directors of URI has taken all actions necessary under the DGCL, including approving the transactions contemplated by the Merger Agreement, to ensure that the restrictions on Business Combinations (as defined in Section 203 of the DGCL) do not, and will not, apply to the transactions contemplated hereby if consummated in accordance with the terms hereof. (b) Except for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Securities Act (including the filing and effectiveness of the Registration Statement in connection with the issuance of URI Common Stock pursuant to the Merger), the Exchange Act, state securities or blue sky laws, the HSR Act, the filing of the Certificate of Merger as required by the DGCL, required filings with and approvals of the New York Stock Exchange and as otherwise set forth in Section 3.4(b) of the URI Disclosure Schedule, no filing or registration with or notice to, and 19 no permit, authorization, consent or approval of, any Governmental Authority is necessary for the execution and delivery by URI and MERGER SUB of this Agreement or the consummation by URI and MERGER SUB of the transactions contemplated hereby, except where the failure to obtain such permits, authorizations, consents or approvals or to make such filings or give such notice would not have a URI Material Adverse Effect. (c) Except as set forth in Section 3.4(c) of the URI Disclosure Schedule, neither the execution, delivery and performance of this Agreement by URI or MERGER SUB nor the consummation by URI or MERGER SUB of the transactions contemplated hereby will (i) conflict with or result in any breach of any provision of the respective certificate or articles of incorporation or by-laws (or similar governing documents) of URI or any of its subsidiaries, (ii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration, lien or other encumbrance) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which URI or any of its subsidiaries is a party or by which any of them or any of their respective properties or assets may be bound, or (iii) violate any order, writ, injunction, decree, law, statute, rule or regulation applicable to URI or any of its subsidiaries or any of their respective properties or assets, except, in the case of clauses (ii) or (iii), for violations, breaches or defaults which would not have a URI Material Adverse Effect. (d) Except as set forth in Sections 3.4(d), 3.7, 3.10 and 3.11 of the URI Disclosure Schedule, or as disclosed in the URI SEC Reports filed prior to the date hereof, neither URI nor any of its subsidiaries is in violation of, is, to the knowledge of URI, under investigation with respect to any violation of, or has been given notice or been charged with any violation of, any law, statute, order, rule, regulation, ordinance, decree or judgment (including any applicable environmental law, ordinance or regulation) of any Governmental Authority, except for possible violations which individually or in the aggregate would not have a URI Material Adverse Effect. Except as set forth in Section 3.4(d) of the URI Disclosure Schedule or as expressly disclosed in the URI SEC Reports filed prior to the date hereof, URI and its subsidiaries have all permits, licenses, franchises and other governmental authorizations, consents and approvals necessary to conduct their businesses as presently conducted which are material to the operation of their businesses. Except as set forth in Section 3.4(d) of the URI Disclosure Schedule, URI and each of its subsidiaries is not in breach or violation of or in default in the performance or observance of any term or provision of, and no event has occurred which, with lapse of time or action by a third party, could result in a default by URI or any of its subsidiaries under (i) any contract, commitment, agreement, indenture, mortgage, loan agreement, note, lease, bond, license, approval or other instrument to which it is a party or by which it is bound or to which any of its property or assets is subject, except for possible violations, breaches or defaults which individually or 20 in the aggregate would not have a URI Material Adverse Effect, or (ii) its certificate of incorporation or by-laws (or similar governing document). Section 3.5 Reports and Financial Statements. The filings required to be made by URI and its subsidiaries since December 31, 1997 under the Securities Act and the Exchange Act have been filed with the SEC, including all forms, statements, reports, agreements, documents, exhibits, amendments and supplements appertaining thereto, and complied, as of their respective dates, in all material respects, with all applicable requirements of the appropriate statutes and the rules and regulations thereunder. URI has made available to USR a true and complete copy of each report, schedule, registration statement and definitive proxy statement filed with the SEC by URI and its subsidiaries pursuant to the requirements of the Securities Act or Exchange Act since December 31, 1997, including all amendments thereto (as such documents have since the time of their filing been amended, the "URI SEC Reports"). As of their respective dates, the URI SEC Reports did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The audited consolidated financial statements and unaudited interim financial statements of URI and its subsidiaries included in the URI SEC Reports have been prepared in accordance with GAAP (except as may be indicated therein or in the notes thereto and except with respect to unaudited statements as permitted by Form 10-Q of the SEC) and fairly present the financial position of URI and its subsidiaries as of the dates thereof and the results of their respective operations, cash flows and change in financial position for the periods then ended, subject, in the case of the unaudited interim financial statements, to normal, recurring audit adjustments. Since December 31, 1997, except as set forth in the URI SEC Reports, there has not been any change, or any application or request for any change, by URI or any of its subsidiaries in accounting principles, methods or policies for financial accounting or tax purposes. True, accurate and complete copies of the certificate of incorporation and by-laws of URI, as in effect on the date hereof, are included in the URI SEC Reports. URI has heretofore made available to USR a complete and correct copy of any material amendments or modifications, which have not yet been filed with the SEC, to agreements and other documents which had previously been filed by URI with the SEC pursuant to the Securities Act or the Exchange Act. Section 3.6 Absence of Certain Changes or Events; Liabilities. Except as disclosed in the URI SEC Reports filed prior to the date hereof or as set forth in Section 3.6 of the URI Disclosure Schedule, since December 31, 1997, URI and each of its subsidiaries have conducted their business only, to URI's knowledge, in the ordinary course of business consistent with past practice and there has not been, and no fact or condition exists, and no events or changes have occurred and no liabilities or obligations of any nature (whether or not accrued, contingent or otherwise, and whether due or to become due or asserted or unasserted) have been incurred, in each case, which would have or, insofar as reasonably can be foreseen, could have, a URI Material Adverse Effect. Except as and to the extent publicly 21 disclosed in the URI SEC Reports filed prior to the date hereof and except for liabilities incurred in connection with the transactions contemplated by this Agreement, URI and its subsidiaries have no liabilities or obligations of any nature, whether or not accrued, contingent or otherwise, and whether due or to become due or asserted or unasserted, which, individually or in the aggregate, would have a URI Material Adverse Effect. Section 3.7 Litigation. Except as disclosed in the URI SEC Reports filed prior to the date hereof or as set forth in Sections 3.7, 3.10 and 3.11 of the URI Disclosure Schedule, (a) there are no claims, suits, actions or proceedings by any Governmental Authority or any arbitrator pending or, to the knowledge of URI, threatened, nor are there, to the knowledge of URI, any investigations or reviews by any Governmental Authority or any arbitrator pending or threatened against, relating to or affecting URI or any of its subsidiaries which would have a URI Material Adverse Effect, (b) to URI's knowledge, there have not been any significant developments since December 31, 1997, with respect to such disclosed claims, suits, actions, proceedings, investigations or reviews that would have a URI Material Adverse Effect and (c) there are no judgments, decrees, injunctions, rules or orders of any court, governmental department, commission, agency, instrumentality or authority or any arbitrator applicable to URI or any of its subsidiaries, except for such that would not have a URI Material Adverse Effect. Section 3.8 Registration Statement and Proxy Statement. None of the information supplied or to be supplied by or on behalf of URI and included or incorporated by reference in (a) the Registration Statement will, at the time the Registration Statement becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and (b) the Proxy Statement will, at the dates mailed to stockholders and at the times of the meetings of stockholders to be held in connection with the Merger, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Registration Statement and the Proxy Statement, insofar as it relates to the meeting of URI's stockholders, will comply as to form in all material respects with the applicable provisions of the Securities Act and the Exchange Act and the rules and regulations thereunder. Section 3.9 Tax Matters. Except as set forth in Section 3.9 of the URI Disclosure Schedule: (a) URI and its subsidiaries, and each affiliated group (within the meaning of Section 1504 of the Code) of which URI or any of its subsidiaries is or has been a member, has timely filed all federal and all other material Tax Returns required to be filed by them. All such Tax Returns are true and correct in all material respects. All material Taxes (as defined below) due and payable by URI and its subsidiaries have been timely paid in full. The most recent consolidated financial statements contained in the URI SEC Reports reflect an adequate reserve in accordance with GAAP for all Taxes payable by URI and its 22 subsidiaries for all taxable periods and portions thereof through the date of such financial statements. (b) No material deficiencies for any Taxes have been proposed, asserted or assessed against URI or any of its subsidiaries that have not been fully paid or adequately provided for in the appropriate financial statements of URI and its subsidiaries, no requests for waivers of the time to assess any Taxes are pending, and no power of attorney with respect to any Taxes has been executed or filed with any taxing authority. No material issues relating to Taxes have been raised in writing by any Governmental Authority during any presently pending audit or examination. No claim has been made by any taxing authority in a jurisdiction where URI or any of its subsidiaries does not file a Tax Return, that it or any of its subsidiaries may be subject to any material Tax in that jurisdiction. (c) There are no material liens or encumbrances for Taxes on any of the assets of URI or its subsidiaries (other than for current Taxes not yet due and payable). (d) URI and its subsidiaries have complied in all material respects with all applicable laws, rules and regulations relating to the payment and withholding of Taxes. (e) None of URI or its subsidiaries has filed a consent under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply. (f) None of URI or its subsidiaries has made any payments, nor is any of them obligated to make any payments, and is not a party to any agreement that could obligate it to make any payments that would not be deductible by reason of Sections 280G or 162(m) of the Code. (g) None of URI or its subsidiaries is a party to any tax allocation agreement, tax sharing agreement, tax indemnity agreement or similar agreement, arrangement or practice with respect to Taxes (including any advance pricing agreement, closing agreement or other agreement relating to Taxes with any taxing authority). (h) No federal, state, local or foreign audits or other administrative proceedings or court proceedings are presently pending with regard to any Taxes or Tax Returns of URI or its subsidiaries and neither URI nor any of its subsidiaries has received a written notice of any pending audit or proceeding, in any such case involving a material issue with respect to Taxes. (i) Neither URI nor any of its subsidiaries has agreed to or is required to make any material adjustment under Section 481(a) of the Code. 23 (j) No property owned by URI or any of its subsidiaries (i) is property required to be treated as being owned by another person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect immediately prior to the enactment of the Tax Reform Act of 1986; (ii) constitutes "tax exempt use property" within the meaning of Section 168(h)(1) of the Code; or (iii) is tax exempt bond financed property within the meaning of Section 168(g) of the Code. (k) Neither URI nor any of its subsidiaries is or has ever been a "personal holding company" as defined under Section 542 of the Code. Section 3.10 Employee Matters; ERISA; Labor. (a) With respect to all the employee benefit plans (as that phrase is defined in Section 3(3) of ERISA) maintained for, or contributed to, the benefit of any current or former employee, officer or director of URI or any of its subsidiaries ("URI ERISA Plans") and any other benefit or compensation plan, program or arrangement maintained for the benefit of any current or former employee, officer or director of URI or any of its subsidiaries (the URI ERISA Plans and such plans being collectively referred to as the "URI Benefit Plans"), except as set forth in Section 3.10(a) of the URI Disclosure Schedule: (i) none of the URI ERISA Plans is a "multiemployer plan" within the meaning of ERISA; (ii) none of the URI Benefit Plans promises or provides retiree medical or life insurance benefits to any person except as required by Section 601 of ERISA and Section 4908B of the Code; (iii) none of the URI Benefit Plans provides for payment of a benefit, the increase of a benefit amount, the payment of a contingent benefit, or the acceleration of the payment or vesting of a benefit by reason of the execution of this Agreement or the consummation of the transactions contemplated by this Agreement; (iv) neither URI nor any of its subsidiaries has an obligation to adopt, or is considering the adoption of, any new URI Benefit Plan or, except as required by law, the amendment of an existing URI Benefit Plan; (v) each URI ERISA Plan intended to be qualified under Section 401(a) of the Code has received a favorable determination letter from the IRS that it is so qualified and, to the knowledge of URI, nothing has occurred since the date of such letter that could reasonably be expected to affect the qualified status of such URI ERISA Plan; (vi) each URI Benefit Plan has been operated in all respects in accordance with its terms and the requirements of all applicable law; (vii) neither URI nor any of its subsidiaries or members of their "controlled group" has incurred any direct or indirect liability under, arising out of or by operation of Title IV of ERISA in connection with the termination of, or withdrawal from, any URI ERISA Plan or other retirement plan or arrangement, and, to the knowledge of URI, no fact or event exists that could reasonably be expected to give rise to any such liability; (viii) the aggregate accumulated benefit obligations of each URI ERISA Plan subject to Title IV of ERISA (as of the date of the most recent actuarial valuation prepared for such URI ERISA Plan) does not exceed the fair market value of the assets of such URI ERISA Plan (as of the date of such valuation); and (ix) except for claims for benefits arising in the ordinary operation of the URI Benefit Plans, URI is not aware of any claims relating to the URI Benefit Plans; provided, however, that the failure of 24 the representations set forth in clauses (v), (vi), (vii), (viii) and (ix) to be true and correct shall not be deemed to be a breach of any such representation unless any such failure, individually or in the aggregate, is reasonably likely to have a URI Material Adverse Effect. (b) Except as set forth in Section 3.10(b) of the URI Disclosure Schedule: (i) there are no labor or collective bargaining agreements which pertain to employees of URI or any of its subsidiaries; (ii) there are no pending strikes, work stoppages, slowdowns, lockouts, arbitrations or other material labor disputes against URI or any of its subsidiaries; (iii) there are no pending complaints, charges or claims against the URI or any of its subsidiaries filed with any Governmental Authority based upon the employment or termination of employment of any of their employees; and (iv) URI and its subsidiaries are in compliance with all laws, regulations and orders relating to the employment of labor, including all such laws, regulations and orders relating to wages, hours, WARN, collective bargaining, discrimination, civil rights, safety and health, workers' compensation and the collection and payment of withholding and/or social security Taxes and any similar Tax; provided, however, that the failure of the representations set forth in clauses (iii) and (iv) to be true and correct shall not be deemed a breach of any representation unless any such failure, individually or in the aggregate, is reasonably likely to have a URI Material Adverse Effect. Section 3.11 Environmental Protection. (a) Except as set forth in Section 3.11 of the URI Disclosure Schedule or in the URI SEC Reports filed prior to the date hereof: (i) URI and each of its subsidiaries is in compliance with all applicable Environmental Laws, except where the failure to so comply would not have a URI Material Adverse Effect, and neither URI nor any of its subsidiaries has received any communication from any person or Governmental Authority that alleges that URI or any of its subsidiaries is not in such compliance with applicable Environmental Laws. (ii) URI and each of its subsidiaries has obtained or has applied for all Environmental Permits necessary for the construction of their facilities or the conduct of their operations except where the failure to so obtain would not have a URI Material Adverse Effect, and all such Environmental Permits are in good standing or, where applicable, a renewal application has been timely filed and is pending agency approval, and URI and its subsidiaries are in material compliance with all terms and conditions of the Environmental Permits. (iii) There is no Environmental Claim pending or, to the best knowledge of URI, threatened (A) against URI or any of its subsidiaries, (B) against any person or entity whose liability for any Environmental Claim URI or any of its subsidiaries has or may have retained or assumed either contractually or by operation 25 of law, or (C) against any real or personal property or operations which URI or any of its subsidiaries owns, leases or manages, in whole or in part, which, in any such case described in this clause (iii), would have a URI Material Adverse Effect. (iv) URI has no knowledge of any Releases of any Hazardous Material that would be reasonably likely to form the basis of any Environmental Claim against URI or any of its subsidiaries, or against any person or entity whose liability for any Environmental Claim URI or any of its subsidiaries has retained or assumed either contractually or by operation of law or which would result in URI incurring liability under any Environmental Law, except for any Environmental Claim or liability which would not have a URI Material Adverse Effect. (v) URI has no knowledge, with respect to any predecessor of URI or any of its subsidiaries or any real property formerly owned, leased or operated by URI or any of its subsidiaries, of any Environmental Claim which would have a URI Material Adverse Effect pending or threatened, or of any Release of Hazardous Materials that would be reasonably likely to form the basis of any Environmental Claim which would have a URI Material Adverse Effect. (b) URI has made available to USR true and complete copies of all environmental audits, surveys, reports and assessments relating to real property owned, leased or operated by URI or any of its subsidiaries. Section 3.12 Material Contracts. URI has filed as an exhibit to an Annual Report on Form 10-K or another document filed pursuant to the Securities Act or the Exchange Act, or has delivered or otherwise made available to USR true, correct and complete copies of all contracts and agreements to which URI or any of its subsidiaries is a party (a) that are required to be filed in an exhibit to an Annual Report on Form 10-K filed by URI with the SEC as of the date of this Agreement, (b) that purport to limit, curtail or restrict the ability of URI or any of its subsidiaries to operate or compete in any geographic area or line of business or (c) that provide for any severance or other agreement with any employee or consultant pursuant to which such person would be entitled to receive any additional compensation or an accelerated payment of compensation as a result of the consummation of the transactions contemplated hereby (collectively, the "URI Contracts"). Each of the URI Contracts is valid and enforceable in accordance with its terms (subject to the Bankruptcy and Enforceability Exception), and there is no default under any URI Contract so listed either by URI or any of its subsidiaries or, to the knowledge of URI, by any other party thereto, and no event has occurred that with the lapse of time or the giving of notice or both would constitute a default thereunder by URI or any such subsidiary or, to the knowledge of URI, any other party, in any such case in which such default or event would have a URI Material Adverse Effect. No party to any URI Contract has given notice to URI of or made a claim 26 against URI with respect to any breach or default thereunder, in any such case in which such breach or default would have a URI Material Adverse Effect. Section 3.13 Opinion of Financial Advisor. URI has received the opinion of Goldman, Sachs & Co. ("Goldman"), dated the date hereof, to the effect that, as of the date thereof, the Exchange Ratio to be exchanged by URI pursuant to this Agreement is fair from a financial point of view to URI. Section 3.14 Vote Required. The approval of (a) an amendment to the certificate of incorporation of URI to the increase in the number of authorized shares of URI Common Stock to 250,000,000 shares (the "Charter Amendment") by the holders of a majority of the votes entitled to be cast by all holders of URI Common Stock and (b) the issuance of URI Common Stock pursuant to the Merger (the "Share Issuance") by the holders of a majority of all shares of URI Common Stock casting votes in accordance with the rules of the New York Stock Exchange (collectively, the "URI Shareholders' Approval") is the only vote of the holders of any class or series of the capital stock of URI required to approve this Agreement and the transactions contemplated hereby, including the Merger. Section 3.15 Reorganization and Accounting Matters. Neither URI nor, to URI's best knowledge, any of its Affiliates has taken or agreed to take any action that would (a) prevent the Merger from constituting a reorganization within the meaning of Section 368(a) of the Code or (b) prevent URI and the Surviving Corporation from accounting for the transactions to be effected pursuant to this Agreement as a pooling-of-interests in accordance with GAAP, APB 16 and applicable SEC regulations. URI has no reason to believe that the transaction contemplated by this Agreement will not qualify as a pooling-of- interest transaction in accordance with GAAP, APB 16 and applicable SEC regulations. Section 3.16 Brokers. Except for Goldman, whose fees have been disclosed to USR prior to the date hereof, no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the Merger or the transactions contemplated by this Agreement based upon arrangements made by or on behalf of URI. ARTICLE IV CONDUCT OF BUSINESS PENDING THE MERGER Section 4.1 Covenants of the Parties. After the date hereof and prior to the Effective Time or earlier termination of this Agreement, USR and URI each agree as follows, each as to itself and to each of its subsidiaries (which, in the case of URI, includes MERGER SUB), as the case may be, except as expressly contemplated or permitted in this Agreement, or to the extent the other parties hereto shall otherwise consent in writing, which consent shall not be unreasonably withheld or delayed: 27 (a) Ordinary Course of Business. Each party hereto shall, and shall cause its subsidiaries to, carry on their respective businesses in the usual, regular and ordinary course consistent with past custom and practice and use all commercially reasonable efforts to preserve intact their present business organizations and goodwill, preserve the goodwill and relationships with customers, suppliers and others having business dealings with them and, subject to prudent management of work force needs and ongoing programs currently in force, keep available the services of their present officers and employees, provided, however, that nothing shall prohibit or restrict either party or any of its subsidiaries from (i) transferring operations to such party or any of its wholly owned subsidiaries, (ii) agreeing to consummate or consummating acquisitions of entities engaged in, or assets useful in, the equipment rental business, (iii) incurring additional indebtedness or refinancing its outstanding indebtedness, or (iv) issuing additional equity or debt securities, provided that neither party shall issue any securities (or options, warrants or rights in respect of the same) to any of their respective directors, officers or employees except for, in the case of USR, issuances of shares of USR Common Stock pursuant to outstanding USR Stock Options (as defined in Section 5.10 hereof) and options to purchase not more than 100,000 shares of USR Common Stock pursuant to the USR Stock Plan granted to employees other than directors and present officers, provided that the vesting of such options shall not accelerate upon the Merger, and in the case of URI, issuances of securities (including stock options at fair market value) pursuant to URI's 1997 Stock Option Plan and issuances of URI Common Stock pursuant to the exercise of outstanding options and warrants to acquire URI Common Stock as disclosed pursuant to Section 3.3 hereof. (b) Dividends. No party shall, nor shall any party permit any of its subsidiaries to, (i) declare or pay any dividends on or make other distributions in respect of any of their capital stock other than to such party or its wholly owned subsidiaries and other than, in the case of URI, distributions of shares of URI Common Stock to effect any stock split, (ii) combine or reclassify any of their capital stock or issue or authorize or propose the issuance of any other securities in lieu of or in substitution for shares of their capital stock or (iii) redeem, repurchase or otherwise acquire any shares of its capital stock except, in the case of URI, for repurchases of URI Common Stock (and warrants to acquire the same) pursuant to the terms of agreements publicly disclosed in the URI SEC Reports prior to the date hereof. (c) Charter Documents. No party shall amend or propose to amend its respective charter or by-laws, or similar governing documents, except as contemplated herein and except, in the case of URI, for the Charter Amendment. (d) No Dispositions. Except as set forth in Section 4.1(d) of the USR Disclosure Schedule or 4.1(d) of the URI Disclosure Schedule, no party shall, nor shall any party permit any of its subsidiaries to, sell or dispose of any of its assets (including capital stock of subsidiaries) other than (i) dispositions by a party or its subsidiaries of assets that, 28 individually or in the aggregate with all other assets disposed by such party and its subsidiaries since the date hereof (other than assets disposed in accordance with clause (ii) below), generated less than $10 million in gross revenues during the 12 month period immediately preceding the date of disposition or (ii) sales of equipment or merchandise inventory and dispositions of assets in the ordinary course of business consistent with prior custom and practice. (e) Accounting. No party shall, nor shall any party permit any of its subsidiaries to, make any changes in their accounting methods, except as required by law, rule, regulation or GAAP. (f) Pooling. No party shall, nor shall any party permit any of its subsidiaries to, take any action which would, or would be reasonably likely to, prevent URI and the Surviving Corporation from accounting for the transactions to be effected pursuant to this Agreement as a pooling-of-interests in accordance with GAAP, APB 16 and applicable SEC regulations, and each party hereto shall use all commercially reasonable efforts to achieve such accounting treatment (including taking such commercially reasonable actions as may be necessary to cure any facts or circumstances that could prevent such transactions from qualifying for pooling-of-interests accounting treatment). (g) Cooperation, Notification. Each party shall (i) confer on a regular and frequent basis with one or more representatives of the other party to discuss, subject to applicable law, material operational matters and the general status of its ongoing operations, (ii) promptly notify the other party of any significant changes in its business, properties, assets, condition (financial or other), results of operations or prospects, (iii) promptly advise the other party of any material inaccuracy in any of its representations or warranties herein or of change or event which has had or, insofar as reasonably can be foreseen, is reasonably likely to result in, in the case of USR, a USR Material Adverse Effect or, in the case of URI, a URI Material Adverse Effect and (iv) promptly provide the other party with copies of all filings made by such party or any of its subsidiaries with any Governmental Authority in connection with this Agreement and the transactions contemplated hereby. (h) Third-Party Consents. Each party hereto shall, and shall cause its subsidiaries to, use all commercially reasonable efforts to obtain all consents required in connection with the transactions contemplated by this Agreement, and each party hereto shall promptly notify the other parties of any failure or prospective failure to obtain any such consents and, if requested by the other party, shall provide such other party with copies of all material filings and correspondence in connection with, and evidence of, all consents applied for or obtained. 29 (i) No Breach, Etc. No party shall, nor shall any party permit any of its subsidiaries to, willfully take any action that would or is reasonably likely to result in a material breach of any provision of this Agreement or in any of its representations and warranties set forth in this Agreement being untrue as of the Closing Date. (j) Insurance. Each party shall, and shall cause its subsidiaries to, maintain with financially responsible insurance companies insurance in such amounts and against such risks and losses as are customary for companies of its size engaged in the equipment rental industry; provided, however, that the foregoing shall not apply to USR's self insurance arrangements as referenced in Section 4.1(j) of the USR Disclosure Schedule so long as USR does not change such arrangements. (k) Permits. Each party shall, and shall cause its subsidiaries to, use reasonable efforts to maintain in effect all existing governmental permits which are material to the operations of such party or its subsidiaries. (l) Compensation, Benefits. Except, in the case of USR, as set forth in Section 4.1(l) of the USR Disclosure Schedule, and in the case of URI, as set forth in Section 4.1(l) of the URI Disclosure Schedule, and in each case, except as may be required by applicable law or as contemplated by this Agreement, no party shall, nor shall any party permit any of its subsidiaries to, (i) enter into, adopt or amend or increase the amount or accelerate the payment or vesting of any benefit or amount payable under, any employee benefit plan or other contract, agreement, commitment, arrangement, plan, trust, fund or policy maintained by, contributed to or entered into by such party or any of its subsidiaries or increase, or enter into any contract, agreement, commitment or arrangement to increase in any manner, the compensation or fringe benefits, or otherwise to extend, expand or enhance the engagement, employment or any related rights, of any director, officer or other employee of such party or any of its subsidiaries, except for normal extensions and increases for employees other than officers or directors in the ordinary course of business consistent with past practice that, in the aggregate, do not result in a material increase in benefits or compensation expense to such party or any of its subsidiaries or in connection with any acquisition permitted by Section 4.1(a) hereof; (ii) enter into or amend any employment, severance or special pay arrangement with respect to the termination of employment or other similar contract, agreement or arrangement with any director or officer or other employee other than in the ordinary course of business consistent with past practice; or (iii) deposit into any trust (including any "rabbi trust") amounts in respect of any employee benefit obligations or obligations to directors; provided that transfers into any trust, other than a rabbi or other trust with respect to any non-qualified deferred compensation, may be made in accordance with past practice. ARTICLE V 30 ADDITIONAL AGREEMENTS Section 5.1 Access to Information. Upon reasonable notice and subject to applicable law, each party shall, and shall cause its subsidiaries to, afford to the officers, directors, employees, accountants, counsel, investment bankers, financial advisors and other representatives of the other (collectively, "Representatives") reasonable access, during normal business hours throughout the period prior to the Effective Time, to all of its properties, books, contracts, commitments and records (including Tax Returns) and, during such period, each party shall, and shall cause its subsidiaries to, furnish promptly to the other (i) access to each report, schedule and other document filed or received by it or any of its subsidiaries pursuant to the requirements of federal or state securities laws or filed with or sent to the SEC, the Department of Justice, the Federal Trade Commission or any other Governmental Authority and (ii) access to all information concerning themselves, their subsidiaries, directors, officers and stockholders and such other matters as may be reasonably requested by the other party in connection with any filings, applications or approvals required or contemplated by this Agreement or for any other reason related to the transactions contemplated by this Agreement; provided, however, that information with respect to specific contemplated or pending acquisitions will not be made available until the condition set forth in Section 6.1(e) with respect to the HSR Act has been satisfied and the Joint Proxy/Registration Statement contemplated by Section 5.2(a) has been mailed to the respective stockholders of URI and USR. Each party shall, and shall cause its subsidiaries and Representatives to, hold in strict confidence all documents and information concerning the other furnished to it in connection with the transactions contemplated by this Agreement in accordance with the Confidentiality Agreements, dated March 26, 1998 and April 13, 1998, between USR and URI, as they may be amended from time to time (the "Confidentiality Agreement"). Section 5.2 Joint Proxy Statement and Registration Statement; Shareholders' Approval. (a) Preparation and Filing. The parties hereto shall prepare and file with the SEC as soon as reasonably practicable after the date hereof the Proxy Statement and, as soon as the parties are notified that the SEC has no further comments on the Proxy Statement, URI will prepare and file with the SEC the Registration Statement in which a prospectus, the Proxy Statement and form of proxy will be included (collectively, the "Joint Proxy/Registration Statement"). URI shall use its best efforts to cause the Registration Statement to be declared effective under the Securities Act as promptly as practicable after such filing, and URI shall also take such action as is required to cause the shares of URI Common Stock issuable in connection with the Merger to be registered or to obtain an exemption from registration under applicable state "blue sky" or securities laws; provided, however, that URI shall not be required to register or qualify as a foreign corporation or to take other action which would subject it to service of process or general taxation in any 31 jurisdiction where URI and the Surviving Corporation will not be, following the Merger, so subject. URI shall also use its best efforts to cause the shares of URI Common Stock issuable in the Merger to be approved for listing on the New York Stock Exchange subject to official notice of issuance. Each of the parties hereto shall furnish all information concerning itself which is required or customary for inclusion in the Joint Proxy/Registration Statement. The information provided by any party hereto for use in the Joint Proxy/Registration Statement shall be true and correct in all material respects without misstatement of any material fact or omission of any material fact which is necessary or required to make the statements therein, in light of the circumstances under which they were made, not false or misleading and, in the event any party becomes aware prior to the Effective Time of any information that should be included in the Joint Proxy/Registration Statement such that the Joint Proxy/Registration Statement shall not contain any misstatement of any material fact or omission of any material fact which is necessary or required to make the statements therein, in light of the circumstances under which they were made, not false or misleading, such party shall promptly notify the other parties thereof and, to the extent required by applicable law, an appropriate amendment to the Joint Proxy/Registration Statement shall be promptly prepared, filed with the SEC and disseminated to stockholders. No part of the Joint Proxy/Registration Statement or any amendment or supplement thereto shall be filed by any party with the SEC or mailed to stockholders without providing the other parties a reasonable prior opportunity to review the same and comment thereon. No representation, covenant or agreement is made by any party hereto with respect to information supplied by any other party for inclusion in the Joint Proxy/Registration Statement. (b) Letter of USR's Accountants. USR shall use its reasonable best efforts to cause to be delivered to URI a letter of Price Waterhouse LLP dated the Closing Date stating that accounting for the Merger as a pooling-of- interests under GAAP, APB 16 and applicable SEC rules is appropriate if the Merger is consummated as contemplated by this Agreement. (c) Letter of URI's Accountants. URI shall use its reasonable best efforts to cause to be delivered to USR a letter of Ernst & Young LLP dated the Closing Date regarding their concurrence with URI management's conclusions as to the appropriateness of pooling-of-interests accounting for the Merger under APB 16 if the Merger is consummated as contemplated by this Agreement. (d) Shareholders' Meetings. URI and USR shall each use their respective reasonable best efforts to duly call, give notice of, convene and hold meetings of their respective stockholders as soon as reasonably practicable following the date hereof, but in any event following the date on which the Registration Statement is declared effective by the SEC, such meetings shall, to the extent practicable, be held on the same date, as URI and USR shall mutually determine, or on such other dates as the parties may agree. URI and USR shall distribute to their respective stockholders, in accordance with applicable federal 32 and state law and their respective certificates of incorporation and by- laws, the Proxy Statement for the purpose of securing the URI Shareholders' Approval and USR Shareholders' Approval, respectively, at such meetings, and unless, at any time after the 120th day following the date hereof, the Board of Directors of a party shall conclude in good faith on the basis of advice of a nationally recognized firm of outside counsel that withholding such a recommendation may be necessary for such Board of Directors to act in a manner consistent with its fiduciary duties under applicable law, recommend to their respective stockholders the approval and adoption of the Merger and of this Agreement in the case of USR, or the approval of the Charter Amendment and the Share Issuance, in the case of URI, and cooperate and consult with the other parties hereto with respect to each of the foregoing matters. Section 5.3 Regulatory Matters. As soon as practicable following the date hereof: (a) HSR Filings. Each party hereto shall file or cause to be filed with the Federal Trade Commission and the Department of Justice any notifications required to be filed by their respective "ultimate parent" companies under the HSR Act and the rules and regulations promulgated thereunder with respect to the transactions contemplated hereby. Such parties will use all commercially reasonable efforts to make such filings promptly and to respond on a timely basis to any requests for additional information made by either of such agencies. (b) Other Regulatory Approvals. Each party hereto shall cooperate and use its best efforts to promptly prepare and file all necessary documentation, to effect all necessary applications, notices, petitions, filings and other documents, and to use all commercially reasonable efforts to obtain all necessary permits, consents, approvals and authorizations of all Governmental Authorities required, necessary or advisable of it in connection with this Agreement and the transactions contemplated hereby. Section 5.4 Directors' and Officers' Indemnification. (a) Indemnification. From and after the Effective Time, URI shall, to the fullest extent permitted by applicable law, indemnify, defend and hold harmless each person who is now, or has been at any time prior to the date hereof, or who becomes prior to the Effective Time, an officer or director of USR (each an "Indemnified Party" and collectively, the "Indemnified Parties") against (i) all losses, expenses (including reasonable attorney's fees and expenses), claims, damages or liabilities or amounts paid in settlement, arising out of actions or omissions occurring at or prior to the Effective Time (and whether asserted or claimed prior to, at or after the Effective Time) that are, in whole or in part, based on or arising out of the fact that such person is or was a director or officer of such party (the "Indemnified Liabilities"), and (ii) all Indemnified Liabilities to the extent they are based on or arise out of or pertain to the transactions contemplated by this Agreement; provided, however, that URI shall not be liable for any settlement effected without its written consent (which consent shall not be unreasonably withheld or delayed). URI shall be entitled to control the defense of all actions giving rise to such Indemnified Liabilities with a firm of counsel selected by URI to represent all 33 Indemnified Parties as a group with respect to each such matter or group of related matters; provided that if, under applicable standards of professional conduct as expressed in an opinion of counsel reasonably satisfactory to URI, a conflict with respect to any significant issue between positions of any Indemnified Party and any other Indemnified Party or Indemnified Parties exists in connection with such matter, URI shall not be required to retain more than one separate firm of counsel (other than necessary local counsel) to represent all of the Indemnified Parties to which such conflict relates. (b) Insurance. For a period of six years after the Effective Time, URI shall cause to be maintained in effect policies of directors' and officers' liability insurance covering acts or omissions occurring prior to the Effective Time for the benefit of directors and officers of USR who are currently covered by such policies on terms no less favorable than the terms of such current insurance coverage; provided, however, that URI shall not be required to expend in any year an amount in excess of 150% of the annual aggregate premiums currently paid by USR for such insurance; and provided, further, that if the annual premiums of such insurance coverage exceed such amount, URI shall be obligated to obtain a policy with the best coverage available, in the reasonable judgment of the board of directors of URI, for a cost not exceeding such amount. (c) Director and Officer Liability. URI will cause the Surviving Corporaction, for a period of six years after the Effective Date to (i) maintain in effect in its certificate of incorporation and by-laws the current provisions regarding the elimination of liability of directors and indemnification of and advancement of expenses to officers, directors, employees and agents currently contained in the certificate of incorporation and by-laws of USR and (ii) maintain the existing indemnification agreements covering such directors of USR, copies of which have been provided to URI before the date of this Agreement. (d) Successors. In the event URI or any of its successors or assigns (i) consolidates with or merges into any other person or entity and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any person or entity, then and in either such case, proper provisions shall be made so that the successors and assigns of URI shall assume the obligations set forth in this Section 5.4. (e) Benefit. The provisions of this Section 5.4 are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party, his or her heirs and his or her representatives. Section 5.5 Public Announcements. Subject to each party's disclosure obligations imposed by applicable law and stock exchange rules, USR and URI will coordinate with each other in the development and distribution of all news releases and other public information disclosures with respect to this Agreement or any of the transactions contemplated hereby. 34 Section 5.6 Affiliate Letters. Section 5.6 of the USR Disclosure Schedule identifies all persons who are, and all persons who to USR's best knowledge will be at the Closing Date, "affiliates" of USR for purposes of Rule 145 under the Securities Act or for purposes of qualifying the Merger for pooling-of-interests accounting treatment under APB 16 and applicable SEC rules, and (b) Section 5.6 of the URI Disclosure Schedule identifies all persons who are, and all persons who to URI's best knowledge will be at the Closing Date, "affiliates" of URI for purposes of qualifying the Merger for pooling-of- interests accounting treatment under APB 16 and applicable SEC rules. USR and URI will each respectively cause such lists to be updated promptly through the Closing Date. On the date hereof, USR shall cause its "affiliates" to deliver to URI a written agreement substantially in the form attached as Exhibit C (each, a "USR Affiliate Agreement"), and URI shall cause its "affiliates" to deliver to USR a written agreement substantially in the form attached as Exhibit D (each, a "URI Affiliate Agreement"). Section 5.7 No Solicitations. From and after the date hereof, USR and URI shall not, and shall not authorize or permit any of their respective subsidiaries or Representatives to, directly or indirectly, solicit, initiate or encourage (including by way of furnishing information) or take any other action to facilitate knowingly any inquiries or the making of any proposal which constitutes or may reasonably be expected to lead to an Acquisition Proposal (as defined herein) from any person or entity, or engage in any discussion or negotiations relating thereto or accept any Acquisition Proposal; provided, however, that notwithstanding any other provision hereof, either party may (i) comply with Rule 14e-2 promulgated under the Exchange Act with regard to a tender or exchange offer; and (ii) at any time after the 120th day following the date hereof and prior to the time USR stockholders shall have voted to adopt this Agreement, (A) engage in discussions or negotiations with a third party who (without any solicitation, initiation, encouragement, discussion or negotiation, directly or indirectly, by or with the party or its Representatives after the date hereof) seeks to initiate such discussions or negotiations, and may furnish such third party information concerning the party and its business, properties and assets if, and only to the extent that, (1)(w) the third party has first made an Acquisition Proposal that the Board of Directors of such party believes in good faith (after consultation with its financial advisor) is reasonably capable of being completed, taking into account all relevant legal, financial, regulatory and other aspects of the Acquisition Proposal and the source of its financing, on the terms proposed and, believes in good faith (after consultation with its financial advisor and after taking into account the strategic benefits anticipated to be derived from the Merger and the long-term prospects of USR and URI as a combined company), would, if consummated, result in a transaction more favorable to the stockholders of USR or URI, as the case may be, from a financial point of view, than the transactions contemplated by this Agreement and believes in good faith (after consultation with its financial advisor) that the person making such Acquisition Proposal has, or is reasonably likely to have or obtain, any necessary funds or customary commitments to provide any funds necessary to consummate such Acquisition Proposal (any such more favorable Acquisition Proposal being referred in 35 this Agreement as a "Superior Proposal") and (x) the party's Board of Directors shall conclude in good faith, after considering applicable provisions of state law, on the basis of advice of a nationally recognized firm of outside counsel, that such action may be necessary for the Board of Directors to act in a manner consistent with its fiduciary duties under applicable law, and (2) prior to furnishing such information to or entering into discussions or negotiations with such person or entity, such party (y) provides prompt notice to the other party to the effect that it is furnishing information to or entering into discussions or negotiations with such person or entity and (z) receives from such person or entity an executed confidentiality agreement in reasonably customary form on terms not materially more favorable to such person or entity than the terms contained in the Confidentiality Agreement, and/or (B) accept a Superior Proposal from a third party, provided that the conditions set forth in clauses (A)(1) and (A)(2) above have been satisfied and such party complies with and terminates this Agreement pursuant to Section 7.1(e) or 7.1(f), as applicable. Each party shall immediately cease and terminate any existing solicitation, initiation, encouragement, activity, discussion or negotiation with any persons or entities conducted heretofore by the party or its Representatives with respect to the foregoing. Each party hereto shall notify the other party orally and in writing of any such inquiries, offers or proposals (including the terms and conditions of any such proposal and the identify of the person making it), within 24 hours of the receipt thereof, and shall keep the other party informed of the status and details of any such inquiry, offer or proposal. As used herein, "Acquisition Proposal" shall mean a proposal or offer (other than by another party hereto) for a tender or exchange offer for the securities of a party hereto, or a merger, consolidation or other business combination involving an acquisition of a party or any material subsidiary of a party or any proposal to acquire in any manner a substantial equity interest in or a substantial portion of the assets of a party or any material subsidiary of a party. Section 5.8 Post-Merger Board of Directors. URI's Board of Directors will take such action as may be necessary to cause the number of directors comprising the full Board of Directors of URI at the Effective Time to be increased by four persons, two of whom shall be as set forth on Schedule 5.8 hereto, one of whom shall be a current director of USR chosen by URI, and one of whom shall be mutually agreed upon by the Chairman of each of USR and URI; provided that if, prior to the Effective Time, any such designee shall decline or be unable to serve, USR shall, subject to the written approval of URI, designate another person to serve in such person's stead. Section 5.9 Post-Merger Officers; Employment Agreements. (a) The Board of Directors of URI shall take such action as is required to cause the individuals listed on Schedule 5.9(a) hereto to be appointed, effective as of the Effective Time, to the offices of URI set forth opposite their respective names on such schedule. 36 (b) At the Effective Time, URI shall enter into employment agreements with each of William F. Berry and John S. McKinney in substantially the form of Exhibits E-1 and E-2 hereto, respectively. (c) USR shall use its best efforts to cause the persons identified in writing to USR with reference to this Section to enter into employment agreements with URI acceptable to URI. Section 5.10 Stock Option Plans. (a) The Board of Directors of each of USR and URI shall take all such actions as may be necessary such that, subject to the provisions of Section 16 of the Exchange Act, as of the Effective Time each option to purchase shares of USR Common Stock pursuant to the USR Stock Plan (a "USR Stock Option") which is outstanding as of the Effective Time shall be assumed by URI and converted into an option (or a new substitute option shall be granted) to purchase the number of shares of URI Common Stock (rounded up to the nearest whole share) equal to the number of shares of USR Common Stock subject to such option multiplied by the Exchange Ratio, at an exercise price per share of URI Common Stock (rounded down to the nearest penny) equal to the former exercise price per share of USR Common Stock under such option immediately prior to the Effective Time divided by the Exchange Ratio; provided, however, that in the case of any USR Stock Option to which Section 421 of the Code applies by reason of its qualification under Section 422 of the Code, the conversion formula shall be adjusted, if necessary, to comply with Section 424(a) of the Code. Except as provided above and in Section 5.10(b) below, the substituted URI Stock Option shall be subject to the same terms and conditions (including expiration date, vesting and exercise provisions) as were applicable to the converted USR Stock Option immediately prior to the Effective Time. As soon as practicable after the Effective Time, URI shall deliver to the holders of USR Stock Options appropriate notices setting forth such holders' rights with respect thereto. URI shall reserve a sufficient number of shares of URI Common Stock for issuance upon exercise of converted USR Stock Options following the Merger. (b) URI shall use its best efforts to file or cause to be filed (i) during each of URI's fiscal quarters ending March 31, 1999 and March 31, 2000 one or more registration statements on Form S-8 or Form S-3 (or other appropriate forms) under the Securities Act (an "Option Plan Registration Statement") in order to register for each holder thereof such number of Option Shares (as defined below) as equals the Registration Amount (as defined below) for such period and (ii) during URI's fiscal quarter ending March 31, 2001 one or more such registration statements in order to register the balance of the Option Shares. Except as set forth above, URI shall have no obligation to register under the Securities Act or any state securities laws any shares of URI Common Stock issuable upon exercise of converted USR Stock Options. 37 As used in this Agreement, (A) the term "Option Shares" means shares of URI Common Stock issuable pursuant to outstanding USR Stock Options converted pursuant to this Section 5.10 that were held by an employee of USR that entered into an employment agreement with URI as of the Closing Date; and (B) the "Registration Amount" for a holder for any period shall mean such number of Option Shares as equals (x) one-third of the total number of Option Shares then held by such holder, plus (y) any Option Shares not included in an Option Plan Registration Statement pursuant to the foregoing clause (x) that are owned by a holder that died, or was terminated without "good cause" or resigned for "good reason" (as respectively defined in the Employment Agreements attached as Exhibit E hereto) during the period commencing on the Closing Date and ending prior to the date such registration statement is filed with the SEC; provided that, in respect of the 1999 period, the Registration Amount shall equal the greater of the amount set forth in clauses (x) and (y) or the number of Option Shares which when sold at the market price prevailing on such date would yield net proceeds to the holder equal to the excise tax payable by such holder in respect of the vesting of the Option Shares on the date of this Agreement pursuant to the Merger. Section 5.11 Employee Benefit Plans. The consummation of the Merger shall not be treated as a termination of employment for purposes of any USR Benefit Plan; provided, however, that nothing herein shall not prohibit URI and its subsidiaries from amending, terminating or otherwise modifying any USR Benefit Plan in accordance with its terms and applicable law. Each participant of any USR Benefit Plan shall receive credit for purposes of eligibility to participate and vesting under any benefit plan of URI or any of its subsidiaries that replaces a USR Benefit Plan. Section 5.12 Expenses. Subject to Section 7.3, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses, except that those expenses incurred in connection with printing and mailing the Joint Proxy/Registration Statement, as well as the filing fee relating thereto, shall be shared equally by USR and URI. Section 5.13 Reasonable Best Efforts; Further Assurances. Subject to Section 5.7 hereof, each party will, and will cause its subsidiaries to, use reasonable best efforts to (a) satisfy the conditions to Closing hereunder and consummate the transactions contemplated hereby as promptly as reasonably practicable, and (b) execute such further documents and instruments and take such further actions as may reasonably be requested by any other party in order to consummate the Merger in accordance with the terms hereof; provided that URI shall not be required to (or be required to agree to) dispose of or hold separate any material part of its or USR's business or operations (or a combination of URI's and USR's business or operations), or agree not to operate or compete in any geographic area or line of business, in order to satisfy the foregoing. 38 Section 5.14 Cooperation with respect to Litigation. USR and URI shall cooperate in connection with, and shall each give the other a reasonable opportunity to participate in the defense of, any litigation against USR or URI, as applicable, relating to the transactions contemplated by this Agreement. Section 5.15 Subsidiaries. USR will take all action necessary to ensure that the subsidiaries listed on Schedule 2.2 of the USR Disclosure Schedule are wholly-owned by USR on or before the Effective Time. ARTICLE VI CONDITIONS Section 6.1 Conditions to Each Party's Obligation to Effect the Merger. The respective obligations of each party to effect the Merger shall be subject to the satisfaction on or prior to the Closing Date of the following conditions, except, to the extent permitted by applicable law, that such conditions may be waived in writing pursuant to Section 7.5 by the joint action of the parties hereto: (a) Shareholder Approvals. The URI Shareholders' Approval and the USR Shareholders' Approval shall have been obtained and the Charter Amendment shall have been filed and become effective. (b) No Injunction. No temporary restraining order or preliminary or permanent injunction or other order by any Governmental Authority preventing consummation of the Merger shall have been issued and be continuing in effect, and the Merger and the other transactions contemplated hereby shall not be prohibited under any applicable federal or state law or regulation. (c) Registration Statement. The Registration Statement shall have become effective in accordance with the provisions of the Securities Act, and no stop order suspending such effectiveness shall have been issued and remain in effect. (d) Listing of Shares. The shares of URI Common Stock issuable in connection with the Merger pursuant to Article I shall have been approved for listing on the New York Stock Exchange subject to official notice of issuance. (e) Statutory Approvals. The waiting period (and any extension thereof) under the HSR Act applicable to the Merger shall have been terminated or shall have expired, and all other notices, filings, consents and approvals required by law or any Governmental Authority in connection with the Merger on the part of URI or USR the failure of which to 39 have been made or obtained would violate any applicable law or cause a URI Material Adverse Effect or a USR Material Adverse Effect shall have been made and obtained. (f) Pooling. Each of USR and URI shall have received a letter of its independent public accountants, dated the Closing Date, addressed to and in form and substance reasonably satisfactory to USR and URI, respectively, regarding such accountants' concurrence with the conclusions of management of URI or USR, as the case may be, as to the appropriateness of pooling of interests accounting for the Merger under APB 16 if consummated in accordance with this Agreement. (g) Registration Rights Agreement. URI shall have entered into a Registration Rights Agreement in substantially the form of Exhibit F hereto with the Holders (as defined therein). Section 6.2 Conditions to Obligations of URI and MERGER SUB to Effect the Merger. The obligations of URI and MERGER SUB to effect the Merger shall be further subject to the satisfaction, on or prior to the Closing Date, of the following conditions, except as may be waived by URI and MERGER SUB in writing pursuant to Section 7.5: (a) Performance of Obligations of USR. USR shall have performed in all material respects its agreements and covenants contained in or contemplated by this Agreement which are required to be performed by it at or prior to the Effective Time. (b) Representations and Warranties. The representations and warranties of USR set forth in this Agreement shall be true and correct (i) on and as of the date hereof and (ii) on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except for representations and warranties that expressly speak only as of a specific date or time which need only be true and correct as of such date or time) except in each of cases (i) and (ii) for such failures of representations or warranties to be true and correct (without giving effect to any materiality qualification or standard contained in any such representations and warranties) which, individually or in the aggregate, do not and would not be reasonably likely to result in a USR Material Adverse Effect. (c) Closing Certificates. URI shall have received a certificate signed by the chief executive officer and chief financial officer of USR, dated the Closing Date, to the effect that, to the best of such officers' knowledge, the conditions set forth in Section 6.2(a) and Section 6.2(b) have been satisfied. (d) USR Material Adverse Effect. No USR Material Adverse Effect shall have occurred. 40 (e) Tax Opinion. URI shall have received an opinion from Weil, Gotshal & Manges LLP ("WGM"), counsel to URI, in form and substance reasonably satisfactory to URI, dated as of the Closing Date, substantially to the effect that (i) the Merger will constitute a reorganization for United States federal income tax purposes within the meaning of Section 368(a) of the Code, (ii) USR, URI and MERGER SUB will each be a party to the reorganization within the meaning of Section 368(b) of the Code, and (iii) no gain or loss will be recognized by USR, URI or MERGER SUB pursuant to the Merger. In rendering such opinion, WGM may require and rely upon representations contained in certificates of officers of USR, URI and MERGER SUB and others. (f) Affiliate Agreements. URI shall have received the USR Affiliate Agreements contemplated by Section 5.6 duly executed by each "affiliate" of USR. (g) Consents. URI shall have received the consents or waivers with respect to the Merger and the transactions contemplated by this Agreement set forth on Schedule 6.2(g) hereto. (h) Employment Agreements. Each of William F. Berry and John S. McKinney shall have executed the employment agreements with URI described in Section 5.9(b). Section 6.3 Conditions to Obligation of USR to Effect the Merger. The obligation of USR to effect the Merger shall be further subject to the satisfaction, on or prior to the Closing Date, of the following conditions, except as may be waived by USR in writing pursuant to Section 7.5: (a) Performance of Obligations of URI. URI and MERGER SUB shall have performed in all material respects their agreements and covenants contained in or contemplated by this Agreement which are required to be performed by them at or prior to the Effective Time. (b) Representations and Warranties. The representations and warranties of URI and MERGER SUB set forth in this Agreement shall be true and correct (i) on and as of the date hereof and (ii) on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except for representations and warranties that expressly speak only as of a specific date or time which need only be true and correct as of such date or time) except in each of cases (i) and (ii) for such failures of representations or warranties to be true and correct (without giving effect to any materiality qualification or standard contained in any such representations and warranties) which, individually or in the aggregate, do not and would not be reasonably likely to result in a URI Material Adverse Effect. 41 (c) Closing Certificates. USR shall have received a certificate signed by the chief executive officer and chief financial officer of URI, dated the Closing Date, to the effect that, to the best of such officers' knowledge, the conditions set forth in Section 6.3(a) and Section 6.3(b) have been satisfied. (d) URI Material Adverse Effect. No URI Material Adverse Effect shall have occurred. (e) Tax Opinion. USR shall have received an opinion from O'Melveny & Myers LLP, counsel to USR, in form and substance reasonably satisfactory to USR, dated as of the Closing Date, substantially to the effect that (i) the Merger will constitute a reorganization for United States federal income tax purposes within the meaning of Section 368(a) of the Code, (ii) USR, URI and MERGER SUB will each be a party to the reorganization within the meaning of Section 368(b) of the Code, and (iii) no gain or loss will be recognized by stockholders of USR as a result of the Merger (except to the extent that cash is received in lieu of fractional share interests). In rendering such opinion, such counsel may require and rely upon representations contained in certificates of officers of USR, URI and MERGER SUB and others. (f) Affiliate Agreements. USR shall have received the URI Affiliate Agreements contemplated by Section 5.6 duly executed by each "affiliate" of URI. (g) Employment Agreements. URI shall have (i) executed the employment agreements with each of William F. Berry and John S. McKinney described in Section 5.9(b) and (ii) offered each employee of USR that is a holder of outstanding USR Stock Options the opportunity to enter into an at-will employment agreement with URI on terms comparable to those offered to similarly situated employees of URI. ARTICLE VII TERMINATION, AMENDMENT AND WAIVER Section 7.1 Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after the USR Shareholders' Approval and/or the URI Shareholders' Approval: (a) by mutual written consent of the respective boards of directors of USR, URI and MERGER SUB; (b) by either URI or USR (i) if there has been any breach of any representations, warranties, covenants or agreements on the part of the other set forth in this Agreement, which breaches individually or in the aggregate would result in a URI Material 42 Adverse Effect or a USR Material Adverse Effect, as the case may be, and which breaches have not been cured or are incapable of being cured within 20 days following receipt by the breaching party of notice of such breach or adequate assurance of such cure shall not have been given by or on behalf of the breaching party within such 20-day period, (ii) if the Board of Directors of the other or any committee of the Board of Directors of the other (A) shall approve, recommend or accept any Superior Proposal with respect to such party, or (B) shall resolve to take any of the actions specified in clause (A), or (iii) if any state or federal law, order, rule or regulation is adopted or issued which has the effect, as supported by the written opinion of outside counsel for such party, of prohibiting the Merger, or by any party hereto if any court of competent jurisdiction in the United States or any state shall have issued an order, judgment or decree permanently restraining, enjoining or otherwise prohibiting the Merger, and such order, judgment or decree shall have become final and nonappealable; (c) by any party hereto, by written notice to the other parties, if the Effective Time shall not have occurred, for any reason, on or before December 31, 1998 (the "Walk-Away Date"); provided, however, that the right to terminate this Agreement under this Section 7.1(c) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Effective Time to occur on or before such date; provided, further, that such party's right to terminate the Agreement under this Section 7.1(c) shall be restored if such failure has been cured, and the Walk-Away Date shall be deemed to be extended by the number of days elapsed between such failure and its cure; (d) by any party hereto, by written notice to the other parties, if at a duly held meeting of URI shareholders convened for purposes of obtaining the same, the URI Shareholders' Approval shall not have been obtained, including any adjournments thereof, or if at a duly held meeting of USR shareholders convened for purposes of obtaining the same, the USR Shareholders' Approval shall not have been obtained, including any adjournments thereof; (e) by USR, at any time after 120 days after the date hereof and prior to obtaining the USR Shareholder's Approval, and on 72 hours prior notice to URI (the "USR Notice") (i) if USR's Board of Directors withdraws or modifies, or resolves to withdraw or modify, in any manner material to URI, its approval or recommendation of this Agreement or the Merger pursuant to and in accordance with Section 5.2(d) hereof or (ii) pursuant to Section 5.7(ii)(B) but only if during the 72 hour period after the USR Notice, (A) USR shall have negotiated with, and shall have caused its respective financial and legal advisors to negotiate with, URI to attempt to make such commercially reasonable adjustments in the terms and conditions of this Agreement as would enable USR to proceed with the transactions contemplated herein and (B) the Board of Directors of USR shall have concluded, after considering the results of such negotiations, that any Superior Proposal giving rise to such USR Notice continues to be a Superior Proposal as defined in Section 5.7. USR may not 43 effect such termination unless contemporaneously therewith USR pays to URI in immediately available funds the fees required to be paid pursuant to Section 7.3(b). (f) by URI, at any time after 120 days after the date hereof and prior to obtaining the URI Shareholder's Approval and on 72 hours prior notice to URI (the "URI Notice") (i) if URI's Board of Directors withdraws or modifies, or resolves to withdraw or modify, in any manner material to USR, its approval or recommendation of this Agreement or the Merger pursuant to and in accordance with Section 5.2(d) hereof of (ii) pursuant to Section 5.7(ii)(B) but only if during the 72 hour period after the URI Notice, (A) URI shall have negotiated with, and shall have caused its respective financial and legal advisors to, negotiate with USR to attempt to make such commercially reasonable adjustments in the terms and conditions of this Agreement as would enable URI to proceed with the transactions contemplated herein and (B) but only if the Board of Directors of URI shall have concluded, after considering the results of such negotiations, that any Superior Proposal giving rise to such URI Notice continues to be a Superior Proposal as defined in Section 5.7. URI may not effect such termination unless contemporaneously therewith URI pays to USR in immediately available funds the fees required to be paid pursuant to Section 7.3(b). Section 7.2 Effect of Termination. Except as provided in Section 7.3, in the event of termination of this Agreement by either USR or URI pursuant to Section 7.1 there shall be no liability on the part of either USR or URI or their respective officers or directors hereunder, except that Section 5.12 and Section 7.3, the agreement contained in the last sentence of Section 5.1, and Article VIII shall survive any such termination. Section 7.3 Termination Fees; Expenses. (a) Termination Fee upon Breach. If this Agreement is terminated pursuant to Section 7.1(b)(i), then the breaching party shall promptly (but not later than five business days after receipt of notice from the non-breaching party) pay to the non-breaching party a fee of $15 million in cash, minus any such amounts as may have been previously paid by such breaching party pursuant to this Section 7.3; provided, however, that, if this Agreement is terminated by a party as a result of a willful breach by the other party, the breaching party shall pay to the non-breaching party a fee of $30 million in cash, minus any amounts as may have been previously paid by such breaching party pursuant to this Section 7.3. The fees and expenses set forth in this Section 7.3 shall not be the exclusive remedy available against any party that breaches this Agreement. (b) Termination Fee Upon Certain Events. If this Agreement is terminated (A) by USR pursuant to Section 7.1(e), (B) by URI pursuant to Section 7.1(f), (C) in the circumstances described in Section 7.1(b)(ii), or (D) by a party as a result of the other party's breach of Section 5.2(d), then the party whose action gave rise to the right to terminate shall pay to the other party a fee of $30 million in cash minus any amounts as may have been previously paid by such party pursuant to this Section 7.3. 44 (c) Additional Termination Fees. If this Agreement is terminated: (i) following a failure of the shareholders of a party to grant the necessary approval described in Section 2.14 or 3.14, as the case may be; and (ii) prior to the meeting of the shareholders of the party whose shareholders failed to grant the necessary approval, there shall have been an Acquisition Proposal involving such party or any of its Affiliates (whether or not such Acquisition Proposal shall have been rejected or shall have been withdrawn prior to the time of such termination or of the shareholders' meeting); and (iii) within 12 months of any such termination described in clause (i) above, the party or its Affiliate which is the subject of the Acquisition Proposal (the "Target Party") becomes a subsidiary of the offeror of such Acquisition Proposal or an Affiliate thereof or accepts a written offer to consummate or consummates an Acquisition Proposal with such offeror or Affiliate thereof, then such Target Party (jointly and severally with its Affiliates), upon the signing of a definitive agreement relating to such an Acquisition Proposal, or, if no such agreement is signed then at the closing (and as a condition to the closing) of such Target Party becoming such a subsidiary or of such Acquisition Proposal, shall pay to the other party a fee of $30 million in cash minus any amounts as may have been previously paid by the Target Party pursuant to this Section 7.3. (d) Expenses. The parties agree that the agreements contained in this Section 7.3 are an integral part of the transactions contemplated by this Agreement. No termination by a party of this Agreement under Article VII hereof shall be effective unless and until all fees required to be paid by such party pursuant to Section 7.3 hereof shall have been received in immediately available funds by the other party. Notwithstanding anything to the contrary contained in this Section 7.3, if one party fails to promptly pay to the other any fee due under Sections 7.3(a), (b) or (c), in addition to any amounts paid or payable pursuant to such sections, the defaulting party shall pay the costs and expenses (including legal fees and expenses) in connection with any action, including the filing of any lawsuit or other legal action, taken to collect payment, together with interest on the amount of any unpaid fee at the publicly announced prime rate of Citibank, N.A. from the date such fee was required to be paid. Section 7.4 Amendment. This Agreement may be amended by the Boards of Directors of the parties hereto, at any time before or after the USR Shareholders' Approval and/or the URI Shareholders' Approval and prior to the Effective Time, but after such shareholder approvals no such amendment which by law requires further approval by such 45 shareholders shall be made without such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. Section 7.5 Waiver. At any time prior to the Effective Time, a party hereto may (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (c) subject to Section 7.4 hereof, waive compliance with any of the agreements or conditions contained herein, to the extent permitted by applicable law. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party to assert any of its rights hereunder or otherwise shall not constitute a waiver of such rights. ARTICLE VIII GENERAL PROVISIONS Section 8.1 Non-Survival of Representations and Warranties. No representations or warranties in this Agreement shall survive the Effective Time, except as otherwise provided in this Agreement. This Section 8.1 shall not limit any covenant or agreement of the parties set forth herein which by its terms contemplates performance or compliance after the Effective Time. Section 8.2 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given (a) when delivered personally, (b) when sent by reputable overnight courier service, or (c) when telecopied (with answerback/confirmation of successful transmission received and which notice is confirmed by copy sent within one business day by a reputable overnight courier service) to the parties at the following addresses (or at such other address as shall be specified by like notice): 46 (i) If to URI or MERGER SUB, to: United Rentals, Inc. 4 Greenwich Office Park Greenwich, Connecticut 06830 Attn: Chief Executive Officer Telecopy: 203-622-6080 Telephone: 203-622-3131 with copies (which shall not constitute notice) to: Oscar D. Folger, Esq. 521 Fifth Avenue, 24th Floor New York, New York 10175 Telecopy: (212) 697-7833 Telephone: (212) 697-6464 and Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Attn: Stephen E. Jacobs, Esq. Stephen M. Besen, Esq. Telecopy: (212) 310-8007 Telephone: (212) 310-8000 and, (ii) if to USR, to: U.S. Rentals, Inc. 1581 Cummins Drive Modesto, California 95358 Attn: Chief Executive Officer Telecopy: 209-544-0656 Telephone: 209-544-9000 with a copy (which shall not constitute notice) to: O'Melveny & Myers LLP 1999 Avenue of the Stars Los Angeles, California 90067 Attention: Kent V. Graham, Esq. 47 Telecopy: 310-246-6779 Telephone: 310-246-6820 Section 8.3 Entire Agreement. This Agreement (including the Exhibits hereto and the other documents and instruments referred to herein) and the Confidentiality Agreement constitute the entire agreement and supersede all other prior agreements and understandings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof. Section 8.4 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts executed in and to be fully performed in such State, without giving effect to its conflicts of law rules or principles. Section 8.5 Interpretation. When a reference is made in this Agreement to Sections or Exhibits, such reference shall be to a Section or Exhibit of this Agreement, respectively, unless otherwise indicated. The table of contents and section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. As used in this Agreement, the term "person" includes any individual, corporation, limited liability company, partnership, trust, unincorporated association, Governmental Authority or other entity. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." Section 8.6 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. Section 8.7 Binding Nature; Assignment. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and, except as set forth in Sections 1.8, 1.9, 5.4 and 5.10, nothing in this Agreement, express or implied, is intended to confer upon any other person (including any employees of USR) any rights or remedies of any nature whatsoever under or by reason of this Agreement. This Agreement (and the respective rights and obligations of the parties hereunder) shall not be assigned (by operation of law or otherwise) without the express prior written consent of all parties hereto and any purported assignment without such consent shall be null and void. Section 8.8 WAIVER OF JURY TRIAL AND CERTAIN DAMAGES. EACH PARTY TO THIS AGREEMENT WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, (A) ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND (B) WITHOUT LIMITATION OF SECTIONS 48 5.7 AND 7.3 HEREOF, ANY RIGHT IT MAY HAVE TO RECEIVE DAMAGES FROM ANY OTHER PARTY BASED ON ANY THEORY OF LIABILITY FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL (INCLUDING LOST PROFITS) OR PUNITIVE DAMAGES. Section 8.9 Enforcement. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. Section 8.10 Submission to Jurisdiction; Waivers. Each of the parties hereto irrevocably agrees that any legal action or proceeding with respect to this Agreement or for recognition and enforcement of any judgment in respect hereof brought by the other party hereto or its successors or assigns shall be brought and determined in any federal court located in the State of Delaware or the Chancery or other courts of the State of Delaware, and each of the parties hereto irrevocably submits with regard to any such action or proceeding for itself and in respect to its property, generally and unconditionally, to the exclusive jurisdiction of the aforesaid courts. Each of the parties hereto irrevocably waives, and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any action or proceeding with respect to this Agreement, (a) any claim that it is not personally subject to the jurisdiction of the above-named courts for any reason other than the failure to serve process in accordance with this Section 8.10, (b) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment before judgment, attachment in aid of execution of judgment, execution of judgment or otherwise), and (c) to the fullest extent permitted by applicable law, that (i) the suit, action or proceeding in any such court is brought in an inconvenient forum, (ii) the venue of such suit, action or proceeding is improper or (iii) this Agreement, or the subject matter hereof, may not be enforced in or by such court. Each of the parties hereto further covenants and agrees that each such party shall maintain a duly appointed agent for service of summonses and other legal processes in the State of Delaware (a "Service Agent"), unless such party is organized under the laws of the State of Delaware or qualified to do business in the State of Delaware, and will notify the other parties hereto of the name and address of such Service Agent. [signature page follows] 49 IN WITNESS WHEREOF, USR, URI and MERGER SUB have caused this Agreement to be signed by their respective officers thereunto duly authorized as of the date first written above. U.S. RENTALS, INC. By: /s/ William F. Berry ---------------------------------- Name: William F. Berry Title: Chief Executive Officer UNITED RENTALS, INC. By: /s/ Bradley Jacobs ---------------------------------- Name: Bradley Jacobs Title: Chief Executive Officer UR ACQUISITION CORPORATION By: /s/ John Milne ---------------------------------- Name: John Milne Title: President 50 SCHEDULE 5.8 Post-Merger Directors of URI ---------------------------- Name Term - ---- ---- Richard D. Colburn 2001 William F. Berry 2000 51 SCHEDULE 5.9(a) Post-Merger Executive Officers of URI ------------------------------------- Richard D. Colburn - Director and Chairman Emeritus Bradley S. Jacobs - Chairman and Chief Executive Officer John N. Milne - Vice Chairman and Chief Acquisition Officer Wayland R. Hicks - Vice Chairman and Chief Operating Officer William F. Berry - President Michael J. Nolan - Chief Financial Officer John S. McKinney - Vice President, Finance Robert P. Miner - Vice President, Finance 52 EXHIBIT A VOTING AGREEMENT ---------------- VOTING AGREEMENT, dated June 15, 1998 (this "Agreement"), by and among United Rentals, Inc, a Delaware corporation ("URI"), AYR Inc., a California corporation ("AYR"), and Richard D. Colburn, an individual who is the sole shareholder of AYR (the "Shareholder"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, concurrently herewith, URI, a subsidiary of URI, and U.S. Rentals, Inc., a Delaware corporation (the "Company"), are entering into an Agreement and Plan of Merger (as such agreement may hereafter be amended from time to time, the "Merger Agreement"; capitalized terms used and not defined herein have the respective meanings ascribed to them in the Merger Agreement) pursuant to which MERGER SUB will be merged with and into the Company, with the Company as the surviving corporation and wholly-owned subsidiary of URI (the "Merger"); WHEREAS, AYR owns, beneficially and of record, 20,603,105 shares (the "Shares") of USR Common Stock and Shareholder owns, beneficially and of record, all of the outstanding capital stock of AYR; and WHEREAS, as an inducement and a condition to entering into the Merger Agreement, URI has required that each of Shareholder and AYR agree, and Shareholder and AYR have agreed, to enter into this Agreement; and further Shareholder has agreed to enter into this Agreement strictly in his capacity as a beneficial owner, through AYR, of the Shares and not in his capacity as a director of the Company. NOW, THEREFORE, in consideration of the foregoing and the mutual premises, representations, warranties, covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto hereby agree as follows: 1. Provisions Concerning the Shares. (a) Each of AYR and Shareholder -------------------------------- hereby agree that during the period commencing on the date hereof and continuing until this provision terminates pursuant to Section 5 hereof, at any meeting of the holders of shares of USR Common Stock, however called, or in connection with any written consent of the holders of shares of USR Common Stock, each of AYR and Shareholder shall vote, (or cause to be voted) the Shares held of record or Beneficially Owned (as defined below) by Shareholder, whether heretofore owned or hereafter acquired, in favor of the Merger and the adoption of the Merger Agreement and any actions required in furtherance thereof and hereof. (b) Neither AYR nor Shareholder shall enter into any agreement or understanding with any Person (as defined below) the effect of which would be inconsistent or violative of the provisions of this Agreement. (c) For purposes of this Agreement: "Beneficially Own" or "Beneficial Ownership" with respect to any securities shall mean having "beneficial ownership" of such securities (as determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), including pursuant to any agreement, arrangement or understanding, whether or not in writing; without duplicative counting of the same securities by the same holder, securities Beneficially Owned by a Person shall include securities Beneficially Owned by all other Persons with whom such Person would constitute a "group" within the meaning of Section 13(d)(3) of the Exchange Act; "Person" shall mean an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization or other entity. (d) In the event of a stock dividend or distribution, or any change in the USR Common Stock by reason of any stock dividend, stock split, recapitalization, reclassification, combination, exchange of shares, merger or the like, the term "Shares" as used in this Agreement shall be deemed to refer to and include the Shares as well as all such stock dividends and distributions and any shares or other securities into which or for which any or all of the Shares may be converted, changed or exchanged. 2. Representations and Warranties. Each of Shareholder and AYR hereby ------------------------------ represents and warrants to URI as follows: (a) Ownership of Shares. Shareholder is the record and Beneficial ------------------- Owner of all of the shares of AYR and AYR is the record and beneficial owner of all of the Shares. On the date hereof, the Shares constitute all of the shares of USR Common Stock owned of record or Beneficially Owned by AYR or Shareholder. Shareholder and AYR have shared voting power and shared power to issue instructions with respect to the matters set forth in Section 1 hereof, shared power of disposition and shared power to agree to all of the matters set forth in this Agreement, in each case with respect to all of the Shares, with no limitations, qualifications or restrictions on such rights (subject to applicable securities laws). (b) Power; Binding Agreement. Shareholder has the legal capacity, ------------------------ power and authority, and AYR has the corporate power and authority, to enter into and perform all of their respective obligations under this Agreement. This Agreement has been duly and validly authorized, executed and delivered by each of Shareholder and AYR and constitutes a valid and binding agreement of each of Shareholder and AYR, enforceable against each of Shareholder and AYR in accordance with its terms. There is no beneficiary or holder of a voting trust certificate or other interest of any trust of which AYR or Shareholder is settlor or trustee whose consent is required for the execution and 2 delivery of this Agreement or the consummation by AYR or Shareholder of the transactions contemplated hereby. (c) Organization. AYR (i) is a corporation duly organized, validly ------------ existing and in good standing under the laws of the State of California and (ii) has all requisite corporate power and authority to own its properties and assets and to carry on its business as it is now being conducted. (d) No Conflicts. (i) Except for filings under the HSR Act, the ------------ Securities Act and Exchange Act, no filing with, and no permit, authorization, consent or approval of, any state or federal public body or authority is necessary for the execution of this Agreement by Shareholder and the consummation by Shareholder of the transactions contemplated hereby and (ii) none of the execution and delivery of this Agreement by Shareholder, the consummation by Shareholder of the transactions contemplated hereby or compliance by Shareholder with any of the provisions hereof will (A) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any third party right of termination, cancellation, material modification or acceleration) under any of the terms, conditions or provisions of any declaration of trust, note, bond, mortgage, indenture, security or pledge agreement, voting agreement, shareholders' agreement or voting trust, license, contract, commitment, arrangement, understanding, agreement or other instrument or obligation of any kind to which Shareholder is a party or by which Shareholder or any of Shareholder's properties or assets may be bound, or (B) violate any order, writ, injunction, decree, judgment, order, statute, rule or regulation applicable to Shareholder or any of Shareholder's properties or assets. (e) Reliance by URI. Shareholder and AYR understand and acknowledge --------------- that URI is entering into the Merger Agreement in reliance upon execution and delivery of this Agreement by Shareholder and AYR. (f) Sophistication. Shareholder acknowledges that Shareholder is an -------------- informed and sophisticated investor and, together with Shareholder's advisors, has undertaken such investigation as they have deemed necessary, including the review of the Merger Agreement and this Agreement, to enable Shareholder to make an informed and intelligent decision with respect to the Merger Agreement and this Agreement and the transactions contemplated thereby and hereby. (g) No Broker. Except for fees payable by the Company and disclosed --------- pursuant to Section 2.16 of the Merger Agreement, no broker, investment banker, financial adviser or other Person is entitled to any commission, broker's fee, finder's fee, adviser's fee or similar fee in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Shareholder or AYR. 3. No Solicitation. (a) From and after the date hereof and continuing --------------- until this provision terminates pursuant to Section 5 hereof, neither AYR nor Shareholder shall directly or indirectly, initiate, solicit or encourage (including by way of furnishing non- 3 public information or assistance), or take any other action to facilitate, any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Acquisition Proposal with respect to the Company or enter into or maintain or continue discussions or negotiate with any Person in furtherance of such inquiries or to obtain such an Acquisition Proposal or agree to or endorse any such Acquisition Proposal, and Shareholder shall promptly notify URI orally (in all events within 24 hours) and in writing (as promptly thereafter as practicable) of the material terms and status of all inquiries and proposals which Shareholder or any agent of Shareholder may receive after the date hereof relating to any of such matters and, if such inquiry or proposal is in writing, Shareholder shall deliver to URI a copy of such inquiry or proposal promptly; provided, however, that, notwithstanding any other provision of this -------- ------- Agreement, Shareholder, as a member of the board of directors of the Company, may take any action in his capacity as a director that the board of directors of the Company would be permitted to take in accordance with Sections 5.7 and 7.1 of the Merger Agreement. Shareholder will immediately cease and cause to be terminated any existing activities, discussions or negotiations, with any parties conducted heretofore with respect to any of the foregoing. (b) URI acknowledges that this Agreement is entered into by the Shareholder in his capacity as a beneficial owner, through AYR, of the Shares, and that nothing in this Agreement shall in any way restrict or limit the Shareholder from taking any action in his capacity as a director or officer of USR or otherwise fulfilling his fiduciary obligations as a director or officer of USR, notwithstanding that any such action would be inconsistent with or violative of his obligations under this Agreement if taken in his capacity as a beneficial owner, through AYR, of the Shares. 4. Restriction on Transfer; Proxies; Non-Interference; Stop Transfers; ------------------------------------------------------------------- etc. - --- (a) Neither AYR nor Shareholder shall directly or indirectly, during the period commencing on the date hereof and continuing until this provision terminates pursuant to Section 5 hereof: (i) except as contemplated by the Merger Agreement or for transfers to charitable foundations before June 30, 1998, provided the transferee of the transferred shares takes such shares subject to the provisions of this Agreement, offer for sale, sell, transfer, tender, pledge, encumber, assign or otherwise dispose of, or grant or enter into any contract, option or other arrangement or understanding with respect to or consent to the offer for sale, sale, transfer, tender, pledge, encumbrance, assignment or other disposition of, any or all of the Shares or any interest therein (including any interest in AYR); (ii) except as contemplated by this Agreement, grant any proxies or powers of attorney, deposit any Shares into a voting trust or enter into a voting agreement with respect to any Shares; or (iii) take any action that would make any of AYR's or Shareholder's representations or warranties contained herein untrue or incorrect or have the effect of preventing or disabling AYR or Shareholder from performing their respective obligations under this Agreement; provided that the foregoing shall not prevent AYR or Shareholder from pledging any of the Shares to a bank or other financial institution or to prevent such bank or financial institution from selling the Shares on foreclosure so long as AYR or Shareholder retain the right to vote such Shares if the pledge has not been foreclosed upon. 4 (b) AYR agrees with, and covenants to, URI that AYR shall not, during the period set forth in Section 4(a), request that the Company register the transfer (book-entry or otherwise) of any certificate or uncertificated interest representing the Shares, unless such transfer is made in compliance with this Agreement. AYR shall promptly after the date hereof surrender to the Company all certificates representing the Shares for purpose of placing the following legend on such certificates: 5 THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND VOTING AND PURSUANT TO AN AGREEMENT BETWEEN THE HOLDER OF THIS CERTIFICATE AND URI, A COPY OF WHICH MAY BE OBTAINED FROM THE HOLDER HEREOF OR THE ISSUER OF THIS SECURITY. The foregoing legend shall be removed from all certificates representing the shares upon termination of the period set forth in Section 4(a). 5. Termination. Except as otherwise provided herein, the covenants and ----------- agreements contained in Sections 1, 3 and 4 hereof shall terminate (i) in the event the Merger Agreement is terminated in accordance with the terms thereof, upon such termination, and (ii) in the event the Merger is consummated, upon the Effective Time. Notwithstanding anything to the contrary herein, (A) the provisions of Section 7 hereof shall survive any termination of this Agreement, and (B) no termination of this Agreement shall relieve any party of liability for a breach hereof prior to termination. 6. Further Assurances. From time to time, at the other party's request ------------------ and without further consideration, AYR, Shareholder and URI shall execute and deliver such additional documents and take all such further lawful action as may be necessary or desirable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement. 7. Miscellaneous. ------------- (a) Entire Agreement. This Agreement and the Merger Agreement ---------------- constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. (b) Certain Events. Each of AYR and Shareholder agree that this -------------- Agreement and the obligations hereunder shall attach to the Shares and shall be binding upon any person or entity to which legal or beneficial ownership of such Shares shall pass, whether by operation of law or otherwise, including, without limitation, Shareholder's heirs, executors, guardians, administrators, trustees or successors. Notwithstanding any transfer of Shares, the transferor shall remain liable for the performance of all obligations under this Agreement of the transferor. (c) Assignment. This Agreement shall not be assigned by any party ---------- hereto, by operation of law or otherwise, without the prior written consent of the other party, and any purported assignment without such consent shall be null and void; provided, however, that URI may assign, in its sole discretion, its rights and obligations hereunder to any direct or indirect wholly owned subsidiary of URI without the consent of AYR or Shareholder. 6 (d) Amendments, Waivers, Etc. This Agreement may not be amended, ------------------------ changed, supplemented, waived or otherwise modified or terminated except upon the execution and delivery of a written agreement executed by each of the parties hereto. (e) Notices. All notices, requests, claims, demands and other ------- communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly received if so given) by hand delivery, telegram, telex or telecopy, or by mail (registered or certified mail, postage prepaid, return receipt requested) or by any courier service, such as Federal Express, providing proof of delivery. All communications hereunder shall be delivered to the respective parties at the following addresses: (i) if to URI, to its address set forth in the Merger Agreement; and (ii) if to AYR or Shareholder, to: 1581 Cummins Dr. - Ste. 155, Modesta, CA 95358, with a copy to: Stephen E. Newton, Heller Ehrman White & McAuliffe, 601 South Figueroa Street, Los Angeles, California 90017; or, in each case, to such other address as the Person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. (f) Severability. Whenever possible, each provision or portion of any ------------ provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein. (g) Specific Performance. All of the parties hereto recognizes and -------------------- acknowledges that a breach by it of any covenants or agreements contained in this Agreement will cause the other party to sustain damages for which it would not have an adequate remedy at law for money damages, and therefore each of the parties hereto agrees that in the event of any such breach the aggrieved party shall be entitled to the remedy of specific performance of such covenants and agreements and injunctive and other equitable relief in addition to any other remedy to which it may be entitled, at law or in equity. (h) Remedies Cumulative. All rights, powers and remedies provided ------------------- under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such right, power or remedy by such party. (i) No Waiver. The failure of any party hereto to exercise any right, --------- power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms 7 hereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. (j) No Third Party Beneficiaries. This Agreement is not intended to ---------------------------- be for the benefit of, and shall not be enforceable by, any person or entity who or which is not a party hereto. (k) Governing Law. This Agreement shall be governed and construed in ------------- accordance with the laws of the State of Delaware, without giving effect to the principles of conflicts of law thereof. (l) Jurisdiction; Waiver of Jury Trial. All of the parties hereto ---------------------------------- irrevocably agrees that any legal action or proceeding with respect to this Agreement or for recognition and enforcement of any judgment in respect hereof brought by any other party hereto or its successors or assigns shall be brought and determined in any federal court located in the State of Delaware or the Chancery or other courts of the State of Delaware, and each of the parties hereto irrevocably submits with regard to any such action or proceeding for itself and in respect to its property, generally and unconditionally, to the exclusive jurisdiction of the aforesaid courts. Each of the parties hereto irrevocably waives, and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any action or proceeding with respect to this Agreement, (a) any claim that it is not personally subject to the jurisdiction of the above-named courts for any reason, (b) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment before judgment, attachment in aid of execution of judgment, execution of judgment or otherwise), and (c) to the fullest extent permitted by applicable law, that (i) the suit, action or proceeding in any such court is brought in an inconvenient forum, (ii) the venue of such suit, action or proceeding is improper or (iii) this Agreement, or the subject matter hereof, may not be enforced in or by such court. (m) Descriptive Headings. The descriptive headings used herein are -------------------- inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. (n) Counterparts. This Agreement may be executed in counterparts, ------------ each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same Agreement. (o) No Present Intent to Liquidate or Merge. URI has no current plan --------------------------------------- or intention to liquidate USR; to merge USR with or into another corporation; to sell, distribute or otherwise dispose of USR Common Stock acquired in the Merger except for transfers or successive transfers of USR Common Stock to one or more corporations controlled (within the meaning of Section 368(c) of the Code) in each case by the transferor corporation; or to cause USR to sell or otherwise dispose of any of its assets or any of the assets acquired from MERGER SUB, except for dispositions made in the 8 ordinary course of business or transfers or successive transfers of assets to one or more corporations controlled (within the meaning of Section 368(c) of the Code) in each case by the transferor corporation. [signature page follows] 9 IN WITNESS WHEREOF, URI, Shareholder and AYR have executed and delivered this Agreement as of the day and year first above written. UNITED RENTALS, INC. By:_________________________________ Name: Title: ____________________________________ Richard D. Colburn AYR INC. By: ________________________________ Name: Title: 10 EXHIBIT B VOTING AGREEMENT ---------------- VOTING AGREEMENT, dated June 15, 1998 (this "Agreement"), by and among U.S. Rentals, Inc., a Delaware corporation ("USR"), Bradley Jacobs, LLC, a Virginia limited liability company, ("BJ LLC") and Bradley Jacobs (1997) LLC, a Virginia limited liability company, ("BJ (1997) LLC" and together with BJ LLC, the "LLC's"), and Bradley S. Jacobs, an individual who owns all of the outstanding limited liability company interests of the LLC's (the "Shareholder"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, concurrently herewith, United Rentals, Inc., a Delaware corporation (the "Company"), a subsidiary of the Company, and USR are entering into an Agreement and Plan of Merger (as such agreement may hereafter be amended from time to time, the "Merger Agreement"; capitalized terms used and not defined herein have the respective meanings ascribed to them in the Merger Agreement) pursuant to which MERGER SUB will be merged with and into USR, with USR as the surviving corporation and wholly-owned subsidiary of the Company (the "Merger"); WHEREAS, BJ LLC owns, beneficially and of record, 4,938,200 shares of URI Common Stock, BJ (1997) LLC owns, beneficially and of record, 1,625,000 Shares of URI Common Stock (together, the "LLC Shares") and Shareholder owns (i) beneficially and of record, 8,436,900 shares of URI Common Stock (the "Shareholder Shares" and, together with the LLC Shares, the "Shares") and (ii) beneficially and of record, all of the outstanding limited liability company interests of the LLC's; and WHEREAS, as an inducement and a condition to entering into the Merger Agreement, USR has required that each of Shareholder and the LLC's agree, and Shareholder and the LLC's have agreed, to enter into this Agreement; and further Shareholder has agreed to enter into this Agreement strictly in his capacity as a beneficial owner of the Shares and not in his capacity as a director of the Company. NOW, THEREFORE, in consideration of the foregoing and the mutual premises, representations, warranties, covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto hereby agree as follows: 1. Provisions Concerning the Shares. (a) Each of the LLC's and -------------------------------- Shareholder hereby agree that during the period commencing on the date hereof and continuing until this provision terminates pursuant to Section 5 hereof, at any meeting of the holders of shares of URI Common Stock, however called, or in connection with any written consent of the holders of shares of URI Common Stock, each of the LLC's and Shareholder shall vote, (or cause to be voted) the Shares held of record or Beneficially Owned (as defined below) by the LLC's and Shareholder, whether heretofore owned or hereafter acquired, in favor of the Charter Amendment and the Share Issuance and any actions required in furtherance thereof and hereof. (b) Neither the LLC's nor Shareholder shall enter into any agreement or understanding with any Person (as defined below) the effect of which would be inconsistent or violative of the provisions of this Agreement. (c) For purposes of this Agreement: "Beneficially Own" or "Beneficial Ownership" with respect to any securities shall mean having "beneficial ownership" of such securities (as determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), including pursuant to any agreement, arrangement or understanding, whether or not in writing; without duplicative counting of the same securities by the same holder, securities Beneficially Owned by a Person shall include securities Beneficially Owned by all other Persons with whom such Person would constitute a "group" within the meaning of Section 13(d)(3) of the Exchange Act "Person" shall mean an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization or other entity; and "Person" shall mean an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization or other entity. (d) In the event of a stock dividend or distribution, or any change in the URI Common Stock by reason of any stock dividend, stock split, recapitalization, reclassification, combination, exchange of shares, merger or the like, the term "Shares" as used in this Agreement shall be deemed to refer to and include the Shares as well as all such stock dividends and distributions and any shares or other securities into which or for which any or all of the Shares may be converted, changed or exchanged. 2. Representations and Warranties. Each of Shareholder and the LLC's ------------------------------ hereby agrees, represents and warrants to USR as follows: 2 (a) Ownership of Shares. Shareholder is the record and Beneficial ------------------- Owner of all of the limited liability company interests of the LLC's and the LLC's and the Shareholder are jointly the record and beneficial owners of all of the Shares. On the date hereof, the Shares constitute all of the shares of URI Common Stock owned of record or Beneficially Owned by the LLC's and Shareholder. Shareholder and the LLC's have shared voting power and shared power to issue instructions with respect to the matters set forth in Section 1 hereof, shared power of disposition and shared power to agree to all of the matters set forth in this Agreement, in each case with respect to all of the Shares, with no limitations, qualifications or restrictions on such rights (subject to applicable securities laws). (b) Power; Binding Agreement. Shareholder has the legal capacity, ------------------------ power and authority, and the LLC's have the power and authority as limited liability companies, to enter into and perform all of their respective obligations under this Agreement. This Agreement has been duly and validly authorized, executed and delivered by each of Shareholder and the LLC's and constitutes a valid and binding agreement of each of Shareholder and the LLC's, enforceable against each of Shareholder and the LLC's in accordance with its terms. There is no beneficiary or holder of a voting trust certificate or other interest of any trust of which the LLC's or Shareholder is settlor or trustee whose consent is required for the execution and delivery of this Agreement or the consummation by the LLC's or Shareholder of the transactions contemplated hereby. (c) Organization. the LLC's (i) are limited liability companies duly ------------ formed, validly existing and in good standing as limited liability companies under the laws of the State of Virginia and (ii) have all requisite power and authority to own their properties and assets and to carry on their business as it is now being conducted. (d) No Conflicts. (i) Except for filings under the HSR Act, the ------------ Securities Act and Exchange Act, no filing with, and no permit, authorization, consent or approval of, any state or federal public body or authority is necessary for the execution of this Agreement by Shareholder and the consummation by Shareholder of the transactions contemplated hereby and (ii) none of the execution and delivery of this Agreement by Shareholder, the consummation by Shareholder of the transactions contemplated hereby or compliance by Shareholder with any of the provisions hereof will (A) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any third party right of termination, cancellation, material modification or acceleration) under any of the terms, conditions 3 or provisions of any declaration of trust, note, bond, mortgage, indenture, security or pledge agreement, voting agreement, shareholders' agreement or voting trust, license, contract, commitment, arrangement, understanding, agreement or other instrument or obligation of any kind to which Shareholder is a party or by which Shareholder or any of Shareholder's properties or assets may be bound, or (B) violate any order, writ, injunction, decree, judgment, order, statute, rule or regulation applicable to Shareholder or any of Shareholder's properties or assets. (e) Reliance by USR. Shareholder and the LLC's understand and --------------- acknowledge that USR is entering into the Merger Agreement in reliance upon execution and delivery of this Agreement by Shareholder and the LLC's. (f) Sophistication. Shareholder acknowledges that Shareholder is an -------------- informed and sophisticated investor and, together with Shareholder's advisors, has undertaken such investigation as they have deemed necessary, including the review of the Merger Agreement and this Agreement, to enable Shareholder to make an informed and intelligent decision with respect to the Merger Agreement and this Agreement and the transactions contemplated thereby and hereby. (g) No Broker. Except for fees payable by the Company and disclosed --------- pursuant to Section 3.16 of the Merger Agreement, no broker, investment banker, financial adviser or other Person is entitled to any commission, broker's fee, finder's fee, adviser's fee or similar fee in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Shareholder or the LLC's. 3. No Solicitation. (a) From and after the date hereof and continuing --------------- until this provision terminates pursuant to Section 5 hereof, neither the LLC's nor Shareholder shall directly or indirectly, initiate, solicit or encourage (including by way of furnishing non-public information or assistance), or take any other action to facilitate, any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Acquisition Proposal with respect to the Company or enter into or maintain or continue discussions or negotiate with any Person in furtherance of such inquiries or to obtain such an Acquisition Proposal or agree to or endorse any such Acquisition Proposal, and Shareholder shall promptly notify USR orally (in all events within 24 hours) and in writing (as promptly thereafter as practicable) of the material terms and status of all inquiries and proposals which Shareholder or any agent of Shareholder may receive after the date hereof relating to 4 any of such matters and, if such inquiry or proposal is in writing, Shareholder shall deliver to USR a copy of such inquiry or proposal promptly; provided, -------- however, that, notwithstanding any other provision of this Agreement, - ------- Shareholder, as a member of the board of directors of the Company, may take any action in his capacity as a director that the board of directors of the Company would be permitted to take in accordance with Sections 5.7 and 7.1 of the Merger Agreement. Shareholder will immediately cease and cause to be terminated any existing activities, discussions or negotiations, with any parties conducted heretofore with respect to any of the foregoing. (b) USR acknowledges that this Agreement is entered into by the Shareholder in his capacity as a beneficial owner of the Shares, and that nothing in this Agreement shall in any way restrict or limit the Shareholder from taking any action in his capacity as a director or officer of the Company or otherwise fulfilling his fiduciary obligations as a director or officer of the Company, notwithstanding that any such action would be inconsistent with or violative of his obligations under this Agreement if taken in his capacity as a beneficial owner of the Shares. 4. Restriction on Transfer; Proxies; Non-Interference; Stop Transfers; ------------------------------------------------------------------- etc. - --- (a) Neither the LLC's nor Shareholder shall directly or indirectly, during the period commencing on the date hereof and continuing until this provision terminates pursuant to Section 5 hereof: (i) except as contemplated by the Merger Agreement, offer for sale, sell, transfer, tender, pledge, encumber, assign or otherwise dispose of, or grant or enter into any contract, option or other arrangement or understanding with respect to or consent to the offer for sale, sale, transfer, tender, pledge, encumbrance, assignment or other disposition of, any or all of the Shares or any interest therein (including any interest in the LLC's); (ii) except as contemplated by this Agreement, grant any proxies or powers of attorney, deposit any Shares into a voting trust or enter into a voting agreement with respect to any Shares; or (iii) take any action that would make any of the LLC's or Shareholder's representations or warranties contained herein untrue or incorrect or have the effect of preventing or disabling the LLC's or Shareholder from performing their respective obligations under this Agreement; provided that the foregoing shall not prevent the LLC's or Shareholder from pledging any of the Shares to a bank or other financial institution or to prevent such bank or other financial institution from selling the Shares on foreclosure so long as the LLC's and Shareholder retain the right to vote such Shares if the pledge has not been foreclosed upon. 5 (b) Shareholder and the LLC's agree with, and covenant to, USR that neither Shareholder nor the LLC's shall, during the period set forth in Section 4(a), request that the Company register the transfer (book-entry or otherwise) of any certificate or uncertificated interest representing the Shares, unless such transfer is made in compliance with this Agreement. Shareholder and the LLC's shall promptly after the date hereof surrender to the Company all certificates representing the Shares for purpose of placing the following legend on such certificates: THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND VOTING AND PURSUANT TO AN AGREEMENT BETWEEN THE HOLDER OF THIS CERTIFICATE AND USR, A COPY OF WHICH MAY BE OBTAINED FROM THE HOLDER HEREOF OR THE ISSUER OF THIS SECURITY. The foregoing legend shall be removed from all certificates representing the shares upon termination of the period set forth in Section 4(a). 5. Termination. Except as otherwise provided herein, the covenants and ----------- agreements contained in Sections 1, 3 and 4 hereof shall terminate (i) in the event the Merger Agreement is terminated in accordance with the terms thereof, upon such termination, and (ii) in the event the Merger is consummated, upon the Effective Time. Notwithstanding anything to the contrary herein, (A) the provisions of Section 7 hereof shall survive any termination of this Agreement, and (B) no termination of this Agreement shall relieve any party of liability for a breach hereof prior to termination. 6. Further Assurances. From time to time, at the other party's request ------------------ and without further consideration, the LLC's, Shareholder and USR shall execute and deliver such additional documents and take all such further lawful action as may be necessary or desirable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement. 7. Miscellaneous. ------------- (a) Entire Agreement. This Agreement and the Merger Agreement ---------------- constitute the entire agreement between the parties with respect to the subject matter 6 hereof and supersede all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. (b) Certain Events. Each of the LLC's and Shareholder agree that -------------- this Agreement and the obligations hereunder shall attach to the Shares and shall be binding upon any person or entity to which legal or beneficial ownership of such Shares shall pass, whether by operation of law or otherwise, including, without limitation, Shareholder's heirs, executors, guardians, administrators, trustees or successors. Notwithstanding any transfer of Shares, the transferor shall remain liable for the performance of all obligations under this Agreement of the transferor. (c) Assignment. This Agreement shall not be assigned by any party ---------- hereto, by operation of law or otherwise, without the prior written consent of the other party, and any purported assignment without such consent shall be null and void. (d) Amendments, Waivers, Etc. This Agreement may not be amended, ------------------------ changed, supplemented, waived or otherwise modified or terminated except upon the execution and delivery of a written agreement executed by each of the parties hereto. (e) Notices. All notices, requests, claims, demands and other ------- communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly received if so given) by hand delivery, telegram, telex or telecopy, or by mail (registered or certified mail, postage prepaid, return receipt requested) or by any courier service, such as Federal Express, providing proof of delivery. All communications hereunder shall be delivered to the respective parties at the following addresses: (i) if to USR, to its address set forth in the Merger Agreement; and (ii) if to the LLC's or Shareholder, to: 4 Greenwich Office Park, Greenwich, CT 06830, with a copy to: Oscar D. Folger, Esq., 521 Fifth Avenue, New York, N.Y. 10175; or, in each case, to such other address as the Person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. (f) Severability. Whenever possible, each provision or portion of ------------ any provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such 7 invalid, illegal or unenforceable provision or portion of any provision had never been contained herein. (g) Specific Performance. All of the parties hereto recognizes and -------------------- acknowledges that a breach by it of any covenants or agreements contained in this Agreement will cause the other party to sustain damages for which it would not have an adequate remedy at law for money damages, and therefore each of the parties hereto agrees that in the event of any such breach the aggrieved party shall be entitled to the remedy of specific performance of such covenants and agreements and injunctive and other equitable relief in addition to any other remedy to which it may be entitled, at law or in equity. (h) Remedies Cumulative. All rights, powers and remedies provided ------------------- under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such right, power or remedy by such party. (i) No Waiver. The failure of any party hereto to exercise any --------- right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. (j) No Third Party Beneficiaries. This Agreement is not intended to ---------------------------- be for the benefit of, and shall not be enforceable by, any person or entity who or which is not a party hereto. (k) Governing Law. This Agreement shall be governed and construed in ------------- accordance with the laws of the State of Delaware, without giving effect to the principles of conflicts of law thereof. (l) Jurisdiction; Waiver of Jury Trial. All of the parties hereto ---------------------------------- irrevocably agrees that any legal action or proceeding with respect to this Agreement or for recognition and enforcement of any judgment in respect hereof brought by any other party hereto or its successors or assigns shall be brought and determined in any federal court located in the State of Delaware or the Chancery or other courts of the 8 State of Delaware, and each of the parties hereto irrevocably submits with regard to any such action or proceeding for itself and in respect to its property, generally and unconditionally, to the exclusive jurisdiction of the aforesaid courts. Each of the parties hereto irrevocably waives, and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any action or proceeding with respect to this Agreement, (a) any claim that it is not personally subject to the jurisdiction of the above-named courts for any reason, (b) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment before judgment, attachment in aid of execution of judgment, execution of judgment or otherwise), and (c) to the fullest extent permitted by applicable law, that (i) the suit, action or proceeding in any such court is brought in an inconvenient forum, (ii) the venue of such suit, action or proceeding is improper or (iii) this Agreement, or the subject matter hereof, may not be enforced in or by such court. (m) Descriptive Headings. The descriptive headings used herein are -------------------- inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. (n) Counterparts. This Agreement may be executed in counterparts, ------------ each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same Agreement. [signature page follows] 9 IN WITNESS WHEREOF, USR, Shareholder and the LLC's have executed and delivered this Agreement as of the day and year first above written. U.S. RENTALS, INC. By:______________________ Name: Title: ______________________________ Bradley S. Jacobs BRADLEY JACOBS LLC By:___________________________ Name: Title: BRADLEY JACOBS (1997) LLC By:___________________________ Name: Title: 10 Exhibit C June 15, 1998 United Rentals, Inc. 4 Greenwich Office Park Greenwich, CT 06830 Dear Sirs: Reference is made to the provisions of the Agreement and Plan of Merger, dated as of June 15, 1998 (together with any amendments thereto, the "Merger Agreement"), among U.S. Rentals, Inc., a Delaware corporation (the "Company"), United Rentals, Inc., a Delaware corporation ("Parent"), and UR Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), pursuant to which Merger Sub will be merged with and into the Company, with the Company continuing as the surviving corporation (the "Merger"). This letter constitutes the undertakings of the undersigned contemplated by the Merger Agreement. I understand that I may be deemed to be an "affiliate" of the Company, as such term is defined for purposes of paragraphs (c) and (d) of Rule 145 ("Rule 145") promulgated under the Securities Act of 1933, as amended (the "Securities Act"). Execution of this letter shall not be construed as an admission of "affiliate" status nor as a waiver of any rights that I may have to object to any claim that I am an "affiliate" on or after the date of this letter. If in fact I were to be deemed an "affiliate" of the Company under paragraphs (c) and (d) of Rule 145, my ability to sell, transfer or otherwise dispose of any shares of the common stock, par value $.01 per share, of Parent (the "Parent Shares") received by me in exchange for any shares of common stock, par value $.01 per share, of the Company (the "Company Shares") pursuant to the Merger may be restricted. I hereby represent, warrant and covenant to Parent that: (a) I will not sell, pledge, transfer or otherwise dispose of any of the Parent Shares except (i) pursuant to an effective registration statement under the Securities Act, or (ii) as permitted by, and in accordance with, Rule 145 or another applicable exemption under the Securities Act and the rules and regulations promulgated thereunder; and (b) I will not (i) sell, pledge, transfer or otherwise dispose of any Company Shares during the 30-day period prior to the Effective Time (as defined in the Merger Agreement) or (ii) sell or otherwise reduce my risk (within the meaning of the Securities and Exchange Commission's Financial Reporting Release No. 1., "Codification of Financial Reporting Policies", Section 201.01 47 F.R. 21028 (April 15, 1982)) relative to any Parent Shares until after such time as consolidated financial results (including combined sales and net income) covering at least 30 days of post-merger combined operations of Parent and the Company have been published by Parent, except as permitted by Staff Accounting Bulletin No. 76 issued by the Securities and Exchange Commission; and June 15, 1998 Page 2 (c) I have not knowingly taken and will not knowingly take or agree to take any action that would prevent the Merger from qualifying, or being accounted for, as a pooling-of-interests. I hereby acknowledge that, except as otherwise provided in the Merger Agreement, Parent is under no obligation to register the sale, transfer, pledge or other disposition of the Parent Shares or to take any other action necessary for the purpose of making an exemption from registration available. I understand that Parent will issue stop transfer instructions to its transfer agents with respect to the Parent Shares and that a restrictive legend will be placed on certificates delivered to me evidencing the Parent Shares in substantially the following form: "This certificate and the shares represented hereby have been issued pursuant to a transaction governed by Rule 145 ("Rule 145") promulgated under the Securities Act of 1933, as amended (the "Securities Act"), and may not be sold or otherwise disposed of unless registered under the Securities Act pursuant to a Registration Statement in effect at the time or unless the proposed sale or disposition can be made in compliance with Rule 145 or without registration in reliance on another exemption therefrom. Reference is made to that certain letter agreement, dated June ___, 1998, between the holder of this certificate and the issuer of this security (a copy of which is on file in the principal office of such issuer) which contains further restrictions on the transferability of the shares represented hereby." The term Parent Shares as used in this letter shall mean and include not only the common stock of Parent as presently constituted, but also any other stock which may be issued in exchange for, in lieu of, or in addition to, all or any part of such Parent Shares. I agree that, from time to time, at Parent's reasonable request and without further consideration, I shall execute and deliver such additional documents and shall use my reasonable best efforts to take all such further lawful action as may be reasonably necessary or desirable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by the Merger Agreement. I hereby acknowledge that Parent and its independent public accountants will be relying upon this letter in connection with the determination that the Merger will qualify and be accounted for as a pooling-or-interests, and that I understand the requirements of this letter and the limitations imposed upon the transfer, sale or other disposition of the Company Shares and the Parent Shares. Very truly yours, ___________________________________ Name: Exhibit D June 15, 1998 U.S. Rentals, Inc. 1581 Cummins Drive Modesto, CA 95358 Dear Sirs: Reference is made to the provisions of the Agreement and Plan of Merger, dated as of June 15, 1998 (together with any amendments thereto, the "Merger Agreement"), among U.S. Rentals, Inc., a Delaware corporation (the "Company"), United Rentals, Inc., a Delaware corporation ("Parent"), and UR Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), pursuant to which Merger Sub will be merged with and into the Company, with the Company continuing as the surviving corporation (the "Merger"). This letter constitutes the undertakings of the undersigned contemplated by the Merger Agreement. I hereby represent, warrant, and covenant to the Company that: (a) I will not (i) sell, pledge, transfer or otherwise dispose of any shares of common stock, par value $.01 per share, of the Company ("Company Shares") during the 30-day period prior to the Effective Time (as defined in the Merger Agreement) or (ii) sell or otherwise reduce my risk (within the meaning of the Securities and Exchange Commission's Financial Reporting Release No. 1., "Codification of Financial Reporting Policies", Section 201.01 47 F.R. 21028 (April 15, 1982) relative to any shares of common stock, par value $.01 per share, of Parent ("Parent Shares") until after such time as consolidated financial results (including combined sales and net income) covering at least 30 days of post-merger combined operations of Parent and the Company have been published by Parent, except as permitted by Staff Accounting Bulletin No. 76 issued by the Securities and Exchange Commission; and (b) I have not knowingly taken and will not knowingly take or agree to take any action that would prevent the Merger from qualifying, or being accounted for, as a pooling-of-interests. I agree that, from time to time, at the Company's reasonable request and without further consideration, I shall execute and deliver such additional documents and shall use my reasonable best efforts to take all such further lawful action as may be reasonably necessary or desirable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by the Merger Agreement. The term Parent Shares as used in this letter shall mean and include not only common stock of Parent as presently constituted, but also any other stock which may be issued in exchange for, in lieu of, or in addition to, all or any part of such Parent Shares. I hereby acknowledge that the Company and its independent public accountants will be relying upon this letter in connection with the determination that the Merger will qualify and be accounted for as a pooling-of- interests, and that I understand the requirements of this letter and the limitations imposed upon the transfer, sale or other disposition of Parent Shares. Very truly yours, [BLUE] ____________,1998 Page 2 _________________________________ Name: EXHIBIT E-1 EMPLOYMENT AGREEMENT -------------------- This AGREEMENT between United Rentals, Inc., a Delaware corporation ("URI"), and William F. Berry ("Employee"), is hereby entered into as of [CLOSING DATE OF THE MERGER]. Recitals: -------- URI and its affiliates (collectively, the "Company") are engaged in the business of acquiring and operating companies which rent, operate, maintain, distribute, sell or otherwise deal in or with equipment or similar assets, and may in the future engage in other businesses which the Company deems to be related to the foregoing. All such businesses are collectively referred to herein as the "Business." Employee was heretofore the President and Chief Executive Officer of U.S. Rentals, Inc. ("USR"). Pursuant to an Agreement and Plan of Merger dated June 15, 1998 (the "Merger Agreement"), (i) URI acquired USR and (ii) URI is offering Employee employment with the Company on the terms set forth in this Agreement. This Agreement replaces and supersedes in all respects Employee's existing employment agreement with USR. Pursuant to this Agreement, Employee will be employed by the Company in a confidential relationship wherein Employee, in the course of his employment with the Company, will become familiar with and aware of information as to the specific manner of doing business and the potential acquisition candidates and customers of the Company and its affiliates and future plans with respect thereto, all of which will be established and maintained at great expense to the Company; this information is a trade secret and constitutes the valuable goodwill of the Company. Employee recognizes that the Company's business is dependent upon a number of trade secrets, including the identity of customers and potential acquisition candidates, the analysis of such candidates and financial data of the Company. The protection of these trade secrets is of critical importance to the Company. The Company will sustain great loss and damage if, for whatever reason, Employee should violate the provisions of this Agreement. Further, monetary damages for such losses would be extremely difficult to measure. NOW, THEREFORE, in consideration of the mutual promises, terms, covenants and conditions set forth herein and the performance of each, it is hereby agreed as follows: 1. Employment and Duties. (a) Upon commencement of the term of this --------------------- Agreement, the Company shall employ Employee as the President of URI on the terms and conditions herein set forth. Employee shall perform such duties, have such authority, and report to such persons (including, without limitation, the Vice Chairman and Chief Operating Officer of URI), as shall from time to time be designated by the Board of Directors of URI (the "Board"). Employee shall accept this employment upon the terms and conditions herein contained and agrees to devote his full time, attention and efforts to promote and further the business and services of the Company. Employee shall faithfully adhere to, execute and fulfill all policies established by the Company. (b) Employee shall perform such duties, assume such responsibilities and devote such time, attention and energy to the business of the Company as the Board shall from time to time require and shall not, during the term of his employment hereunder, be engaged in any other business activity pursued for gain, profit or other pecuniary advantage without the prior written consent of the Board. However, the foregoing limitations shall not be construed as prohibiting Employee from making personal investments in such form or manner as will neither require his services in the operation or affairs of the companies or enterprises in which such investments are made nor violate the terms of Section 5. (c) Employee will initially be based in the Company's offices in Modesto, California, but shall relocate to the Connecticut area at a mutually agreeable time. 2. Compensation and Other Benefits. For all services rendered by ------------------------------- Employee to the Company, the Company shall compensate the Employee as follows: (a) Base Salary and Bonus. The initial base salary payable to --------------------- Employee during the term of this Agreement shall be $225,000 per year, payable in accordance with URI's standard payroll practices. Minimum annual increases in the base salary payable to Employee shall be determined by adding to Employee's then current base salary the sum, if any, determined by multiplying Employee's then current base salary by the percentage that the Consumer Price Index for "Urban Wage Earners & Clerical Workers", as prepared by the Bureau of Labor Statistics of the Department of Labor of the United States for the city in which Employee's residence is located, for the most recently ended calendar year has increased over the index from the previous calendar year; provided that Employee's base salary shall not be increased on account of the foregoing cost of living adjustments to an amount in excess of $270,000 per annum. In addition, the Board may from time to time award bonuses to Employee based on such criteria as the Board may establish in its discretion. The payment of salary and bonuses shall be subject to all federal, state and withholding taxes, social security deductions and other general obligations. (b) Vacation. Employee shall be entitled to three (3) weeks of paid -------- vacation during each 12-month period of his employment hereunder at times mutually acceptable to Employee and the Company. Unused vacations can be carried forward for 12 months, and shall thereupon lapse. 2 (c) Other Compensation and Benefits. During the term of this ------------------------------- Agreement, Employee may be entitled to receive the additional payments from the Company set forth below. Employee shall be entitled to participate upon commencement of the term of this Agreement in URI's group health insurance plan and any bonus, option or similar incentive compensation plan, 401(k) plan, group life plan and automobile allowance program which is made available, from time to time, to other senior executives of URI, on a basis consistent with such participation. (d) Reimbursement. The Company shall reimburse Employee for properly ------------- documented expenses which are incurred by Employee on behalf of the Company in the performance of his duties hereunder in accordance with Company policies in effect from time to time. In addition, upon presentation by Employee to the Company of expense reports and satisfactory supporting documentation evidencing payment of such expenses, in such form as shall be requested by the Company, the Company shall reimburse Employee, up to a maximum aggregate amount reimbursable under this Section 2(d)(ii) of $100,000, for such expenses as the Board, in its sole and absolute discretion, determines to be necessary and reasonable in connection with the relocation of Employee, should Employee relocate his family and their personal effects from California to Connecticut. (e) Stock Options. ------------- (i) The term "Options" as used herein means (A) all options to purchase common stock of URI ("URI Common Stock") to which Employee became entitled pursuant to Section 5.10 of the Merger Agreement in respect of options to purchase USR common stock previously granted to Employee (the "Carry-Over Options"), (B) the options to purchase URI Common Stock described in the stock option award letters, dated the date hereof, attached hereto' and (C) any and all options to purchase shares of URI Common Stock which are at any time hereafter granted by URI to Employee, whether under URI's 1997 Stock Option Plan or otherwise. All unvested Options shall automatically vest on a Change of Control. (ii) A "Change of Control" shall be deemed to have occurred if: (A) any "person" is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934 (the "Act")), directly or ____________________ 1. To reflect the award of (a) 200,000 options exercisable at a price per share equal to the closing price per share of URI Common Stock on the NYSE on the Closing Date (the "Market Price") and (b) 75,000 options exercisable at a price per share equal to the greater of (i) 125% of the Market Price and (ii) $45. All of such options shall vest over a three year term. 3 indirectly, of securities of URI representing 50% or more of the total voting power represented by then outstanding voting securities of URI, or has the power (whether as a result of stock ownership, revocable or irrevocable proxies, contract or otherwise) or ability to elect or cause the election of directors consisting at the time of such election of a majority of the Board. The term "persons" is defined in Sections 13(d) and 14(d) of the Act, except that the term "person" shall not include: (1) any person or an Affiliate (as defined below) of such person who as of the date of this Agreement owns 10% or more of the total voting power represented by the outstanding voting securities of URI; and (2) a trustee or other fiduciary holding securities under any employee benefit plan of the Company or a corporation which is owned directly or indirectly by the stockholders of URI in substantially the same percentage as their ownership in URI. An "Affiliate" of a person is a person that controls, is controlled by, or is under common control with such person. or (B) the stockholders of URI approve a merger of URI, or a plan of complete liquidation of URI, or an agreement for the sale or disposition by URI of all or substantially all of its assets, or any other business combination of URI with any other corporation, other than any such merger or business combination which would result in the voting securities of URI outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the total voting power represented by the voting securities of URI or such surviving entity outstanding immediately after such merger or business combination. (ii) URI shall use its best efforts to file or cause to be filed and promptly to be declared effective during URI's fiscal quarter ending: (A) March 31, 1999 one or more registration statements on Form S-8 or Form S-3 (or other appropriate forms) under the Securities Act of 1933 in order to register one-third of the shares of URI Common Stock issuable pursuant to the Carry-Over Options or, if greater, that number of shares of URI Common Stock issuable pursuant to Carry-Over Options which when sold at the market price prevailing on such date would yield net proceeds to Employee equal to the excise tax payable by Employee in respect of the vesting of the Carry-Over Options on the date of this Agreement pursuant to the Merger; (B) March 31, 2000 one or more such registration statements in order to register another one-third of the shares of URI Common Stock issuable pursuant to the Carry-Over Options (but not more than half of the shares not registered under clause (A)), and (C) March 31, 2001 one or more such registration statements in order to register the balance of the shares of URI Common Stock issuable pursuant to the Carry-Over Options. Except as set forth above, the Company shall have no obligation to register under the Securities Act or any state securities laws any of Employee's Options or any of the shares of URI Common Stock issuable upon exercise thereof. 4 (iv) Notwithstanding the forgoing, in the event the Employee dies, or is terminated without good cause (as defined below), or resigns for good reason (as defined below) prior to any March 31 referred to in paragraph (iii) above, the registration to be filed on such March 31 shall cover all Carry-Over Options then outstanding. As used in this paragraph, the term "good reason" means (A) a material diminution in Employee's duties, responsibilities or title; (B) the occurrence of a Change of Control or (C) URI's material breach of this Agreement which is not cured within 30 days after notice. 3. Term; Termination; Rights of Termination. ---------------------------------------- (a) The term of this Agreement shall begin on the date hereof and shall continue until the third anniversary of the date hereof or such earlier date set forth below, provided that the term shall automatically renew at the end of each month after the first year so that at no time shall the balance of the term of Employee's employment be less than two years. This Agreement and Employee's employment may terminate in any one of the following ways: (i) The death of Employee shall terminate this Agreement; (ii) A notice of resignation by the Employee presented to the Board shall terminate this Agreement; (iii) The Company may terminate this Agreement after ten (10) days' written notice to Employee for "good cause", which is defined to mean: (A) Employee's material breach of this Agreement, including, without limitation, his insubordination. (B) the material default of the Company in performing its obligations under contracts with other persons or business entities if directly caused by Employee, intentionally and without authorization; (C) if, because of illness or physical or mental disability or other incapacity which continues for a period in excess of four months in any consecutive 16-month period, Employee is unable to perform his duties under this Agreement; (D) Employee's fraud or dishonesty with respect to the business or affairs of the Company or if Employee is convicted of a crime which in the reasonable opinion of the Board would negatively affect the Company's business or reputation; or 5 (E) alcohol or drug abuse by Employee. (iv) The Company may terminate this Agreement without cause at any time, provided that in the event of a termination of this Agreement without cause, Employee shall be entitled to receive from the Company his then current monthly base salary over the balance of the term of his employment, in the same installments and subject to the same withholding, as applied during his employment. In addition, for the number of months remaining in the term of this Agreement, the Company shall continue to be obligated to provide to Employee with life, health, disability and accident insurance and benefits and all other executive benefits (including without limitation, retirement benefits and automobile and expense allowances) comparable to those provided to Employee prior to his termination. To the extent that Employee is no longer lawfully eligible for any aforementioned benefit because he is no longer employed by the Company, the Company shall pay to Employee a lump sum cash payment equal to the present value of the benefits which would have been provided to Employee had his employment continued for the number of months remaining in the then term of this Agreement. (b) Upon termination of this Agreement or Employee's employment for any reason whatsoever, Employee shall be entitled to receive all salary earned under this Agreement to the date of termination. However, termination of this Agreement shall not accelerate the payment date of any monies accrued or accruing to the account of Employee as a result of any bonuses or other compensation, nor shall termination vest in Employee any right in connection therewith other than as expressly set forth herein. (c) In the event of termination of this Agreement for any reason provided in this Section or if Employee resigns prior to the expiration of the term of this Agreement, all rights and obligations of the Company and Employee under this Agreement shall cease immediately, except for those which by their terms specifically apply to periods following the termination of this Agreement (including, without limitation, Sections 3 through 11 hereof), and thereafter Employee shall have no right to receive any compensation hereunder except as otherwise expressly set forth above. 4. Confidentiality. --------------- (a) During and at all times after Employee's employment: (i) Employee shall not disclose to any person or entity, without the Company's prior consent, any confidential or secret information, whether prepared by him or others. 6 (ii) Employee shall not, except in furtherance of the business of the Company, directly or indirectly use any such information other than as directed by the Company. (iii) Employee shall not, except in the furtherance of the business of the Company, remove confidential or secret information from the premises of the Company without the prior consent of the Company. (iv) Upon termination of his employment for whatever reason, with or without cause, Employee shall promptly deliver to the Company all originals and copies (whether in note, memo or other document form or on video, audio or computer tapes or discs or otherwise) of confidential or secret information that is in his possession, custody or control, whether prepared by him or others. (b) Confidential information includes, but is not limited to: (i) the name of any company or business all or any substantial part of which is or at any time was a candidate for potential acquisition by the Company, together with all analyses and other information which the Company has generated, compiled or otherwise obtained with respect to such candidate, business or potential acquisition, or with respect to the potential effect of such acquisition on the Company's business, assets, financial results or prospects; (ii) business, pricing and management methods; (ii) finances, strategies, systems, research, surveys, plans, reports, recommendations and conclusions; (iv) names, arrangements with, or other information relating to, the Company's customers, suppliers, equipment manufacturers, financiers, owners or operators, representatives and other persons who have business relationships with the Company or who are prospects for business relationships with the Company; (v) technical information, work products and know-how; and (vi) cost, operating, and other management information systems, and other software and programming. 5. Non-Compete Provisions. The following covenants are made by Employee ---------------------- in partial consideration for the substantial economic investment made by the Company in the hiring, education and training of Employee and the compensation and other benefits 7 afforded by the Company to the Employee. Such covenants were material inducements to the Company in hiring Employee. (a) During his employment by the Company and for a period of 24 months immediately following the termination of his employment for any reason whatsoever, whether or not for cause: (i) Employee shall not in any Restricted Area (as hereinafter defined) directly or indirectly be employed or retained by any person or entity who or which then competes with the Company to any extent, nor will Employee directly or indirectly own any interest in any such person or entity or render to it any consulting, brokerage, contracting, financial or other services. Employee shall be deemed to be employed or retained in the Restricted Area if he has an office in the Restricted Area or if he performs any duties or renders any advice with respect to any facility or business activities in the Restricted Area. A "Restricted Area" means each of: (A) any state in the United States and any province in Canada in which the Company conducts any equipment rental or other equipment-related activity, it being agreed that each state and province is one unitary market for purposes of the Company's business; (B) regardless of state, the area within a 200-mile radius of any office or facility of the Company in which or in relation to which Employee shall have performed any duties for the Company during the one year period preceding the termination of his employment. (ii) Employee shall not anywhere in the United States or Canada directly or indirectly be employed or retained by a Similar Entity (as hereinafter defined) nor will Employee directly or indirectly own any interest in any Similar Entity or render to it any consulting, brokerage, financing, contracting, or other services; provided, however, that the Employee may own, directly or indirectly, solely as an investment, securities of any business traded on any national securities exchange or Nasdaq, provided the Employee is not a controlling person of, or a member of a group which controls, such business; and further provided that the Employee does not, directly or indirectly, own 5% or more of any class of securities in such business. A "Similar Entity" means each of: (A) the entities listed in Exhibit A to this Agreement; (B) any person or entity which anywhere in the United States now or hereafter engages in any business in which the Company engages now or hereafter during the term of Employee's employment; 8 (C) any entity which at any time during the term of Employee's employment was a candidate for acquisition by or merger with the Company; and (D) any entity which owns or owned any facility which was acquired by the Company, or was a candidate for acquisition by the Company, at any time during the term of Employee's employment. (ii) Employee shall not anywhere directly or indirectly (whether as an owner, partner, employee, consultant, broker, contractor or otherwise, and whether personally or through other persons): (A) solicit or accept the business of, or call upon, any person or entity who or which is or was (1) a customer, supplier or manufacturer of equipment which is sold, leased or rented out by the Company, finder or broker, who had a business relationship with the Company at any time during the period the period of his employment, or (2) an affiliate of any such person; (B) approve, solicit or retain, or discuss the employment or retention (whether as an employee, consultant or otherwise) of any person who was an employee of the Company at any time during the one-year period preceding the termination of his employment; (C) solicit or encourage any person to leave the employ of the Company; (D) call upon or assist in the acquisition of any company which was, during the term of his employment, either called upon by an employee of the Company or by a broker or other third party, for possible acquisition by the Company or for which an employee of the Company or other person made an acquisition analysis for the Company; or (E) own any interest in or be employed by or provide any services to any person or entity which engages in any conduct which is prohibited to Employee under this Section 5(a); provided, however, that the Employee may own, directly or indirectly, solely as an investment, securities of any business traded on any national securities exchange or NASDAQ, provided the Employee is not a controlling person of, or a member of a group which controls, such business and further provided that the Employee does not, directly or indirectly, own 5% or more of any class of securities of such business. (b) Before taking any position with any person or entity during the 24- month period following the termination of his employment for any reason, with or without 9 cause, Employee will give prior written notice to the Chairman of the Board of the name of such person or entity. The Company shall be entitled to advise each such person or entity of the provisions of this Agreement, and to correspond and otherwise deal with each such person or entity to ensure that the provisions of this Agreement are enforced and duly discharged. (c) All time periods in this Agreement shall be computed by excluding from such computation any time during which Employee is in violation of any provision of this Agreement and any time during which there is pending in any court of competent jurisdiction any action (including any appeal from any final judgment) brought by any person, whether or not a party to this Agreement, in which action the Company seeks to enforce the agreements and covenants in this Agreement or in which any person contests the validity of such agreements and covenants or their enforceability or seeks to avoid their performance or enforcement. (d) Employee understands that the provisions of this Agreement have been carefully designed to restrict his activities to the minimum extent which is consistent with law and the Company's requirements. Employee has carefully considered these restrictions, and Employee confirms that they will not unduly restrict Employee's ability to obtain a livelihood. Before signing this Agreement, Employee has had the opportunity to discuss this Agreement and all of its terms with his attorney. (e) Since monetary damages will be inadequate and the Company will be irreparably damaged if the provisions of this Agreement are not specifically enforced, the Company shall be entitled, among other remedies to an injunction restraining any violation of this Agreement (without any bond or other security being required) by Employee and by any person or entity to whom Employee provides or proposes to provide any services in violation of this Agreement. (f) If any provision contained in this Agreement is determined to be void, illegal or unenforceable, in whole or in part, then the other provisions contained herein shall remain in full force and effect as if the provision which was determined to be void, illegal, or unenforceable had not been contained herein. (g) The courts enforcing this Agreement shall be entitled to modify the duration and scope of any restriction contained herein to the extent such restriction would otherwise be unenforceable, and such restriction as modified shall be enforced. 6. Return of Company Property. All products, records, designs, patents, -------------------------- plans, manuals, "field guides," memoranda, lists and other property delivered to Employee by or on behalf of the Company or by its customers (including, but not limited to, customers obtained for the Company by Employee), and all records compiled by the Employee which 10 pertain to the business of the Company (whether or not confidential) shall be and remain the property of the Company and be subject at all times to its discretion and control. Likewise, all correspondence with customers or representatives, reports, records, charts, advertising materials, and any data collected by Employee, or by or on behalf of the Company or its representatives (whether or not confidential) shall be delivered promptly to the Company without request by it upon termination of Employee's employment. 7. Inventions. Employee shall disclose promptly to the Company any and ---------- all conceptions and ideas for inventions, improvements and valuable discoveries, whether patentable or not, which are conceived or made by Employee solely or jointly with another during the period of employment or within one (1) year thereafter and which are related to the business or activities of the Company or which Employee conceives as a result of his employment by the Company, and Employee hereby assigns and agrees to assign all his interests therein to the Company or its nominee. Whenever requested to do so by the Company, Employee shall execute any and all applications, assignments or other instruments that the Company shall deem necessary to apply for and obtain Letters Patent of the United States or any foreign country or to otherwise protect the Company's interest therein. These obligations shall continue beyond the termination of employment with respect to inventions, improvements and valuable discoveries, whether patentable or not, conceived, made or acquired by Employee during the period of employment or within one (1) year thereafter and which are related to the business or activities of the Company or which Employee conceives as a result of his employment by the Company, and shall be binding upon Employee's assigns, executors, administrators and other legal representatives. 8. Suits Against Company. --------------------- (a) Both during and after the term of employment hereunder, Employee covenants that Employee shall not bring suit or file counterclaims against the Company for corporate misconduct (which for this purpose does not mean the mere breach by the Company of this Agreement or any conduct which affects the rights of the Employee), unless both of (i) and (ii) below shall have occurred, namely: (i) Employee shall have first made written demand to the Board to investigate and deal with such misconduct, and (ii) the Board shall have failed within 45 days after the date of receipt of such demand to establish a Special Litigation Committee, consisting exclusively of outside directors, to investigate and deal with such misconduct. (b) Without limiting the generality and to further implement the foregoing, Employee irrevocably and unconditionally consents at the option of the Company to the entry of temporary restraining orders and temporary and permanent injunctions (without posting bond or other security) against the filing of any action or counterclaim which is prohibited hereunder. 11 (c) The opinion of the Board shall be binding and conclusive on the determination of which directors constitute "outside directors," and the determination of the Special Litigation Committee shall be binding and conclusive on all matters relating to the actual or alleged misconduct which is referred to it as aforesaid. 9. Cooperation in Proceedings. During and after the termination of -------------------------- Employee's employment, Employee shall for reasonable compensation consistent with his compensation from the Company cooperate fully and at reasonable times with the Company and its subsidiaries in all litigations and regulatory proceedings on which the Company or any subsidiary seeks Employee's assistance and as to which Employee has any knowledge or involvement. Without limiting the generality of the foregoing, Employee will be available upon reasonable notice for periods of reasonable duration, considering his other responsibilities and obligations, to testify at such litigations and other proceedings, and will cooperate with counsel to the Company in preparing materials and offering advice in such litigations and other proceedings. Except as required by law and then only upon reasonable prior written notice to the Company, Employee shall not in any way cooperate or assist any person or entity in any matter which is adverse to the Company or to any person who was at any time an officer or director of the Company. 10. No Derogation. Except as otherwise required by law (and then only ------------- upon 10 days' prior written notice to the Company), Employee shall not from and after the date hereof, whether during Employee's employment or at any time thereafter, in any way or to any person, denigrate or derogate the Company or any of its subsidiaries, or any person who was at any time an officer or director of the Company, or any products, services or procedures of the Company, whether or not such denigrating or derogatory statements shall be true and are based on acts or omissions which were learned or are learned by Employee heretofore or from and after the date hereof or on acts or omissions which occurred at any time heretofore or which occur at any time from and after the date hereof, or otherwise. 11. Miscellaneous. ------------- (a) Complete Agreement. There are no oral representations, ------------------ understandings or agreements with the Company or any of its officers, directors or representatives covering the same subject matter as this Agreement. This written Agreement is the final, complete and exclusive statement and expression of the agreement between the Company and Employee and of all the terms of this Agreement, it cancels and replaces and supersedes all prior agreements with respect to the subject matter hereof (including, without limitation, any employment, deferred compensation, bonus or stock option agreements between Employee and USR), and it cannot be varied, contradicted or supplemented by evidence of any prior or contemporaneous oral or written agreements. This written Agreement may not be later modified except by a further writing signed by the 12 Company and Employee, and no term of this Agreement may be waived except by writing signed by the party waiving the benefit of such terms. (b) No Waiver. No waiver by the parties hereto of any default or --------- breach of any term, condition or covenant of this Agreement shall be deemed to be a waiver of any subsequent default or breach of the same or any other term, condition or covenant contained herein. (c) Binding Effect. This Agreement shall be binding upon and inure to -------------- the benefit of the parties thereto and their respective heirs, successors and permitted assigns. The Company may assign this Agreement only to a person or entity who or which directly or indirectly succeeds to all or any substantial part of the Company's assets or business. This Agreement is personal to Employee and may not be assigned or delegated by him and any such purported assignment or delegation shall be null and void. (d) Notice. Whenever any notice is required hereunder, it shall be ------ given in writing addressed as follows: (i) if to the Company, to: URI, Four Greenwich Office Park, Greenwich, Connecticut 06830, Attn: Chairman of the Board, with a copy (which shall not constitute notice) to: Oscar D. Folger, Esq., 24th Floor, 521 Fifth Avenue, New York, New York 10175; and (ii) if to Employee, to: _________________, with a copy (which shall not constitute notice) to: Stephen E. Newton, Esq., Heller, Ehrman, White & McAuliffe, 601 South Figueroa Street, Los Angeles, California 90017. Notice shall be deemed given and effective (a) five business days after the deposit in the U.S. mail of a writing addressed as above and sent first class mail, certified, return receipt requested, (b) one (1) business day after delivered to a nationally recognized air courier for next day delivery service, or (c) upon personal delivery. Either party may change the address for notice by notifying the other party of such change in accordance with this paragraph. (e) Severability; Headings. If any portion of this Agreement is held ---------------------- invalid or inoperative, the other portions of this agreement shall be deemed valid and operative, and so far as it is reasonable and possible, effect shall be given to the intent manifested by the portion held invalid or inoperative. The paragraph headings herein are for reference purposes only and are not intended in any way to describe, interpret, define or limit the extent or intent of this Agreement or any part hereof. (f) Governing Law; Resolution of Disputes; Service of Process. This --------------------------------------------------------- Agreement shall in all respects be construed according to the laws of the State of Connecticut. All disputes relating to the interpretation and enforcement of the provisions of this Agreement shall be resolved and determined exclusively by arbitration in San Francisco, California under the rules of the American Arbitration Association. Service of process shall be effective when given in the manner provided for notices hereunder. 13 IN WITNESS WHEREOF the parties have signed and delivered this Agreement as of the date first set forth above. UNITED RENTALS, INC. By:_________________________ Name: Title: ____________________________ William F. Berry 14 Exhibit A Rental Service Corp. Neff RentX Hertz Equipment Rental Corporation Prime Services National Equipment Services Falconite Brambles American Equipment GE Capital - equipment leasing divisions Brentwood Associates Golder Thoma Caterpillar Deere Nationsrent Ashstead Rentokil and subsidiaries Any company on the "RER 100" list Any affiliate of any of the foregoing. 15 EXHIBIT E-2 EMPLOYMENT AGREEMENT -------------------- This AGREEMENT between United Rentals, Inc., a Delaware corporation ("URI"), and John S. McKinney ("Employee"), is hereby entered into as of [CLOSING DATE OF THE MERGER]. Recitals: -------- URI and its affiliates (collectively, the "Company") are engaged in the business of acquiring and operating companies which rent, operate, maintain, distribute, sell or otherwise deal in or with equipment or similar assets, and may in the future engage in other businesses which the Company deems to be related to the foregoing. All such businesses are collectively referred to herein as the "Business." Employee was heretofore the Chief Financial Officer of U.S. Rentals, Inc. ("USR"). Pursuant to an Agreement and Plan of Merger dated June 15, 1998 (the "Merger Agreement"), (i) URI acquired USR and (ii) URI is offering Employee employment with the Company on the terms set forth in this Agreement. This Agreement replaces and supersedes in all respects Employee's existing employment agreement with USR. Pursuant to this Agreement, Employee will be employed by the Company in a confidential relationship wherein Employee, in the course of his employment with the Company, will become familiar with and aware of information as to the specific manner of doing business and the potential acquisition candidates and customers of the Company and its affiliates and future plans with respect thereto, all of which will be established and maintained at great expense to the Company; this information is a trade secret and constitutes the valuable goodwill of the Company. Employee recognizes that the Company's business is dependent upon a number of trade secrets, including the identity of customers and potential acquisition candidates, the analysis of such candidates and financial data of the Company. The protection of these trade secrets is of critical importance to the Company. The Company will sustain great loss and damage if, for whatever reason, Employee should violate the provisions of this Agreement. Further, monetary damages for such losses would be extremely difficult to measure. NOW, THEREFORE, in consideration of the mutual promises, terms, covenants and conditions set forth herein and the performance of each, it is hereby agreed as follows: 1. Employment and Duties. (a) Upon commencement of the term of this --------------------- Agreement, the Company shall employ Employee as the Vice President-Finance of URI on the terms and conditions herein set forth. Employee shall perform such duties, have such authority, and report to such persons (including, without limitation, the Vice Chairman and Chief Operating Officer of URI), as shall from time to time be designated by the Board of Directors of URI (the "Board"). Employee shall accept this employment upon the terms and conditions herein contained and agrees to devote his full time, attention and efforts to promote and further the business and services of the Company. Employee shall faithfully adhere to, execute and fulfill all policies established by the Company. (b) Employee shall perform such duties, assume such responsibilities and devote such time, attention and energy to the business of the Company as the Board shall from time to time require and shall not, during the term of his employment hereunder, be engaged in any other business activity pursued for gain, profit or other pecuniary advantage without the prior written consent of the Board. However, the foregoing limitations shall not be construed as prohibiting Employee from making personal investments in such form or manner as will neither require his services in the operation or affairs of the companies or enterprises in which such investments are made nor violate the terms of Section 5. (c) Employee will be based in URI's offices in Modesto, California, and shall not be required to relocate. 2. Compensation and Other Benefits. For all services rendered by Employee ------------------------------- to the Company, the Company shall compensate the Employee as follows: (a) Base Salary and Bonus. The initial base salary payable to --------------------- Employee during the term of this Agreement shall be $175,000 per year, payable in accordance with URI's standard payroll practices. Minimum annual increases in the base salary payable to Employee shall be determined by adding to Employee's then current base salary the sum, if any, determined by multiplying Employee's then current base salary by the percentage that the Consumer Price Index for "Urban Wage Earners & Clerical Workers", as prepared by the Bureau of Labor Statistics of the Department of Labor of the United States for the city in which Employee's residence is located, for the most recently ended calendar year has increased over the index from the previous calendar year; provided that Employee's base salary shall not be increased on account of the foregoing cost of living adjustments to an amount in excess of $210,000 per annum. In addition, the Board may from time to time award bonuses to Employee based on such criteria as the Board may establish in its discretion. The payment of salary and bonuses shall be subject to all federal, state and withholding taxes, social security deductions and other general obligations. (b) Vacation. Employee shall be entitled to three (3) weeks of paid -------- vacation during each 12-month period of his employment hereunder at times mutually acceptable to Employee and the Company. Unused vacations can be carried forward for 12 months, and shall thereupon lapse. 2 (c) Other Compensation and Benefits. During the term of this ------------------------------- Agreement, Employee may be entitled to receive the additional payments from the Company set forth below. Employee shall be entitled to participate upon commencement of the term of this Agreement in URI's group health insurance plan and any bonus, option or similar incentive compensation plan, 401(k) plan, group life plan and automobile allowance program which is made available, from time to time, to other senior executives of URI, on a basis consistent with such participation. (d) Reimbursement. The Company shall reimburse Employee for properly ------------- documented expenses which are incurred by Employee on behalf of the Company in the performance of his duties hereunder in accordance with Company policies in effect from time to time. (e) Stock Options. ------------- (i) The term "Options" as used herein means (A) all options to purchase common stock of URI ("URI Common Stock") to which Employee became entitled pursuant to Section 5.10 of the Merger Agreement in respect of options to purchase USR common stock previously granted to Employee (the "Carry-Over Options"), (B) the options to purchase URI Common Stock described in the stock option award letters, dated the date hereof, attached hereto and (C) any and all options to purchase shares of URI Common Stock which are at any time hereafter granted by URI to Employee, whether under URI's 1997 Stock Option Plan or otherwise. All unvested Options shall automatically vest on a Change of Control. (ii) A "Change of Control" shall be deemed to have occurred if: __________________ 1. To reflect the award of (a) 100,000 options exercisable at a price per share equal to the closing price per share of URI Common Stock on the NYSE on the Closing Date (the "Market Price") and (b) 37,500 options exercisable at a price per share equal to the greater of (i) 125% of the Market Price and (ii) $45. All of such options shall vest over a three year term. Mr. McKinney's option grant letters will provide that (a) all options scheduled to vest in a given period will vest in full on the first day of such period if he is employed by the Company on such date, and (b) all shares of URI Common Stock which are acquired by Mr. McKinney upon exercise of vested options that are covered by an effective Registration Statement on Form S-8 may be resold by him in accordance with the grant letters upon exercise. 3 (A) any "person" is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934 (the "Act")), directly or indirectly, of securities of URI representing 50% or more of the total voting power represented by then outstanding voting securities of URI, or has the power (whether as a result of stock ownership, revocable or irrevocable proxies, contract or otherwise) or ability to elect or cause the election of directors consisting at the time of such election of a majority of the Board. The term "persons" is defined in Sections 13(d) and 14(d) of the Act, except that the term "person" shall not include: (1) any person or an Affiliate (as defined below) of such person who as of the date of this Agreement owns 10% or more of the total voting power represented by the outstanding voting securities of URI; and (2) a trustee or other fiduciary holding securities under any employee benefit plan of the Company or a corporation which is owned directly or indirectly by the stockholders of URI in substantially the same percentage as their ownership in URI. An "Affiliate" of a person is a person that controls, is controlled by, or is under common control with such person. or (B) the stockholders of URI approve a merger of URI, or a plan of complete liquidation of URI, or an agreement for the sale or disposition by URI of all or substantially all of its assets, or any other business combination of URI with any other corporation, other than any such merger or business combination which would result in the voting securities of URI outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the total voting power represented by the voting securities of URI or such surviving entity outstanding immediately after such merger or business combination. (iii) URI shall use its best efforts to file or cause to be filed and promptly to be declared effective during URI's fiscal quarter ending: (A) March 31, 1999 one or more registration statements on Form S-8 or Form S-3 (or other appropriate forms) under the Securities Act of 1933 in order to register one-third of the shares of URI Common Stock issuable pursuant to the Carry-Over Options or, if greater, that number of shares of URI Common Stock issuable pursuant to Carry-Over Options which when sold at the market price prevailing on such date would yield net proceeds to Employee equal to the excise tax payable by Employee in respect of the vesting of the Carry-Over Options on the date of this Agreement pursuant to the Merger; (B) March 31, 2000 one or more such registration statements in order to register another one-third of the shares of URI Common Stock issuable pursuant to the Carry-Over Options (but not more than half of the shares not registered under clause (A)), and (C) March 31, 2001 one or more such registration statements in order to register the balance of the shares of URI Common Stock issuable pursuant to the Carry-Over Options. Except as set forth above, the Company shall have no 4 obligation to register under the Securities Act or any state securities laws any of Employee's Options or any of the shares of URI Common Stock issuable upon exercise thereof. (iv) Notwithstanding the forgoing, in the event the Employee dies, or is terminated without good cause (as defined below), or resigns for good reason (as defined below) prior to any March 31 referred to in paragraph (iii) above, the registration to be filed on such March 31 shall cover all Carry-Over Options then outstanding. As used in this paragraph, the term "good reason" means (A) a material diminution in Employee's duties, responsibilities or title; (B) the occurrence of a Change of Control or (C) URI's material breach of this Agreement which is not cured within 30 days after notice. 3. Term; Termination; Rights of Termination. ---------------------------------------- (a) The term of this Agreement shall begin on the date hereof and shall continue until the third anniversary of the date hereof or such earlier date set forth below, provided that the term shall automatically renew at the end of each month after the first year so that at no time shall the balance of the term of Employee's employment be less than two years. This Agreement and Employee's employment may terminate in any one of the following ways: (i) The death of Employee shall terminate this Agreement; (ii) A notice of resignation by the Employee presented to the Board shall terminate this Agreement; (iii) The Company may terminate this Agreement after ten (10) days' written notice to Employee for "good cause", which is defined to mean: (A) Employee's material breach of this Agreement, including, without limitation, his insubordination. (B) the material default of the Company in performing its obligations under contracts with other persons or business entities if directly caused by Employee, intentionally and without authorization; (C) if, because of illness or physical or mental disability or other incapacity which continues for a period in excess of four months in any consecutive 16-month period, Employee is unable to perform his duties under this Agreement; (D) Employee's fraud or dishonesty with respect to the business or affairs of the Company or if Employee is convicted of a crime which in 5 the reasonable opinion of the Board would negatively affect the Company's business or reputation; or (E) alcohol or drug abuse by Employee. (iv) The Company may terminate this Agreement without cause at any time, provided that in the event of a termination of this Agreement without cause, Employee shall be entitled to receive from the Company his then current monthly base salary over the balance of the term of his employment, in the same installments and subject to the same withholding, as applied during his employment. In addition, for the number of months remaining in the term of this Agreement, the Company shall continue to be obligated to provide to Employee with life, health, disability and accident insurance and benefits and all other executive benefits (including without limitation, retirement benefits and automobile and expense allowances) comparable to those provided to Employee prior to his termination. To the extent that Employee is no longer lawfully eligible for any aforementioned benefit because he is no longer employed by the Company, the Company shall pay to Employee a lump sum cash payment equal to the present value of the benefits which would have been provided to Employee had his employment continued for the number of months remaining in the then term of this Agreement. (b) Upon termination of this Agreement or Employee's employment for any reason whatsoever, Employee shall be entitled to receive all salary earned under this Agreement to the date of termination. However, termination of this Agreement shall not accelerate the payment date of any monies accrued or accruing to the account of Employee as a result of any bonuses or other compensation, nor shall termination vest in Employee any right in connection therewith other than as expressly set forth herein. (c) In the event of termination of this Agreement for any reason provided in this Section or if Employee resigns prior to the expiration of the term of this Agreement, all rights and obligations of the Company and Employee under this Agreement shall cease immediately, except for those which by their terms specifically apply to periods following the termination of this Agreement (including, without limitation, Sections 3 through 11 hereof), and thereafter Employee shall have no right to receive any compensation hereunder except as otherwise expressly set forth above. 4. Confidentiality. --------------- (a) During and at all times after Employee's employment: (i) Employee shall not disclose to any person or entity, without the Company's prior consent, any confidential or secret information, whether prepared by him or others. 6 (ii) Employee shall not, except in furtherance of the business of the Company, directly or indirectly use any such information other than as directed by the Company. (iii) Employee shall not, except in the furtherance of the business of the Company, remove confidential or secret information from the premises of the Company without the prior consent of the Company. (iv) Upon termination of his employment for whatever reason, with or without cause, Employee shall promptly deliver to the Company all originals and copies (whether in note, memo or other document form or on video, audio or computer tapes or discs or otherwise) of confidential or secret information that is in his possession, custody or control, whether prepared by him or others. (b) Confidential information includes, but is not limited to: (i) the name of any company or business all or any substantial part of which is or at any time was a candidate for potential acquisition by the Company, together with all analyses and other information which the Company has generated, compiled or otherwise obtained with respect to such candidate, business or potential acquisition, or with respect to the potential effect of such acquisition on the Company's business, assets, financial results or prospects; (ii) business, pricing and management methods; (iii) finances, strategies, systems, research, surveys, plans, reports, recommendations and conclusions; (iv) names, arrangements with, or other information relating to, the Company's customers, suppliers, equipment manufacturers, financiers, owners or operators, representatives and other persons who have business relationships with the Company or who are prospects for business relationships with the Company; (v) technical information, work products and know-how; and (vi) cost, operating, and other management information systems, and other software and programming. 5. Non-Compete Provisions. The following covenants are made by Employee ---------------------- in partial consideration for the substantial economic investment made by the Company in the hiring, education and training of Employee and the compensation and other benefits 7 afforded by the Company to the Employee. Such covenants were material inducements to the Company in hiring Employee. (a) During his employment by the Company and for a period of 24 months immediately following the termination of his employment for any reason whatsoever, whether or not for cause: (i) Employee shall not in any Restricted Area (as hereinafter defined) directly or indirectly be employed or retained by any person or entity who or which then competes with the Company to any extent, nor will Employee directly or indirectly own any interest in any such person or entity or render to it any consulting, brokerage, contracting, financial or other services. Employee shall be deemed to be employed or retained in the Restricted Area if he has an office in the Restricted Area or if he performs any duties or renders any advice with respect to any facility or business activities in the Restricted Area. A "Restricted Area" means each of: (A) any state in the United States and any province in Canada in which the Company conducts any equipment rental or other equipment- related activity, it being agreed that each state and province is one unitary market for purposes of the Company's business; (B) regardless of state, the area within a 200-mile radius of any office or facility of the Company in which or in relation to which Employee shall have performed any duties for the Company during the one year period preceding the termination of his employment. (ii) Employee shall not anywhere in the United States or Canada directly or indirectly be employed or retained by a Similar Entity (as hereinafter defined) nor will Employee directly or indirectly own any interest in any Similar Entity or render to it any consulting, brokerage, financing, contracting, or other services; provided, however, that the Employee may own, directly or indirectly, solely as an investment, securities of any business traded on any national securities exchange or Nasdaq, provided the Employee is not a controlling person of, or a member of a group which controls, such business; and further provided that the Employee does not, directly or indirectly, own 5% or more of any class of securities in such business. A "Similar Entity" means each of: (A) the entities listed in Exhibit A to this Agreement; (B) any person or entity which anywhere in the United States now or hereafter engages in any business in which the Company engages now or hereafter during the term of Employee's employment; 8 (C) any entity which at any time during the term of Employee's employment was a candidate for acquisition by or merger with the Company; and (D) any entity which owns or owned any facility which was acquired by the Company, or was a candidate for acquisition by the Company, at any time during the term of Employee's employment. (iii) Employee shall not anywhere directly or indirectly (whether as an owner, partner, employee, consultant, broker, contractor or otherwise, and whether personally or through other persons): (A) solicit or accept the business of, or call upon, any person or entity who or which is or was (1) a customer, supplier or manufacturer of equipment which is sold, leased or rented out by the Company, finder or broker, who had a business relationship with the Company at any time during the period the period of his employment, or (2) an affiliate of any such person; (B) approve, solicit or retain, or discuss the employment or retention (whether as an employee, consultant or otherwise) of any person who was an employee of the Company at any time during the one-year period preceding the termination of his employment; (C) solicit or encourage any person to leave the employ of the Company; (D) call upon or assist in the acquisition of any company which was, during the term of his employment, either called upon by an employee of the Company or by a broker or other third party, for possible acquisition by the Company or for which an employee of the Company or other person made an acquisition analysis for the Company; or (E) own any interest in or be employed by or provide any services to any person or entity which engages in any conduct which is prohibited to Employee under this Section 5(a); provided, however, that the Employee may own, directly or indirectly, solely as an investment, securities of any business traded on any national securities exchange or NASDAQ, provided the Employee is not a controlling person of, or a member of a group which controls, such business and further provided that the Employee does not, directly or indirectly, own 5% or more of any class of securities of such business. (b) Before taking any position with any person or entity during the 24- month period following the termination of his employment for any reason, with or without 9 cause, Employee will give prior written notice to the Chairman of the Board of the name of such person or entity. The Company shall be entitled to advise each such person or entity of the provisions of this Agreement, and to correspond and otherwise deal with each such person or entity to ensure that the provisions of this Agreement are enforced and duly discharged. (c) All time periods in this Agreement shall be computed by excluding from such computation any time during which Employee is in violation of any provision of this Agreement and any time during which there is pending in any court of competent jurisdiction any action (including any appeal from any final judgment) brought by any person, whether or not a party to this Agreement, in which action the Company seeks to enforce the agreements and covenants in this Agreement or in which any person contests the validity of such agreements and covenants or their enforceability or seeks to avoid their performance or enforcement. (d) Employee understands that the provisions of this Agreement have been carefully designed to restrict his activities to the minimum extent which is consistent with law and the Company's requirements. Employee has carefully considered these restrictions, and Employee confirms that they will not unduly restrict Employee's ability to obtain a livelihood. Before signing this Agreement, Employee has had the opportunity to discuss this Agreement and all of its terms with his attorney. (e) Since monetary damages will be inadequate and the Company will be irreparably damaged if the provisions of this Agreement are not specifically enforced, the Company shall be entitled, among other remedies to an injunction restraining any violation of this Agreement (without any bond or other security being required) by Employee and by any person or entity to whom Employee provides or proposes to provide any services in violation of this Agreement. (f) If any provision contained in this Agreement is determined to be void, illegal or unenforceable, in whole or in part, then the other provisions contained herein shall remain in full force and effect as if the provision which was determined to be void, illegal, or unenforceable had not been contained herein. (g) The courts enforcing this Agreement shall be entitled to modify the duration and scope of any restriction contained herein to the extent such restriction would otherwise be unenforceable, and such restriction as modified shall be enforced. 6. Return of Company Property. All products, records, designs, patents, -------------------------- plans, manuals, "field guides," memoranda, lists and other property delivered to Employee by or on behalf of the Company or by its customers (including, but not limited to, customers obtained for the Company by Employee), and all records compiled by the Employee which 10 pertain to the business of the Company (whether or not confidential) shall be and remain the property of the Company and be subject at all times to its discretion and control. Likewise, all correspondence with customers or representatives, reports, records, charts, advertising materials, and any data collected by Employee, or by or on behalf of the Company or its representatives (whether or not confidential) shall be delivered promptly to the Company without request by it upon termination of Employee's employment. 7. Inventions. Employee shall disclose promptly to the Company any and ---------- all conceptions and ideas for inventions, improvements and valuable discoveries, whether patentable or not, which are conceived or made by Employee solely or jointly with another during the period of employment or within one (1) year thereafter and which are related to the business or activities of the Company or which Employee conceives as a result of his employment by the Company, and Employee hereby assigns and agrees to assign all his interests therein to the Company or its nominee. Whenever requested to do so by the Company, Employee shall execute any and all applications, assignments or other instruments that the Company shall deem necessary to apply for and obtain Letters Patent of the United States or any foreign country or to otherwise protect the Company's interest therein. These obligations shall continue beyond the termination of employment with respect to inventions, improvements and valuable discoveries, whether patentable or not, conceived, made or acquired by Employee during the period of employment or within one (1) year thereafter and which are related to the business or activities of the Company or which Employee conceives as a result of his employment by the Company, and shall be binding upon Employee's assigns, executors, administrators and other legal representatives. 8. Suits Against Company. --------------------- (a) Both during and after the term of employment hereunder, Employee covenants that Employee shall not bring suit or file counterclaims against the Company for corporate misconduct (which for this purpose does not mean the mere breach by the Company of this Agreement or any conduct which affects the rights of the Employee), unless both of (i) and (ii) below shall have occurred, namely: (i) Employee shall have first made written demand to the Board to investigate and deal with such misconduct, and (ii) the Board shall have failed within 45 days after the date of receipt of such demand to establish a Special Litigation Committee, consisting exclusively of outside directors, to investigate and deal with such misconduct. (b) Without limiting the generality and to further implement the foregoing, Employee irrevocably and unconditionally consents at the option of the Company to the entry of temporary restraining orders and temporary and permanent injunctions (without posting bond or other security) against the filing of any action or counterclaim which is prohibited hereunder. 11 (c) The opinion of the Board shall be binding and conclusive on the determination of which directors constitute "outside directors," and the determination of the Special Litigation Committee shall be binding and conclusive on all matters relating to the actual or alleged misconduct which is referred to it as aforesaid. 9. Cooperation in Proceedings. During and after the termination of -------------------------- Employee's employment, Employee shall for reasonable compensation consistent with his compensation from the Company cooperate fully and at reasonable times with the Company and its subsidiaries in all litigations and regulatory proceedings on which the Company or any subsidiary seeks Employee's assistance and as to which Employee has any knowledge or involvement. Without limiting the generality of the foregoing, Employee will be available upon reasonable notice for periods of reasonable duration, considering his other responsibilities and obligations, to testify at such litigations and other proceedings, and will cooperate with counsel to the Company in preparing materials and offering advice in such litigations and other proceedings. Except as required by law and then only upon reasonable prior written notice to the Company, Employee shall not in any way cooperate or assist any person or entity in any matter which is adverse to the Company or to any person who was at any time an officer or director of the Company. 10. No Derogation. Except as otherwise required by law (and then only ------------- upon 10 days' prior written notice to the Company), Employee shall not from and after the date hereof, whether during Employee's employment or at any time thereafter, in any way or to any person, denigrate or derogate the Company or any of its subsidiaries, or any person who was at any time an officer or director of the Company, or any products, services or procedures of the Company, whether or not such denigrating or derogatory statements shall be true and are based on acts or omissions which were learned or are learned by Employee heretofore or from and after the date hereof or on acts or omissions which occurred at any time heretofore or which occur at any time from and after the date hereof, or otherwise. 11. Miscellaneous. ------------- (a) Complete Agreement. There are no oral representations, ------------------ understandings or agreements with the Company or any of its officers, directors or representatives covering the same subject matter as this Agreement. This written Agreement is the final, complete and exclusive statement and expression of the agreement between the Company and Employee and of all the terms of this Agreement, it cancels and replaces and supersedes all prior agreements with respect to the subject matter hereof (including, without limitation, any employment, deferred compensation, bonus or stock option agreements between Employee and USR), and it cannot be varied, contradicted or supplemented by evidence of any prior or contemporaneous oral or written agreements. This written Agreement may not be later modified except by a further writing signed by the 12 Company and Employee, and no term of this Agreement may be waived except by writing signed by the party waiving the benefit of such terms. (b) No Waiver. No waiver by the parties hereto of any default or --------- breach of any term, condition or covenant of this Agreement shall be deemed to be a waiver of any subsequent default or breach of the same or any other term, condition or covenant contained herein. (c) Binding Effect. This Agreement shall be binding upon and inure to -------------- the benefit of the parties thereto and their respective heirs, successors and permitted assigns. The Company may assign this Agreement only to a person or entity who or which directly or indirectly succeeds to all or any substantial part of the Company's assets or business. This Agreement is personal to Employee and may not be assigned or delegated by him and any such purported assignment or delegation shall be null and void. (d) Notice. Whenever any notice is required hereunder, it shall be ------ given in writing addressed as follows: (i) if to the Company, to: URI, Four Greenwich Office Park, Greenwich, Connecticut 06830, Attn: Chairman of the Board, with a copy (which shall not constitute notice) to: Oscar D. Folger, Esq., 24th Floor, 521 Fifth Avenue, New York, New York 10175; and (ii) if to Employee, to: _________________, with a copy (which shall not constitute notice) to: Stephen E. Newton, Esq., Heller, Ehrman, White & McAuliffe, 601 South Figueroa Street, Los Angeles, California 90017. Notice shall be deemed given and effective (a) five business days after the deposit in the U.S. mail of a writing addressed as above and sent first class mail, certified, return receipt requested, (b) one (1) business day after delivered to a nationally recognized air courier for next day delivery service, or (c) upon personal delivery. Either party may change the address for notice by notifying the other party of such change in accordance with this paragraph. (e) Severability; Headings. If any portion of this Agreement is held ---------------------- invalid or inoperative, the other portions of this agreement shall be deemed valid and operative, and so far as it is reasonable and possible, effect shall be given to the intent manifested by the portion held invalid or inoperative. The paragraph headings herein are for reference purposes only and are not intended in any way to describe, interpret, define or limit the extent or intent of this Agreement or any part hereof. (f) Governing Law; Resolution of Disputes; Service of Process. This --------------------------------------------------------- Agreement shall in all respects be construed according to the laws of the State of Connecticut. All disputes relating to the interpretation and enforcement of the provisions of this Agreement shall be resolved and determined exclusively by arbitration in San Francisco, California under the rules of the American Arbitration Association. Service of process shall be effective when given in the manner provided for notices hereunder. 13 IN WITNESS WHEREOF the parties have signed and delivered this Agreement as of the date first set forth above. UNITED RENTALS, INC. By:__________________________ Name: Title: _____________________________ John S. McKinney 14 Exhibit A Rental Service Corp. Neff RentX Hertz Equipment Rental Corporation Prime Services National Equipment Services Falconite Brambles American Equipment GE Capital - equipment leasing divisions Brentwood Associates Golder Thoma Caterpillar Deere Nationsrent Ashstead Rentokil and subsidiaries Any company on the "RER 100" list Any affiliate of any of the foregoing. 15 EXHIBIT F REGISTRATION RIGHTS AGREEMENT ----------------------------- THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), is entered into as of [CLOSING DATE], 1998, between United Rentals, Inc., a Delaware corporation (the "COMPANY"), the Persons listed on Schedule A hereto (each a "HOLDER" and collectively, the "HOLDERS"). /1/ The parties agree as follows. RECITALS -------- A. Holders were holders of shares of common stock, par value $.01 per share ("USR STOCK") of U.S. Rentals, Inc., a Delaware corporation ("USR"). B. Pursuant to an Agreement and Plan of Merger, dated as of June 15, 1998, among the Company, UR Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of the Company ("MERGER SUB"), and USR, Merger Sub was merged with and into USR, with USR as the surviving corporation and wholly-owned subsidiary of the Company (the "MERGER"). C. Pursuant to the Merger, each share of USR Stock was converted into the right to receive .9625 of a share of common stock, par value $.01 per share, of the Company ("COMMON STOCK"). D. Pursuant to the Merger, Holders received shares of Common Stock (the "SHARES") in respect of the USR Stock theretofore owned by the Holder which will be subject to the provisions of Rule 145 under the Securities Act of 1933, as amended. E. Holders and the Company desire to set forth herein their agreement with respect to the registration rights, and certain other covenants, applicable to the Shares. 1. Certain Definitions. ------------------- As used in this Agreement: "AFFILIATE" of a Person means any other Person directly or indirectly controlling, controlled by or under direct or indirect common control with the first mentioned Person. Without limiting the generality of the foregoing, for purposes of this Agreement, each of the following shall be deemed Affiliates of a Person: (i) such Person's ______________________ 1. Persons will be all persons signing "Affiliate" letters. spouse, lineal descendants and the respective spouses of such descendants; (ii) any trust the majority of the beneficiaries of which are such Person and/or Persons described in clause (i) and/or any Affiliates of such Person or Persons; (iii) any trust of which such Person and/or its Affiliates is grantor or settlor and (iv) any charitable, educational or political foundation or fund established or endowed by any of the foregoing Persons or any of their Affiliates. "BUSINESS DAY" means any day that commercial banks are not authorized or required to close in Los Angeles, California. "COMMISSION" means the Securities and Exchange Commission or any other similar or successor agency of the United States government administering the Securities Act. "EXCHANGE ACT" means the Securities Exchange Act of 1934, and any similar or successor federal statute, and the rules and regulations of the Commission thereunder, as in effect at the time. "NYSE" means the New York Stock Exchange. "OFFERING" means the registration of the Company's securities under the Securities Act, whether underwritten or not, for sale to the public. "PERMITTED TRANSFEREE" means (a) any entity all of the equity of which is directly or indirectly owned by the transferor or any person who owns an equity interest in the transferor; (b) in the case of a transferor who is an individual, (i) such transferor's spouse and lineal descendants, (ii) such transferor's successors, personal representatives and heirs, (iii) any trustee of any trust created primarily for the benefit of any, some or all of such spouse and lineal descendants (but that may include beneficiaries that are charities) or of any revocable trust created by such transferor, (iv) following the death of such transferor, all beneficiaries under either such trust, (v) the transferor, in the case of a transfer from any Permitted Transferee back to its transferor and (vi) any entity all of the equity of which is directly or indirectly owned by any of the foregoing; (c) any charitable or educational organization that is exempt from federal income taxes; or 2 (d) in the case of a transferor who is a trustee of a trust which would be a Permitted Transferee, any beneficiary of such trust. "PERSON" means a corporation, an association, a trust, a partnership, a limited liability company, a joint venture, an organization, a business, an individual, a government or political subdivision thereof, or a governmental body. "PROSPECTUS" means the prospectus included in any Registration Statement, together with and including any amendment or supplement to such prospectus, covering the Offering of any portion of the Registrable Securities covered by a Registration Statement, and all material incorporated by reference in such Prospectus. "REGISTRABLE SECURITIES" means the Shares and any securities issued or issuable with respect to the Shares by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation, reclassification or other reorganization. A security will cease to be a Registrable Security when it (a) has been effectively registered under the Securities Act and disposed of in accordance with the Registration Statement covering it, (b) is distributed to the public pursuant to Rule 144 (or any similar rule then in force) under the Securities Act or (c) has otherwise been transferred and a new certificate not bearing a restrictive legend and not subject to any stop transfer order lawfully has been delivered by or on behalf of the Company and no other restriction on transfer exists. "REGISTRATION STATEMENT" means a registration statement filed by the Company with the Commission covering Registrable Securities. "REQUIRED HOLDERS" means, at any time, Richard D. Colburn or any person or persons whom he so designates by notice to the Company. "SECURITIES ACT" means the Securities Act of 1933, as amended, or any similar federal statute, together with the rules and regulations of the Commission promulgated thereunder, as in effect at the time. 2. Registration Rights. ------------------- 2.1 Demand Registration. Commencing on such date as consolidated ------------------- financial results (including combined sales and net income) covering at least 30 days of post-Merger combined operations of the Company and USR have been published by the Company (the "RESTRICTION TERMINATION DATE"), the Required Holders may, by written notice to the Company (the "DEMAND NOTICE"), demand that the Company file, and, subject to Section 2.3 below, the Company shall file, a Registration Statement for an underwritten public offering covering an Offering of such number of Registrable Securities equal to the 3 lesser of (a) one-third (1/3) of the aggregate number of Registrable Securities - ------ then owned by the Holders and (b) such number of Registrable Securities as would generate anticipated gross proceeds (based on the then current trading price of the Common Stock as reported by the NYSE) in such Offering of not more than $200,000,000. In addition, the Required Holders will be entitled at any time after _____, 1999 [date which is 11 1/2 months after Effective Time of Merger] or, if earlier, such date as Bradley Jacobs has received $250,000,000 in gross proceeds from the sale of Common Stock to demand that the Company file and cause to be declared effective a Registration Statement (collectively with the Registration Statement referred to in the preceding sentence, "DEMAND REGISTRATION STATEMENTS") covering all or any part of the Registrable Securities; provided that the Holders shall not be entitled to more than (x) one such demand (other than the demand provided in the first sentence of this Section 2.1) during any 12 month period and (y) three such demands in the aggregate. Subject to Section 2.3 below, such Demand Registration Statements shall be filed on an appropriate form under the Securities Act, as soon as practicable after the Company receives the Demand Notice, the Company will use its best efforts to cause any Demand Registration Statement to be declared effective on the date requested by the managing underwriter for the Offering (no earlier than 60 days from the date of the Demand Notice), or, if such Offering is not underwritten, as soon as practicable after filing with the Commission and (3) the Company will keep such Demand Registration Statement effective until the related Offering is completed (but not more than 60 days from the effective date of the Demand Registration Statement). 2.2 Company Participation. The Company can elect to register equity --------------------- securities of the Company in a Demand Registration Statement or to participate in the Offering, by including any of its equity securities in the Demand Registration Statement, subject to the following: (a) Notice. The Company must give notice of such election to the ------ Holders within 10 days after the Demand Notice was given to it, including the number of Shares proposed to be sold by the Company in the Offering (the "OTHER SHARES"); (b) Conditions. The Company must agree to sell such Other Shares ---------- on the same basis provided in the underwriting arrangements approved by the Holders and the Company (including standard indemnification provisions) and to timely complete and execute all questionnaires, powers of attorney, indemnities, holdback agreements, underwriting agreements and other documents reasonably required by such underwriting arrangements, by the Commission, or by any state securities regulatory body; and (c) Limitation On Amount. The number of Other Shares that may be -------------------- sold by the Company will be limited if the managing underwriter decides that 4 market conditions require a limitation. In such event, the number of shares of Common Stock that may be sold in the Offering will be allocated first to the Holders, second, to the extent available, to the Company, and, third, to the extent available, to any other Person exercising registration rights with respect to the Common Stock. 2.3 Delay. Except for a Demand Notice made within 60 days after the ----- end of the Restriction Termination Date, the Company may delay the filing of any Demand Registration Statement if upon receipt of the Demand Notice (a) the Company notifies the Holders that it is contemplating filing a registration statement for a primary offering within 120 days of such demand, (b) the Company notifies the Holders that a material event has occurred or is likely to occur that has not been publicly disclosed that, if disclosed, would have a material adverse effect on the Company, or (c) the Company decides that the registration and offering could interfere with, or would require the Company to accelerate public disclosure of, any material financing, acquisition, disposition, corporate reorganization or other material transaction involving the Company or its subsidiaries. In the case of clause (a) of this subsection, the Company will use its best efforts, as soon as practicable, upon the earlier of the Company's abandonment of its contemplated registration statement or the expiration of 90 days after the consummation of the contemplated Offering, unless such Demand Notice is withdrawn by the Holders. In the case of clause (b) or clause (c), the Company may not delay the filing of the Demand Registration Statement for more than 90 days from the date of the Demand Notice unless such Demand Notice is withdrawn by the Holders. The Company cannot exercise the rights of postponement (i) described in clause (a) more than one time in any 12-month period and (ii) described in clauses (b) and (c) more than two times in any 12-month period and may not postpone a Demand Registration Statement for more than 180 consecutive days. If there is a postponement under any clause above, the Demand Notice may be withdrawn by the Holders by notice to the Company. In such case, no Demand Notice will have been delivered for the purposes of Section 2.1. 2.4 Selection Of Underwriters. The managing underwriter of any ------------------------- Offering shall be designated by the Company, subject to the reasonable approval of the Requisite Holders. 3. Registration Procedures. Subject to the terms of this Agreement, the ----------------------- Company will use its best efforts to effect any registration under Section 2 in a manner that permits the sale of the Registrable Securities covered thereby in accordance with the intended method or methods of disposition. The Company will, as promptly as practicable, do the following. 3.1 Copies; Review. At least five (5) Business Days before filing a -------------- Registration Statement or Prospectus or any amendment or supplement thereto (whether 5 before or after effectiveness), the Company will furnish to the Holders participating in such Registration Statement (the "REGISTERING HOLDERS") and the underwriters, if any, copies of all such documents proposed to be filed. Such documents will be subject to the review of the Registering Holders and such underwriters (and their respective counsel). The Company will not file any Registration Statement or any Prospectus or any amendment or supplement thereto (whether before or after effectiveness) to which the Registering Holders or the underwriters, if any, reasonably object. 3.2 Amendments. The Company will (a) prepare and file with the ---------- Commission such amendments and post-effective amendments to the Registration Statement as may be necessary to keep the Registration Statement effective for the applicable time period required herein, (b) cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act, and (c) comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended methods of disposition by the Registering Holders set forth in such Registration Statement or Prospectus supplement. 3.3 Notification. The Company will promptly notify the Registering ------------ Holders and the managing underwriters, and (if requested by any such Person) confirm such notification in writing, (a) when the Prospectus has been filed, and, with respect to the Registration Statement, when it has become effective, (b) of any request by the Commission for amendments or supplements to the Registration Statement or the Prospectus or for additional information, (c) of the issuance of any stop order suspending the effectiveness of the Registration Statement, or the refusal or suspension of qualification of registration of Registrable Securities, or the initiation of any proceedings for that purpose, (d) if at any time the representations and warranties of the Company contemplated by Section 8 cease to be true and correct, and (e) of any event that makes any material statement made in the Registration Statement, the Prospectus or any document incorporated therein by reference untrue or that requires the making of any changes in the Registration Statement, the Prospectus or any document incorporated therein by reference in order to make the statements therein, in light of the circumstances under which they were made, not misleading in any material respect. The Company will make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the Registration Statement at the earliest possible moment. If any event contemplated by clause (e) occurs, the Company will promptly prepare a supplement or post-effective amendment to the Registration Statement or the Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Upon receipt of any notice from the Company that any event of the kind described in clause (e) has happened, each 6 Registering Holder will discontinue offering the Registrable Securities until the Registering Holder receives the copies of the supplemented or amended Prospectus contemplated by the previous sentence, or until it is advised in writing by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus. The period during which distribution of the Shares is suspended will not be counted toward completion of the required period of effectiveness for any Registration Statement. 3.4 Information Included. If requested by the managing underwriters or the Registering Holders, the Company will as soon as practicable incorporate in a Prospectus supplement or post-effective amendment such information as the managing underwriters and the Registering Holders agree should be included therein relating to the sale of the Registrable Securities, including, but not limited to, information with respect to the number of Registrable Securities being sold to such underwriters or other Persons, the purchase price being paid therefor by such underwriters or other Persons and any other terms of the distribution of the Registrable Securities to be sold in such Offering. Such information will include, if applicable, any required disclosure of arrangements with underwriters. The Company will make all required filings of such Prospectus supplement or post-effective amendment as promptly as practicable after being notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment. 3.5 Copies. The Company will (a) promptly furnish to the Registering ------ Holders and each managing underwriter without charge, at least one signed copy of the Registration Statement and any post-effective amendment thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits (including those incorporated by reference), and (b) promptly deliver to the Registering Holders and the underwriters without charge, as many copies of the Prospectus (including each preliminary Prospectus) and any amendment or supplement thereto as such Persons may reasonably request. The Company consents to the use of the Prospectus or any amendment or supplement thereto by the Registering Holders and the underwriters in connection with the Offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto. 3.6 Blue Sky Registration. Prior to any Offering of Registrable --------------------- Securities covered by a Registration Statement under Section 2, the Company will register or qualify or cooperate with the Registering Holders, the underwriters and their respective counsel in connection with the registration or qualification of such Registrable Securities under the securities or blue sky laws of such jurisdictions as the Registering Holders or underwriter reasonably request in writing, and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of such Registrable Securities. The Company will not be required to take any actions under this subsection if such actions would require it to submit to the general taxation of such jurisdiction or to file therein any general consent to 7 service of process, unless this limitation means that the Registrable Securities would not be qualified (or exempt from qualification) for offer and sale in at least 20 states. 3.7 Other Registrations. The Company will use its best efforts to ------------------- cause the Registrable Securities covered by the Registration Statement to be registered with or approved by such governmental agencies or authorities other than the Commission and state securities regulatory bodies as may be necessary to enable the Registering Holders or the underwriters to consummate the disposition of such Registrable Securities. 3.8 Certificates. The Company will cooperate with the Registering ------------ Holders and the managing underwriter to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold that do not bear any restrictive legends. Such certificates will be in such denominations and registered in such names as the managing underwriter requests at least two business days prior to any sale of Registrable Securities to the underwriters. 3.9 Other Actions. In addition, the Company will (a) make such ------------- representations and warranties to the Registering Holders and the underwriters as are customarily made by issuers to underwriters in primary underwritten offerings (or as may be reasonably requested by the underwriters), (b) obtain opinions of counsel to the Company and updates (which counsel and opinions must be reasonably satisfactory to the Registering Holders), (c) obtain customary "cold comfort" letters and updates from the Company's independent certified public accountants addressed to the underwriters, and use its best efforts to obtain such a letter for the Registering Holders or to obtain a letter from such accountants authorizing the Registering Holders to rely on such "cold comfort" letter, (d) if an underwriting agreement is entered into, ensure that it sets forth customary indemnification provisions and procedures with respect to the Company and the Registering Holders similar to those set forth in Section 4 hereof, and (e) deliver such documents and certificates as may be requested by the Registering Holders and the managing underwriter to evidence compliance with clause (a) and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company with the Registering Holders. The above will be done in connection with each closing under such underwriting or similar agreement or as and to the extent required thereunder. 3.10 Due Diligence. The Company will make available for inspection ------------- by the Registering Holders, any underwriter participating in any, and any attorney or accountant retained by the Registering Holders or managing underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to be available to discuss and to supply all information reasonably requested by any such Person in connection with the Registration Statement. If reasonably requested by the managing underwriter, the Company will make 8 suitable officers available to participate in a customary "road show." All such records, information or documents will be subject to standard confidentiality arrangements. 3.11 Section 11(a) Notice. The Company will make generally available -------------------- to its stockholders earnings statements satisfying the provisions of Section 11(a) of the Securities Act. 3.12 Expenses. Except as set forth in the next to last sentence of -------- this Section 3.12, all expenses incident to the Company's performance of or compliance with this Agreement, including, but not limited to, all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger expenses, telephone and delivery expenses, and fees and disbursements of Company counsel and of independent certified public accountants of the Company (including the expenses of any special audit required by or incident to such performance), will be borne by the Company. The Company will also pay its internal expenses (including travel), the expense of any annual audit and the fees and expenses of any Person retained by the Company. In addition, the Company will pay all reasonable fees and disbursements of counsel to the Holders, such fees not to exceed $30,000. All such expenses are referred to as "REGISTRATION EXPENSES." All underwriting fees and commissions with respect to an underwritten Offering and transfer taxes, if any, will be borne by the Holders in proportion to the number of Registrable Securities sold by them. 4. Indemnification. --------------- 4.1 Indemnification By The Company. The Company will indemnify and ------------------------------ hold harmless the Holder, its officers, directors, agents (including, but not limited to counsel) and employees and each Person who controls the Holder (within the meaning of Section 15 of the Securities Act) (each, a "CONTROLLING PERSON") (all of the foregoing are "INDEMNIFIED PERSONS") from and against any and all losses, claims, damages and liabilities (including any investigation, legal or other expenses ("LOSSES") reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted) to which the Indemnified Person may become subject under the Securities Act, the Exchange Act or other federal or state securities law or regulation, at common law or otherwise, insofar as such Losses arise out of or are based upon (a) any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or preliminary prospectus or any amendment or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or (b) any violation by the Company of the Securities Act or the Exchange Act, or other federal or state securities law applicable to the Company and relating to any action or inaction required of the Company in connection with such registration. In addition, the Company will reimburse the Indemnified Person for any 9 reasonable investigation, legal or other expenses incurred by such Indemnified Person in connection with investigating or defending any such Loss. Notwithstanding anything herein to the contrary, the Company will not be liable with respect to the portion of any such Loss that (i) arises out of or is based upon any alleged untrue statement or alleged omission made in such Registration Statement, preliminary Prospectus, Prospectus, or amendment or supplement in reliance upon and in conformity with written information furnished to the Company by the Indemnified Person specifically for use therein or (ii) attributable to an Indemnified Person's (A) use of a Prospectus after being notified by the Company to suspend use thereof pursuant to Section 3.3 above or (B) failure to deliver a final Prospectus to the Person asserting any losses, claims, damages and liabilities and judgments caused by any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such material misstatement or omission or alleged material misstatement or omission was cured in an amended or supplemented Prospectus prepared by the Company and delivered to the Holder and the underwriters at or prior to the time written confirmation of sale to such Person was required to be made. The foregoing indemnity will remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person, and will survive the transfer of such securities by the Indemnified Person. The Company will also indemnify underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, their officers and directors and each Person who controls such Persons (within the meaning of Section 15 of the Securities Act) to the same extent customarily requested by such Persons in similar circumstances. 4.2 Indemnification By Holders Of Registrable Securities. If a ---------------------------------------------------- Holder sells Registrable Securities under a Prospectus that is part of a Registration Statement, the Holder will indemnify and hold harmless the Company, its directors and each officer who signed such Registration Statement and each Person who controls the Company (within the meaning of Section 15 of the Securities Act) under the same circumstances as the foregoing indemnity from the Company to the Holders but only to the extent that such Losses arise out of or are based upon any untrue or allegedly untrue statement of a material fact or omission or alleged omission of a material fact that was made in the Prospectus, the Registration Statement, or any amendment or supplement thereto, in reliance upon and in conformity with written information relating to a Holder furnished to the Company by a Holder expressly for use therein. In no event will the aggregate liability of a Holder exceed the amount of the net proceeds received by the Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. Such indemnity will remain in full force and effect regardless of any investigation made by or on behalf of the Company or such officer, director, employee or Controlling Person, and will survive the transfer of such securities by the Holder. The Company and the Holders will be entitled to receive indemnities from underwriters, selling brokers, dealer managers and similar securities 10 industry professionals participating in the distribution, to the same extent as customarily furnished by such Persons in similar circumstances. 4.3 Contribution. If the indemnification provided for in the ------------ foregoing Sections is unavailable to an indemnified party or is insufficient to hold such indemnified party harmless for any Losses in respect of which the foregoing Sections would otherwise apply by their terms (other than by reason of exceptions provided in the foregoing Sections), then each applicable indemnifying party, in lieu of indemnifying such indemnified party, will have a joint and several obligation to contribute to the amount paid or payable by such indemnified party as a result of such Losses. Such contribution will be in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and such indemnified party, on the other hand, in connection with the actions, statements or omissions that resulted in such Losses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party, on the one hand, and indemnified party, on the other hand, will be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been taken or made by, or relates to information supplied by, such indemnifying party or indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent any such action, statement or omission. The amount paid or payable by a party as a result of any such Losses will be deemed to include any investigation, legal or other fees or expenses incurred by such party in connection with any investigation or proceeding, to the extent such party would have been indemnified for such expenses if the indemnification provided for in the foregoing Sections was available to such party. 4.4 Conduct Of Indemnification Proceedings. Any Person entitled to -------------------------------------- indemnification hereunder will (a) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification, and (b) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided that the failure to give such notice shall not relieve an indemnifying party of liability except to the extent it has been prejudiced as a result. Any Person entitled to indemnification hereunder will have the right to employ separate counsel and to participate in (but not control) the defense of such claim, but the fees and expenses of such counsel will be at the expense of such Person and not of the indemnifying party unless (x) the indemnifying party has agreed to pay such fees or expenses, (y) the indemnifying party has failed to assume the defense of such claim and employ counsel reasonably satisfactory to such Person within a reasonable period of time pursuant to this Agreement, or (z) in the opinion of counsel of the Person to be indemnified, a conflict of interest exists between such Person and the indemnifying party with respect to such claims that would make such separate representation required under applicable ethical rules. In the case of (z) if the Person notifies the indemnifying party in writing that such Person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party 11 will not have the right to assume the defense of such claim on behalf of such Person. If such defense is not assumed by the indemnifying party, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). No indemnified party will be required to consent to entry of any judgment or enter into any settlement that does not include as an unconditional term the giving of a release, by all claimants or plaintiffs, to such indemnified party from all liability in respect to such claim or litigation. Any indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel (other than required local counsel) for all parties indemnified by such indemnifying party with respect to such claim. 5. Other Agreements. ---------------- 5.1 Restrictions On Public Sale By The Holders. If requested by the ------------------------------------------ managing underwriter of an underwritten Offering, the Holders will not effect any public sale or distribution of securities of the same class (or securities exchangeable or exercisable for or convertible into securities of the same class) as the securities included in the Offering (including, but not limited to, a sale pursuant to Rule 144 of the Securities Act) during the 10-day period prior to and the 90-day period (or shorter period requested by the underwriter) beginning on the effective date of, such Offering. 5.2 Rule 144. -------- (a) The Holders hereby irrevocably and unconditionally acknowledge and agree on behalf of themselves, their present and future Affiliates and Permitted Transferees that, for so long as each Holder together with its Affiliates and Permitted Transferees beneficially owns (within the meaning of Rule 13d under the Exchange Act) in the aggregate 10% or more of the outstanding shares of Common Stock, each of such Persons shall be deemed "affiliates" of the Company (within the meaning and for purposes of Rule 144 under the Securities Act) and shall be subject to the provisions of Rule 144(e)(1) under the Securities Act with respect to transactions in the Company's securities. (b) The Company will file, on a timely basis, all reports required to be filed by it under the Securities Act and the Exchange Act, and will take such further action and provide such documents as the Holders may reasonably request, all to the extent required from time to time to enable the Holders to sell Registrable Securities without registration under the Securities Act within the limitation of the conditions provided by (i) Rule 144 under the Securities Act, as such rule may be amended from time to time, or (ii) any similar rule or regulation hereafter adopted by the Commission. Upon the request of a Holder, the Company will deliver to the Holder a statement verifying that it has complied with such information and requirements. 12 (c) The provisions of Section 5.2(a) shall expire on January 15, 2000. 5.3 Representations And Warranties. ------------------------------ 5.3.1 Validity. The Company represents and warrants to the -------- Holder that this Agreement has been duly and validly executed and delivered by the Company and constitutes a legally valid and binding agreement of the Company enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and except that the remedy of specific performance and injunctive and other forms of equitable relief are subject to certain equitable defenses and to the discretion of the court before which any proceeding therefor may be brought and except as rights to indemnity and contribution hereunder may be limited by federal or state securities laws. 5.3.2 No Inconsistent Agreements. The Company represents and -------------------------- warrants that it has not previously entered into, and will not on or after the date of this Agreement enter into, any agreement with respect to its securities that is inconsistent with the terms of this Agreement, including any agreement that impairs or limits the registration rights granted to the Holder or that otherwise conflicts with the provisions hereof or would preclude the Company from discharging its obligations under this Agreement. 5.3.3 Furnish Information. The Company will promptly deliver to ------------------- the Holder copies of all financial statements, reports and proxy statements that the Company is required to send to its stockholders generally. 5.4 Assignment. This Agreement and the rights hereunder are ---------- assignable by the Holder only to Permitted Transferees in connection with the transfer of Registrable Securities in accordance with this Section 5.4. As a condition to the effectiveness of any such assignment the Company shall have received (a) written notice of such assignment, the number of Registrable Securities to be transferred and the name and address of the transferee, and (b) a written agreement in form and substance reasonably acceptable to the Company whereby each such Permitted Transferee agrees to be bound by the terms of this Agreement; whereupon such Permitted Transferee will become a "HOLDER" under this Agreement. Further, no rights under this Agreement may be assigned without the concurrent assignment of the related Shares. Other than as set forth above, this Agreement is not assignable by a Holder and any purported assignment not in accordance with the foregoing shall be null and of no effect. No Person other than the Holders and their 13 Permitted Transferees shall be entitled to any of the registration rights provided by this Agreement. 6. Miscellaneous Provisions. ------------------------ 6.1 Amendments; Waivers. Amendments, waivers, demands, consents and ------------------- approvals under this Agreement must be in writing and designated as such. No failure or delay in exercising any right will be deemed a waiver of such right. 6.2 Integration. This Agreement is the entire agreement between the ----------- parties pertaining to its subject matter, and supersedes and replaces all prior agreements and understandings of the parties (or their respective predecessors) in connection with such subject matter. 6.3 Interpretation; Governing Law. This Agreement is to be construed ----------------------------- as a whole and in accordance with its fair meaning. This Agreement is to be interpreted in accordance with the laws of the State of Delaware. 6.4 Headings. Headings of Sections and subsections are for -------- convenience only and are not a part of this Agreement. 6.5 Counterparts. This Agreement may be executed in one or more ------------ counterparts, all of which constitute one agreement. 6.6 Successors And Assigns. This Agreement is binding upon and ---------------------- inures to the benefit of each party and such party's respective heirs, personal representatives, successors and permitted assigns (including any Permitted Transferees). Nothing in this Agreement, express or implied, is intended to confer any rights or remedies upon any other person. 6.7 Expenses; Legal Fees. Each party will pay its own expenses in -------------------- the negotiation, preparation and performance of this Agreement. The prevailing party in any action relating to this Agreement will be entitled to recover, in addition to other appropriate relief, reasonable legal fees, costs and expenses incurred in such action. 6.8 Representation By Counsel; Interpretation. Each party ----------------------------------------- acknowledges that it has been represented by counsel in connection with this Agreement. Any rule of law, including, but not limited to, Section 1654 of the California Civil Code, or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it, has no application and is expressly waived. 14 6.9 Specific Performance. In view of the uniqueness of the matters -------------------- contemplated by this Agreement, the parties would not have an adequate remedy at law for money damages if this Agreement is not being performed in accordance with its terms. The Company therefore agrees that the Holders will be entitled to specific enforcement of the terms hereof in addition to any other remedy to which the Holders may be entitled. 6.10 Time is of the Essence. Time is of the essence in the ---------------------- performance of each and every term, provision and covenant in this Agreement. 6.11 Notices. Any notice to be given hereunder must be in writing ------- and delivered as follows (or to another address as either shall designate in writing): If to the Company to: United Rentals, Inc. 4 Greenwich Office Park Greenwich, CT 06830 Attn: Chief Financial Officer If to the Holders to: IN WITNESS WHEREOF, this Registration Rights Agreement has been signed as of the date first set forth above. UNITED RENTALS, INC. By:_________________________________ Its: AYR, INC. By:_________________________________ Its: [OTHER HOLDERS] 15 EX-4.(B) 3 INDENTURE DATED MAY 22, 1998 EXHIBIT 4(B) - -------------------------------------------------------------------------------- UNITED RENTALS, INC. as the Company and THE SUBSIDIARIES NAMED HEREIN as Guarantors to STATE STREET BANK AND TRUST COMPANY as Trustee _____________________ Indenture Dated as of May 22, 1998 _____________________ $200,000,000 91/2% Senior Subordinated Notes due 2008, Series A $200,000,000 91/2% Senior Subordinated Notes due 2008, Series B - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- ARTICLE I Definitions and Other Provisions of General Application SECTION 1.1 Definitions........................................... 2 Acquired Indebtedness........................................... 3 Act............................................................. 3 Affiliate....................................................... 3 Asset Acquisition............................................... 3 Asset Sale...................................................... 3 Asset Sale Offer................................................ 4 Asset Sale Offer Price.......................................... 4 Asset Sale Purchase Date........................................ 4 Authenticating Agent............................................ 4 Average Life to Stated Maturity................................. 4 Board of Directors.............................................. 4 Board Resolution................................................ 4 Business Day.................................................... 5 Capital Stock................................................... 5 Capitalized Lease Obligation.................................... 5 Cash Equivalents................................................ 5 Cedel........................................................... 6 Change of Control............................................... 6 Change of Control Offer......................................... 7 Change of Control Purchase Date................................. 7 Change of Control Purchase Price................................ 7 Code............................................................ 8 Commission...................................................... 8 Common Stock.................................................... 8 Company......................................................... 8 Company Request................................................. 8 Company Order................................................... 8 Consolidated Cash Flow Available for Fixed Charges.............. 8 Consolidated Fixed Charge Coverage Ratio........................ 9 Consolidated Fixed Charges...................................... 10 Consolidated Income Tax Expense................................. 10 Consolidated Interest Expense................................... 10
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Page ---- Consolidated Net Income......................................... 10 Consolidated Non-cash Charges................................... 11 Consolidated Rental Payments.................................... 11 control......................................................... 12 Corporate Trust Office.......................................... 12 corporation..................................................... 12 Covenant Defeasance............................................. 12 Credit Facility................................................. 12 Default......................................................... 13 Defeasance...................................................... 13 Depository...................................................... 13 Designated Guarantor Senior Indebtedness........................ 13 Designated Senior Indebtedness.................................. 13 Disinterested Member of the Board of Directors of the Company................................... 13 Distribution Compliance Period.................................. 14 Euroclear....................................................... 14 Event of Default................................................ 14 Excess Proceeds................................................. 14 Exchange Act.................................................... 14 Exchange Securities............................................. 14 Expiration Date................................................. 14 Fair Market Value............................................... 14 GAAP............................................................ 14 Global Securities............................................... 15 guarantee....................................................... 15 Guarantor Senior Indebtedness................................... 15 Guarantor Subordinated Indebtedness............................. 16 Guaranty........................................................ 16 Guaranty Obligations............................................ 16 Holder.......................................................... 16 Indebtedness.................................................... 16 Indenture....................................................... 18 Initial Purchasers.............................................. 18 Initial Securities.............................................. 18 Interest Payment Date........................................... 18 Interest Rate Protection Agreement.............................. 18 Interest Rate Protection Obligations............................ 19 Investment...................................................... 19 Issue Date...................................................... 19 Lien............................................................ 19
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Page ---- Maturity Date................................................... 19 Merrill Lynch................................................... 19 Moody's......................................................... 19 Net Cash Proceeds............................................... 19 Non-U.S. Person................................................. 20 Notice of Default............................................... 20 Offer........................................................... 20 Offer to Purchase............................................... 20 Offering Memorandum............................................. 23 Officer's Certificate........................................... 23 144A Global Security............................................ 23 Opinion of Counsel.............................................. 23 Outstanding..................................................... 23 Paying Agent.................................................... 25 Permitted Holder................................................ 25 Permitted Indebtedness.......................................... 25 Permitted Investments........................................... 28 Permitted Liens................................................. 29 Person.......................................................... 31 Preferred Stock................................................. 31 Private Placement Legend........................................ 32 Public Equity Offering.......................................... 32 Purchase Amount................................................. 32 Purchase Date................................................... 32 Qualified Equity Interest....................................... 32 Qualified Institutional Buyer................................... 32 QIB............................................................. 32 Record Expiration Date.......................................... 32 Redeemable Capital Stock........................................ 32 Redemption Date................................................. 33 Redemption Price................................................ 33 Registrable Securities.......................................... 33 Registration Rights Agreement................................... 33 Regular Record Date............................................. 33 Regulation S.................................................... 33 Regulation S Global Security.................................... 33 Replacement Assets.............................................. 33 Required Filing Dates........................................... 33 Responsible Officer............................................. 33 Restricted Payments............................................. 34 Restricted Security............................................. 34
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Page ---- Restricted Subsidiary........................................... 34 Revocation...................................................... 34 Rule 144A....................................................... 34 S&P............................................................. 34 Securities...................................................... 34 Securities Act.................................................. 34 Security Register............................................... 34 Security Registrar.............................................. 34 Senior Indebtedness............................................. 34 Significant Subsidiary.......................................... 35 Special Record Date............................................. 35 Stated Maturity................................................. 36 Subordinated Indebtedness....................................... 36 Subsidiary...................................................... 36 Tangible Assets................................................. 36 Trustee......................................................... 36 Trust Indenture Act............................................. 37 Unrestricted Securities......................................... 37 Unrestricted Subsidiary......................................... 37 U.S. Government Obligation...................................... 37 Vice President.................................................. 37 Voting Stock.................................................... 37 Wholly-Owned Restricted Subsidiary.............................. 37 SECTION 1.2 Compliance Certificates and Opinions.............................................. 38 SECTION 1.3 Form of Documents Delivered to Trustee............................................... 38 SECTION 1.4 Acts of Holders; Record Dates......................... 39 SECTION 1.5 Notices to Trustee, the Company or a Guarantor............................................. 42 SECTION 1.6 Notice to Holders; Waiver............................. 43 SECTION 1.7 Conflict with Trust Indenture Act..................... 44 SECTION 1.8 Effect of Headings and Table of Contents.............. 44 SECTION 1.9 Successors and Assigns................................ 44 SECTION 1.10 Separability Clause................................... 44 SECTION 1.11 Benefits of Indenture................................. 44 SECTION 1.12 Governing Law......................................... 44 SECTION 1.13 Legal Holidays........................................ 45
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Page ---- ARTICLE II Security Forms SECTION 2.1 Forms Generally....................................... 45 ARTICLE III The Securities SECTION 3.1 Title and Terms....................................... 45 SECTION 3.2 Denominations......................................... 47 SECTION 3.3 Execution, Authentication, Delivery and Dating............................................ 47 SECTION 3.4 Temporary Securities.................................. 48 SECTION 3.5 Registration, Registration of Transfer and Exchange.......................................... 49 SECTION 3.6 Mutilated, Destroyed, Lost and Stolen Securities..................................... 50 SECTION 3.7 Payment of Interest; Rights Preserved............................................. 51 SECTION 3.8 Persons Deemed Owners................................. 53 SECTION 3.9 Cancellation.......................................... 53 SECTION 3.10 Computation of Interest............................... 54 SECTION 3.11 CUSIP and CINS Numbers................................ 54 SECTION 3.12 Deposits of Monies.................................... 54 SECTION 3.13 Book-Entry Provisions for Global Securities........... 55 SECTION 3.14 Special Transfer Provisions........................... 56 ARTICLE IV Satisfaction and Discharge SECTION 4.1 Satisfaction and Discharge of Indenture............................................. 60 SECTION 4.2 Application of Trust Money............................ 62 ARTICLE V Remedies SECTION 5.1 Events of Default..................................... 62 SECTION 5.2 Acceleration of Maturity; Rescission and Annulment.............................. 65
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Page ---- SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee...................... 66 SECTION 5.4 Trustee May File Proofs of Claim...................... 68 SECTION 5.5 Trustee May Enforce Claims Without Possession of Securities...................... 68 SECTION 5.6 Application of Money Collected........................ 69 SECTION 5.7 Limitation on Suits................................... 69 SECTION 5.8 Unconditional Right of Holders to Receive Principal, Premium and Interest.............................................. 70 SECTION 5.9 Restoration of Rights and Remedies.................... 71 SECTION 5.10 Rights and Remedies Cumulative........................ 71 SECTION 5.11 Delay or Omission Not Waiver.......................... 71 SECTION 5.12 Control by Holders.................................... 72 SECTION 5.13 Waiver of Past Defaults............................... 72 SECTION 5.14 Undertaking for Costs................................. 72 SECTION 5.15 Waiver of Stay or Extension Laws...................... 73 ARTICLE VI The Trustee SECTION 6.1 Certain Duties and Responsibilities...................................... 74 SECTION 6.2 Notice of Defaults.................................... 75 SECTION 6.3 Certain Rights of Trustee............................. 75 SECTION 6.4 Not Responsible for Recitals or Issuance of Securities............................................ 77 SECTION 6.5 May Hold Securities................................... 77 SECTION 6.6 Money Held in Trust................................... 78 SECTION 6.7 Compensation and Reimbursement........................ 78 SECTION 6.8 Conflicting Interests................................. 79 SECTION 6.9 Corporate Trustee Required; Eligibility........................................... 79 SECTION 6.10 Resignation and Removal; Appointment of Successor.............................. 80 SECTION 6.11 Acceptance of Appointment by Successor................ 82 SECTION 6.12 Merger, Conversion, Consolidation or Succession to Business............................. 82 SECTION 6.13 Preferential Collection of Claims Against the Company............................................... 83
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Page ---- SECTION 6.14 Appointment of Authenticating Agent................................................. 83 ARTICLE VII Holders' Lists and Reports by Trustee and Company SECTION 7.1 Company to Furnish Trustee Names and Addresses of Holders........................ 85 SECTION 7.2 Preservation of Information; Communications to Holders............................. 86 SECTION 7.3 Reports by Trustee.................................... 86 SECTION 7.4 Reports by Company.................................... 86 ARTICLE VIII Consolidation, Merger, Conveyance, Transfer or Lease SECTION 8.1 Company or Guarantor May Consolidate, Etc. Only on Certain Terms............................ 87 SECTION 8.2 Successor Substituted................................. 89 ARTICLE IX Amendments; Waivers; Supplemental Indentures SECTION 9.1 Amendments, Waivers and Supplemental Indentures Without Consent of Holders................. 90 SECTION 9.2 Modifications, Amendments and Supplemental Indentures with Consent of Holders.................... 91 SECTION 9.3 Execution of Supplemental Indentures............................................ 93 SECTION 9.4 Effect of Supplemental Indentures..................... 93 SECTION 9.5 Conformity with Trust Indenture Act................................................... 93 SECTION 9.6 Reference in Securities to Supplemental Indentures............................... 93 SECTION 9.7 Waiver of Certain Covenants........................... 94 SECTION 9.8 No Liability for Certain Persons...................... 94
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Page ---- ARTICLE X Covenants SECTION 10.1 Payment of Principal, Premium and Interest.......................................... 95 SECTION 10.2 Maintenance of Office or Agency....................... 95 SECTION 10.3 Money for Security Payments to be Held in Trust......................................... 96 SECTION 10.4 Existence; Activities................................. 97 SECTION 10.5 Maintenance of Properties............................. 98 SECTION 10.6 Payment of Taxes and Other Claims..................... 98 SECTION 10.7 Maintenance of Insurance.............................. 98 SECTION 10.8 Limitation on Indebtedness............................ 99 SECTION 10.9 Limitation on Restricted Payments..................... 100 SECTION 10.10 Limitation on Preferred Stock of Restricted Subsidiaries.......................................... 104 SECTION 10.11 Limitation on Transactions with Affiliates............ 104 SECTION 10.12 Limitation on Liens................................... 105 SECTION 10.13 Change of Control..................................... 106 SECTION 10.14 Disposition of Proceeds of Asset Sales................................................. 107 SECTION 10.15 Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries.......................................... 110 SECTION 10.16 Limitation on Issuance of Subordinated Indebtedness............................. 111 SECTION 10.17 Additional Subsidiary Guarantees...................... 111 SECTION 10.18 Limitations on Designation of Unrestricted Subsidiaries.......................................... 112 SECTION 10.19 Provision of Financial Information........................................... 114 SECTION 10.20 Statement by Officers as to Default; Compliance Certificates...................... 114
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Page ---- ARTICLE XI Redemption of Securities SECTION 11.1 Right of Redemption................................... 115 SECTION 11.2 Applicability of Article.............................. 115 SECTION 11.3 Election to Redeem; Notice to Trustee............................................... 115 SECTION 11.4 Selection by Trustee of Securities to Be Redeemed............................. 116 SECTION 11.5 Notice of Redemption.................................. 116 SECTION 11.6 Deposit of Redemption Price........................... 117 SECTION 11.7 Securities Payable on Redemption Date.................................................. 118 SECTION 11.8 Securities Redeemed in Part........................... 118 ARTICLE XII Defeasance and Covenant Defeasance SECTION 12.1 Company's Option to Effect Defeasance or Covenant Defeasance..................... 119 SECTION 12.2 Defeasance and Discharge.............................. 119 SECTION 12.3 Covenant Defeasance................................... 120 SECTION 12.4 Conditions to Defeasance or Covenant Defeasance................................... 120 SECTION 12.5 Deposited Money and U.S. Government Obligations to Be Held in Trust; Miscellaneous Provisions............................................ 123 SECTION 12.6 Reinstatement......................................... 124 ARTICLE XIII Guaranty SECTION 13.1 Guaranty.............................................. 125 SECTION 13.2 Limitation on Liability............................... 128 SECTION 13.3 Execution and Delivery of Guarantees............................................ 128 SECTION 13.4 Guarantors May Consolidate, Etc., on Certain Terms...................................... 129 SECTION 13.5 Release of Guarantors................................. 130 SECTION 13.6 Successors and Assigns................................ 130
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Page ---- SECTION 13.7 No Waiver, etc........................................ 131 SECTION 13.8 Modification, etc..................................... 131 SECTION 13.9 Subordination of Guarantees........................... 131 ARTICLE XIV Subordination SECTION 14.1 Securities Subordinate to Senior and Senior to Indebtedness Subordinated Indebtedness............................. 132 SECTION 14.2 Payment Over of Proceeds Upon Dissolution, Etc................................................... 132 SECTION 14.3 No Payment When Designated Senior Indebtedness in Default............................... 133 SECTION 14.4 Subrogation to Rights of Holders of Senior Indebtedness................................ 134 SECTION 14.5 Provisions Solely to Define Relative Rights....................................... 135 SECTION 14.6 Trustee to Effectuate Subordination......................................... 136 SECTION 14.7 No Waiver of Subordination Provisions............................................ 136 SECTION 14.8 Notice to Trustee..................................... 137 SECTION 14.9 Reliance on Judicial Order or Certificate of Liquidating Agent...................... 137 SECTION 14.10 Trustee Not Fiduciary for Holders of Senior Indebtedness................................ 138 SECTION 14.11 Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights................................... 138 SECTION 14.12 Article Applicable to Paying Agents................................................ 138
Schedule A The Guarantors Exhibit A-1 Form of Security Exhibit A-2 Form of Series B Security Exhibit B Global Securities Legend Exhibit C Transfer Letter Exhibit D Form of Notation on Security Relating to Guaranty ________________ NOTE: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. x Page ---- ________________ NOTE: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. xi INDENTURE, dated as of May 22, 1998, between United Rentals, Inc., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company"), having its principal office at Four Greenwich Office Park, Greenwich, Connecticut 06830, the Subsidiaries of the Company named in Schedule A (herein called the "Guarantors") and State Street Bank and Trust ---------- Company, a Massachusetts chartered trust company having its principal office at Two International Place, Boston, MA 02110, as trustee (herein called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the creation of an issue of 9 1/2% Senior Subordinated Notes due 2008 (the "Securities") of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. Each Guarantor desires to make the Guaranty provided herein and has duly authorized the execution and delivery of this Indenture. All things necessary to make the Securities, when executed by the Company, authenticated and delivered hereunder and duly issued by the Company, and each Guaranty, when executed and delivered hereunder by each Guarantor, the valid obligations of the Company and each Guarantor, and to make this Indenture a valid agreement of the Company and each Guarantor, in accordance with their and its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders (as defined herein) thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE I Definitions and Other Provisions of General Application SECTION 1.1 Definitions. ----------- For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP (whether or not such is indicated herein); (4) unless the context otherwise requires, any reference to an "Article" or a "Section" refers to an Article or Section, as the case may be, of this Indenture; (5) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; and (6) each reference herein to a rule or form of the Commission shall mean such rule or form and any rule or form successor thereto, in each case as amended from time to time. Whenever this Indenture requires that a particular ratio or amount be calculated with respect to a specified period after giving effect to certain transactions or events on a pro forma basis, such calculation shall be made as if the transactions or events occurred 2 on the first day of such period, unless otherwise specified. "Acquired Indebtedness" means Indebtedness of a Person (a) assumed in --------------------- connection with an Asset Acquisition from such Person or (b) existing at the time such Person becomes a Subsidiary of any other Person and not incurred in connection with, or in contemplation of, such Asset Acquisition or such Person becoming a Subsidiary. "Act," when used with respect to any Holder, has the meaning specified --- in Section 1.4. "Affiliate" means, with respect to any specified Person, (i) any other --------- Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person, (ii) any other Person that owns, directly or indirectly, 10% or more of such specified Person's Capital Stock, (iii) any officer or director of (A) any such specified Person, (B) any Subsidiary of such specified Person or (C) any Person described in clauses (i) or (ii) above. "Asset Acquisition" means (a) an Investment by the Company or any ----------------- Restricted Subsidiary of the Company in any other Person pursuant to which such Person shall become a Restricted Subsidiary of the Company or any Restricted Subsidiary of the Company, or shall be merged with or into the Company or any Restricted Subsidiary of the Company, or (b) the acquisition by the Company or any Restricted Subsidiary of the Company of the assets of any Person which constitute all or substantially all of the assets of such Person, any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business. "Asset Sale" means any sale, issuance, conveyance, transfer, lease or ---------- other disposition by the Company or any Restricted Subsidiary of the Company to any Person other than the Company or a Restricted Subsidiary of the Company, of (a) any Capital Stock of any Restricted Subsidiary of the Company; (b) all or substantially all of the properties and assets of any division or line of business of the Company or any Restricted Subsidiary of the Company; or (c) any other 3 properties or assets of the Company or any Restricted Subsidiary of the Company, other than (i) sales of obsolete, damaged or used equipment or other equipment or inventory sales in the ordinary course of business, (ii) sales of assets in one or a series of related transactions for an aggregate consideration of less than $1,000,000, (iii) sales of Permitted Investments, and (iv) sales of accounts receivable for financing purposes. For the purposes of this definition, the term "Asset Sale" shall not include any sale, issuance, conveyance, transfer, lease or other disposition of properties or assets that is governed by the provisions of Article VIII. "Asset Sale Offer" has the meaning specified in Section 10.14. ---------------- "Asset Sale Offer Price" has the meaning specified in Section 10.14. ---------------------- "Asset Sale Purchase Date" has the meaning specified in Section 10.14. ------------------------ "Authenticating Agent" means any Person authorized by the Trustee -------------------- pursuant to Section 6.14 hereof to act on behalf of the Trustee to authenticate Securities. "Average Life to Stated Maturity" means, with respect to any ------------------------------- Indebtedness, as at any date of determination, the quotient obtained by dividing (i) the sum of the products of (a) the number of years from such date to the date or dates of each successive scheduled principal payment (including, without limitation, any sinking fund requirements) of such Indebtedness and (b) the amount of each such principal payment by (ii) the sum of all such principal payments. "Board of Directors" means the board of directors of a company or its ------------------ equivalent, including managers of a limited liability company, general partners of a partnership or trustees of a business trust, or any duly authorized committee thereof. "Board Resolution" means a copy of a resolution certified by the ---------------- Secretary or an Assistant Secretary of a company to have been duly adopted by the Board of Directors of such company and to be in full force and 4 effect on the date of such certification, and delivered to the Trustee. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and ------------ Friday which is not a day on which banking institutions in the Borough of Manhattan, The City of New York or Hartford, Connecticut are authorized or obligated by law or executive order to close. "Capital Stock" means, with respect to any Person, any and all shares, ------------- interests, participations, rights in or other equivalents (however designated) of such Person's capital stock or equity participations, and any rights (other than debt securities convertible into capital stock), warrants or options exchangeable for or convertible into such capital stock and, including, without limitation, with respect to partnerships, limited liability companies or business trusts, ownership interests (whether general or limited) and any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, such partnerships, limited liability companies or business trusts. "Capitalized Lease Obligation" means any obligation under a lease of --------------------------- (or other agreement conveying the right to use) any property (whether real, personal or mixed) that is required to be classified and accounted for as a capital lease obligation under GAAP, and, for the purpose of this Indenture, the amount of such obligation at any date shall be the capitalized amount thereof at such date, determined in accordance with GAAP. "Cash Equivalents" means, at any time, (i) any evidence of ---------------- Indebtedness, 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 rated at least A-1 by S&P or P-1 by Moody's, (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 5 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 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 commercial banking institution thereunder, and (e) investments in short term asset management accounts managed by any bank party to the Credit Facility which are invested in indebtedness of any state or municipality of the United States or of the District of Columbia and which are rated under one of the two highest ratings then obtainable from S&P or by Moody's or investments of the types described in clauses (a) through (d) above, and (f) investments in funds investing primarily in investments of the types described in clauses (a) through (e) above. "Cedel" means Cedel Bank, Societe anonyme. ----- ------- ------- "Change of Control" means the occurrence of any of the following ----------------- events: (a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), excluding Permitted Holders, is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the total Voting Stock of the Company; provided, -------- however, that a "Change of Control" shall not be deemed to have occurred under - ------- this subclause (a) unless the Permitted Holders do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors of the Company; (b) the Company consolidates with, or merges with or into, another Person or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person, or any Person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which the outstanding Voting Stock of the Company is converted into or exchanged for cash, securi- 6 ties or other property, other than any such transaction where (i) the outstanding Voting Stock of the Company is converted into or exchanged for Voting Stock (other than Redeemable Capital Stock) of the surviving or transferee corporation and (ii) immediately after such transaction no "person" or "group" (as such terms are used in Section 13(d) and 14(d) of the Exchange Act), excluding Permitted Holders, is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the total Voting Stock of the surviving or transferee corporation; (c) during any consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of 66-2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; or (d) the Company is liquidated or dissolved or adopts a plan of liquidation; provided, however, that a transaction --------- ------- effected to create a holding company of the Company, pursuant to which the Company becomes a wholly-owned Subsidiary of such holding company, and as result of which the holders of Voting Stock of such holding company upon consummation of such transaction are substantially the same as the holders of the Voting Stock of the Company immediately prior to such transaction, shall not be deemed to involve a "Change of Control." "Change of Control Offer" has the meaning specified in Section 10.13. ----------------------- "Change of Control Purchase Date" has the meaning specified in Section ------------------------------- 10.13. "Change of Control Purchase Price" has the meaning specified in -------------------------------- Section 10.13. 7 "Code" means the Internal Revenue Code of 1986, as amended from time ---- to time, and the rules and regulations thereunder. "Commission" means the Securities and Exchange Commission, as from ---------- time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" means the common stock of the Company, par value $.01 ------------ per share. "Company" means the Person named as the "Company" in the first ------- paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture and thereafter "Company" shall mean such successor Person. "Company Request" or "Company Order" means a written request or order --------------- signed in the name of the Company by its Chairman of the Board, its Chief Executive Officer, its Chief Financial Officer, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee or Paying Agent, as applicable. "Consolidated Cash Flow Available for Fixed Charges" means, with -------------------------------------------------- respect to any Person for any period, (i) the sum of, without duplication, the amounts for such period, taken as a single accounting period, of (a) Consolidated Net Income, (b) Consolidated Non-cash Charges, (c) Consolidated Interest Expense, (d) Consolidated Income Tax Expense (other than income tax expense (either positive or negative) attributable to extraordinary gains or losses), (e) one-third of Consolidated Rental Payments, and (f) if any Asset Sale or Asset Acquisition shall have occurred since the first day of any four quarter period for which "Consolidated Cash Flow Available for Fixed Charges" is being calculated (including to the date of calculation) (A) the cost of any compensation, remuneration or other benefit paid or provided to any employee, consultant, Affiliate or equity owner of the entity involved in any such Asset Acquisition to the extent such costs are eliminated or re- 8 duced (or public announcement has been made of the intent to eliminate or reduce such costs) prior to the date of such calculation and not replaced and (B) the amount of any reduction in general, administrative or overhead costs of the entity involved in any such Asset Acquisition or Asset Sale, to the extent such amounts under clauses (A) and (B) would be permitted to be eliminated in a pro forma income statement prepared in accordance with Rule 11-02 of Regulation S-X, less (ii)(x) non-cash items increasing Consolidated Net Income and (y) all cash payments during such period relating to non-cash charges that were added back in determining Consolidated Cash Flow Available for Fixed Charges in the most recent Four Quarter Period (as defined in the definition of "Consolidated Fixed Charge Coverage Ratio"). "Consolidated Fixed Charge Coverage Ratio" means, with respect to any ---------------------------------------- Person, the ratio of the aggregate amount of Consolidated Cash Flow Available for Fixed Charges of such Person for the four full fiscal quarters, treated as one period, for which financial information in respect thereof is available immediately preceding the date of the transaction (the "Transaction Date") giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (such four full fiscal quarter period being referred to herein as the "Four Quarter Period") to the aggregate amount of Consolidated Fixed Charges of such Person for the Four Quarter Period. In calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (i) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; and (ii) if interest on any Indebtedness actually incurred on the Transaction Date may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rates, then the interest rate in effect on the Transaction Date will be deemed to have been in effect during the Four Quarter Period. If such Person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, the above clause shall give 9 effect to the incurrence of such guaranteed Indebtedness as if such Person or such Subsidiary had directly incurred or otherwise assumed such guaranteed Indebtedness. "Consolidated Fixed Charges" means, with respect to any Person for any -------------------------- period, the sum of, without duplication, the amounts for such period of (i) Consolidated Interest Expense, (ii) the aggregate amount of dividends and other distributions paid or accrued during such period in respect of Redeemable Capital Stock of such Person and its Restricted Subsidiaries on a consolidated basis and (iii) one-third of Consolidated Rental Payments. "Consolidated Income Tax Expense" means, with respect to any Person ------------------------------- for any period, the provision for federal, state, local and foreign income taxes of such Person and its Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Interest Expense" means, with respect to any Person for ----------------------------- any period, without duplication, the sum of (i) the interest expense of such Person and its Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP, including, without limitation, (a) any amortization of debt discount, (b) the net cost under Interest Rate Protection Obligations (including any amortization of discounts), (c) the interest portion of any deferred payment obligation, (d) all commissions, discounts and other fees and charges owed with respect to letters of credit, bankers' acceptance financing or similar facilities and (e) all accrued interest and (ii) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person and its Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person, for any ----------------------- period, the consolidated net income (or loss) of such Person and its Restricted Subsidiaries for such period as determined in accordance with GAAP, adjusted, to the extent included in calculating such net income, by excluding, without duplication, 10 (i) all extraordinary gains or losses (net of fees and expenses relating to the transaction giving rise thereto), (ii) the portion of net income of such Person and its Restricted Subsidiaries allocable to minority interests in unconsolidated Persons or to Investments in Unrestricted Subsidiaries to the extent that cash dividends or distributions have not actually been received by such Person or one of its Restricted Subsidiaries, (iii) net income (or loss) of any Person combined with such Person or one of its Restricted Subsidiaries on a "pooling of interests" basis attributable to any period prior to the date of combination, (iv) gains or losses in respect of any Asset Sales by such Person or one of its Restricted Subsidiaries (net of fees and expenses relating to the transaction giving rise thereto), on an after-tax basis, (v) the net income of any Restricted Subsidiary of such Person to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is not at the time permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulations applicable to that Restricted Subsidiary or its stockholders and (vi) any gain or loss realized as a result of the cumulative effect of a change in accounting principles. "Consolidated Non-cash Charges" means, with respect to any Person for ----------------------------- any period, the aggregate depreciation, amortization (including amortization of goodwill and other intangibles) and other non-cash expenses of such Person and its Restricted Subsidiaries reducing Consolidated Net Income of such Person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP (excluding any such charges constituting an extraordinary item or loss). "Consolidated Rental Payments" of any Person means, for any period, ---------------------------- the aggregate rental obligations of such Person and its Restricted Subsidiaries (not including taxes, insurance, maintenance and similar expenses that the lessee is obligated to pay under the terms of the relevant leases), determined on a consolidated basis in accordance with GAAP, payable in respect of such period (net of income from subleases thereof, not including taxes, insurance, maintenance and similar 11 expenses that the sublessee is obligated to pay under the terms of such sublease), whether or not such obligations are reflected as liabilities or commitments on a consolidated balance sheet of such Person and its Restricted Subsidiaries or in the notes thereto, excluding, however, in any event, (i) that --------- ------- portion of Consolidated Interest Expense of such Person representing payments by such Person or any of its Restricted Subsidiaries in respect of Capitalized Lease Obligations (net of payments to such Person or any of its Restricted Subsidiaries under subleases qualifying as capitalized lease subleases to the extent that such payments would be deducted in determining Consolidated Interest Expense) and (ii) the aggregate amount of amortization of obligations of such Person and its Restricted Subsidiaries in respect of such Capitalized Lease Obligations for such period (net of payments to such Person or any of its Restricted Subsidiaries and subleases qualifying as capitalized lease subleases to the extent that such payments could be deducted in determining such amortization amount). "control" when used with respect to any specified Person means the ------- power to direct the management and policies of such Person, directly or indirectly, whether through ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Corporate Trust Office" means the office of the Trustee at which at ---------------------- any particular time its corporate trust business shall be administered, which address as of the date of this Indenture is located at Goodwin Square, 23/rd/ Floor, 225 Asylum Street, Hartford, CT 06103, Attention: Corporate Trust, Administration. "corporation" means (except in the definition of "Subsidiary") a ----------- corporation, association, company, joint-stock company or business trust. "Covenant Defeasance" has the meaning specified in Section 12.3. ------------------- "Credit Facility" means the Third Amended and Restated Credit --------------- Agreement dated as of May 12, 1998 among the Company, United Rentals of Canada, Inc., various financial institutions, BankBoston, N.A., Comerica Bank, 12 Credit Lyonnais New York Branch, Deutsche Bank AG and Fleet Bank N.A., as Co- Agents, Bank of America Canada, as Canadian Agent, and Bank of America National Trust and Savings Association, as U.S. Agent, including any notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended (including any amendment and restatement thereof), modified, renewed, refunded, replaced or refinanced from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including increasing the amount of available borrowings thereunder or adding Subsidiaries of the Company as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agents, lender or group of lenders. "Default" means any event that is, or after notice or passage of time, ------- or both, would be, an Event of Default. "Defeasance" has the meaning specified in Section 12.2. ---------- "Depository" means The Depositary Trust Company, or its successor. ---------- "Designated Guarantor Senior Indebtedness" means, with respect to a ---------------------------------------- Guarantor, amounts owing by such Guarantor under the Credit Facility and guarantees by such Guarantor of Designated Senior Indebtedness. "Designated Senior Indebtedness" means (i) all Indebtedness under the ------------------------------ Credit Facility and (ii) any other issue of Senior Indebtedness which (a) at the time of the determination is equal to or greater than $25,000,000 in aggregate principal amount and (b) is specifically designated by the Company in the instrument evidencing such Senior Indebtedness as "Designated Senior Indebtedness." "Disinterested Member of the Board of Directors of the Company" means, ------------------------------------------------------------- with respect to any transaction or series of transactions, a member of the Board of Directors of the Company other than a member who has any material direct or indirect financial interest in or 13 with respect to such transaction or series of transactions or who is an Affiliate, officer, director or an employee of any Person (other than the Company) who has any direct or indirect financial interest in or with respect to such transaction or series of transactions. "Distribution Compliance Period" has the meaning set forth in Section ------------------------------ 3.14. "Euroclear" means Morgan Guaranty Trust Company of New York, Brussels --------- Office, as operator of the Euroclear System. "Event of Default" has the meaning specified in Section 5.1. ---------------- "Excess Proceeds" has the meaning specified in Section 10.14. --------------- "Exchange Act" means the Securities Exchange Act of 1934, as amended. ------------ "Exchange Securities" has the meaning specified in the form of the ------------------- Security in Exhibit A. "Expiration Date" shall have the meaning set forth in the definition --------------- of "Offer to Purchase." "Fair Market Value" means, with respect to any asset, the price which ----------------- could be negotiated in an arm's-length free market transaction, for cash, between a willing seller and a willing buyer, neither of which is under pressure or compulsion to complete the transaction. Fair Market Value shall be determined by the Board of Directors of the Company in good faith. "Federal Bankruptcy Code" means Title 11, U.S. Code. ----------------------- "GAAP" means generally accepted accounting principles set forth in the ---- opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the ac- 14 counting profession of the United States of America, which are applicable at the date of the Indenture. "Global Securities" means one or more Regulation S Global Securities ----------------- and 144A Global Securities. "guarantee" means, as applied to any obligation, (i) a guarantee --------- (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of such obligation and (ii) an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of nonperformance) of all or any part of such obligation, including, without limiting the foregoing, the payment of amounts available to be drawn down under letters of credit of another Person. The term "guarantee" used as a verb has a corresponding meaning. The term "guarantor" shall mean any Person providing a guarantee of any obligation. "Guarantor Senior Indebtedness" of a Guarantor means the principal of, ----------------------------- premium, if any, and interest on any Indebtedness of such Guarantor, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Notes or such Guarantor's Guaranty. Without limiting the generality of the foregoing, (x) "Guarantor Senior Indebtedness" shall include the principal of, premium, if any, and interest on all obligations of every nature of such Guarantor from time to time owed to the lenders under the Credit Facility, including, without limitation, principal of and interest on, and all fees, indemnities and expenses payable under the Credit Facility, and (y) in the case of Designated Senior Indebtedness, "Guarantor Senior Indebtedness" shall include interest accruing thereon subsequent to the occurrence of any Event of Default specified in clause (7) or (8) of Section 5.1 relating to such Guarantor, whether or not the claim for such interest is allowed under any applicable Bankruptcy Code. Notwithstanding the foregoing, "Guarantor Senior Indebtedness" shall not include (a) Indebtedness evidenced by the 15 Notes or the Guarantees, (b) Indebtedness that is expressly subordinate or junior in right of payment to any Indebtedness of such Guarantor, (c) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to such Guarantor, (d) Indebtedness which is represented by Redeemable Capital Stock, (e) Indebtedness for goods, materials or services purchased in the ordinary course of business or Indebtedness consisting of trade payables or other current liabilities (other than any current liabilities owing under the Credit Facility, or the current portion of any long-term Indebtedness which would constitute Guarantor Senior Indebtedness but for the operation of this clause (e)), (f) Indebtedness of or amounts owed by such Guarantor for compensation to employees or for services rendered to such Guarantor, (g) any liability for federal, state, local or other taxes owed or owing by such Guarantor, (h) Indebtedness of such Guarantor to the Company or a Subsidiary of the Company or any other Affiliate of the Company or any of such Affiliate's Subsidiaries, (i) that portion of any Indebtedness which is incurred by such Guarantor in violation of this Indenture and (j) amounts owing under leases. "Guarantor Subordinated Indebtedness" means, with respect to a ----------------------------------- Guarantor, indebtedness and other obligations of such Guarantor which are expressly subordinated in right of payment to such Guarantor's Guaranty. "Guaranty" means each guaranty of the Securities contained in Article -------- XIII given by each Guarantor. "Guaranty Obligations" means, with respect to each Guarantor, the -------------------- obligations of such Guarantor under Article XIII. "Holder" means a Person in whose name a Security is registered in the ------ Security Register. "Indebtedness" means, with respect to any Person, without duplication, ------------ (a) all liabilities of such Person for borrowed money or for the deferred purchase price of property or services, excluding any trade payables and other accrued current liabilities incurred in the ordinary course of business, but including, with- 16 out limitation, all obligations, contingent or otherwise, of such Person in connection with any letters of credit, banker's acceptance or other similar credit transaction, (b) all obligations of such Person evidenced by bonds, notes, debentures or other similar instruments, (c) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even if the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), but excluding trade accounts payable arising in the ordinary course of business, (d) all Capitalized Lease Obligations of such Person, (e) all Indebtedness referred to in the preceding clauses of other Persons and all dividends of other Persons, the payment of which is secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness (the amount of such obligation being deemed to be the lesser of the value of such property or asset or the amount of the obligation so secured), (f) all guarantees of Indebtedness referred to in this definition by such Person, (g) all Redeemable Capital Stock of such Person valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued dividends, (h) all obligations under or in respect of Interest Rate Protection Obligations of such Person, and (i) any amendment, supplement, modification, deferral, renewal, extension, refinancing or refunding of any liability of the types referred to in clauses (a) through (h) above; provided, however, that Indebtedness shall not include (i) any holdback or - -------- ------- escrow of the purchase price of property, services, businesses or assets or (ii) any contingent payment obligations incurred in connection with the acquisition of assets or business, which are contingent on the performance of the assets or businesses so acquired. For purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant hereto, and if such price is 17 based upon, or measured by, the fair market value of such Redeemable Capital Stock, such fair market value shall be approved in good faith by the Board of Directors of the issuer of such Redeemable Capital Stock. In the case of Indebtedness of other Persons, the payment of which is secured by a Lien on property owned by a Person as referred to in clause (e) above, the amount of the Indebtedness of such Person attributable to such Lien at any date shall be the lesser of the Fair Market Value at such date of any asset subject to such Lien and the amount of the Indebtedness secured. "Indenture" means this instrument as originally executed or as it may --------- from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively. "Initial Purchasers" means Merrill Lynch, Donaldson, Lufkin & Jenrette ------------------ Securities Corporation, Goldman, Sachs & Co., Salomon Brothers Inc and BancAmerica Robertson Stephens. "Initial Securities" means the 92% Senior Subordinated Notes due 2008, ------------------ Series A, of the Company. "Interest Payment Date" means the Stated Maturity of an installment of --------------------- interest on the Securities. "Interest Rate Protection Agreement" means, with respect to any ---------------------------------- Person, any arrangement with any other Person whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such Person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements. 18 "Interest Rate Protection Obligations" means the obligations of any ------------------------------------ Person pursuant to any Interest Rate Protection Agreements. "Investment" means, with respect to any Person, any direct or indirect ---------- loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any other Person. "Issue Date" means the original date of issuance of the Initial ---------- Securities. "Lien" means any mortgage, charge, pledge, lien (statutory or other), ---- security interest, hypothecation, assignment for security, claim, or preference or priority or other encumbrance upon or with respect to any property of any kind. A Person shall be deemed to own subject to a Lien any property which such Person has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement. "Maturity Date" means June 1, 2008. ------------ "Merrill Lynch" means Merrill Lynch, Pierce, Fenner & Smith ------------- Incorporated. "Moody's" means Moody's Investors Service, Inc. and its successors. ------- "Net Cash Proceeds" means, with respect to any Asset Sale, the ----------------- proceeds thereof in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (except to the extent that such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary of the Company) net of (i) brokerage commissions and other fees and expenses (including, without limitation, fees and expenses of legal counsel and investment bankers, recording fees, transfer fees and appraisers' fees) related to such 19 Asset Sale, (ii) provisions for all taxes payable as a result of such Asset Sale, (iii) amounts required to be paid to any Person (other than the Company or any Restricted Subsidiary of the Company) owning a beneficial interest in the assets subject to the Asset Sale (iv) payments made to retire Indebtedness where payment of such Indebtedness is secured by the assets or properties the subject of such Asset Sale, and (v) appropriate amounts to be provided by the Company or any Restricted Subsidiary of the Company, as the case may be, as a reserve required in accordance with GAAP against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary of the Company, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as reflected in an Officer's Certificate delivered to the Trustee. "Non-U.S. Person" means a Person that is not a U.S. Person as such --------------- term is defined in Regulation S. "Notice of Default" means a written notice of the kind specified in ----------------- Section 5.2. "Offer" means a Change of Control Offer or an Asset Sale Offer. ----- "Offer to Purchase" means an Offer sent by or on behalf of the Company ----------------- by first-class mail, postage prepaid, to each Holder of Securities at its address appearing in the register for the Securities on the date of the Offer offering to purchase up to the principal amount of Securities specified in such Offer at the purchase price specified in such Offer (as determined pursuant to this Indenture). Unless otherwise provided in Section 10.13 or 10.14 or otherwise required by applicable law, the Offer shall specify an expiration date (the "Expiration Date") of the Offer to Purchase, which shall be not less than --------------- 20 Business Days nor more than 60 days after the date of such Offer (or such later date as may be necessary for the Company to comply with the Exchange Act), and a settlement date (the "Purchase Date") for purchase of Securities to occur ------------- no later than five Business Days after the Expiration Date. The Com- 20 pany shall notify the Trustee at least 15 Business Days (or such shorter period as is acceptable to the Trustee) prior to the mailing of the Offer of the Company's obligation to make an Offer to Purchase, and the Offer shall be mailed by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. The Offer shall contain all the information required by applicable law to be included therein. The Offer shall contain all instructions and materials necessary to enable such Holders to tender Securities pursuant to the Offer to Purchase. The Offer shall also state: (1) the Section of this Indenture pursuant to which the Offer to Purchase is being made; (2) the Expiration Date and the Purchase Date; (3) the purchase price to be paid by the Company for each $1,000 aggregate principal amount of Securities accepted for payment (as specified pursuant to this Indenture) (the "Purchase Price"); and the -------------- amount of accrued and unpaid interest to be paid; (4) that the Holder may tender all or any portion of the Securities registered in the name of such Holder and that any portion of a Security tendered must be tendered in an integral multiple of $1,000 principal amount; (5) the place or places where Securities are to be surrendered for tender pursuant to the Offer to Purchase; (6) that interest on any Security not tendered or tendered but not purchased by the Company pursuant to the Offer to Purchase will continue to accrue; (7) that on the Purchase Date the Purchase Price will become due and payable upon each Security being accepted for payment pursuant to the Offer to Purchase and that inter- 21 est thereon shall cease to accrue on and after the Purchase Date; (8) that each Holder electing to tender all or any portion of a Security pursuant to the Offer to Purchase will be required to surrender such Security at the place or places specified in the Offer prior to the close of business on the Expiration Date (such Security being, if the Company or the Trustee so requires, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by the Holder thereof or his attorney duly authorized in writing); (9) that Holders will be entitled to withdraw all or any portion of Securities tendered if the Company (or its Paying Agent) receives, not later than the close of business on the fifth Business Day next preceding the Expiration Date, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security the Holder tendered, the certificate number of the Security the Holder tendered and a statement that such Holder is withdrawing all or a portion of his tender; (10) that (a) if Securities purchasable at an aggregate Purchase Price less than or equal to the Purchase Amount are duly tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall purchase all such Securities and (b) if Securities purchasable at an aggregate Purchase Price in excess of the Purchase Amount are tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall purchase Securities on a pro rata basis based on the Purchase Price -------- therefor or such other method as the Trustee shall deem fair and appropriate (subject in each case to applicable rules of the Depositary and any securities exchange upon which the Securities may then be listed), with such adjustments as may be deemed appropriate so that only Securities in denominations of 22 $1,000 principal face amount or integral multiples thereof shall be purchased; and (11) that in the case of a Holder whose Security is purchased only in part, the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder, in an aggregate principal amount equal to and in exchange for the unpurchased portion of the Security so tendered. An Offer to Purchase shall be governed by and effected in accordance with the provisions of this Indenture pertaining to the type of Offer to which it relates. "Offering Memorandum" means the Offering Memorandum dated May 19, 1998 ------------------- pursuant to which the Securities were offered, and any supplement thereto. "Officer's Certificate" means a certificate signed by the Chairman of --------------------- the Board, the Chief Executive Officer, the President or a Vice President, the Chief Financial Officer, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. One of the officers signing an Officer's Certificate given pursuant to Section 10.20 shall be the principal executive, financial or accounting officer of the Company. "144A Global Security" means a permanent global security in registered -------------------- form representing the aggregate principal amount of Securities sold in reliance on Rule 144A under the Securities Act. "Opinion of Counsel" means a written opinion of counsel, who may be ------------------ counsel for the Company, and who shall be acceptable to the Trustee. "Outstanding," when used with respect to Securities, means, as of the ----------- date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: ------ 23 (i) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice -------- ---- of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (iii) Securities which have been paid pursuant to Section 3.6 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; and (iv) Securities as to which Defeasance has been effected pursuant to Section 12.2; provided, however, that in determining whether the Holders of the requisite - -------- ------- principal amount of the Outstanding Securities have given, made or taken any request, demand, authorization, direction, notice, consent, waiver or other action hereunder as of any date, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding (it being understood that Securities to be acquired by the Company pursuant to an Offer or other offer to purchase shall not be deemed to be owned by the Company until legal title to such Securities passes to the Company), except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent, waiver or other action, only Securities which a 24 Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor. "Paying Agent" means any Person authorized by the Company to pay the ------------ principal of (and premium, if any) or interest on any Securities on behalf of the Company. "Permitted Holder" means Bradley S. Jacobs, John N. Milne, Michael J. ---------------- Nolan and their respective Affiliates, and trusts established for the benefit of a Permitted Holder or members of his immediate family. "Permitted Indebtedness" means, without duplication: ---------------------- (a) Indebtedness of the Company and the Guarantors evidenced by up to $200,000,000 principal amount of the Securities and the Guarantees, respectively; (b) Indebtedness of the Company and Restricted Subsidiaries under the Credit Facility in an aggregate principal amount at any one time outstanding not to exceed the greater of (i) $450,000,000 or (ii) 100% of Tangible Assets, less, in either case, any amounts permanently repaid in accordance with Section 10.14; (c) Indebtedness of the Company or any Restricted Subsidiary outstanding on the Issue Date; (d) Indebtedness of the Company or any Restricted Subsidiary of the Company incurred in respect of performance bonds, bankers' acceptances and letters of credit in the ordinary course of business, including Indebtedness evidenced by letters of credit issued in the ordinary course of business consistent with past practice to support the insurance or self- insurance obligations of the 25 Company or any of its Restricted Subsidiaries (including to secure workers' compensation and other similar insurance coverages), in the aggregate amount not to exceed $10,000,000 at any time; but excluding letters of credit issued in respect of or to secure money borrowed; (e) (i) Interest Rate Protection Obligations of the Company covering Indebtedness of the Company and (ii) Interest Rate Protection Obligations of any Restricted Subsidiary covering Permitted Indebtedness of such Restricted Subsidiary provided that, in the case of either clause (i) or -------- ---- (ii), (x) any Indebtedness to which any such Interest Rate Protection Obligations correspond bears interest at fluctuating interest rates and is otherwise permitted to be incurred under Section 10.8 and (y) the notional principal amount of any such Interest Rate Protection Obligations that exceeds the principal amount of the Indebtedness to which such Interest Rate Protection Obligations relate shall not constitute Permitted Indebtedness; (f) Indebtedness of a Restricted Subsidiary owed to and held by the Company or another Restricted Subsidiary, except that (i) any transfer of such Indebtedness by the Company or a Restricted Subsidiary (other than to the Company or another Restricted Subsidiary) and (ii) the sale, transfer or other disposition by the Company or any Restricted Subsidiary of the Company of Capital Stock of a Restricted Subsidiary (other than to the Company or a Restricted Subsidiary) which is owed Indebtedness of another Restricted Subsidiary shall, in each case, be an incurrence of Indebtedness by such Restricted Subsidiary subject to the other provisions hereof; (g) Indebtedness of the Company owed to and held by a Restricted Subsidiary which is unsecured and subordinated in right of payment to the payment and performance of the obligations of the Company under this Indenture and the Securities, except that (i) any transfer of such Indebtedness by the Restricted Subsidiary (other than to another Restricted Subsidiary) and (ii) the sale, transfer or other disposition by the Company or any Restricted 26 Subsidiary of the Company (other than to the Company or a Restricted Subsidiary) of Capital Stock of a Restricted Subsidiary which is owed Indebtedness of the Company shall, in each case, be an incurrence of Indebtedness by the Company, subject to the other provisions hereof; (h) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such -------- ------- Indebtedness is extinguished within five Business Days of incurrence; (i) Indebtedness of the Company or any Restricted Subsidiary under equipment purchase or lines of credit or for Capitalized Lease Obligations not to exceed $25,000,000 in aggregate principal amount outstanding at any time; (j) Indebtedness of the Company or any Restricted Subsidiary, in addition to that described in clauses (a) through (i) of this definition, in an aggregate principal amount outstanding at any time not to exceed $15,000,000; (k) (i) Indebtedness of the Company the proceeds of which are used solely to refinance (whether by amendment, renewal, extension or refunding) Indebtedness of the Company or any of its Restricted Subsidiaries and (ii) Indebtedness of any Restricted Subsidiary of the Company the proceeds of which are used solely to refinance (whether by amendment, renewal, extension or refunding) Indebtedness of such Restricted Subsidiary (in each case other than the Indebtedness to be refinanced, redeemed or retired as described under "Use of Proceeds" in the Offering Memorandum), provided, -------- however, that (x) the principal amount of Indebtedness incurred pursuant to ------- this clause (k) (or, if such Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the maturity thereof, the original issue price of such Indebtedness) shall not exceed the sum of principal amount 27 of Indebtedness so refinanced, plus the amount of any premium required to be paid in connection with such refinancing pursuant to the terms of such Indebtedness or the amount of any premium reasonably determined by the Company as necessary to accomplish such refinancing by means of a tender offer or privately negotiated purchase, plus the amount of expenses in connection therewith, and (y) in the case of Indebtedness incurred by the Company pursuant to this clause (k) to refinance Subordinated Indebtedness, such Indebtedness (A) has no scheduled principal payment prior to the 91st day after the Maturity Date, (B) has an Average Life to Stated Maturity greater than the remaining Average Life to Stated Maturity of the Securities and (C) is subordinated to the Securities in the same manner and to the same extent that the Subordinated Indebtedness being refinanced is subordinated to the Securities; (l) Indebtedness arising from agreements of the Company or any Restricted Subsidiary providing for indemnification, adjustment or holdback of purchase price or similar obligations, in each case, incurred or assumed in connection with the acquisition or disposition of any business, assets or a Subsidiary, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition; and (m) Guarantees by the Company or a Restricted Subsidiary of Indebtedness that was permitted to be incurred under this Indenture. "Permitted Investments" means any of the following: (i) Investments in --------------------- the Company or in a Restricted Subsidiary; (ii) Investments in another Person, if as a result of such Investment (A) such other Person becomes a Restricted Subsidiary or (B) such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all of its assets to the Company or a Restricted Subsidiary; (iii) Investments representing Capital Stock or obligations issued to, the Company or any of its Restricted Subsidiaries in settlement of claims against any other Person by reason of a composition or readjustment of debt or a reorganization 28 of any debtor of the Company or such Restricted Subsidiary; (iv) Investments in Interest Rate Protection Agreements on commercially reasonable terms entered into by the Company or any of its Subsidiaries in the ordinary course of business in connection with the operations of the business of the Company or its Restricted Subsidiaries to hedge against fluctuations in interest rates on its outstanding Indebtedness; (v) Investments in the Securities; (vi) Investments in Cash Equivalents; (vii) Investments acquired by the Company or any Restricted Subsidiary in connection with an Asset Sale permitted under Section 10.14 to the extent such Investments are non-cash proceeds as permitted under Section 10.14; (viii) advances to employees or officers of the Company in the ordinary course of business; (ix) any Investment to the extent that the consideration therefor is Capital Stock (other than Redeemable Capital Stock) of the Company and (x) other Investments not to exceed $5,000,000 at any time outstanding. "Permitted Liens" means the following types of Liens: --------------- (a) any Lien existing as of the Issue Date; (b) Liens securing Indebtedness under the Credit Facility in accordance with the provisions thereof in effect on the Issue Date; (c) any Lien securing Acquired Indebtedness created prior to (and not created in connection with, or in contemplation of) the incurrence of such Indebtedness by the Company or any Restricted Subsidiary, if such Lien does not attach to any property or assets of the Company or any Restricted Subsidiary other than the property or assets subject to the Lien prior to such incurrence; (d) Liens in favor of the Company or a Restricted Subsidiary; (e) Liens on and pledges of the Capital Stock of any Unrestricted Subsidiary securing any Indebtedness of such Unrestricted Subsidiary; (f) Liens for taxes, assessments or governmental charges or claims either (i) not delinquent 29 or (ii) contested in good faith by appropriate proceedings and as to which the Company or its Restricted Subsidiaries shall have set aside on its books such reserves as may be required pursuant to GAAP; (g) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; (h) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (i) judgment Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; (j) easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; (k) any interest or title of a lessor under any Capitalized Lease Obligation or operating lease; (l) purchase money Liens to finance property or assets of the Company or any Restricted Subsidiary of the Company acquired in the ordinary course 30 of business; provided, however, that (i) the related purchase money -------- ------- Indebtedness shall not be secured by any property or assets of the Company or any Subsidiary of the Company other than the property and assets so acquired and (ii) the Lien securing such Indebtedness shall be created within 90 days of such acquisition; (m) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof; (n) Liens securing refinancing Indebtedness permitted under clause (k) of the definition of "Permitted Indebtedness", provided such Liens do -------- not exceed the Liens replaced in connection with such refinanced Indebtedness; (o) Liens incurred in the ordinary course of business by the Company or any Restricted Subsidiary with respect to obligations that do not exceed $5,000,000 at any time outstanding; (p) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual, or warranty requirements of the Company or any of its Restricted Subsidiaries, including rights of offset and set-off; and (q) Liens securing Interest Rate Protection Obligations which Interest Rate Protection Obligations relate to Indebtedness that is secured by Liens otherwise permitted under this Indenture. "Person" means any individual, corporation, partnership, limited ------ liability company, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Stock," as applied to any Person, means Capital Stock of --------------- any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or 31 dissolution of such Person, over shares of Capital Stock of any other class of such Person. "Private Placement Legend" shall mean the legend initially set forth ------------------------ on the Securities in the form set forth on Exhibit A-1. ----------- "Public Equity Offering" means an underwritten public offering of ---------------------- Common Stock of the Company pursuant to a registration statement filed with the Commission in accordance with the Securities Act, which public equity offering results in net cash proceeds to the Company. "Purchase Amount" means, with respect to an Offer to Purchase, the --------------- maximum aggregate amount payable by the Company for Securities under the terms of such Offer to Purchase, if such Offer to Purchase were accepted in respect of all Securities. "Purchase Date" shall have the meaning set forth in the definition of ------------- "Offer to Purchase." "Qualified Equity Interest" in a Person means any interest in Capital ------------------------- Stock of such Person, other than Redeemable Capital Stock. "Qualified Institutional Buyer" or "QIB" has the meaning specified in ----------------------------- Rule 144A under the Securities Act. "Record Expiration Date" has the meaning specified in Section 1.4. ---------------------- "Redeemable Capital Stock" means any class or series of Capital Stock ------------------------ that, either by its terms, by the terms of any security into which it is convertible or exchangeable or by contract or otherwise, is or upon the happening of an event or passage of time would be, required to be redeemed prior to the Maturity Date or is redeemable at the option of the holder thereof at any time prior to the Maturity Date, or is convertible into or exchangeable for debt securities at any time prior to the Maturity Date; provided that Capital Stock -------- ---- will not constitute Redeemable Capital Stock solely because the holders thereof have the right to require the Company to repurchase or redeem such Capital Stock upon the occurrence of a Change of Control or an Asset Sale. 32 "Redemption Date," when used with respect to any Security to be --------------- redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price," when used with respect to any Security to be ---------------- redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Registrable Securities" has the meaning set forth in the Registration ---------------------- Rights Agreement. "Registration Rights Agreement" means the Notes Registration Rights ----------------------------- Agreement dated as of May 22, 1998 by and among the Company, the Guarantors and the Initial Purchasers, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof. "Regular Record Date" for the interest payable on any Interest Payment ------------------- Date means the May 15 or November 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Regulation S" means Regulation S under the Securities Act. ------------ "Regulation S Global Security" means a permanent global Security in ---------------------------- registered form representing the aggregate principal amount of Securities sold in reliance on Regulation S under the Securities Act. "Replacement Assets" has the meaning specified in Section 10.14. ------------------ "Required Filing Dates" has the meaning specified in Section 10.19. --------------------- "Responsible Officer," when used with respect to the Trustee, means ------------------- any officer within the Corporate Trust Office, including, any vice president, any assistant vice president, any assistant secretary, any assistant treasurer, or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is 33 referred because of his knowledge of and familiarity with the particular subject. "Restricted Payments" has the meaning specified in Section 10.9. ------------------- "Restricted Security" means a Security that constitutes a "restricted ------------------- security" within the meaning of Rule 144(a)(3) under the Securities Act; provided, however, that the Trustee shall be entitled to request and - -------- ------- conclusively rely on an opinion of counsel with respect to whether any Security constitutes a Restricted Security. "Restricted Subsidiary" means any Subsidiary of the Company that is --------------------- not an Unrestricted Subsidiary. "Revocation" has the meaning set forth in Section 10.18. ---------- "Rule 144A" means Rule 144A under the Securities Act. --------- "S&P" means Standard & Poor's Ratings Group, and its successors. --- "Securities" means securities designated in the first paragraph of the ---------- RECITALS OF THE COMPANY. "Securities Act" means the Securities Act of 1933 and any statute -------------- successor thereto, in each case as amended from time to time. "Security Register" and "Security Registrar" have the respective ----------------- meanings specified in Section 3.5. "Senior Indebtedness" means the principal of, premium, if any, and ------------------- interest on any Indebtedness of the Company, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Securities. Without limiting the generality of the foregoing, (x) "Senior Indebtedness" shall include the principal of, premium, if any, and interest on all obligations of 34 every nature of the Company from time to time owed to the lenders under the Credit Facility, including, without limitation, principal of and interest on, and all fees, indemnities and expenses payable under the Credit Facility and (y) in the case of Designated Senior Indebtedness, "Senior Indebtedness" shall include interest accruing thereon subsequent to the occurrence of any Event of Default specified in clause (7) or (8) under Section 5.1, whether or not the claim for such interest is allowed under any applicable Bankruptcy Code. Notwithstanding the foregoing, "Senior Indebtedness" shall not include (a) Indebtedness evidenced by the Securities, (b) Indebtedness that is expressly subordinate or junior in right of payment to any Indebtedness of the Company, (c) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to the Company, (d) Indebtedness which is represented by Redeemable Capital Stock, (e) Indebtedness for goods, materials or services purchased in the ordinary course of business or Indebtedness consisting of trade payables or other current liabilities (other than any current liabilities owing under the Credit Facility, or the current portion of any long-term Indebtedness which would constitute Senior Indebtedness but for the operation of this clause (e)), (f) Indebtedness of or amounts owed by the Company for compensation to employees or for services rendered to the Company, (g) any liability for federal, state, local or other taxes owed or owing by the Company, (h) Indebtedness of the Company to a Subsidiary of the Company or any other Affiliate of the Company or any of such Affiliate's Subsidiaries, (i) that portion of any Indebtedness which is incurred by the Company in violation of this Indenture and (j) amounts owing under leases. "Significant Subsidiary" of any Person means, as of any date of ---------------------- determination, a Restricted Subsidiary of such Person which would be a significant subsidiary of such Person as of such date as determined in accordance with the definition in Rule 1-02(w) of Article I of Regulation S-X promulgated by the Commission and as in effect on the date of this Indenture. "Special Record Date" for the payment of any Defaulted Interest means ------------------- a date fixed by the Trustee pursuant to Section 3.7. 35 "Stated Maturity" means, when used with respect to any Security or any --------------- installment of interest thereon, the date specified in such Security as the fixed date on which the principal of such Security or such installment of interest is due and payable, and when used with respect to any other Indebtedness, means the date specified in the instrument governing such Indebtedness as the fixed date on which the principal of such Indebtedness, or any installment of interest thereon, is due and payable. "Subordinated Indebtedness" means, with respect to the Company, ------------------------- Indebtedness of the Company which is expressly subordinated in right of payment to the Securities. "Subsidiary" means, with respect to any Person, (i) a corporation a ---------- majority of whose Voting Stock is at the time, directly or indirectly, owned by such Person, by one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries thereof and (ii) any other Person (other than a corporation), including, without limitation, a partnership, limited liability company, business trust or joint venture, in which such Person, one or more Subsidiaries thereof or such Person and one or more Subsidiaries thereof, directly or indirectly, at the date of determination thereof, has at least majority ownership interest entitled to vote in the election of directors, managers or trustees thereof (or other Person performing similar functions). For purposes of this definition, any directors' qualifying shares or investments by foreign nationals mandated by applicable law shall be disregarded in determining the ownership of a Subsidiary. "Tangible Assets" means all assets of the Company and its --------------- Subsidiaries, excluding all Intangible Assets. For purposes of the foregoing, "Intangible Assets" means goodwill, patents, trade names, trade marks, copyrights, franchises, organization expenses and any other assets properly classified as intangible assets in accordance with GAAP. "Trustee" means the Person named as the "Trustee" in the first ------- paragraph of this instrument until a successor Trustee shall have become such pursuant to the 36 applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in ------------------- force at the date as of which this instrument was executed; provided, however, -------- ------- that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Unrestricted Securities" means one or more Securities in the form set ----------------------- forth in Exhibit A-2, including, without limitation, the Exchange Securities, ----------- that do not and are not required to bear the Private Placement Legend. "Unrestricted Subsidiary" means each Subsidiary of the Company ----------------------- designated as such pursuant to and in compliance with Section 10.18. "U.S. Government Obligation" has the meaning specified in Section -------------------------- 12.4. "Vice President," when used with respect to the Company or the -------------- Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president." "Voting Stock" means any class or classes of Capital Stock pursuant to ------------ which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of any Person (irrespective of whether or not, at the time, stock of any other class or classes shall have, or might have, voting power by reason of the happening of any contingency). "Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary ---------------------------------- of the Company of which 100% of the outstanding Capital Stock is owned by the Company or another Wholly-Owned Restricted Subsidiary of the Company. For purposes of this definition, any directors' qualifying shares or investments by foreign nationals mandated by applicable law shall be disregarded in determining the ownership of a Subsidiary. 37 SECTION 1.2 Compliance Certificates and Opinions. ------------------------------------ Upon any application or request by the Company or a Guarantor to the Trustee to take any action under any provision of this Indenture, the Company or the Guarantor shall furnish to the Trustee such certificates and opinions as may be required under the Trust Indenture Act. Each such certificate or opinion shall be given in the form of an Officer's Certificate, if to be given by an officer of the Company or a Guarantor, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the Trust Indenture Act and any other requirement set forth in this Indenture. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include (i) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (iii) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (iv) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 1.3 Form of Documents Delivered to Trustee. -------------------------------------- In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or 38 give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company or a Guarantor may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company or a Guarantor stating that the information with respect to such factual matters is in the possession of the Company or such Guarantor, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.4 Acts of Holders; Record Dates. ----------------------------- Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company or a Guarantor, as applicable. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient 39 for any purpose of this Indenture and (subject to Section 6.1) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. The ownership of Securities shall be proved by the Security Register. Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee, the Company or a Guarantor in reliance thereon, whether or not notation of such action is made upon such Security. The Company may set any day as a record date for the purpose of determining the Holders of Outstanding Securities entitled to give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given or taken by Holders of Securities, provided that the Company may not set a record date for, and the -------- ---- provisions of this paragraph shall not apply with respect to, the giving or making of any notice, declaration, request or direction referred to in the next paragraph. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities on such record date, and no other Holders, shall be entitled to take the relevant action, whether or not such Holders remain Holders after such record date; provided that no -------- ---- 40 such action shall be effective hereunder unless taken on or prior to the applicable Record Expiration Date by Holders of the requisite principal amount of Outstanding Securities on such record date. Nothing in this paragraph shall prevent the Company from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be cancelled and of no effect), nor shall anything in this paragraph be construed to render ineffective any action taken pursuant to or in accordance with any other provision of this Indenture by Holders of the requisite principal amount of Outstanding Securities on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Company, at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable Record Expiration Date to be given to the Trustee in writing and to each Holder of Securities in the manner set forth in Section 1.6. The Trustee may but need not set any day as a record date for the purpose of determining the Holders of Outstanding Securities entitled to join in the giving or making of (i) any Notice of Default, (ii) any declaration of acceleration referred to in Section 5.2, (iii) any request to institute proceedings referred to in Section 5.7(2) or (iv) any direction referred to in Section 5.12. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities on such record date, and no other Holders, shall be entitled to join in such notice, declaration, request or direction, whether or not such Holders remain Holders after such record date; provided that no such -------- ---- action shall be effective hereunder unless taken on or prior to the applicable Record Expiration Date by Holders of the requisite principal amount of Outstanding Securities on such record date. Nothing in this paragraph shall be construed to prevent the Trustee from setting a new record date for any action (whereupon the record date previously set shall automatically and without any action by any Person be cancelled and of no effect), nor shall anything in this paragraph be construed to render ineffective any action taken pursuant to or in accordance with any other provision of this Indenture by Holders of the requisite principal amount of Outstanding 41 Securities on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Trustee, at the Company's expense, shall cause notice of such record date, the matter(s) to be submitted for potential action by Holders and the applicable Record Expiration Date to be given to the Company in writing and to each Holder of Securities in the manner set forth in Section 1.6. With respect to any record date set pursuant to this Section, the party hereto that sets such record date may designate any day as the "Record Expiration Date" and from time to time may change the Record Expiration Date to any earlier or later day, provided that no such change shall be effective unless -------- ---- notice of the proposed new Record Expiration Date is given to the other party hereto in writing, and to each Holder of Securities in the manner set forth in Section 1.6, on or before the existing Record Expiration Date. If a Record Expiration Date is not designated with respect to any record date set pursuant to this Section, the party hereto that set such record date shall be deemed to have initially designated the 180th day after such record date as the Record Expiration Date with respect thereto, subject to its right to change the Record Expiration Date as provided in this paragraph. Notwithstanding the foregoing, no Record Expiration Date shall be later than the 180th day after the applicable record date. Without limiting the foregoing, a Holder entitled hereunder to take any action hereunder with regard to any particular Security may do so with regard to all or any part of the principal amount of such Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such principal amount. SECTION 1.5 Notices to Trustee, the Company or a Guarantor. -------------------------- Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (i) the Trustee by any Holder or by the Company or a Guarantor shall be sufficient for 42 every purpose hereunder if made, given, furnished or filed in writing and mailed, first-class postage prepaid, to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Administration, (ii) the Company or a Guarantor by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company or such Guarantor addressed to it at the address of the Company's principal office specified in the first paragraph of this instrument, or at any other address previously furnished in writing to the Trustee by the Company. SECTION 1.6 Notice to Holders; Waiver. ------------------------- Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail or receive such notice, nor any defect in any such notice, to any particular Holder shall affect the sufficiency or validity of such notice. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. 43 SECTION 1.7 Conflict with Trust Indenture Act. --------------------------------- If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act that is required under the Trust Indenture Act to be part of and govern this Indenture, such provision of the Trust Indenture Act shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, such provision shall be deemed to be so modified or excluded, as the case may be. SECTION 1.8 Effect of Headings and Table of Contents. ---------------------------------------- The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.9 Successors and Assigns. ---------------------- Without limiting Articles VIII and XIII hereof, all covenants and agreements in this Indenture by each of the Company or the Guarantors shall bind their respective successors and assigns, whether so expressed or not. SECTION 1.10 Separability Clause. ------------------- In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1.11 Benefits of Indenture. --------------------- Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders of Securities, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 1.12 Governing Law. ------------- This Indenture and the Securities shall be governed by and construed in accordance with the laws of 44 the State of New York, without regard to the conflicts of laws principles thereof. SECTION 1.13 Legal Holidays. -------------- In any case where any Interest Payment Date, Redemption Date, Purchase Date or Stated Maturity of any Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal (and premium, if any) need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect (including with respect to the accrual of interest) as if made on the Interest Payment Date, Redemption Date or Purchase Date, or at the Stated Maturity. ARTICLE II Security Forms SECTION 2.1 Forms Generally. --------------- The Securities and the Trustee's certificates of authentication shall be in substantially the forms set forth or referenced in Exhibit A-1 and Exhibit A- ----------- --------- 2 annexed hereto, with such appropriate insertions, omissions, substitutions and - - other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or the Depository or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution thereof. ARTICLE III The Securities SECTION 3.1 Title and Terms. --------------- The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to $200,000,000 principal amount of 45 Initial Securities and up to $200,000,000 principal amount of Securities exchanged therefor in accordance with the Registration Rights Agreement, except for Securities authenticated and delivered upon registration or transfer of, or in exchange for, or in lieu of, other Securities pursuant to Section 3.4, 3.5, 3.6, 9.6 or 11.8 or in connection with an Offer pursuant to Sections 10.13 or 10.14. The Securities shall be known and designated as the "92% Senior Subordinated Notes due 2008" of the Company. Their Stated Maturity for payment of principal shall be June 1, 2008. Interest on the Securities shall accrue at the rate of 92% per annum and shall be payable semi-annually on each June 1 and December 1, commencing December 1, 1998, to the Holders of record of Securities at the close of business on the May 15 and November 15, respectively, immediately preceding such Interest Payment Date. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the Issue Date of such Securities. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. The principal of (and premium, if any) and interest on the Securities shall be payable at the office or agency of the Trustee in the Borough of Manhattan, The City of New York or such other office maintained by the Trustee for such purpose and at any other office or agency maintained by the Company for such purpose; provided, however, that, at the option of the Company, payment of -------- ------- interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. The Company may be required to make a Change of Control Offer as provided in Section 10.13, or an Asset Sale Offer as provided in Section 10.14. The Securities shall be redeemable as provided in Article XI and the Securities. The Securities shall be subject to Defeasance and/or Covenant Defeasance as provided in Article XII. 46 SECTION 3.2 Denominations. ------------- The Securities shall be issuable only in registered form without coupons and only in denominations of $1,000 principal amount and any integral multiple thereof. SECTION 3.3 Execution, Authentication, Delivery and Dating. -------------------------- The Initial Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A-1 hereto. The Exchange ----------- Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A-2 hereto. ----------- The terms and provisions contained in the Securities annexed hereto as Exhibits A-1 and A-2 shall constitute, and are hereby expressly made, a part of - ------------ --- this Indenture and, to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Securities offered and sold in reliance on Rule 144A and Securities offered and sold in reliance on Regulation S shall be issued initially in the form of one or more Global Securities, substantially in the form set forth in Exhibit A-1, deposited with the Trustee, as custodian for the Depository, duly - ----------- executed by the Company and authenticated by the Trustee as hereinafter provided and shall bear the legend set forth in Exhibit B. The aggregate principal --------- amount of the Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depository, as hereinafter provided. All Securities shall remain in the form of a Global Security, except as provided herein. The Securities shall be executed on behalf of the Company by its Chairman of the Board, its Chief Executive Officer, its President or one of its Vice Presidents, or its Chief Financial Officer, attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile. 47 Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities; and the Trustee in accordance with such Company Order shall authenticate and deliver such Securities as in this Indenture provided and not otherwise. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. SECTION 3.4 Temporary Securities. -------------------- Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive 48 Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at any office or agency of the Company designated pursuant to Section 10.2, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations and of a like tenor. Until so exchanged the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. SECTION 3.5 Registration, Registration of Transfer and Exchange. ----------------------------- The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 10.2 being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as the Company may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee is hereby appointed the initial "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. Subject to Sections 3.13 and 3.14 of this Indenture, upon surrender for registration of transfer of any Security at an office or agency of the Company designated pursuant to Section 10.2 for such purpose, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one more or more new Securities of any authorized denominations and of a like aggregate principal amount and tenor. At the option of the Holder, Securities may be exchanged for other Securities of any authorized denominations and of a like aggregate principal amount and tenor, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the 49 Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 3.4, 9.6 or 11.8 or in accordance with any Change of Control Offer pursuant to Section 10.13 or any Asset Sale Offer pursuant to Section 10.14, and in any such case not involving any transfer. The Company shall not be required (i) to issue, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities selected for redemption under Section 11.4 and ending at the close of business on the day of such mailing, (ii) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part or (iii) to register the transfer of any Securities other than Securities having a principal amount of $1,000 or integral multiples thereof. SECTION 3.6 Mutilated, Destroyed, Lost and Stolen Securities. -------------------------- If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall 50 authenticate and deliver in exchange therefor a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of each of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute, and upon its request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of, issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 3.7 Payment of Interest; Rights Preserved. ------------------------------------- Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest 51 Payment Date shall be paid to the Person in whose name that Security (or one or more predecessor securities) is registered at the close of business on the Regular Record Date for such interest payment. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 15 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be given to each Holder in the manner specified in Section 1.6, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the 52 Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 3.8 Persons Deemed Owners. --------------------- Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Section 3.7) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 3.9 Cancellation. ------------ All Securities surrendered for payment, redemption, registration of transfer or exchange or tendered and accepted pursuant to any Change of Control Offer pursuant to Section 10.13 or any Asset Sale Offer pursuant to Section 10.14 shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and 53 shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly cancelled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be disposed of in the customary manner by the Trustee unless otherwise directed by a Company Order. SECTION 3.10 Computation of Interest. ----------------------- Interest on the Securities shall be computed on the basis of a 360-day year comprised of twelve 30-day months. SECTION 3.11 CUSIP and CINS Numbers. ---------------------- The Company in issuing the Securities may use "CUSIP" and "CINS" numbers (if then generally in use), and, if so, the Trustee shall use the CUSIP or CINS numbers in notices of redemption or repurchase as a convenience to Holders; provided that any such notice may state that no representation is made -------- ---- as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption or repurchase and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption or repurchase shall not be affected by any defect in or omission of such numbers. SECTION 3.12 Deposits of Monies. ------------------ Except to the extent payment of interest is made by the Company's check pursuant to Section 3.1, prior to 11:00 a.m. New York City time on each Interest Payment Date, Redemption Date, Stated Maturity, and Purchase Date, the Company shall deposit with the Paying Agent in immediately available funds money sufficient to make cash payments, if any, due on such Interest Payment Date, Redemption Date, Stated Maturity and Purchase Date, as the case may be, in a timely manner which permits the Paying Agent to remit payment to the Holders 54 on such Interest Payment Date, Redemption Date, Stated Maturity, and Purchase Date, as the case may be. SECTION 3.13 Book-Entry Provisions for Global Securities. --------------------- (a) The Global Securities initially shall (i) be registered in the name of the Depository or the nominee of such Depository, (ii) be delivered to the Trustee as custodian for such Depository and (iii) bear legends as set forth in Exhibit B hereto. --------- Members of, or participants in, the Depository ("Agent Members") shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depository, or the Trustee as its custodian, or under any Global Security, and the Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of the Global Securities for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Security. (b) Transfer of Global Securities shall be limited to transfers in whole, but not in part, to the Depository, its successors or their respective nominees. Interests of beneficial owners in the Global Securities may not be transferred or exchanged for physical securities, except that physical securities shall be transferred to all beneficial owners in exchange for their beneficial interests in Global Securities if (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository for any Global Security, or that it will cease to be a "Clearing Agency" under the Exchange Act, and in either case a successor Depository is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is 55 continuing and the Security Registrar has received a written request from the Depository to issue physical securities. (c) The Holder of any Global Security may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. SECTION 3.14 Special Transfer Provisions. --------------------------- (a) Transfers to Non-U.S. Persons. The following additional ----------------------------- provisions shall apply with respect to the registration of any proposed transfer of and the transfer of the beneficial interest in an Initial Security to any Non-U.S. Person: (i) the Security Registrar shall register the transfer of any Initial Security, whether or not such Security bears the Private Placement Legend, and a transfer of the beneficial interest in an Initial Security may be made if (x) the requested transfer is after the second anniversary of the Issue Date; provided, however, that neither the -------- ------- Company nor any Affiliate of the Company has held any beneficial interest in such Security, or portion thereof, at any time on or prior to the second anniversary of the Issue Date and such transfer can otherwise be lawfully made under the Securities Act without registering such Initial Security thereunder,(y)in the case of the registration of a transfer by the Security Registrar, the proposed transferor has delivered to the Security Registrar a certificate substantially in the form of Exhibit C hereto or (z) in the case of --------- the transfer of the beneficial interest in an Initial Security, (other than a transfer by an Agent Member, to which clause (ii) below shall apply), the transfer is made in accordance with Regulation S under the Securities Act and in accordance with clause (iii) below to the extent applicable; (ii) if the proposed transferor is an Agent Member seeking to transfer an interest in a 144A 56 Global Security, upon receipt by the Security Registrar of (x) written instructions given in accordance with the Depository's and the Security Registrar's procedures and (y) the appropriate certificate, if any, required by clause (y) of paragraph (i) above, together with any required legal opinions and certifications, the Security Registrar shall register the transfer and reflect on its books and records the date and (A) a decrease in the principal amount of the 144A Global Security from which such interests are to be transferred in an amount equal to the principal amount of the Securities to be transferred and (B) an increase in the principal amount of the Regulation S Global Security in an amount equal to the principal amount of the Global Security to be transferred; and (iii) subject to Section 3.14(b), until the 41st day after the Issue Date (the "Distribution Compliance Period"), an owner of a beneficial interest in the Regulation S Global Security may not transfer such interest to a transferee that is a U.S. Person or for the account or benefit of a U.S. Person within the meaning of Rule 902(o) of the Securities Act. Subject to Section 3.14(b), during the Distribution Compliance Period, all beneficial interests in the Regulation S Global Security shall be transferred only through Cedel or Euroclear, either directly if the transferor and transferee are participants in such systems, or indirectly through organizations that are participants therein. (b) Transfers to QIBs. The following provisions shall apply with ----------------- respect to the registration of any proposed transfer of an Initial Security and the transfer of the beneficial interest in an Initial Security to a QIB (excluding Non-U.S. Persons): (i) the Security Registrar shall register the transfer of any Initial Security, whether or not such Security bears the Private Placement Legend, and the transfer of the beneficial interest in an Initial Security may be made if (x) the requested transfer is after the second anniversary of the Issue Date; provided, however, that neither the -------- ------- 57 Company nor any Affiliate of the Company has held any beneficial interest in such Security, or portion thereof, at any time on or prior to the second anniversary of the Issue Date and such transfer can otherwise be lawfully made under the Securities Act without registering such Initial Security thereunder, (y) in the case of the registration of a transfer by the Security Registrar, such transfer is being made by a proposed transferor who has checked the box provided for on the form of Security stating, or has otherwise advised the Company and the Security Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Security stating, or has otherwise advised the Company and the Security Registrar in writing, that it is purchasing the Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A or (z) in the case of the transfer of the beneficial interest in an Initial Security, (other than a transfer by an Agent Member, to which clause (ii) below shall apply), the transfer is made in accordance with Rule 144A under the Securities Act; and (ii) if the proposed transferor is an Agent Member seeking to transfer an interest in a Regulation S Global Security, upon receipt by the Security Registrar of written instructions given in accordance with the Depository's and the Security Registrar's procedures, the Security Registrar shall register the transfer and reflect on its books and records the date and (A) a decrease in the principal amount of the Regulation S Global Security from which interests are to be trans- 58 ferred in an amount equal to the principal amount of the Securities to be transferred and (B) an increase in the principal amount of the 144A Global Security in an amount equal to the principal amount of the Global Security to be transferred. (c) Private Placement Legend. Upon the registration of transfer, ------------------------ exchange or replacement of Securities not bearing the Private Placement Legend, the Security Registrar shall deliver Securities that do not bear the Private Placement Legend. Upon the registration of transfer, exchange or replacement of Securities bearing the Private Placement Legend, the Security Registrar shall deliver only Securities that bear the Private Placement Legend unless (i) the circumstances contemplated by paragraph (a)(i)(x) or (b)(i)(x) of this Section 3.14 exists, (ii) there is delivered to the Security Registrar an opinion of counsel reasonably satisfactory to the Company and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act or (iii) such Security has been sold pursuant to an effective registration statement under the Securities Act. (d) Other Transfers. If a Holder proposes to transfer a Security --------------- constituting a Restricted Security pursuant to any exemption from the registration requirements of the Securities Act other than as provided for by Section 3.14(a), (b) and (c), the Security Registrar shall only register such transfer or exchange if such transferor delivers an opinion of counsel satisfactory to the Company and the Security Registrar that such transfer is in compliance with the Securities Act and the terms of this Indenture. (e) General. By its acceptance of any Security bearing the Private ------- Placement Legend and by its ownership of a beneficial interest therein, each Holder of such a Security and each owner of a beneficial interest therein acknowledges the restrictions on transfer of such Security and of beneficial interests therein, set forth in this 59 Indenture and in the Private Placement Legend and agrees that it will transfer such Security and beneficial interests therein only as provided in this Indenture. The Security Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 3.13 or this Section 3.14. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable prior written notice to the Security Registrar. ARTICLE IV Satisfaction and Discharge SECTION 4.1 Satisfaction and Discharge of Indenture. --------------------------------------- This Indenture shall cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or repaid as provided in Section 3.6 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.3) have been delivered to the Trustee for cancellation; or (B) all such Securities not theretofore delivered to the Trustee for cancellation (other than Securities which have been destroyed, lost 60 or stolen and which have been replaced or repaid as provided in Section 3.6), (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (i), (ii) or (iii) above, has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire Indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest on the Securities to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be, together with irrevocable instructions from the Company directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company or the Guarantors; and (3) the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture pursuant to this Article IV, the obligations of the Company to the Trustee under Section 6.7, the obligations of the Company to any Authenticating Agent under Section 6.14 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of clause (1) of this Section, the obligations of the 61 Trustee under Section 4.2 and the last paragraph of Section 10.3 shall survive. SECTION 4.2 Application of Trust Money. -------------------------- Subject to the provisions of the last paragraph of Section 10.3, all money deposited with the Trustee pursuant to Section 4.1 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee. ARTICLE V Remedies SECTION 5.1 Events of Default. ----------------- "Event of Default," wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of the principal of or premium, if any, when due and payable, on any of the Securities (at Stated Maturity, upon optional redemption, required purchase or otherwise); or (2) default in the payment of an installment of interest on any of the Securities, when due and payable, for 30 days; or (3) default in the performance, or breach, of any covenant or agreement of the Company under this Indenture (other than a default in the performance or breach of a covenant or agreement which is specifically dealt with in clauses (1), (2) or (4)) and such default or breach shall continue for a period of 30 days after written notice has been 62 given, by certified mail, (x) to the Company by the Trustee or (y) to the Company and the Trustee by the holders of at least 25% in aggregate principal amount of the Outstanding Securities; or (4) (a) there shall be a default in the performance or breach of the provisions of Section 8.1 with respect to the Company; (b) the Company shall have failed to make or consummate an Asset Sale Offer in accordance with the provisions of Section 10.14; or (c) the Company shall have failed to make or consummate a Change of Control Offer in accordance with the provisions of Section 10.13; or (5) default or defaults under one or more agreements, instruments, mortgages, bonds, debentures or other evidences of Indebtedness under which the Company or any Restricted Subsidiary of the Company then has outstanding Indebtedness in excess of $15,000,000, individually or in the aggregate, and either (a) such Indebtedness is already due and payable in full or (b) such default or defaults have resulted in the acceleration of the maturity of such Indebtedness; or (6) one or more judgments, orders or decrees of any court or regulatory or administrative agency of competent jurisdiction for the payment of money in excess of $15,000,000, either individually or in the aggregate, shall be entered against the Company or any Restricted Subsidiary of the Company or any of their respective properties and shall not be discharged and there shall have been a period of 60 days after the date on which any period for appeal has expired and during which a stay of enforcement of such judgment, order or decree, shall not be in effect; or (7) the entry of a decree or order by a court having jurisdiction in the premises (A) for relief in respect of the Company or any Significant Subsidiary in an involuntary case or proceeding under the Federal Bankruptcy Code or any other federal, state or foreign bankruptcy, insolvency, reorganization or similar law or (B) adjudging the Company or any Significant Subsidiary bankrupt or insolvent, or seeking reorganization, arrangement, ad- 63 justment or composition of or in respect of the Company or any Significant Subsidiary under the Federal Bankruptcy Code or any other similar federal, state or foreign law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or any Significant Subsidiary or of any substantial part of any of their properties, or ordering the winding up or liquidation of any of their affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or (8) the institution by the Company or any Significant Subsidiary of a voluntary case or proceeding under the Federal Bankruptcy Code or any other similar federal, state or foreign law or any other case or proceedings to be adjudicated a bankrupt or insolvent, or the consent by the Company or any Significant Subsidiary to the entry of a decree or order for relief in respect of the Company or any Significant Subsidiary in any involuntary case or proceeding under the Federal Bankruptcy Code or any other similar federal, state or foreign law or to the institution of bankruptcy or insolvency proceedings against the Company or any Significant Subsidiary, or the filing by the Company or any Significant Subsidiary of a petition or answer or consent seeking reorganization or relief under the Federal Bankruptcy Code or any other similar federal, state or foreign law, or the consent by it to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of any of the Company or any Significant Subsidiary or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due or the taking of corporate action by the Company or any Significant Subsidiary in furtherance of any such action; or (9) any of the Guarantees ceases to be in full force and effect or any of the Guarantees is declared to be null and void and unenforceable or 64 any of the Guarantees is found to be invalid or any of the Guarantors denies its liability under its Guaranty (other than by reason of release of a Guarantor in accordance with the terms of this Indenture). SECTION 5.2 Acceleration of Maturity; Rescission and Annulment. ------------------------ If an Event of Default (other than those covered by clause (7) or (8) of Section 5.1 with respect to the Company) shall occur and be continuing, the Trustee, by notice to the Company and the representative of the banks under the Credit Facility, or the Holders of at least 25% in aggregate principal amount of the Securities then Outstanding, by notice to the Trustee, the Company and the representative of the banks under the Credit Facility, may declare the principal of, premium, if any, and accrued and unpaid interest, if any, on all of the outstanding Securities due and payable immediately, upon which declaration, all amounts payable in respect of the Securities shall be due and payable as of the date which is five business days after the giving of such notice to the representative of the banks under the Credit Facility. If an Event of Default specified in clause (7) or (8) of Section 5.1 with respect to the Company or a Significant Subsidiary occurs and is continuing, then the principal of, premium, if any, and accrued and unpaid interest, if any, on all the Outstanding Securities shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder of Securities. After a declaration of acceleration under the Indenture, but before a judgment or decree for payment of the money due has been obtained by the Trustee, the Holders of a majority in aggregate principal amount of the Outstanding Securities, by written notice to the Company and the Trustee, may rescind such declaration if (1) the Company or any Guarantor has paid or deposited with the Trustee a sum sufficient to pay (A) all sums paid or advanced by the Trustee under this Indenture and the reasonable compensation, expenses, disbursements and 65 advances of the Trustee, its agents and counsel, (B) all overdue interest on all Securities, (C) the principal of and premium, if any, on any Securities which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Securities, and (D) to the extent that payment of such interest is lawful, interest upon overdue interest and overdue principal at the rate set forth in the Securities which has become due otherwise than by such declaration of acceleration; (2) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction; and (3) all Events of Default, other than the non-payment of principal of, premium, if any, and interest on the Securities that have become due solely by such declaration of acceleration, have been cured or waived. No such rescission shall affect any subsequent default or impair any right consequent thereto. SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee. ------------------------------------ The Company and each Guarantor covenants that if (i) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (ii) default is made in the payment of the principal of (or premium, if any, on) any Security on the due date for payment thereof, including, with respect to any Security required to have been 66 purchased pursuant to a Change of Control Offer or an Asset Sale Offer made by the Company, at the Purchase Date thereof, the Company or such Guarantor will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal (and premium, if any) and interest, and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal (and premium, if any) and on any overdue interest, at the rate provided by the Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. In addition to the rights and powers set forth in Section 317(a) of the Trust Indenture Act, the Trustee shall be entitled to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and of the Holders of the Securities allowed in any judicial proceeding relative to the Company, any Guarantor or any other obligor upon the Securities, its creditors, or its property, and to collect and receive any moneys or other property payable or deliverable on any such claims, and to distribute the same after the deduction of its charges and expenses; and any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized by each of the Holders to make such payments to the Trustee, and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for compensation and expenses, including counsel fees incurred by it up to the date of such distribution. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of 67 any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 5.4 Trustee May File Proofs of Claim. -------------------------------- In case of any judicial proceeding relative to the Company, a Guarantor (or any other obligor upon the Securities), its property or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.7. No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding; provided, -------- however, that the Trustee may, on behalf of the Holders, vote for the election - ------- of a trustee in bankruptcy or similar official and be a member of a creditors' or other similar committee. SECTION 5.5 Trustee May Enforce Claims Without Possession of Securities. -------------------------------- All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by 68 the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, distributions and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. SECTION 5.6 Application of Money Collected. ------------------------------ Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 6.7; SECOND: To the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, respectively; THIRD: To the payment of any and all other amounts due under the Indenture, the Securities or the Guarantees; and FOURTH: To the Company (or such other Person as a court of competent jurisdiction may direct). SECTION 5.7 Limitation on Suits. ------------------- Subject to Section 5.8, no Holder of any Security shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless 69 (i) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (ii) the Holders of not less than 25% in principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (iii) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (iv) the Trustee for 45 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (v) no direction inconsistent with such written request has been given to the Trustee during such 45-day period by the Holders of a majority in principal amount of the Outstanding Securities; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. SECTION 5.8 Unconditional Right of Holders to Receive Principal, Premium and Interest. --------------------------------------- Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 3.7) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date or in the case of a Change of Control Offer or an Asset Sale Offer made by the Company and required to be accepted as to such Security, on the relevant Purchase 70 Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. SECTION 5.9 Restoration of Rights and Remedies. ---------------------------------- If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, each Guarantor, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted, subject to the determination in such proceeding. SECTION 5.10 Rights and Remedies Cumulative. ------------------------------ Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 3.6, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 5.11 Delay or Omission Not Waiver. ---------------------------- No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. 71 SECTION 5.12 Control by Holders. ------------------ The Holders of a majority in principal amount of the Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, provided that -------- ---- (i) such direction shall not be in conflict with any rule of law or with this Indenture, and (ii) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 5.13 Waiver of Past Defaults. ----------------------- The Holders of not less than a majority in principal amount of the Outstanding Securities may on behalf of the Holders of all the Securities waive any past default hereunder and its consequences, except a default (i) in the payment of the principal of (or premium, if any) or interest on any Security (including any Security which is required to have been purchased pursuant to a Change of Control Offer or an Asset Sale Offer which has been made by the Company), or (ii) in respect of a covenant or provision hereof which under Article IX cannot be modified or amended without the consent of the Holder of each Outstanding Security affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 5.14 Undertaking for Costs. --------------------- In any suit for the enforcement of any right or remedy under this Indenture, or in any suit against 72 the Trustee for any action taken, suffered or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess costs against any such party litigant, in the manner and to the extent provided in the Trust Indenture Act; provided, that -------- ---- neither this Section nor the Trust Indenture Act shall be deemed to authorize any court to require such an undertaking or to make such an assessment in any suit instituted by the Company or a Guarantor, in any suit instituted by the Trustee, in any suit instituted by any Holder or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities, or in any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Security on or after the Stated Maturity expressed in such Security (or, in the case of redemption, on or after the Redemption Date or, in the case of a Change of Control Offer or an Asset Sale Offer, made by the Company and required to be accepted as to such Security, on the applicable Purchase Date, as the case may be). SECTION 5.15 Waiver of Stay or Extension Laws. -------------------------------- The Company and each Guarantor covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any usury, stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company and each Guarantor (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. 73 ARTICLE VI The Trustee SECTION 6.1 Certain Duties and Responsibilities. ----------------------------------- (a) Except during the continuance of an Event of Default, (i) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by the provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture but need not verify the contents thereof. (b) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent Person would exercise or use under the circumstances in the conduct of such Person's own affairs. (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent misconduct, except that no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers under this Indenture, unless the Trustee has received security and indemnity satisfactory to it against any loss, liability or 74 expense. The Trustee shall not be liable for any error of judgment unless it is proved that the Trustee was negligent in the performance of its duties hereunder. (d) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section 6.1. SECTION 6.2 Notice of Defaults. ------------------ Within 30 days after the occurrence of any Default, the Trustee shall transmit by mail to all Holders, as their names and addresses appear in the Security Register, notice of such Default hereunder known to the Trustee, unless such Default shall have been cured or waived; provided, however, that, except in -------- ------- the case of a Default in the payment of the principal of, premium, if any, or interest on any Security, the Trustee shall be protected in withholding such notice if and so long as a trust committee of Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interest of the Holders. SECTION 6.3 Certain Rights of Trustee. ------------------------- Subject to the provisions of Section 6.1: (a) the Trustee may conclusively rely as to the truth of the statements and correctness of the opinions expressed therein and shall be fully protected in acting or refraining from acting upon any resolution, Officer's Certificate, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors of the Company may 75 be sufficiently evidenced by a Board Resolution of the Company; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officer's Certificate; (d) the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled (subject to reasonable confidentiality arrangements as may be proposed by the Company or any Guarantor) to make reasonable examination (upon prior notice and during regular business hours) of the books, records and premises of the Company or a Guarantor, personally or by agent or attorney; 76 (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys or custodians or nominees and the Trustee shall not be responsible for the supervision of, or any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (h) the Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; and (i) in the event that the Trustee is also acting as Authenticating Agent, Paying Agent or Security Registrar hereunder, the rights and protections afforded to the Trustee pursuant to this Article VI shall also be afforded to such Authenticating Agent, Paying Agent and Security Registrar. SECTION 6.4 Not Responsible for Recitals or Issuance of Securities. ---------------------------- The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee or any Authenticating Agent assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 6.5 May Hold Securities. ------------------- The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company or any Guarantor, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 6.8 and 6.13, may otherwise deal with the Company or a Guarantor with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent. 77 SECTION 6.6 Money Held in Trust. ------------------- Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. SECTION 6.7 Compensation and Reimbursement. ------------------------------ The Company agrees (1) to pay to the Trustee from time to time such reasonable compensation as the Company and the Trustee shall from time to time agree in writing for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to promptly reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee, its directors, officers, agents and employees for, and to hold them harmless against, any and all loss, damage, claim, liability or expense incurred without negligence or bad faith on its part, including taxes (other than taxes based upon, measured by or determined by the revenue or income of the Trustee), arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. 78 The Trustee shall have a lien prior to the Securities as to all property and funds held by it hereunder for any amount owing to it pursuant to this Section 6.7, except with respect to funds held in trust for the benefit of the Holders of particular Securities. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.1(7) or Section 5.1(8), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable Federal or State bankruptcy, insolvency or other similar law. The provisions of this Section shall survive any termination of this Indenture. SECTION 6.8 Conflicting Interests. --------------------- If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. SECTION 6.9 Corporate Trustee Required; Eligibility. --------------------------------------- There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has, or is a wholly-owned subsidiary of a bank holding company that has, a combined capital and surplus of at least $100,000,000 and its Corporate Trust Office in the Borough of Manhattan, The City of New York. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of a Federal or State supervising or examining authority, then for the purposes of this Section and to the extent permitted by the Trust Indenture Act, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in 79 the manner and with the effect hereinafter specified in this Article. SECTION 6.10 Resignation and Removal; Appointment of Successor. ------------------------ (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 6.11. (b) The Trustee may resign at any time by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee in accordance with the applicable requirements of Section 6.11 shall not have been delivered to the Company and the resigning Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of a majority in principal amount of the Outstanding Securities, delivered to the Trustee and to the Company. (d) If at any time: (i) the Trustee shall fail to comply with Section 6.8 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (ii) the Trustee shall cease to be eligible under Section 6.9 and shall fail to resign after written request therefor by the Company, any Guarantor or by any such Holder, or (iii) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property 80 or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company or any Guarantor, in each case by a Board Resolution, may remove the Trustee, or (ii) subject to Section 5.14, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 6.11, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in accordance with the applicable requirements of Section 6.11, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to all Holders in the manner provided in Section 1.6. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. (g) The resignation or removal of the Trustee pursuant to this Section 6.10 shall not affect the 81 obligation of the Company to indemnify the Trustee pursuant to Section 6.7(3) in connection with the exercise or performance by the Trustee prior to its resignation or removal of any of its powers or duties hereunder. (h) No Trustee under this Indenture shall be liable for any action or omission of any successor Trustee. SECTION 6.11 Acceptance of Appointment by Successor. -------------------------------------- Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 6.12 Merger, Conversion, Consolidation or Succession to Business. --------------------------------- Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provid- ------- 82 ed such corporation shall be otherwise qualified and eligible under this - -- Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. SECTION 6.13 Preferential Collection of Claims Against the Company or a Guarantor. ---------------------------------- If and when the Trustee shall be or become a creditor of the Company or a Guarantor (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company or such Guarantor (or any such other obligor). SECTION 6.14 Appointment of Authenticating Agent. ----------------------------------- The Trustee may appoint an Authenticating Agent or Agents which shall be authorized to act on behalf of the Trustee to authenticate Securities issued upon original issue and upon exchange, registration of transfer or partial redemption or partial purchase or pursuant to Section 3.6, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $100,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating 83 Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to all or substantially all of the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be -------- otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall give notice of such appointment in the manner provided in Section 1.6, to all Holders as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. 84 The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section. If an appointment is made pursuant to this Section, the Securities may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternative certificate of authentication in the following form: This is one of the Securities described in the within-mentioned Indenture. Dated: State Street Bank and Trust Company As Trustee By:_____________________________ As Authenticating Agent By:_____________________________ Authorized Signatory ARTICLE VII Holders' Lists and Reports by Trustee and Company SECTION 7.1 Company to Furnish Trustee Names and Addresses of Holders. ------------------------------ The Company will furnish or cause to be furnished to the Trustee at such times as the Trustee may reasonably request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; excluding from any such list names and addresses received by the --------- Trustee in its capacity as Security Registrar. 85 SECTION 7.2 Preservation of Information; Communications to Holders. ---------------------------- (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 7.1 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar, if so acting. (b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act. (c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company, any Guarantor nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to the names and addresses of Holders made pursuant to the Trust Indenture Act. SECTION 7.3 Reports by Trustee. ------------------ (a) Within 60 days after May 15 of each year commencing May 15, 1999, the Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture to the extent required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. (b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Securities are listed, with the Commission and with the Company. The Company will promptly notify the Trustee when the Securities are listed on any stock exchange. SECTION 7.4 Reports by Company. ------------------ The Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Inden- 86 ture Act at the times and in the manner provided pursuant to the Trust Indenture Act; provided that any such information, documents or reports required to be -------- ---- filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. ARTICLE VIII Consolidation, Merger, Conveyance, Transfer or Lease SECTION 8.1 Company or Guarantor May Consolidate, Etc. Only on Certain Terms. -------------------------- (A) Neither the Company nor, except as otherwise provided by Section 13.5, any Guarantor will, in any transaction or series of transactions, merge or consolidate with or into, or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets as an entirety to, any Person or Persons, and (B) the Company will not permit any of its Restricted Subsidiaries to enter into any such transaction or series of transactions if such transaction or series of transactions, in the aggregate, would result in a sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the properties and assets of the Company or the Company and its Restricted Subsidiaries, taken as a whole, to any other Person or Persons, unless, in each of cases (A) and (B), at the time and after giving effect thereto by: (1) either: (x) if the transaction or transactions is a merger or consolidation, the Company, the Guarantor or such Restricted Subsidiary, as the case may be, shall be the surviving Person of such merger or consolidation, or (y) the Person formed by such consolidation or into which the Company, such Guarantor or such Restricted Subsidiary, as the case may be, is merged or to which the properties and assets of the Company, such Guarantor or such 87 Restricted Subsidiary, as the case may be, substantially as an entirety, are transferred (any such surviving Person or transferee Person being the "Surviving Entity") shall be a corporation organized and existing under the laws of the United States of America, any state thereof or the District of Columbia and shall expressly assume by a supplemental indenture executed and delivered to the Trustee, in form satisfactory to the Trustee, (i) in the case of the Company, all the obligations of the Company under the Securities, this Indenture and the Registration Rights Agreement and (ii) in the case of a Guarantor, all the obligations of the such Guarantor under its Guaranty, this Indenture and the Registration Rights Agreement, and in each case, this Indenture, the Securities, the Guarantees and the Registration Rights Agreement shall remain in full force and effect; (2) immediately after giving effect to such transaction or series of transactions on a pro forma basis (including, without limitation, any Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction or series of transactions), no Default or Event of Default shall have occurred and be continuing; and (3) except in the case of any merger of the Company with any wholly-owned Subsidiary of the Company or any merger of Guarantors, in each case with no other Person, the Company or the Surviving Entity, as the case may be, after giving effect to such transaction or series of transactions on a pro forma basis (including, without limitation, any Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction or series of transactions), could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under Section 10.8 (assuming a market rate of interest with respect to such additional Indebtedness). In connection with any consolidation, merger, transfer, lease, assignment or other disposition contemplated by the foregoing provisions of this Section 8.1, 88 the Company shall deliver, or cause to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officer's Certificate and an Opinion of Counsel, each stating that such consolidation, merger, transfer, lease, assignment, or other disposition and the supplemental indenture in respect thereof (required under clause (1)(y) of this Section 8.1) comply with the requirements of this Indenture. Each such Officer's Certificate shall set forth the manner of determination of the ability to incur Indebtedness in accordance with clause (3) of this Section 8.1. SECTION 8.2 Successor Substituted. --------------------- Except as otherwise provided by Section 13.5, upon any consolidation or merger, or any sale, assignment, conveyance, transfer, lease or disposition of all or substantially all of the properties and assets of the Company or a Guarantor in accordance with Section 8.1, the successor Person formed by such consolidation or into which the Company, such Guarantor or a Restricted Subsidiary, as the case may be, is merged or the successor Person to which such sale, assignment, conveyance, transfer, lease or disposition is made shall succeed to, and be substituted for, and may exercise every right and power of the Company or Guarantor under the Securities, such Guarantor's Guaranty, this Indenture and/or the Registration Rights Agreement, as applicable, with the same effect as if such successor had been named as the Company or Guarantor in the Securities, such Guaranty, this Indenture and/or in the Registration Rights Agreement, as the case may be and, except in the case of a lease, the Company, the Guarantor or such Restricted Subsidiary, as the case may be, shall be released and discharged from its obligations thereunder. For all purposes of this Indenture and the Securities (including the provisions of this Article VIII and Sections 10.8, 10.9 and 10.12), Subsidiaries of any Surviving Entity shall, upon consummation of such transaction or series of related transactions, become Restricted Subsidiaries unless and until designated Unrestricted Subsidiaries pursuant to and in accordance with Section 10.18 and all Indebtedness, and all Liens on property or assets, of the Company, any Guarantor and 89 the Restricted Subsidiaries in existence immediately prior to such transaction or series of related transactions will be deemed to have been incurred upon consummation of such transaction or series of related transactions. ARTICLE IX Amendments; Waivers; Supplemental Indentures SECTION 9.1 Amendments, Waivers and Supplemental Indentures Without Consent of Holders. ------------------------------------- Without the consent of any Holders, the Company and each Guarantor, when authorized by Board Resolutions, and the Trustee, at any time and from time to time, may together amend, waive or supplement this Indenture, for any of the following purposes: (i) to evidence the succession of another Person to the Company or a Guarantor and the assumption by any such successor of the covenants of the Company or such Guarantor herein and in the Securities or such Guarantor's Guaranty and to evidence the assumption of obligations under this Indenture and a Guaranty pursuant to Section 10.17; or (ii) to add to the covenants of the Company or a Guarantor for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company or a Guarantor; or (iii) to secure the Securities pursuant to the requirements of Section 10.12 or otherwise; or (iv) to comply with any requirements of the Commission in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act; or (v) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture 90 which shall not be inconsistent with the provisions of this Indenture, provided that (a) such amendment, waiver or supplement does not adversely affect - -------- ---- the rights of any Holder of Securities and (b) the Company shall have delivered to the Trustee an Opinion of Counsel stating that such action pursuant to clauses (i), (ii), (iii), (iv) or (v) above is permitted by this Indenture. The Trustee shall not be obligated to enter into any such amendment or supplemental indenture that adversely affects its own rights, duties or immunities under this Indenture or otherwise. SECTION 9.2 Modifications, Amendments and Supplemental Indentures with Consent of Holders. ------------------------------------------ With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities, by Act of said Holders delivered to the Company and the Trustee, the Company and the Guarantors, when authorized by Board Resolutions, and the Trustee may together modify, amend or supplement this Indenture for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, -------- ------- that no such modification, amendment or supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, (i) reduce the principal amount of, extend the Stated Maturity of or alter the redemption provisions of, the Securities, (ii) change the currency in which any Securities or any premium or the interest thereon is payable, (iii) reduce the percentage in principal amount of Outstanding Securities that must consent to an amendment, supplement or waiver or consent to take any action under the Indenture or the Securities or any Guaranty, 91 (iv) impair the right to institute suit for the enforcement of any payment on or with respect to the Securities or any Guaranty, (v) waive a default in payment with respect to the Securities or any Guaranty, (vi) amend, change or modify the obligation of the Company to make and consummate a Change of Control Offer in the event of a Change of Control or make and consummate an Asset Sale Offer with respect to any Asset Sale or modify any of the provisions or definitions with respect thereto, (vii) reduce or change the rate or time for payment of interest on the Securities, or (viii) modify or change any provision of this Indenture affecting the ranking of the Securities or any Guaranty in a manner adverse to the Holders of the Securities. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed amendment or supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. The Trustee shall join with the Company and each Guarantor in the execution of such amended or supplemental indenture unless such amended or supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion but shall not be obligated to enter into such amendment or supplemental indenture. In addition, no modification, amendment or supplement to the provisions of Article XIV which is adverse to the interests of the lenders under the Credit Facility shall be made without the consent of the representative of such lenders. 92 SECTION 9.3 Execution of Supplemental Indentures. ------------------------------------ In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.1) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise; provided that the Trustee shall enter into and execute all other supplemental - -------- ---- indentures which satisfy all applicable conditions under this Article IX. SECTION 9.4 Effect of Supplemental Indentures. --------------------------------- Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 9.5 Conformity with Trust Indenture Act. ----------------------------------- Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect. SECTION 9.6 Reference in Securities to Supplemental Indentures. -------------------------------------------------- Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture, provided that any failure by the -------- ---- Trustee to make such notation shall not affect the validity of the matter provided for in such supplemental indenture or any Security or Guarantee hereunder. If the Company shall so determine, new Securities or Guarantees so modified as 93 to conform, in the opinion of the Trustee, the Guarantors and the Company, to any such supplemental indenture may be prepared and executed by the Company or Guarantor and authenticated and delivered by the Trustee in exchange for Outstanding Securities. SECTION 9.7 Waiver of Certain Covenants. --------------------------- The Company may omit in any particular instance to comply with any covenant or condition set forth in Section 8.1, provided pursuant to Section 9.1(2) and set forth in Sections 10.4 to 10.12 and 10.15 to 10.18, inclusive, if before the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Securities shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such covenant or condition shall remain in full force and effect; provided, however, with respect to an Offer as to which an -------- ------- Offer to Purchase has been mailed, no such waiver may be made or shall be effective against any Holder tendering Securities pursuant to such Offer, and the Company may not omit to comply with the terms of such Offer as to such Holder. SECTION 9.8 No Liability for Certain Persons. -------------------------------- No director, officer, employee, or stockholder of the Company, nor any director, officer or employees of any Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the Securities, the Guarantees or this Indenture based on or by reason of such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. The foregoing waiver and release is an integral part of the consideration for the issuance of the Securities and the Guarantees. 94 ARTICLE X Covenants SECTION 10.1 Payment of Principal, Premium and Interest. ---------------------- The Company shall duly and punctually pay the principal of (and premium, if any) and interest on the Securities in accordance with the terms of the Securities and this Indenture. SECTION 10.2 Maintenance of Office or Agency. ------------------------------- The Company shall maintain in the Borough of Manhattan, The City of New York, an office or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company or any Guarantor in respect of the Securities, the Guarantees and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. In the event any such notice or demands are so made or served on the Trustee, the Trustee shall promptly forward copies thereof to the Company. The Company may also from time to time designate one or more other offices or agencies (in or outside the Borough of Manhattan, The City of New York) where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, -------- ------- that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or 95 rescission and of any change in the location of any such other office or agency. SECTION 10.3 Money for Security Payments to be Held in Trust. --------------------------- If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the principal of (and premium, if any) or interest on any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents, the Company will, prior to 11:00 a.m. New York City time on each due date of the principal of (and premium, if any) or interest on any Securities, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held as provided by the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company shall cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (i) comply with the provisions of the Trust Indenture Act applicable to it as Paying Agent and (ii) during the continuance of any default by the Company (or any other obligor upon the Securities) in the making of any payment in respect of the Securities, upon the written request of the Trustee, forthwith pay to the Trustee all sums held in trust by such Paying Agent as such. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon 96 which such sums were held by such Paying Agent; and, upon such payment by any Paying Agent (other than the Company) to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Security and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such -------- ------- Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 10.4 Existence; Activities. --------------------- Subject to Article VIII, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and material franchises; provided, however, that -------- ------- the Company shall not be required to preserve any such right or franchise if the Board of Directors of the Company in good faith shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. 97 SECTION 10.5 Maintenance of Properties. ------------------------- The Company shall cause all material properties used in the conduct of its business or the business of any Restricted Subsidiary to be maintained and kept in good condition, repair and working order (regular wear and tear excepted), all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall -------- ------- prevent the Company from disposing of any asset (subject to compliance with Section 10.14) or from discontinuing the operation or maintenance of any of such material properties if such discontinuance is, as determined by the Company in good faith, desirable in the conduct of its business or the business of any Restricted Subsidiary and not disadvantageous in any material respect to the Holders. SECTION 10.6 Payment of Taxes and Other Claims. --------------------------------- The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all taxes, assessments and governmental charges levied or imposed upon the Company or any of its Restricted Subsidiaries or upon the income, profits or property of the Company or any of its Restricted Subsidiaries, and (2) all lawful material claims for labor, materials and supplies which, if unpaid, might by law become a lien upon property of the Company or any of its Restricted Subsidiaries; provided, -------- however, that the Company shall not be required to pay or discharge or cause to - ------- be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION 10.7 Maintenance of Insurance. ------------------------ The Company shall, and shall cause its Restricted Subsidiaries to, keep at all times all of their material properties which are of an insurable nature insured against loss or damage with insurers believed by the Company to be responsible to the extent that property of similar character is usually so insured by corporations similarly situated and owning like properties in accordance with good business practice. 98 The Company shall, and shall cause its Restricted Subsidiaries to, use the proceeds from any such insurance policy to repair, replace or otherwise restore all material properties to which such proceeds relate, provided, however, that -------- ------- the Company shall not be required to repair, replace or otherwise restore any such material property if the Company in good faith determines that such inaction is desirable in the conduct of the business of the Company or any Restricted Subsidiary and not disadvantageous in any material respect to the Holders. SECTION 10.8 Limitation on Indebtedness. -------------------------- The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or in any manner become directly or indirectly liable, contingently or otherwise (in each case, to "incur"), for the payment of any Indebtedness (including any Acquired Indebtedness) other than Permitted Indebtedness; provided, however, -------- ------- that (i) the Company and any Guarantor will be permitted to incur Indebtedness (including Acquired Indebtedness), and (ii) a Restricted Subsidiary will be permitted to incur Acquired Indebtedness, if in each case, after giving pro forma effect to (1) the incurrence of such Indebtedness and (if applicable) the application of the net proceeds therefrom, including to refinance other Indebtedness, as if such Indebtedness were incurred at the beginning of the four full fiscal quarters immediately preceding such incurrence, taken as one period; (2) the incurrence, repayment or retirement of any other Indebtedness by the Company and its Restricted Subsidiaries since the first day of such four-quarter period as if such Indebtedness was incurred, repaid or retired at the beginning of such four-quarter period (except that, in making such computation, the amount of Indebtedness under any revolving credit facility shall be computed based upon the average daily balance of such Indebtedness during such four-quarter period); and (3) any Asset Sale or Asset Acquisition occurring since the first day of such four-quarter period (including to the date of calculation) as if such acquisition or disposition occurred at the beginning of such four-quarter period, the Consolidated Fixed Charge Coverage Ratio of the Company is at least 2:1. 99 SECTION 10.9 Limitation on Restricted Payments. --------------------------------- The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly: (a) declare or pay any dividend or make any other distribution or payment on or in respect of Capital Stock of the Company or any of its Restricted Subsidiaries or make any payment to the direct or indirect holders (in their capacities as such) of Capital Stock of the Company or any of its Restricted Subsidiaries (other than dividends or distributions payable solely in Capital Stock of the Company (other than Redeemable Capital Stock) or in options, warrants or other rights to purchase Capital Stock of the Company (other than Redeemable Capital Stock)) (other than the declaration or payment of dividends or other distributions to the extent declared or paid to the Company or any Restricted Subsidiary); (b) purchase, redeem, defease or otherwise acquire or retire for value any Capital Stock of the Company or any of its Restricted Subsidiaries or any options, warrants, or other rights to purchase any such Capital Stock (other than any securities owned by the Company or a Restricted Subsidiary); (c) make any principal payment on, or purchase, defease, repurchase, redeem or otherwise acquire or retire for value, prior to any scheduled maturity, scheduled repayment, scheduled sinking fund payment or other Stated Maturity, any Subordinated Indebtedness (other than any such Subordinated Indebtedness owned by the Company or a Restricted Subsidiary); or (d) make any Investment (other than any Permitted Investment) in any Person, (such payments or Investments described in the preceding clauses (a), (b), (c) and (d) are collectively referred to as "Restricted Payments"), unless, after giving effect to the proposed Restrict- 100 ed Payment (the amount of any such Restricted Payment, if other than cash, shall be the Fair Market Value of the asset(s) proposed to be transferred by the Company or such Restricted Subsidiary, as the case may be, pursuant to such Restricted Payment), (A) no Default or Event of Default shall have occurred and be continuing, (B) immediately after giving effect to such Restricted Payment, the Company would be able to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) (assuming a market rate of interest with respect to such additional Indebtedness) and (C) the aggregate amount of all Restricted Payments declared or made from and after the Issue Date would not exceed the sum of: (1) 50% of the aggregate Consolidated Net Income of the Company accrued on a cumulative basis during the period beginning on the Issue Date and ending on the last day of the fiscal quarter of the Company immediately preceding the date of such proposed Restricted Payment (or, if such aggregate cumulative Consolidated Net Income of the Company for such period shall be a deficit, minus 100% of such deficit); (2) the aggregate net cash proceeds received by the Company as capital contributions to the Company after the Issue Date and which constitute shareholders' equity of the Company in accordance with GAAP; (3) the aggregate net cash proceeds received by the Company from the issuance or sale of Capital Stock (excluding Redeemable Capital Stock) of the Company to any Person (other than to a Subsidiary of the Company) after the Issue Date; (4) the aggregate net cash proceeds received by the Company from any Person (other than a Subsidiary of the Company) upon the exercise of any options, warrants or rights to purchase shares of Capital Stock (other than Redeemable Capital Stock) of the Company after the Issue Date; (5) the aggregate net cash proceeds received after the Issue Date by the Company from any Person 101 (other than a Subsidiary of the Company) for debt securities that have been converted or exchanged into or for Capital Stock of the Company (other than Redeemable Capital Stock) (to the extent such debt securities were originally sold for cash) plus the aggregate amount of cash received by the Company (other than from a Subsidiary of the Company) in connection with such conversion or exchange; (6) in the case of the disposition or repayment of any Investment constituting a Restricted Payment after the Issue Date, an amount equal to the lesser of the return of capital with respect to such Investment and the initial amount of such Investment, in either case, less the cost of the disposition of such Investment; and (7) so long as the Designation (as defined in Section 10.18) thereof was treated as a Restricted Payment made after the Issue Date, with respect to any Unrestricted Subsidiary that has been redesignated as a Restricted Subsidiary after the Issue Date in accordance with Section 10.18 below, the Fair Market Value of the Company's interest in such Subsidiary, provided -------- that such amount shall not in any case exceed the Designation Amount (as ---- defined in Section 10.18) with respect to such Restricted Subsidiary upon its Designation, minus: the Designation Amount (measured as of the date of Designation) with respect to any Restricted Subsidiary of the Company which has been designated as an Unrestricted Subsidiary after the Issue Date in accordance with Section 10.18 below. For purposes of the preceding clause (C)(4), the value of the aggregate net proceeds received by the Company upon the issuance of Capital Stock upon the exercise of options, warrants or rights will be the net cash proceeds received upon the issuance of such options, warrants or rights plus the incremental amount received by the Company upon the exercise thereof. None of the foregoing provisions shall prohibit, so long, in the case of clauses (ii), (iii), (v) and (vi) 102 below, as there is no Default or Event of Default continuing, (i) the payment of any dividend or distribution within 60 days after the date of its declaration, if at the date of declaration such payment would be permitted by the first paragraph of this covenant; (ii) the redemption, repurchase or other acquisition or retirement of any shares of any class of Capital Stock of the Company in exchange for, or out of the net cash proceeds of, a substantially concurrent issue and sale of other shares of Capital Stock of the Company (other than Redeemable Capital Stock) to any Person (other than to a Subsidiary of the Company); provided, however, that such net cash proceeds are excluded from -------- ------- clause (C) of the first paragraph of this covenant; (iii) any redemption, repurchase or other acquisition or retirement of Subordinated Indebtedness by exchange for, or out of the net cash proceeds of, a substantially concurrent issue and sale of (1) Capital Stock (other than Redeemable Capital Stock) of the Company to any Person (other than to a Subsidiary of the Company); provided, -------- however, that any such net cash proceeds are excluded from clause (C) of the - ------- first paragraph of this covenant; or (2) Indebtedness of the Company so long as such Indebtedness is Subordinated Indebtedness which (w) has no scheduled principal payment prior to the 91st day after the Maturity Date, (x) has an Average Life to Stated Maturity greater than the remaining Average Life to Stated Maturity of the Securities and (y) is subordinated to the Securities in the same manner and to the same extent as the Subordinated Indebtedness so purchased, exchanged, redeemed, acquired or retired; (iv) Investments constituting Restricted Payments made as a result of the receipt of non-cash consideration from any Asset Sale or other sale of assets or property made pursuant to and in compliance with this Indenture; (v) payments to purchase Capital Stock of the Company from officers of the Company, pursuant to agreements in effect as of the Issue Date, in an amount not to exceed $15,000,000 in the aggregate; (vi) payments (other than those covered by clause (v)) to purchase Capital Stock of the Company from management or employees of the Company or any of its Subsidiaries, or their authorized representatives, upon the death, disability or termination of employment of such employees, in aggregate amounts under this clause (vi) not to exceed $1,000,000 in any fiscal year of the Company, and (vii) the payment of any dividend or distribution by a Restricted Subsidiary to the holders 103 of its Capital Stock on a pro rata basis. Any payments made pursuant to clauses -------- (i), (v) or (vi) of this paragraph shall be taken into account in calculating the amount of Restricted Payments made from and after the Issue Date. SECTION 10.10 Limitation on Preferred Stock of Restricted Subsidiaries. ----------------------------- The Company shall not permit any Restricted Subsidiary to issue any Preferred Stock other than Preferred Stock issued to the Company or a wholly- owned Restricted Subsidiary. The Company shall not sell, transfer or otherwise dispose of Preferred Stock issued by a Restricted Subsidiary of the Company or permit a Restricted Subsidiary to sell, transfer or otherwise dispose of Preferred Stock issued by a wholly-owned Restricted Subsidiary, other than to the Company or a Restricted Subsidiary. Notwithstanding the foregoing, nothing in this covenant shall prohibit Preferred Stock (other than Redeemable Capital Stock) issued by a Person prior to the time (A) such Person becomes a Restricted Subsidiary of the Company, (B) such Person merges with or into a Restricted Subsidiary of the Company or (C) a Restricted Subsidiary of the Company merges with or into such Person; provided, that such Preferred Stock was not issued or -------- ---- incurred by such Person in anticipation of a transaction contemplated by subclause (A), (B), or (C) above. SECTION 10.11 Limitation on Transactions with Affiliates. -------------------------- The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into any transaction or series of related transactions (including, without limitation, the sale, transfer, disposition, purchase, exchange or lease of assets, property or services) with, or for the benefit of, any of its Affiliates (other than Restricted Subsidiaries), except (a) on terms that are no less favorable to the Company or such Subsidiary, as the case may be, than those which could have been obtained in a comparable transaction at such time from Persons who are not Affiliates of the Company, (b) with respect to a transaction or series of related transactions involving 104 aggregate payments or value equal to or greater than $2,000,000 the Company shall have delivered an Officer's Certificate to the Trustee certifying that such transaction or transactions comply with the preceding clause (a), and (c) with respect to a transaction or series of related transactions involving aggregate payments or value equal to or greater than $5,000,000, such transaction or transactions shall have been approved by a majority of the Disinterested Members of the Board of Directors of the Company. Notwithstanding the foregoing, the restrictions set forth in this covenant shall not apply to (i) transactions with or among the Company and the Restricted Subsidiaries of the Company, (ii) customary directors' fees, indemnification and similar arrangements, consulting fees, employee salaries, bonuses or employment agreements, compensation or employee benefit arrangements and incentive arrangements with any officer, director or employee of the Company or any Restricted Subsidiary entered into in the ordinary course of business, (iii) any dividends made in compliance with Section 10.9, (iv) loans and advances to officers, directors and employees of the Company or any Restricted Subsidiary for travel, entertainment, moving and other relocation expenses, in each case made in the ordinary course of business, (v) the incurrence of intercompany Indebtedness which constitutes Permitted Indebtedness, (vi) transactions pursuant to agreements in effect on the Issue Date, and (vii) the purchase of equipment for its Fair Market Value from Terex Corporation or its Affiliates in the ordinary course of business of each of Terex Corporation and the Company. SECTION 10.12 Limitation on Liens. ------------------- The Company shall not, and shall not permit any of its Restricted Subsidiaries to, create, incur, assume or suffer to exist any Liens of any kind against or upon any of its property or assets, or any proceeds therefrom, unless the Securities are equally and ratably secured (except that Liens securing Subordinated Indebtedness shall be expressly subordinate to Liens securing the Securities to the same extent such Subordinated Indebtedness is subordinate to the Securities), except for (a) Liens securing Senior Indebtedness or Guarantor Senior Indebtedness; (b) Liens securing the Securities; 105 (c) Liens in favor of the Company on assets of any Subsidiary of the Company; (d) Liens securing Indebtedness which is incurred to refinance Indebtedness which has been secured by a Lien permitted under the Indenture and which has been incurred in accordance with the provisions of this Indenture; provided, -------- however, that such Liens do not extend to or cover any property or assets of the - ------- Company or any its Restricted Subsidiaries not securing the Indebtedness so refinanced; and (e) Permitted Liens. SECTION 10.13 Change of Control. ----------------- On or before the 30th day after the date of the occurrence of a Change of Control (the "Change of Control Date"), the Company shall make an Offer to Purchase (a "Change of Control Offer") on a Business Day not more than 60 nor less than 30 days following the occurrence of the Change of Control, (the "Change of Control Purchase Date") all of the then Outstanding Securities tendered at a purchase price (the "Change of Control Purchase Price") equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, thereon to the Change of Control Purchase Date. The Company shall be required to purchase all Securities tendered into the Change of Control Offer and not withdrawn. On the Change of Control Purchase Date, the Company shall (i) accept for payment Securities or portions thereof (not less than $1,000 principal amount and integral multiples thereof) tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent money, in immediately available funds, sufficient to pay the purchase price of all Securities or portions thereof so tendered and accepted and (iii) deliver to the Trustee the Securities so accepted together with an Officer's Certificate setting forth the Securities or portions thereof tendered to and accepted for payment by the Company. The Paying Agent shall promptly mail or deliver to the Holders of Securities so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and make available for delivery to such Holders a new Security of like tenor equal in principal amount to any unpurchased portion of the Security surrendered. Any Securities not so accept- 106 ed shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Change of Control Offer not later than the third Business Day following the Change of Control Purchase Date. The Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements applicable to a Change of Control Offer made by the Company and purchases all Securities validly tendered and not withdrawn under such Change of Control Offer. The Company shall comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder, to the extent such laws or regulations are applicable, in the event that a Change of Control occurs and the Company is required to purchase Securities as described above. SECTION 10.14 Disposition of Proceeds of Asset Sales. -------------------------------------- The Company will not, and will not permit any of its Restricted Subsidiaries to, make any Asset Sale unless (a) the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the shares or assets sold or otherwise disposed of and (b) at least 75% of such consideration consists of cash or Cash Equivalents or Replacement Assets; provided, however, that (i)the -------- ------- amount of any liabilities (as shown on the most recent balance sheet of the Company or such Restricted Subsidiary) of the Company or such Restricted Subsidiary that are assumed by the transferee of such assets and (ii) any securities, notes or other obligations received by the Company or such Restricted Subsidiary from such transferee that are converted within 30 days into cash or Cash Equivalents (to the extent of the cash or Cash Equivalents received) shall be deemed to be cash for the purposes of this provision; provided further, that the 75% limitation referred to in clause (b) will not - -------- ------- apply to any Asset Sale in which the cash or Cash Equivalent portion of the consideration received therefrom, determined in accordance with the foregoing provision, is equal to or greater than what 107 the after-tax proceeds would have been had such Asset Sale complied with the aforementioned 75% limitation. To the extent that the Net Cash Proceeds of any Asset Sale are not required to be applied to repay, and permanently reduce the commitments under, the Credit Facility, or are not so applied, the Company or such Restricted Subsidiary, as the case may be, may apply the Net Cash Proceeds from such Asset Sale, within 360 days of such Asset Sale, to an investment in properties and assets that replace the properties and assets that were the subject of such Asset Sale or in properties and assets that are used or useful in the business of the Company and its Restricted Subsidiaries conducted at such time or in businesses reasonably related thereto or in Capital Stock of a Person, the principal portion of whose assets consist of such property or assets ("Replacement Assets"). Any Net Cash Proceeds from any Asset Sale that are neither used to repay, and permanently reduce the commitments under, the Credit Facility nor invested in Replacement Assets within such 360-day period constitute "Excess Proceeds" subject to disposition as provided below. When the aggregate amount of Excess Proceeds equals or exceeds $10,000,000, the Company shall make an offer to purchase (an "Asset Sale Offer"), from all holders of the Securities, an aggregate principal amount of Securities equal to such Excess Proceeds, at a price in cash equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest, if any, thereon to the Purchase Date (the "Asset Sale Offer Price"). To the extent that the aggregate principal amount of Securities tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use such deficiency for general corporate purposes. The Securities shall be purchased by the Company, at the option of the Holder thereof, in whole or in part in integral multiples of $1,000, on a date that is not earlier than 30 days and not later than 60 days from the date the notice is given to Holders, or such later date as may be necessary for the Company to comply with the requirements under the Exchange Act. If Securities purchasable at an aggregate Purchase Price in excess of the Purchase Amount are tendered and not withdrawn pursuant to the Asset Sale Offer to Purchase, the Company shall purchase Securities on a pro rata basis, based on -------- the Purchase Price therefor, or such other method as the Trustee 108 shall deem fair and appropriate (subject in each case to applicable rules of the Depository and any securities exchange upon which the Securities may then be listed), with such adjustments as may be deemed appropriate so that only Securities in denominations of $1,000 principal face amount or integral multiples thereof shall be purchased. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be reset to zero. On the Asset Sale Offer Purchase Date, the Company shall (i) accept for payment (subject to pro ration as described in the Offer to Purchase) Securities or portions thereof tendered pursuant to the Asset Sale Offer, (ii) deposit with the Paying Agent money, in immediately available funds, sufficient to pay the purchase price of all Securities or portions thereof so tendered and accepted and (iii) deliver to the Trustee the Securities so accepted together with an Officer's Certificate setting forth the Securities or portions thereof tendered to and accepted for payment by the Company. The Paying Agent shall promptly mail or deliver to the Holders of Securities so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and make available for delivery to such Holders a new Security of like tenor equal in principal amount to any unpurchased portion of the Security surrendered. Any Securities not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer not later than the third business Day following the Asset Sale Offer Purchase Date. Whenever the aggregate amount of Excess Proceeds received by the Company and its Restricted Subsidiaries exceeds $10,000,000, such Excess Proceeds shall, prior to the purchase of Securities, be set aside by the Company or such Restricted Subsidiary, as the case may be, in a separate account pending (i) deposit with the Paying Agent of the amount required to purchase the Securities tendered in an Asset Sale Offer or (ii) delivery by the Company of the Asset Sale Offer Price to the Holders of the Securities validly tendered and not withdrawn pursuant to an Asset Sale Offer. Such Excess Proceeds may be invested in Cash Equivalents, as directed by the Company, having a maturity date which is not 109 later than the earliest possible date for purchase of Securities pursuant to the Asset Sale Offer. The Company will be entitled to any interest or dividends accrued, earned or paid on such Cash Equivalents. The Company shall comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder, to the extent such laws and regulations are applicable, in the event that an Asset Sale occurs and the Company is required to purchase Securities as described above. SECTION 10.15 Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries. --------------------------------- The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary of the Company to (a) pay dividends, in cash or otherwise, or make any other distributions on or in respect of its Capital Stock or any other interest or participation in, or measured by, its profits, (b) pay any Indebtedness owed to the Company or any other Restricted Subsidiary of the Company, (c) make loans or advances to the Company or any other Restricted Subsidiary of the Company, (d) transfer any of its properties or assets to the Company or any other Restricted Subsidiary of the Company or (e) guarantee any Indebtedness of the Company or any other Restricted Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of (i) applicable law or any applicable rule, regulation or order, (ii) customary non-assignment provisions of any contract or any lease governing a leasehold interest of the Company or any Restricted Subsidiary of the Company, (iii) customary restrictions on transfers of property subject to a Lien permitted under this Indenture, (iv) the Credit Facility as in effect on the Issue Date, (v) any agreement or other instrument of a Person acquired by the Company or any Restricted Subsidiary of the Company in existence at the time of such acquisition (but not created in contemplation thereof), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the 110 Person, so acquired, (vi) an agreement entered into for the sale or disposition of Capital Stock or assets of a Restricted Subsidiary or an agreement entered into for the sale of specified assets (in either case, so long as such encumbrance or restriction, by its terms, terminates on the earlier of the termination of such agreement or the consummation of such agreement and so long as such restriction applies only to the Capital Stock or assets to be sold), (vii) any agreement in effect on the Issue Date, (viii) this Indenture and the Guarantees, and (ix) any agreement that amends, extends, refinances, renews or replaces any agreement described in the foregoing clauses, provided that the -------- terms and conditions of any such agreement are not materially less favorable to the Holders of the Securities with respect to such dividend and payment restrictions than those under or pursuant to the agreement amended, extended, refinanced, renewed or replaced. SECTION 10.16 Limitation on Issuance of Subordinated Indebtedness. ------------------------- The Company shall not, directly or indirectly, incur any Indebtedness (including Acquired Indebtedness) that is subordinate in right of payment to any Indebtedness of the Company and senior in right of payment to the Securities. SECTION 10.17 Additional Subsidiary Guarantees. -------------------------------- If the Company or any of its Restricted Subsidiaries acquires, creates or designates another United States Restricted Subsidiary, then such newly acquired, created or designated Restricted Subsidiary shall, within 30 days after the date of its acquisition, creation or designation, whichever is later, (i) execute and deliver to the Trustee a supplemental indenture in form reasonably satisfactory to the Trustee pursuant to which such Subsidiary shall unconditionally guarantee all of the Company's obligations under the Securities and this Indenture on the terms set forth in this Indenture and (ii) deliver to the Trustee an opinion of counsel that such supplemental indenture has been duly authorized, executed and delivered by such Subsidiary and constitutes a legal, valid, binding and enforceable obligation of such Subsidiary, subject to normal exceptions, provided that if such Subsidiary (a) is not incorporated ------------- 111 or organized in the State of New York or the State of Delaware and (b) is not a Significant Subsidiary of the Company, such opinion of counsel may assume due authorization, execution and delivery of such supplemental indenture. Thereafter, such Subsidiary shall be a Guarantor for all purposes of this Indenture. SECTION 10.18 Limitations on Designation of Unrestricted Subsidiaries. ---------------------------- (a) The Company may designate after the Issue Date any Restricted Subsidiary as an "Unrestricted Subsidiary" under this Indenture (a "Designation") only if: (i) no Default shall have occurred and be continuing at the time of or after giving effect to such Designation; (ii) the Company would be permitted to make an Investment (other than a Permitted Investment, except a Permitted Investment covered by clause (x) of the definition thereof) at the time of Designation (assuming the effectiveness of such Designation) pursuant to the first paragraph of Section 10.9 in an amount (the "Designation Amount") equal to the Fair Market Value of the Company's interest in such Subsidiary on such date calculated in accordance with GAAP; and (iii) the Company would be permitted under this Indenture to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 10.8 at the time of such Designation (assuming the effectiveness of such Designation). In the event of any such Designation, the Company shall be deemed to have made an Investment constituting a Restricted Payment pursuant to Section 10.9 for all purposes of this Indenture in the Designation Amount. The Company shall not, and shall not cause or permit any Restricted Subsidiary to, at any time (x) provide credit support for or subject any of its proper- 112 ty or assets (other than the Capital Stock of any Unrestricted Subsidiary) to the satisfaction of, any Indebtedness of any Unrestricted Subsidiary (including any undertaking, agreement or instrument evidencing such Indebtedness), (y) be directly or indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z) be directly or indirectly liable for any Indebtedness which provides that the holder thereof may (upon notice, lapse of time or both) declare a default thereon or cause the payment thereof to be accelerated or payable prior to its final scheduled maturity upon the occurrence of a default with respect to any Indebtedness of any Unrestricted Subsidiary (including any right to take enforcement action against such Unrestricted Subsidiary), except any non-recourse guarantee given solely to support the pledge by the Company or any Restricted Subsidiary of the Capital Stock of an Unrestricted Subsidiary. All Subsidiaries of Unrestricted Subsidiaries shall automatically be deemed to be Unrestricted Subsidiaries. (b) The Company may revoke any Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation") if: (i) no Default shall have occurred and be continuing at the time of and after giving effect to such Revocation, and (ii) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately following such Revocation would, if incurred at such time by a Restricted Subsidiary, have been permitted to be incurred for all purposes of this Indenture. (c) In the event the Company or a Restricted Subsidiary makes any Investment in any Person which was not previously a Subsidiary and such Person thereby becomes a Subsidiary, such Person shall automatically be an Unrestricted Subsidiary and the Company may designate such Subsidiary as a Restricted Subsidiary only if it meets the foregoing requirements of clauses (i) and (ii) of paragraph (b). 113 (d) All Designations and Revocations must be evidenced by Board Resolutions of the Company delivered to the Trustee certifying compliance with the foregoing provisions. SECTION 10.19 Provision of Financial Information. ---------------------------------- For so long as the Securities are outstanding, whether or not the Company is subject to Section 13(a) or 15(d) of the Exchange Act, or any successor provision thereto, the Company shall file with the Commission (if permitted by Commission practice and applicable law and regulations) the annual reports, quarterly reports and other documents which the Company would have been required to file with the Commission pursuant to such Section 13(a) or 15(d) or any successor provision thereto if the Company were so subject, such documents to be filed with the Commission on or prior to the respective dates (the "Required Filing Dates") by which the Company would have been required so to file such documents if the Company were so subject. The Company shall also in any event (a) within 15 days after each Required Filing Date (whether or not permitted or required to be filed with the Commission) (i) transmit (or cause to be transmitted) by mail to all Holders of Securities, as their names and addresses appear in the Securities register, without cost to such Holders, and (ii) file with the Trustee, copies of the annual reports, quarterly reports and other documents which the Company would be required to file with the Commission if the Securities were then registered under the Exchange Act. In addition, for so long as any Securities remain outstanding, the Company will furnish to the Holders of Securities and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act, and, to any beneficial holder of Securities, if not obtainable from the Commission, information of the type that would be filed with the Commission pursuant to the foregoing provisions upon the request of any such Holder. SECTION 10.20 Statement by Officers as to 114 Default; Compliance Certificates. -------------------------------- (a) The Company shall deliver to the Trustee, prior to March 31 in each year commencing March 31, 1999, an Officer's Certificate, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder), and if the Company shall be in default, specifying all such defaults and the nature and status thereof of which he may have knowledge. (b) The Company shall deliver to the Trustee, as soon as possible and in any event within five days after the Company becomes aware of the occurrence of a Default or an Event of Default, an Officer's Certificate setting forth the details of such Default or Event of Default, and the action which the Company proposes to take with respect thereto. ARTICLE XI Redemption of Securities SECTION 11.1 Right of Redemption. ------------------- The Securities may be redeemed at the election of the Company, in the amounts, at the times, at the Redemption Prices (together with any applicable accrued and unpaid interest to the Redemption Date), and subject to the conditions specified in the form of Security and hereinafter set forth. SECTION 11.2 Applicability of Article. ------------------------ Redemption of Securities at the election of the Company, as permitted by this Indenture and the provisions of the Securities, shall be made in accordance with such provisions and this Article. SECTION 11.3 Election to Redeem; Notice to Trustee. ------------------------------------- The election of the Company to redeem any Securities pursuant to Section 11.1 shall be evidenced by a Board Resolution. In the event of any redemption 115 at the election of the Company pursuant to Section 11.1, the Company shall notify the Trustee, in case of a redemption of less than all the Securities, at least 60 days, and in the case of a redemption of all the Securities, at least 40 days, prior to the Redemption Date fixed by the Company (in each case, unless a shorter notice shall be satisfactory to the Trustee)of such Redemption Date and of the principal amount of Securities to be redeemed. SECTION 11.4 Selection by Trustee of Securities to Be Redeemed. ------------------------- In the event that less than all of the Securities are to be redeemed at any time, selection of such Securities for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Securities are listed or, if the Securities are not then listed on a national securities exchange, on a pro rata basis, by lot -------- or by such method as the Trustee shall deem fair and appropriate (subject to the rules of the Depository); provided, however, that Securities shall only be -------- ------- redeemable in amounts of $1,000 or an integral multiple of $1,000. The Trustee shall promptly notify the Company and each Security Registrar in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture and of the Securities, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. SECTION 11.5 Notice of Redemption. -------------------- Notice of redemption shall be given by first class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Security Register. 116 All notices of redemption shall identify the Securities to be redeemed (including, if used, CUSIP or CINS numbers) and shall state: (i) the Redemption Date, (ii) the Redemption Price, (iii) if less than all the Outstanding Securities are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Securities to be redeemed, (iv) that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be redeemed and that interest thereon will cease to accrue on and after such Redemption Date, (v) the place or places where such Securities are to be surrendered for payment of the Redemption Price, and (vi) if the redemption is being made pursuant to the provisions of the Securities regarding a Public Equity Offering, a brief description of the transaction or transactions giving rise to such redemption, the nature and amount of Qualified Equity Interests sold by the Company thereto in such transaction or transactions, the aggregate purchase price thereof and the net cash proceeds therefrom available for such redemption, the date or dates on which such transaction or transactions were completed and the percentage of the aggregate principal amount of Outstanding Securities being redeemed. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company and shall be irrevocable. 117 SECTION 11.6 Deposit of Redemption Price. --------------------------- Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.3) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) any applicable accrued interest on, all the Securities which are to be redeemed on that date. SECTION 11.7 Securities Payable on Redemption Date. ------------------------------------- Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and any applicable accrued interest) such Securities shall not bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with any applicable accrued and unpaid interest to the Redemption Date; provided, -------- however, that installments of interest whose Stated Maturity is on or prior to - ------- the Redemption Date shall be payable to the Holders of such Securities, or one or more predecessor securities, registered as such at the close of business on the relevant record dates according to their terms and the provisions of Section 3.7. If any Security called for redemption in accordance with the election of the Company made pursuant to Section 11.1 shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate provided by the Security. SECTION 11.8 Securities Redeemed in Part. --------------------------- Any Security which is to be redeemed only in part shall be surrendered at an office or agency of the Company designated for that purpose pursuant to Section 10.2 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer 118 in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder, in aggregate principal amount at Stated Maturity equal to and in exchange for the unredeemed portion of the principal amount at Stated Maturity of the Security so surrendered. ARTICLE XII Defeasance and Covenant Defeasance SECTION 12.1 Company's Option to Effect Defeasance or Covenant Defeasance. --------------------------------- The Company may elect, at its option at any time, to have Section 12.2 or Section 12.3 applied to the Outstanding Securities (as a whole and not in part) upon compliance with the conditions set forth below in this Article. Any such election shall be evidenced by a Board Resolution. SECTION 12.2 Defeasance and Discharge. ------------------------ Upon the Company's exercise of its option to have this Section applied to the Outstanding Securities (as a whole and not in part), the Company shall be deemed to have been discharged from its obligations with respect to such Securities as provided in this Section on and after the date the conditions set forth in Section 12.4 are satisfied (hereinafter called "Defeasance"). For this purpose, such Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by such Securities and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), subject to the following which shall survive until otherwise terminated or discharged hereunder: (1) the rights of Holders of Outstanding Securities to receive, solely from the trust fund described in Section 12.4 and as more fully set forth in such Sec- 119 tion, payments in respect of the principal of, premium, if any, and interest on such Securities when payments are due, (2) the Company's obligations with respect to such Securities under Sections 3.4, 3.5, 3.6, 10.2 and 10.3, (3) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (4) this Article. Subject to compliance with this Article, the Company may exercise its option to have this Section applied to the Outstanding Securities (as a whole and not in part) notwithstanding the prior exercise of its option to have Section 12.3 applied to such Securities. SECTION 12.3 Covenant Defeasance. ------------------- Upon the Company's exercise of its option to have this Section applied to the Outstanding Securities (as a whole and not in part), (i) the Company shall be released from its obligations under Section 8.1(3), Sections 10.5 through 10.19, inclusive, and any covenant provided pursuant to Section 9.1(2) and the Guarantors shall be released from their obligations under Article XIII and the Guarantees (ii) the occurrence of any event specified in Sections 5.1(3) and 5.1(4) (with respect to Section 8.1(3) and any of Sections 10.5 through 10.19, inclusive, and any such covenants provided pursuant to Section 9.1(2)), shall be deemed not to be or result in an Event of Default, in each case with respect to such Securities as provided in this Section on and after the date the conditions set forth in Section 12.4 are satisfied (hereinafter called "Covenant Defeasance"). For this purpose, such Covenant Defeasance means that, with respect to such Securities, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such specified Section (to the extent so specified in the case of Section 5.1(3) or 5.1(4)), whether directly or indirectly, by reason of any reference elsewhere herein to any such Section or by reason of any reference in any such Section to any other provision herein or in any other document, but the remainder of this Indenture and such Securities shall be unaffected thereby. SECTION 12.4 Conditions to Defeasance or Covenant Defeasance. ------------------------ 120 The following shall be the conditions to the application of Section 12.2 or Section 12.3 to the Outstanding Securities: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee which satisfies the requirements contemplated by Section 6.9 and agrees to comply with the provisions of this Article applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefits of the Holders of such Securities, (A) money in an amount, or (B) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (C) a combination thereof, in each case sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or any such other qualifying trustee) to pay and discharge, the principal of, premium, if any, and any instalment of interest on such Securities on the respective Stated Maturities thereof, in accordance with the terms of this Indenture and such Securities. As used herein, "U.S. Government Obligation" means (x) any security which is (i) a direct obligation of the United States of America for the payment of which the full faith and credit of the United States of America is pledged or (ii) an obligation of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case (i) or (ii), is not callable or redeemable at the option of the issuer thereof, and (y) any depositary receipt issued by a bank (as defined in Section 3(a) (2) of the Securities Act) as custodian with respect to any U.S. Government Obligation which is specified in clause (x) above and held by such bank for the account of the holder of such depositary receipt, or with respect to any specific payment of principal of or interest on any 121 U.S. Government Obligation which is so specified and held, provided that -------- ---- (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal or interest evidenced by such depositary receipt. (2) In the event of an election to have Section 12.2 apply to the Outstanding Securities, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this instrument, there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of such Securities will not recognize gain or loss for Federal income tax purposes as a result of the deposit, Defeasance and discharge to be effected with respect to such Securities and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would be the case if such deposit, Defeasance and discharge were not to occur. (3) In the event of an election to have Section 12.3 apply to the Outstanding Securities, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of such Securities will not recognize gain or loss for Federal income tax purposes as a result of the deposit and Covenant Defeasance to be effected with respect to such Securities and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would be the case if such deposit and Covenant Defeasance were not to occur. (4) No Default or Event of Default with respect to the Outstanding Securities shall have occurred and be continuing at the time of such deposit (excluding a Default or Event of Default due to a breach of Section 10.8 which arises solely due to 122 the borrowing of funds entirely and immediately applied to such deposit). (5) Such Defeasance or Covenant Defeasance shall not cause the Trustee to have a conflicting interest with respect to any securities of the Company or any Guarantor. (6) Such Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company or any Subsidiary is a party or by which it is bound. (7) The Company shall have delivered to the Trustee an Opinion of Counsel (which opinion may be subject to customary assumptions and exceptions) to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally. (8) The Company shall have delivered to the Trustee an Officer's Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of the Securities over the other creditors of the Company or any Guarantor with the intent of defeating, hindering, delaying or defrauding creditors of the Company or any Guarantor or others. (9) No event or condition shall exist that would prevent the Company from making payments of the principal of, premium, if any, and interest on the Securities on the date of such deposit or at any time ending on the 91st day after the date of such deposit. (10) The Company shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent under this Indenture to either Defeasance or Covenant Defeasance, as the case may be, have been complied with. 123 SECTION 12.5 Deposited Money and U.S. Government Obligations to Be Held in Trust; Miscellaneous Provisions. ----------------------------------- Subject to the provisions of the last paragraph of Section 10.3, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee or other qualifying trustee (solely for purposes of this Section and Section 12.6, the Trustee and any such other trustee are referred to collectively as the "Trustee") pursuant to Section 12.4 in respect of the Outstanding Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any such Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities, of all sums due and to become due thereon in respect of principal and any premium and interest, but money so held in trust need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 12.4 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of Outstanding Securities. Anything in this Article to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 12.4 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect the Defeasance or Covenant Defeasance, as the case may be, with respect to the Outstanding Securities. SECTION 12.6 Reinstatement. ------------- If the Trustee or the Paying Agent is unable to apply any money in accordance with this Article with 124 respect to any Securities by reason of any order or judgment of any court or governmental authority enjoining, restraining, or otherwise prohibiting such application, then the obligations under this Indenture, such Securities and the Guarantees from which the Company and the Guarantors have been discharged or released pursuant to Section 12.2 or 12.3 shall be revived and reinstated as though no deposit had occurred pursuant to this Article with respect to such Securities, until such time as the Trustee or Paying Agent is permitted to apply all money held in trust pursuant to Section 12.5 with respect to such Securities in accordance with this Article; provided, however, that if the Company makes -------- ------- any payment of principal of or any premium or interest on any such Security following such reinstatement of its obligations, the Company shall be subrogated to the rights (if any) of the Holders of such Securities to receive such payment from the money so held in trust. ARTICLE XIII Guaranty SECTION 13.1 Guaranty. -------- Each Guarantor hereby unconditionally and irrevocably guarantees on a senior subordinated basis, jointly and severally, to each Holder and to the Trustee and its successors and assigns (a) the full and prompt payment (within applicable grace periods) of principal of and interest on the Securities when due, whether at maturity, by acceleration, by redemption or otherwise, and all other monetary obligations of the Company under this Indenture and the Securities and (b) the full and prompt performance within applicable grace periods of all other obligations of the Company under this Indenture and the Securities (all the foregoing being hereinafter collectively called the "Guaranty Obligations"). Each Guarantor further agrees that the Guaranty Obligations may be extended or renewed, in whole or in part, without notice or further assent from such Guarantor, and that such Guarantor will remain bound under this Article XIII notwithstanding any extension or renewal of any Guaranty Obligation. 125 To the extent that any Guarantor shall be required to pay any amounts on account of the Securities pursuant to a Guaranty in excess of an amount calculated as the product of (i) the aggregate amount payable by the Guarantors on account of the Securities pursuant to the Guarantees times (ii) the proportion (expressed as a fraction) that such Guarantor's net assets (determined in accordance with GAAP) at the date enforcement of the Guarantees is sought bears to the aggregate net assets (determined in accordance with GAAP) of all Guarantors at such date, then such Guarantor shall be reimbursed by the other Guarantors for the amount of such excess, pro rata, based upon the -------- respective net assets (determined in accordance with GAAP) of such other Guarantors at the date enforcement of the Guarantees is sought. This paragraph is intended only to define the relative rights of Guarantors as among themselves, and nothing set forth in this paragraph is intended to or shall impair the joint and several obligations of the Guarantors under their respective Guarantees. The Guarantors shall have the right to seek contribution from any non- paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under any Guaranty. Each Guarantor waives presentation to, demand of payment from and protest to the Company of any of the Guaranty Obligations and also waives notice of protest for nonpayment. Each Guarantor waives notice of any default under the Securities or the Guaranty Obligations. The obligations of each Guarantor hereunder shall not be affected by (a) the failure of any Holder or the Trustee to assert any claim or demand or to enforce any right or remedy against the Company or any other Person under this Indenture, the Securities or any other agreement or otherwise; (b) any extension or renewal of any thereof; (c) any rescission, waiver, amendment or modification of any of the terms or provisions of this Indenture, the Securities or any other agreement; (d) the release of any security held by any Holder or the Trustee for the Guaranty Obligations or any of them; (e) the failure of any Holder or Trustee to exercise any right or remedy against any other guarantor of the Guaranty Obligations; or (f) any change in the ownership of any Guarantor (subject to Section 13.5(b)). 126 Each Guarantor further agrees that its Guaranty herein constitutes a guaranty of payment, performance and compliance when due (and not a guaranty of collection) and waives any right to require that any resort be had by any Holder or the Trustee to any security held for payment of the Guaranty Obligations. To the fullest extent permitted by law, the obligations of each Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense of setoff, counterclaim, recoupment or termination whatsoever or by reason of the invalidity, illegality or unenforceability of the Guaranty Obligations or otherwise. Without limiting the generality of the foregoing, to the fullest extent permitted by law, the obligations of each Guarantor herein shall not be discharged or impaired or otherwise affected by the failure of any Holder or the Trustee to assert any claim or demand or to enforce any remedy under this Indenture, the Securities or any other agreement, by any waiver or modification of any thereof, by any default, failure or delay, wilful or otherwise, in the performance of the Guaranty Obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of such Guarantor or would otherwise operate as a discharge of each Guarantor as a matter of law or equity. Each Guarantor further agrees that its Guaranty herein shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of or interest on any Guaranty Obligation is rescinded or must otherwise be restored by any Holder or the Trustee upon the bankruptcy or reorganization of the Company or otherwise. In furtherance of the foregoing and not in limitation of any other right which any Holder or the Trustee has at law or in equity against each Guarantor by virtue hereof, upon the failure of the Company to pay the principal of or interest on any Guaranty Obligation when and as the same shall become due, whether at maturity, by acceleration, by redemption or otherwise (within applicable grace periods), or to perform or 127 comply with any other Guaranty Obligation (within applicable grace periods), each Guarantor hereby promises to and shall, upon receipt of written demand by the Trustee, forthwith pay, or cause to be paid, in cash, to the Holders or the Trustee an amount equal to the sum of (i) the unpaid principal amount of such Guaranty Obligations, (ii) accrued and unpaid interest on such Guaranty Obligations (but only to the extent not prohibited by law) and (iii) all other monetary Guaranty Obligations of the Company to the Holders and the Trustee. Each Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any Guaranty Obligations guarantied hereby until payment in full of all Guaranty Obligations. Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the Guaranty Obligations guarantied hereby may be accelerated as provided in Article V for the purposes of its Guaranty herein, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Guaranty Obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such Guaranty Obligations as provided in Article V, such Guaranty Obligations (whether or not due and payable) shall forthwith become due and payable by each Guarantor for the purposes of this Section. Each Guarantor also agrees to pay any and all costs and expenses (including reasonable attorneys' fees and expenses) incurred by the Trustee or any Holder in enforcing any rights under this Section. SECTION 13.2 Limitation on Liability. ----------------------- Any term or provision of this Indenture to the contrary notwithstanding, the maximum aggregate amount of the obligations guaranteed hereunder by each Guarantor shall not exceed the maximum amount that can be hereby guaranteed without rendering this Indenture, as it relates to such Guarantor, voidable under applicable federal or state law relating to fraudulent conveyance or fraudulent transfer. SECTION 13.3 Execution and Delivery of Guarantees. ------------------------------------ 128 The Guarantees to be endorsed on the Securities shall be in the form set forth in Exhibit D. Each of the Guarantors hereby agrees to execute its --------- Guaranty in such form, to be endorsed on each Security authenticated and delivered by the Trustee. Each Guaranty shall be executed on behalf of each respective Guarantor by any one of such Guarantor's Chairman of the Board, Vice Chairman of the Board, President, Chief Financial Officer, or Vice Presidents. The signature of any or all of these officers on the Guaranty may be manual or facsimile. A Guaranty bearing the manual or facsimile signatures of individuals who were at any time the proper officers of a Guarantor shall bind such Guarantor, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of the Security on which such Guaranty is endorsed or did not hold such offices at the date of such Guaranty. Each Guaranty shall be registered, transferred, exchanged and cancelled, and shall be held in definitive or global form, in the same manner and together with, the Security to which it relates, in accordance with Article III. The delivery of any Security by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Guaranty endorsed thereon on behalf of the Guarantors. Each of the Guarantors hereby jointly and severally agrees that its Guaranty set forth in Section 13.1 shall remain in full force and effect notwithstanding any failure to endorse a Guaranty on any Security. SECTION 13.4 Guarantors May Consolidate, Etc., on Certain Terms. ------------------------------------ Except as may be provided in Section 13.5 and in Articles VIII and X, nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of a Guarantor with or into the Company or a Guarantor or shall prevent any sale or conveyance of the assets of a Guarantor as an entirety 129 or substantially as an entirety or the Capital Stock of a Guarantor to the Company or a Guarantor. SECTION 13.5 Release of Guarantors. --------------------- (a) Concurrently with any consolidation or merger of a Guarantor or any sale or conveyance of the assets of a Guarantor as an entirety or substantially as an entirety, in each case as permitted by Section 13.4 hereof in accordance with the other provisions of this Indenture (including, without limitation, Sections 10.9, 10.11 and 10.14) and as a result of which such Guarantor ceases to be a Subsidiary of the Company, upon delivery by the Company to the Trustee of an Officer's Certificate to the effect that such consolidation, merger, sale or conveyance was made in accordance with Section 13.4 and the other provisions hereof and an Opinion of Counsel to the effect that such transaction is permitted by this Indenture (which opinion may be subject to customary assumptions and limitations), the Trustee shall execute any documents reasonably required in order to evidence the release of such Guarantor from its obligations under its Guaranty endorsed on the Securities and under this Article XIII. Any Guarantor not released from its obligations under its Guaranty endorsed on the Securities and under this Article XIII shall remain liable for the full amount of principal of and premium, if any, and interest on the Securities and for the other obligations of a Guarantor under its Guaranty endorsed on the Securities and under this Article XIII. (b) Except as provided by clause (a) hereof, upon the consummation of any transaction (whether involving a sale or other disposition of securities, a merger, or otherwise, including any Asset Sale) whereby any Guarantor ceases to be a Subsidiary and which transaction is otherwise in compliance with the provisions of this Indenture, such Guarantor shall automatically be released from all obligations under its Guaranty endorsed on the Securities and under this Article XIII without need for any further act or the execution or delivery of any document. SECTION 13.6 Successors and Assigns. ---------------------- 130 This Article XIII shall be binding upon each Guarantor and its successors and assigns and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges conferred upon that party in this Indenture and in the Securities shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions of this Indenture. SECTION 13.7 No Waiver, etc. --------------- Neither a failure nor a delay on the part of either the Trustee or the Holders in exercising any right, power or privilege under this Article XIII shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of any right, power or privilege. The rights, remedies and benefits of the Trustee and the Holders herein expressly specified are cumulative and not exclusive of any other rights, remedies or benefits which either may have under this Article XIII at law, in equity, by statute or otherwise. SECTION 13.8 Modification, etc. ------------------ No modification, amendment or waiver of any provision of this Article, nor the consent to any departure by a Guarantor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Trustee, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on a Guarantor in any case shall entitle such Guarantor or any other guarantor to any other or further notice or demand in the same, similar or other circumstances. SECTION 13.9 Subordination of Guarantees. --------------------------- The obligations of each Guarantor pursuant to its Guaranty and this Article XIII shall be (a) junior and subordinated in right of payment to the prior payment in full in cash of all Guarantor Senior Indebtedness of such Guarantor and (b) senior in right of payment to all existing and future Guarantor Subordinated Indebtedness of such Guarantor, in each case on the same 131 basis as the Securities and the obligations of the Company hereunder are junior and subordinated to all Senior Indebtedness and senior in right of payment to all Subordinated Indebtedness. For the purposes of this Section 13.9, Article XIV shall apply to the obligations of each Guarantor under its Guaranty, this Article XIII and the other provisions of this Indenture as if references therein to the Company, the Securities, Senior Indebtedness, Subordinated Indebtedness and Designated Senior Indebtedness were references to such Guarantor, such Guarantor's Guaranty, Guarantor Senior Indebtedness, Guarantor Subordinated Indebtedness and Designated Guarantor Senior Indebtedness, respectively. ARTICLE XIV Subordination SECTION 14.1 Securities Subordinate to Senior Indebtedness and Senior to Subordinated Indebtedness. ------------------------------ The Company covenants and agrees, and each Holder of a Security, by his acceptance thereof, likewise covenants and agrees that, to the extent and in the manner hereinafter set forth in this Article XIV, the Indebtedness evidenced by the Securities is hereby expressly made subordinate in right of payment to the prior payment in full in cash of all Senior Indebtedness and senior in right of payment to all existing and future Subordinated Indebtedness of the Company. SECTION 14.2 Payment Over of Proceeds Upon Dissolution, Etc. ------------------------ In the event of any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relating to the Company or its assets, or any liquidation, dissolution or other winding-up of the Company, whether voluntary or involuntary, or any assignment for the benefit of creditors or other marshalling of assets or liabilities of the Company, all Senior Indebtedness (including, in the case of Designated Senior Indebtedness, any interest accruing subsequent to the filing of a petition for bankruptcy (regardless of 132 whether such interest is an allowed claim in the bankruptcy proceeding)) must be paid in full in cash before any payment(other than payments in the form of Qualified Equity Interests or other securities the payment of which is subordinated, at least to the same extent as the Securities, to the payment of all Senior Indebtedness which may at the time be outstanding and other than payments from a trust created pursuant to Article XII) is made on account of the principal of, premium, if any, or interest on the Securities. SECTION 14.3 No Payment When Designated Senior Indebtedness in Default. ------------------------------ During the continuance of any default in the payment of principal, or premium, if any, or interest on any Designated Senior Indebtedness, when the same becomes due, and after receipt by the Trustee and the Company from representatives of holders of such Designated Senior Indebtedness of written notice of such default, no direct or indirect payment (other than payments from trusts previously created pursuant to Article XII) by or on behalf of the Company of any kind or character (other than Qualified Equity Interests or other securities the payment of which is subordinated, at least to the same extent as the Notes, to the payment of all Senior Indebtedness which may at the time be outstanding) may be made on account of the principal of, premium, if any, or interest on, or the purchase, redemption or other acquisition of, the Securities unless and until such default has been cured or waived or has ceased to exist or such Designated Senior Indebtedness shall have been discharged or paid in full in cash, after which the Company shall resume making any and all required payments in respect of the Securities, including any missed payments. In addition, during the continuance of any other default with respect to any Designated Senior Indebtedness that permits, or would permit with the passage of time or the giving of notice or both, the maturity thereof to be accelerated (a "Non-payment Default") and upon the earlier to occur of (a) receipt by the Trustee and the Company from the representatives of holders of such Designated Senior Indebtedness of a written notice of such Non-payment Default or (b) if such Non-payment Default results from the acceleration 133 of the maturity of the Securities, the date of such acceleration, no payment (other than payments from trusts previously created pursuant to Article XII) of any kind or character (excluding Qualified Equity Interests or subordinated securities) may be made by the Company on account of the principal of, premium, if any, or interest on, or the purchase, redemption, or other acquisition of, the Securities for the period specified below (the "Payment Blockage Period"). The Payment Blockage Period shall commence upon the receipt of notice of a Non-payment Default by the Trustee and the Company from the representatives of holders of Designated Senior Indebtedness or the date of the acceleration referred to in clause (b) of the preceding paragraph, as the case may be, and shall end on the earliest to occur of the following events: (i) 179 days have elapsed since the receipt of such notice or the date of the acceleration referred to in clause (b) of the preceding paragraph (provided the maturity of -------- such Designated Senior Indebtedness shall not theretofore have been accelerated), (ii) such default is cured or waived or ceases to exist or such Designated Senior Indebtedness is discharged or paid in full in cash, or (iii) such Payment Blockage Period shall have been terminated by written notice to the Company or the Trustee from the representatives of holders of Designated Senior Indebtedness initiating such Payment Blockage Period, after which the Company shall promptly resume making any and all required payments in respect of the Securities, including any missed payments. Only one Payment Blockage Period with respect to the Securities may be commenced within any 360 consecutive day period. No Non-payment Default with respect to Designated Senior Indebtedness that existed or was continuing on the date of the commencement of any Payment Blockage Period shall be, or can be, made the basis for the commencement of a second Payment Blockage Period, whether or not within a period of 360 consecutive days, unless such default has been cured or waived for a period of not less than 90 consecutive days. In no event shall a Payment Blockage Period extend beyond 180 days from the date of the receipt by the Trustee of the notice or the date of the acceleration initiating such Payment Blockage Period and there must be a 180 consecutive day period in any 360 day period during which no Payment Blockage Period is in effect. 134 SECTION 14.4 Subrogation to Rights of Holders of Senior Indebtedness. ------------------------------ Subject to the payment in full in cash of all Senior Indebtedness, the Holders of the Securities shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Indebtedness pursuant to the provisions of this Article XIV to the rights of the holders of such Designated Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness until the principal of, premium, if any, and interest on the Securities shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the Holders of the Securities or the Trustee would be entitled except for the provisions of this Article XIV, and no payments over pursuant to the provisions of this Article XIV to the holders of Senior Indebtedness by Holders of the Securities or the Trustee, shall, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, be deemed to be a payment or distribution by the Company to or on account of the Senior Indebtedness. SECTION 14.5 Provisions Solely to Define Relative Rights. --------------------------- The provisions of this Article XIV are and are intended solely for the purpose of defining the relative rights of the Holders of the Securities on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Article XIV or elsewhere in this Indenture or in the Securities is intended to or shall (a) impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Securities the principal of, premium, if any and interest on the Securities as and when the same shall become due and payable in accordance with their terms; (b) affect the relative rights against the Company of the Holders of the Securities and creditors of the Company other than the holders of Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Securi- 135 ties from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article XIV of the holders of Senior Indebtedness to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder. SECTION 14.6 Trustee to Effectuate Subordination. ----------------------------------- Each Holder of a Security by its acceptance thereof authorizes and directs the Trustee on its behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article XIV and appoints the Trustee its attorney-in-fact for any and all such purposes. SECTION 14.7 No Waiver of Subordination Provisions. ------------------------------------- No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any non-compliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article XIV or the obligations hereunder of the Holders of the Securities to the holders of Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release any Person liable in any manner for the collection of Senior Indebtedness; and 136 (iv) exercise or refrain from exercising any rights against the Company and any other Person. SECTION 14.8 Notice to Trustee. ----------------- The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Securities. Notwithstanding the provisions of this Article XIV or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Securities, unless and until the Trustee shall have received written notice thereof from the Company or a holder of Designated Senior Indebtedness or from any trustee therefor; and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Section 6.1, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall -------- ------- not have received at its Corporate Trust Office the notice provided for in this Section at least three Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment in cash of the principal of, premium, if any or interest on any Security), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purpose for which such money was received and shall not be affected by any notice to the contrary which may be received by it within three Business Days prior to such date. SECTION 14.9 Reliance on Judicial Order or Certificate of Liquidating Agent. -------------------------------- Upon any payment or distribution of assets of the Company referred to in this Article XIV, the Trustee, subject to the provisions of Section 6.1, and the Holders of the Securities shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, 137 liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of Securities, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Senior Indebtedness and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XIV. SECTION 14.10 Trustee Not Fiduciary for Holders of Senior Indebtedness. ------------------------------ The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holders if it shall in good faith mistakenly pay over or distribute to Holders of Securities or to the Company or to any other Person cash, property or securities to which any holders of Senior Indebtedness shall be entitled by virtue of this Article XIV or otherwise, except in the case of gross negligence or wilful misconduct on the part of the Trustee. SECTION 14.11 Rights of Trustee as Holder of Senior Indebtedness; Preserva- tion of Trustee's Rights. ------------------------------ The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article XIV with respect to any Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article XIV shall apply to claims of, or payments to, the Trustee or its agent or counsel under or pursuant to Section 6.7. SECTION 14.12 Article Applicable to Paying Agents. ----------------------------------- In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article XIV shall in such case (unless the 138 context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article XIV in addition to or in place of the Trustee; provided, however, that Section 14.11 shall not apply to the Company or -------- ------- any Affiliate of the Company if it or such Affiliate acts as Paying Agent. ____________________ This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. 139 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed and attested as of the day and year first above written. UNITED RENTALS, INC. By:________________________________________ Name: Title: Attest: STATE STREET BANK AND TRUST COMPANY By:________________________________________ Name: Title: Attest: A&A Tool Rentals & Sales, Inc. By:________________________________________ Name: Title: Attest: Access Rentals, Inc. By:________________________________________ Name: Title: Attest: ASC Equipment Company, Inc. By:________________________________________ Name: Title: Attest: 140 BNR Equipment, Inc. By:________________________________________ Name: Title: Attest: Bronco Hi-Lift, Inc. By:________________________________________ Name: Title: Attest: C.C. Rentals, Inc. By:________________________________________ Name: Title: Attest: Coran Enterprises, Incorporated By:________________________________________ Name: Title: Attest: Equipment Capital Corporation By:________________________________________ Name: Title: Attest: High Reach, Inc. By:________________________________________ Name: Title: Attest: 141 Industrial Lift, Inc. By:________________________________________ Name: Title: Attest: J&J Rental Services, Inc. By:________________________________________ Name: Title: Attest: Mercer Equipment Company By:________________________________________ Name: Title: Attest: Misco Rents, Inc. By:________________________________________ Name: Title: Attest: Mission Valley Rentals, Inc. By:________________________________________ Name: Title: Attest: Nevada High Reach Equipment, Inc. By:________________________________________ Name: Title: 142 Attest: Palmer Equipment Company Inc. By:________________________________________ Name: Title: Attest: Pro Rentals, Inc. By:________________________________________ Name: Title: Attest: Rent-It Center, Inc. By:________________________________________ Name: Title: Attest: Rental Equipment, Inc. By:________________________________________ Name: Title: Attest: Rentals Unlimited, Incorporated By:________________________________________ Name: Title: Attest: 143 River City Machinery Co., Inc. By:________________________________________ Name: Title: Attest: Salt Lake Ford New Holland, Inc. By:________________________________________ Name: Title: Attest: San Leandro Equipment Rental Service By:________________________________________ Name: Title: Attest: Santa Fe Supply & Rental, Inc. By:________________________________________ Name: Title: Attest: United Rentals of New England, Inc. By:________________________________________ Name: Title: Attest: United Rentals of New York, Inc. By:________________________________________ 144 Name: Title: Attest: United Rentals of Utah, Inc. By:________________________________________ Name: Title: Attest: United Rents Et. Al., Inc. By:________________________________________ Name: Title: Attest: Valley Rentals, Inc. By:________________________________________ Name: Title: Attest: West Main Rentals and Sales, Inc. By:________________________________________ Name: Title: Attest: 145 Schedule A ---------- UNITED RENTALS, INC. [Those corporations which are indented represent Subsidiaries of the corporation under which they are indented.] Except as otherwise indicated, 100% of the voting stock of each of the Subsidiaries listed below is owned by its parent. State of -------- Name of Subsidiary Incorporation - ------------------ ------------- A&A Tool Rentals & Sales, Inc. California Access Rentals, Inc. New York ASC Equipment Company, Inc. North Carolina BNR Equipment, Inc. New York Bronco Hi-Lift, Inc. Colorado C.C. Rentals, Inc. Nevada Coran Enterprises, Incorporated (d/b/a A-1 Rents) California Equipment Capital Corporation (d/b/a/ Owens Equipment) Colorado High Reach, Inc. Oregon Industrial Lift, Inc. New Jersey J&J Rental Services, Inc. Texas Mercer Equipment Company North Carolina Misco Rents, Inc. Indiana Mission Valley Rentals, Inc. California Nevada High Reach Equipment, Inc. Nevada Palmer Equipment Company, Inc. Michigan Pro Rentals, Inc. Washington Rent-It Center, Inc. Utah Rental Equipment, Inc. (d/b/a/ Able Equipment) California Rentals Unlimited, Incorporated Rhode Island River City Machinery Co., Inc. Texas Salt Lake Ford New Holland, Inc. Utah San Leandro Equipment Rental Service California Santa Fe Supply & Rental, Inc. Colorado United Rentals of New England, Inc. Connecticut United Rentals of New York, Inc. New York United Rentals of Utah, Inc. Utah United Rentals Et. Al., Inc. California Valley Rentals, Inc. Washington West Main Rentals and Sales, Inc. Oregon EXHIBIT A-1 ----------- [FORM OF SECURITY] THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A "U.S. PERSON" AND IS ACQUIRING THIS SECURITY IN AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 903 or 904 OF REGULATION S, (2) AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144(k) UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESS0R OF THIS SECURITY) OR THE LAST DAY ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY OR ANY PREDECESSOR OF THIS SECURITY AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS (THE "RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) THAT PURCHASES THIS SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT THE COMPANY, THE TRUSTEE, AND THE SECURITY REGISTRAR SHALL -------- HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (II) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER A-1-1 AFTER THE RESALE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. United Rentals, Inc. 9 1/2% Senior Subordinated Note due 2008, Series A No. __________ $________ CUSIP NO._______ United Rentals, Inc., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company," which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to __________________ or registered assigns, the principal sum of ___________________ Dollars on June 1, 2008 and to pay interest thereon from May 22, 1998 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually in arrears on June 1 and December 1 in each year, commencing December 1, 1998 at the rate of 9 1/2% per annum, until the principal hereof is paid or duly provided for, provided that any principal and premium, and any such installment -------- ---- of interest, which is overdue shall bear interest at the rate of 9 1/2% per annum (to the extent that the payment of such interest shall be legally enforceable), from the dates such amounts are due until they are paid or duly provided for. The interest so payable and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the May 15 and November 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of securities not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. A-1-2 Payment of the principal of (and premium, if any) and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that, at the -------- ------- option of the Company, payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. A-1-3 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed and attested. Attest: United Rentals, Inc. _____________________ By: ______________________ Title: Title: A-1-4 Trustee's Certificate of Authentication --------------------------------------- This is one of the Securities referred to in the within-mentioned Indenture. _________________________________, as Trustee Dated: By: _____________________________ Authorized Signatory A-1-5 Form of Reverse of Security --------------------------- This Security is one of a duly authorized issue of Securities of the Company designated as 9 1/2% Senior Subordinated Notes due 2008, Series A (herein called the "Initial Securities"), limited in aggregate principal amount at Stated Maturity to $200,000,000 issued and to be issued under an Indenture, dated as of May 22, 1998 (herein called the "Indenture," which term shall have the meaning assigned to it in such instrument), among the Company, the guarantors named therein and State Street Bank and Trust Company, as Trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture), and reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. The Securities include the Initial Securities and the Exchange Securities referred to below, issued in exchange for the Initial Securities pursuant to the Registration Rights Agreement. The Initial Securities and the Exchange Securities are treated as a single class of securities under the Indenture. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. (S) (S) 7aaa - 77bbbb (the "TIA"), as in effect on the date of the Indenture. Notwithstanding anything to the contrary herein, the Securities are subject to all such terms, and Holders of Securities are referred to the Indenture and the TIA for a statement of such terms. This Security is redeemable at the option of the Company, in whole or in part, at any time on or after June 1, 2003, at the Redemption Prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, thereon to the Redemption Date, if redeemed during the 12-month period beginning June 1 of the years indicated below:
Redemption Year Price ---- ----------- 2003................. 104.750 2004................. 103.167 2005................. 101.583 2006 and thereafter.. 100.000%
In addition, at any time, or from time to time, on or prior to June 1, 2001, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings A-1-6 to redeem up to an aggregate of 35% of the principal amount of the Securities originally issued, at a redemption price equal to 109.500% of the principal amount thereof plus accrued and unpaid interest, if any, thereon to the Redemption Date; provided that at least 65% of the originally issued principal -------- ---- amount of Securities remains outstanding immediately after the occurrence of such redemption. In order to effect the foregoing redemption with the proceeds of any Public Equity Offering, the Company shall send a redemption notice not later than 90 days after the consummation of any such Public Equity Offering. The Securities are not subject to any sinking fund. The Indenture provides that the Company is obligated (a) upon the occurrence of a Change in Control to make an offer to purchase all outstanding Securities at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the date of purchase and (b) to make an offer to purchase Securities with a portion of the net cash proceeds of certain sales or other dispositions of assets (not applied as specified in the Indenture within the periods set forth therein) at a purchase price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. In the event of redemption or purchase of this Security in part only pursuant to a Change of Control Offer or an Asset Sale Offer, a new Security or Securities for the unredeemed or unpurchased portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Security or of certain restrictive covenants and Events of Default with respect to this Security, in each case upon compliance with certain conditions set forth in the Indenture. If an Event of Default shall occur and be continuing, there may be declared due and payable the principal of, premium, if any, and accrued and unpaid interest, if any, on all of the outstanding Securities, in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding. The Indenture also contains provisions permitting the Holders of specified percentages in A-1-7 aggregate principal amount of the Securities at the time Outstanding, on behalf of the Holders of all the Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities, the Holders of not less than 25% in principal amount of the Securities at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall not have received from the Holders of a majority in principal amount of Securities at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding for 45 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to certain suits described in the Indenture, including any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein (or, in the case of redemption, on or after the Redemption Date or, in the case of any purchase of this Security required to be made pursuant to a Change of Control Offer or an Asset Sale Offer, on or after the relevant Purchase Date). No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in the Borough of Manhattan, The City of New York, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and A-1-8 the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. This Security is issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities are exchangeable for a like aggregate principal amount of Securities of like tenor of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. Pursuant to the Registration Rights Agreement by and among the Company and the Initial Purchasers, the Company will be obligated to consummate an exchange offer pursuant to which the Holder of this Security shall have the right to exchange this Security for 9 1/2% Senior Subordinated Notes due 2008, Series B, of the Company (herein called the "Exchange Securities"), which have been registered under the Securities Act, in like principal amount and having identical terms as the Initial Securities (other than as set forth in this paragraph). The Holders of Initial Securities shall be entitled to receive certain additional interest payments in the event such exchange offer is not consummated and upon certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. Such additional interest will constitute liquidated damages and will be the exclusive monetary remedy available to the Holder of this Security in respect of a Registration Default (as defined in the Registration Rights Agreement), but without prejudice to any non-monetary remedies otherwise available to such Holder, whether pursuant to the Registration Rights Agreement or otherwise. Interest on this Security shall be computed on the basis of a 360-day year of twelve 30-day months. A-1-9 The obligations of the Company under the Indenture and this Security are expressly subordinated to all Senior Indebtedness and senior in right of payment to all Subordinated Indebtedness, in each case to the extent set forth in Article XIV of the Indenture, and reference is hereby made to such Indenture for the precise terms of such subordination. As provided in the Indenture and subject to certain limitations therein set forth, the obligations of the Company under the Indenture and this Security are Guaranteed pursuant to Guarantees endorsed hereon as provided in the Indenture. Each Holder, by holding this Security, agrees to all of the terms and provisions of said Guarantees. The Indenture provides that each Guarantor shall be released from its Guaranty upon compliance with certain conditions. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. The Indenture and this Security shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflicts of laws principles thereof. A-1-10 ASSIGNMENT FORM If you, the Holder, want to assign this Security, fill in the form below and have your signature guaranteed: I (or we) assign and transfer this Security to _______________________________________________________________________ (Insert assignee's social security or tax ID number) _______________________________________________________________________ _______________________________________________________________________ _______________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint _______________________________________________________________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for such agent. In connection with any transfer of this Security occurring prior to the date which is the earlier of (i) the date of the declaration by the Commission of the effectiveness of a registration settlement under the Securities Act of 1933, as amended (the "Securities Act"), covering resales of -------------- this Security (which effectiveness shall not have been suspended or terminated at the date of the transfer) and (ii) the date two years (or such shorter period of time as permitted by Rule 144(k) under the Securities Act or any successor provision thereunder) after the later of the original issuance date appearing on the face of this Security (or any predecessor thereto) or the last date on which the Company or any affiliate of the Company was the owner of this Security (or any predecessor thereto), the undersigned confirms that it has not utilized any general solicitation or general advertising in connection with the transfer and that: [Check One] --------- [ ] (a) this Security is being transferred in compliance with the exemption from registration under the Securities Act provided by Rule 144A thereunder. [ ] (b) this Security is being transferred other than in accordance with (a) above and documents, and a transferor certificate substantially in the A-1-11 form of Exhibit C to the Indenture in the case of a transfer --------- pursuant to Regulation S, is being furnished which comply with the conditions of transfer set forth in this Security and the Indenture. If none of the foregoing boxes is checked and, in the case of (b) above, if the appropriate document is not attached or otherwise furnished to the Trustee, the Trustee or Security Registrar shall not be obliged to register this Security in the name of any Person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 3.14 of the Indenture shall have been satisfied. _______________________________________________________________________________ Date: ________ Your Signature:______________________________________________ (Sign exactly as your name appears on the other side of this Security) By: ___________________________________________ NOTICE: To be executed by an executive officer Signature Guarantee: _____________________________ TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A (including the information specified in Rule 144A(d)(4)) or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated:____________ _________________________________ NOTICE: To be executed by an executive officer A-1-12 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased in its entirety by the Company pursuant to Section 10.13 or 10.14 of the Indenture, check the applicable box: Section 10.13 [_] Section 10.14 [_] If you want to elect to have only a part of the principal amount of this Security purchased by the Company pursuant to Section 10.13 or 10.14 of the Indenture, state the portion of such amount: $_____________ Dated: Your Signature:____________________________________ (Sign exactly as name appears on the other side of this Security) Signature Guarantee: ________________________________ (Signature must be guaranteed by a financial institution that is a member of the Securities Transfer Agent Medallion Program ("STAMP"), the Stock Exchange Medallion Program ("SEMP"), the New York Stock Exchange, Inc. Medallion Signature Program ("MSP") or such other signature guarantee program as may be determined by the Security Registrar in addition to, or in substitution for, STAMP, SEMP or MSP, all in accordance with the Securities Exchange Act of 1934, as amended.) A-1-13 EXHIBIT A-2 United Rentals, Inc. __9 1/2% Senior Subordinated Note due 2008, Series B No. __________ $________ CUSIP NO._______ United Rentals, Inc., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company," which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to __________________ or registered assigns, the principal sum of ___________________ Dollars on June 1, 2008 and to pay interest thereon from May 22, 1998 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually in arrears on June 1 and December 1 in each year, commencing December 1, 1998 at the rate of 92% per annum, until the principal hereof is paid or duly provided for, provided that any principal and premium, and any such installment of -------- ---- interest, which is overdue shall bear interest at the rate of 92% per annum (to the extent that the payment of such interest shall be legally enforceable), from the dates such amounts are due until they are paid or duly provided for. The interest so payable and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the May 15 and November 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of securities not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of (and premium, if any) and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, in such coin or A-2-1 currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that, at the -------- ------- option of the Company, payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. A-2-2 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed and attested. Attest: United Rentals, Inc. _____________________ By: _______________________ Title: Title: A-2-3 Trustee's Certificate of Authentication --------------------------------------- This is one of the Securities referred to in the within-mentioned Indenture. _____________________________________, as Trustee Dated: By: _________________________________ Authorized Signatory A-2-4 Form of Reverse of Security --------------------------- This Security is one of a duly authorized issue of Securities of the Company designated as 92% Senior Subordinated Notes due 2008, Series B (herein called the "Exchange Securities"), limited in aggregate principal amount at Stated Maturity to $200,000,000 issued and to be issued under an Indenture, dated as of May 22, 1998 (herein called the "Indenture," which term shall have the meaning assigned to it in such instrument), among the Company, the guarantors named therein and State Street Bank and Trust Company, as Trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture), and reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. The Securities include the Initial Securities and the Exchange Securities, issued in exchange for the Initial Securities pursuant to the Registration Rights Agreement. The Initial Securities and the Exchange Securities are treated as a single class of securities under the Indenture. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 7aaa - 77bbbb (the "TIA")), as in effect on the date of the Indenture. Notwithstanding anything to the contrary herein, the Securities are subject to all such terms, and Holders of Securities are referred to the Indenture and the TIA for a statement of such terms. This Security is redeemable at the option of the Company, in whole or in part, at any time on or after June 1, 2003, at the Redemption Prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, thereon to the Redemption Date, if redeemed during the 12-month period beginning June 1 of the years indicated below:
Redemption Year Price ---- ---------- 2003........................................ 104.750 2004........................................ 103.167 2005........................................ 101.583 2006 and thereafter......................... 100.000%
In addition, at any time, or from time to time, on or prior to June 1, 2001, the Company may, at its option, use A-2-5 the net cash proceeds of one or more Public Equity Offerings to redeem up to an aggregate of 35% of the principal amount of the Securities originally issued, at a redemption price equal to 109.500% of the principal amount thereof plus accrued and unpaid interest, if any, thereon to the Redemption Date; provided -------- that at least 65% of the originally issued principal amount of Securities - ---- remains outstanding immediately after the occurrence of such redemption. In order to effect the foregoing redemption with the proceeds of any Public Equity Offering, the Company shall send the redemption notice not later than 90 days after the consummation of any such Public Equity Offering. The Securities are not subject to any sinking fund. The Indenture provides that the Company is obligated (a) upon the occurrence of a Change in Control to make an offer to purchase all outstanding Securities at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the date of purchase and (b) to make an offer to purchase Securities with a portion of the net cash proceeds of certain sales or other dispositions of assets (not applied as specified in the Indenture within the periods set forth therein) at a purchase price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. In the event of redemption or purchase of this Security in part only pursuant to a Change of Control Offer or an Asset Sale Offer, a new Security or Securities for the unredeemed or unpurchased portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Security or of certain restrictive covenants and Events of Default with respect to this Security, in each case upon compliance with certain conditions set forth in the Indenture. If an Event of Default shall occur and be continuing, there may be declared due and payable the principal of, premium, if any, and accrued and unpaid interest, if any, on all of the outstanding Securities, in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding. The Indenture also contains A-2-6 provisions permitting the Holders of specified percentages in aggregate principal amount of the Securities at the time Outstanding, on behalf of the Holders of all the Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities, the Holders of not less than 25% in principal amount of the Securities at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall not have received from the Holders of a majority in principal amount of Securities at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding for 15 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to certain suits described in the Indenture, including any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein (or, in the case of redemption, on or after the Redemption Date or, in the case of any purchase of this Security required to be made pursuant to a Change of Control Offer or an Asset Sale Offer, on or after the relevant Purchase Date). No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. The obligations of the Company under the Indenture and this Security are expressly subordinated to all Senior Indebtedness, in each case to the extent set forth in Article XIV of the Indenture, and reference is hereby made to such Indenture for the precise terms of such subordination. A-2-7 As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in the Borough of Manhattan, The City of New York, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. This Security is issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities are exchangeable for a like aggregate principal amount of Securities of like tenor of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. Interest on this Security shall be computed on the basis of a 360-day year of twelve 30-day months. As provided in the Indenture and subject to certain limitations therein set forth, the obligations of the Company under the Indenture and this Security are Guaranteed pursuant to Guarantees endorsed hereon as provided in the Indenture. Each Holder, by holding this Security, agrees to all of the terms and provisions of said Guarantees. The Indenture provides that each Guarantor shall be released from its Guaranty upon compliance with certain conditions. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. A-2-8 The Indenture and this Security shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflicts of laws principles thereof. A-2-9 ASSIGNMENT FORM If you, the Holder, want to assign this Security, fill in the form below and have your signature guaranteed: I (or we) assign and transfer this Security to ________________________________________________________________________________ (Insert assignee's social security or tax ID number) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint ________________________________________________________________________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for such agent. Date: ________ Your Signature: __________________________ (Sign exactly as your name appears on the other side of this Security) By: ______________________ NOTICE: To be executed by an executive officer Signature Guarantee: _____________________________ A-2-10 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased in its entirety by the Company pursuant to Section 10.13 or 10.14 of the Indenture, check the applicable box: Section 10.13 [_] Section 10.14 [_] If you want to elect to have only a part of the principal amount of this Security purchased by the Company pursuant to Section 10.13 or 10.14 of the Indenture, state the portion of such amount: $_____________ Dated: Your Signature: _______________________________________ (Sign exactly as name appears on the other side of this Security) Signature Guarantee: ________________________________ (Signature must be guaranteed by a financial institution that is a member of the Securities Transfer Agent Medallion Program ("STAMP"), the Stock Exchange Medallion Program ("SEMP"), the New York Stock Exchange, Inc. Medallion Signature Program ("MSP") or such other signature guarantee program as may be determined by the Security Registrar in addition to, or in substitution for, STAMP, SEMP or MSP, all in accordance with the Securities Exchange Act of 1934, as amended.) A-2-11 EXHIBIT B --------- FORM OF LEGEND FOR BOOK-ENTRY SECURITIES Any Global Security authenticated and delivered hereunder shall bear a legend (which would be in addition to any other legends required in the case of a Restricted Security) in substantially the following form: THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. B-1 EXHIBIT C Form of Certificate To Be Delivered in Connection with Transfers Pursuant to Regulation S ----------------------------------- New York, New York Attention: Corporate Trustee Administration Re: United Rentals, Inc.(the "Company") 9 1/2% Senior Subordinated Notes due 2008 (the "Securities") ----------------------------------- Ladies and Gentlemen: In connection with our proposed sale of ___________ aggregate principal amount of the Securities, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent that: -------------- (1) the offer of the Securities was not made to a Person in the United States; (2) either (a) at the time the buy offer was originated, the transferee was outside the United States or we and any Person acting on our behalf reasonably believed that the transferee was outside the United States, or (b) the transaction was executed in, on or through the facilities of a designated offshore securities market described in Rule 902(a) of Regulation S and neither we nor any Person acting on our behalf knows that the transaction has been pre-arranged with a buyer in the United States; (3) no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; (5) we have advised the transferee of the transfer restrictions applicable to the Securities; (6) if the circumstances set forth in rule 904(c) under the Securities Act are applicable, we have complied C-1 with the additional conditions therein, including (if applicable) sending a confirmation or other notice stating that the Securities may be offered and sold during the distribution compliance period specified in Rule 903(c)(2) or (3), as applicable, only in accordance with the provisions of Regulation S; pursuant to registration of the Securities under the Securities Act; or pursuant to another available exemption from the registration requirements under the Securities Act; and (7) if the sale is made during a distribution compliance period and the provisions of Rule 903(c)(3) are applicable thereto, we confirm that such sale has been made in accordance with such provisions. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Transferor] By: ______________________ Authorized Signature C-2 EXHIBIT D --------- [FORM OF NOTATION ON SECURITY RELATING TO GUARANTY] GUARANTY ______________, a __________ corporation (the "Guarantor," which term includes any successor under the Indenture (the "Indenture") referred to in the Security upon which this notation is endorsed), hereby unconditionally and irrevocably guarantees on a senior subordinated basis, jointly and severally with each other Guarantor of the Securities, to each Holder and to the Trustee and its successors and assigns (a) the full and prompt payment (within applicable grace periods) of principal of and interest on the Securities when due, whether at maturity, by acceleration, by redemption or otherwise, and all other monetary obligations of the Company under this Indenture and the Securities and (b) the full and prompt performance within applicable grace periods of all other obligations of the Company under the Indenture and the Securities, subject to certain limitations set forth in the Indenture, (all the foregoing being hereinafter collectively called the "Guaranty Obligations"). The Guarantor further agrees that the Guaranty Obligations may be extended or renewed, in whole or in part, without notice or further assent from such Guarantor, and that such Guarantor will remain bound under Article XIII of the Indenture notwithstanding any extension or renewal of any Guaranty Obligation. Capitalized terms used herein have the meanings assigned to them in the Indenture unless otherwise indicated. Subject to the terms of the Indenture, this Guaranty shall be binding upon the Guarantor and its successors and assigns and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges herein conferred upon that party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. This Guaranty shall not be valid or obligatory for any purpose until the certificate of authentication on the Security upon which this Guaranty is noted shall have been executed by the Trustee under the Indenture by the signature of one of its authorized officers. The obligations of the Guarantor to the Holders of Securities and to the Trustee pursuant to this Guaranty and the Indenture are expressly subordinated to all Guarantor D-1 Senior Indebtedness and senior in right of payment to all Guarantor Subordinated Indebtedness, in each case to the extent set forth in Section 13.9 and Article XIV of the Indenture, and reference is hereby made to such Indenture for the precise terms of such subordination. Notwithstanding any other provision of the Indenture or this Guaranty, under the Indenture and this Guaranty the maximum aggregate amount of the obligations guaranteed by the Guarantor shall not exceed the maximum amount that can be guaranteed without rendering the Indenture or this Guaranty, as it relates to such Guarantor, voidable under applicable federal or state law relating to fraudulent conveyance or fraudulent transfer. This Guaranty shall be governed by the internal laws of the State of New York, without regard to conflict of laws provisions thereof. [Name of Guarantor] By: ____________________________ Name: Title: D-2 CROSS REFERENCE TABLE/1/
Trust Indenture Act Indenture Section Section - ------------------- ------- 310(a)(1)................................................. 6.9 310(a)(2)................................................. 6.9 310(a)(3)................................................. N.A/2/ 310(a)(4)................................................. N.A. 310(a)(5)................................................. N.A. 310(b).................................................... 6.8; 6.10 310(c).................................................... N.A. 311(a).................................................... 6.13 311(b).................................................... 6.13 311(c).................................................... N.A. 312(a).................................................... 7.1; 7.2 312(b).................................................... 7.2 312(c).................................................... 7.2 313(a).................................................... 7.3 313(b).................................................... 7.3 313(c).................................................... 1.6 313(d).................................................... 7.3 314(a).................................................... 7.4 314(b).................................................... N.A.
- ------------------- 1. Note: This Cross Reference Table shall not, for any purpose, be deemed part of this Indenture. 2. Not Applicable.
Trust Indenture Act Indenture Section Section - ----------------------- --------- 314(c)(1)...................................... 1.2 314(c)(2)...................................... 1.2 314(c)(3)...................................... N.A. 314(d)......................................... N.A. 314(e)......................................... 1.2 314(f)......................................... N.A. 315(a)......................................... 6.1 315(b)......................................... 6.2 315(c)......................................... 6.1 315(d)......................................... 6.1 315(e)......................................... 5.14 316(a)(1)(A)................................... 5.12 316(a)(1)(B)................................... 5.13 316(a)(2)...................................... N.A. 316(a)(last sentence).......................... 1.1/3/ 316(b)......................................... 5.7; 5.8 316(c)......................................... 1.4 317(a)(1)...................................... 5.3 317(a)(2)...................................... 5.4 317(b)......................................... 10.3 317(a)......................................... 1.7
- -------------- 3. Definition of "Outstanding." EX-4.(C) 4 NOTES REGISTRATION RIGHTS AGRMT 5-22-98 EXHIBIT 4(C) NOTES REGISTRATION RIGHTS AGREEMENT Dated as of May 22, 1998 among United Rentals, Inc. Company and The Subsidiaries Named in the Schedule hereto Guarantors and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation, Goldman, Sachs & Co., Salomon Brothers Inc and BancAmerica Robertson Stephens Initial Purchasers Table of Contents -----------------
Page ---- 1. Definitions....................................................... 1 1933 Act..................................................... 1 1934 Act..................................................... 1 Broker Prospectus Period..................................... 1 Broker Shelf Registration Statement.......................... 1 Depositary................................................... 1 Exchange Notes............................................... 2 Exchange Offer............................................... 2 Exchange Offer Registration.................................. 2 Exchange Offer Registration Statement........................ 2 Exchange Period.............................................. 2 Holders...................................................... 2 Holders' Counsel............................................. 2 Indenture.................................................... 2 Initial Purchasers........................................... 2 Majority Holders............................................. 3 Original Issue Date.......................................... 3 Participating Broker-Dealer.................................. 3 Person....................................................... 3 Prospectus................................................... 3 Purchase Agreement........................................... 3 Registration Default......................................... 3 Registration Expenses........................................ 3 Registration Statement....................................... 4 SEC.......................................................... 4 Shelf Registration........................................... 4 Shelf Registration Statement................................. 5 Transfer Restricted Notes.................................... 5 Trustee...................................................... 5 2. Registration Under the 1933 Act................................... 5 (a) Exchange Offer Registration...................... 5 (b) Shelf Registration............................... 7 (c) Expenses......................................... 9 (d) Effective Registration Statement................. 9 (e) Accrual and Payment of Additional In............. 11 (f) Specific Enforcement............................. 12 3. Registration Procedures........................................... 12 4. Underwritten Registrations........................................ 21 5. Indemnification and Contribution.................................. 22
6. Miscellaneous..................................................... 26 (a) Rule 144 and Rule 144A........................... 26 (b) No Inconsistent Agreements....................... 26 (c) Amendments and Waivers........................... 27 (d) Notices.......................................... 27 (e) Successors and Assigns........................... 27 (f) Third Party Beneficiary.......................... 27 (g) Counterparts..................................... 27 (h) Headings......................................... 28 (i) GOVERNING LAW.................................... 28 (j) Entire Agreement................................. 28 (k) Severability..................................... 28
NOTES REGISTRATION RIGHTS AGREEMENT THIS NOTES REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and --------- entered into as of May 22, 1998, by and among UNITED RENTALS, INC., a Delaware corporation (the "Company"), the subsidiaries name in the Schedule hereto (the ------- "Guarantors") and MERRILL LYNCH & CO., MERRILL LYNCH, PIERCE, FENNER & SMITH - ----------- INCORPORATED ("Merrill Lynch") and DONALDSON, LUFKIN & JENRETTE SECURITIES ------------- CORPORATION, GOLDMAN, SACHS & CO., SALOMON BROTHERS INC and BANCAMERICA ROBERTSON STEPHENS ("collectively with Merrill Lynch, the "Initial Purchasers"). ------------------ This Agreement is made pursuant to the Purchase Agreement dated May 19, 1998 among the Company and the Initial Purchasers (the "Purchase -------- Agreement"), with respect to the issue and sale by the Company and the purchase - --------- by the Initial Purchasers of the respective number of the $200,000,000 aggregate principal amount of the Company's 92% Series A Senior Subordinated Notes due 2008 in respect of which the Guarantors have provided guarantees (together with such guarantees, the "Notes"). In order to induce the Initial Purchasers to ----- enter into the Purchase Agreement, the Company has agreed to provide to the Initial Purchasers and their respective direct and indirect transferees and assigns the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the closing under the Purchase Agreement. In consideration of the foregoing, the parties hereto agree as follows: 1. Definitions. As used in this Agreement, the following ----------- capitalized defined terms shall have the following meanings: "1933 Act" shall mean the Securities Act of 1933, as amended from time -------- to time, and the rules and regulations of the SEC promulgated thereunder. "1934 Act" shall mean the Securities Exchange Act of 1934, as amended -------- from time to time, and the rules and regulations of the SEC promulgated thereunder. "Broker Prospectus Period" shall have the meaning set forth in Section ------------------------ 3(f)(C). "Broker Shelf Registration Statement" shall have the meaning set forth ----------------------------------- in Section 3(f)(E). "Depositary" shall mean The Depository Trust Company, or any other ---------- depositary appointed by the Company; provided, however, that any such depositary must have an address in the Borough of Manhattan, in the City of New York. "Exchange Notes" shall mean 92% Series B Senior Subordinated Notes due -------------- 2008 of the Company including the guarantees thereof, issued under the Indenture containing terms identical to the respective Notes (except that (i) interest on the Exchange Notes shall accrue from the last date on which interest was paid on the Notes or, if no such interest has been paid, from May 22, 1998, (ii) the transfer restrictions thereon shall be eliminated and (iii) certain provisions relating to payment of additional interest shall be eliminated) to be offered to Holders of Notes in exchange for Notes pursuant to the Exchange Offer. "Exchange Offer" shall mean the exchange offer by the Company of -------------- Exchange Notes for Transfer Restricted Notes pursuant to Section 2(a) and the other provisions of this Agreement. "Exchange Offer Registration" shall mean a registration under the 1933 --------------------------- Act effected pursuant to Section 2(a) hereof. "Exchange Offer Registration Statement" shall mean an exchange offer ------------------------------------- registration statement on Form S-4 (or, if applicable, on another appropriate form), and all amendments and supplements to such registration statement, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Exchange Period" shall have the meaning set forth in Section 2(a). --------------- "Holders" shall mean the Initial Purchasers, for so long as they own ------- any Transfer Restricted Notes, and each of their respective successors, assigns and direct and indirect transferees who become registered owners of Transfer Restricted Notes under the Indenture. "Holders' Counsel" shall mean an external United States counsel and ---------------- external local counsel designated by the underwriters (or if an offering is not underwritten, by the Majority Holders) to represent them in connection with a Shelf Registration Statement or Broker Shelf Registration Statement. "Indenture" shall mean the Indenture relating to the Notes dated as of --------- May 22, 1998, between the Company, the subsidiaries of the Company listed therein and, State Street Bank and Trust Company, as trustee (the "Trustee"), and as the same may be amended from time to time in accordance ------- with the terms thereof. "Initial Purchasers" shall have the meaning set forth in the preamble ------------------ of this Agreement. 2 "Majority Holders" shall mean the Holders of a majority of the ---------------- aggregate principal amount of Transfer Restricted Notes outstanding; provided that (a) whenever the consent or approval of Holders of a specified percentage of Transfer Restricted Notes is required hereunder, Transfer Restricted Notes held by the Company or any of its affiliates (as such term is defined in Rule 405 under the 1933 Act) shall be disregarded in determining whether such consent or approval was given by the Holders of such required percentage or amount and (b) whenever the consent or approval of the Majority Holders is required in relation to the filing of a Broker Shelf Registration Statement, Holders (other than Participating Broker Dealers holding Notes registered thereunder) shall be disregarded in determining whether such consent or approval was given by Holders of such required percentage or amount. "Original Issue Date" shall mean the date of original issuance of the ------------------- Notes. "Participating Broker-Dealer" shall have the meaning set forth in --------------------------- Section 3(f). "Person" shall mean any individual, corporation, limited liability ------ company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Prospectus" shall mean the prospectus included in a Registration ---------- Statement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including a prospectus supplement with respect to the terms of the offering of any portion of the Transfer Restricted Notes covered by a Shelf Registration Statement or a Broker Shelf Registration Statement, and by all other amendments and supplements to a prospectus, including post-effective amendments, and in each case including all material incorporated by reference therein. "Purchase Agreement" shall have the meaning set forth in the preamble ------------------ of this Agreement. "Registration Default" shall have the meaning set forth in Section -------------------- 2(e). "Registration Expenses" shall mean any and all expenses incident to --------------------- performance of or compliance by the Company with this Agreement, including without limitation: (i) all SEC, stock exchange or National Association of Securities Dealers, Inc. ("NASD") registration and filing fees, (ii) all fees and expenses incurred in connection with compliance with state or other securities or blue sky laws and compliance with the rules of the NASD (including, without limitation, in the case of an underwritten offering the reasonable fees and disbursements of Holders' Counsel in connection with state or other securities or blue sky qualification of any of the Transfer Restricted Notes), (iii) all expenses (including without limitation all word processing, duplicating and printing expenses, messenger and delivery expenses) of any Persons in preparing, printing and 3 distributing any Registration Statement, any Prospectus, any amendments or supplements thereto, any underwriting agreements, securities sales agreements, certificates representing the Exchange Notes and other documents relating to the performance of and compliance with this Agreement, (iv) all rating agency fees, (v) all fees and expenses incurred in connection with the listing, if any, of any of the Transfer Restricted Notes on any securities exchange or exchanges, (vi) all fees and disbursements relating to the qualification of the Indenture under applicable securities laws, (vii) the reasonable fees and disbursements of counsel for the Company and of the independent public accountants of the Company and of any other experts retained by the Company, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, (viii) premiums and other costs of policies of insurance maintained by the Company against liabilities arising out of the public offering of the Transfer Restricted Notes being registered, (ix) the fees and expenses of a "qualified independent underwriter" as defined by Conduct Rule 2720 of the NASD, if required by the NASD rules, in connection with the offering of the Transfer Restricted Notes in an underwritten offering, (x) the reasonable fees and expenses of the Trustee, including its counsel, and any escrow agent or custodian. Notwithstanding the foregoing, the holders of the Transfer Restricted Notes being registered shall pay all agency or brokerage fees and commissions and underwriting discounts and commissions attributable to the sale of such Transfer Restricted Notes and the fees and disbursements of any counsel or other advisors or experts retained by such holders (severally or jointly) (excluding advisors or other experts retained by the Company, as aforesaid); provided, however, that in the case of a Shelf Registration Statement under Section 2(b) hereof or a Broker Shelf Registration Statement under Section 3(f) hereof, the Majority Holders may, in each case, if they so elect, select Holders' Counsel to represent them (which may be counsel to the Initial Purchasers), in which event Registration Expenses shall include the reasonable fees and disbursements of such counsel up to a maximum of $80,000 (including fees paid pursuant to clause (ii) above). "Registration Statement" shall mean any registration statement of the ---------------------- Company which covers any of the Exchange Notes or Transfer Restricted Notes pursuant to the provisions of this Agreement, and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "SEC" shall mean the Securities and Exchange Commission. --- "Shelf Registration" shall mean a registration effected pursuant to ------------------ Section 2(b) hereof. "Shelf Registration Statement" shall mean a "shelf" registration ---------------------------- statement of the Company pursuant to the provisions of Section 2(b) of this Agreement which covers all 4 of the Transfer Restricted Notes on an appropriate form under Rule 415 under the 1933 Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Transfer Restricted Notes" shall mean each Note until (i) the date on ------------------------- which such Note has been exchanged by a person (other than a Participating Broker-Dealer) for an Exchange Note in the Exchange Offer, (ii) following the exchange by a Participating Broker-Dealer in the Exchange Offer of a Note for an Exchange Note, the date on which such Exchange Note is sold to a purchaser who receives from such Participating Broker-Dealer on or prior to the date of such sale a copy of the Prospectus contained in the Exchange Offer Registration Statement,(iii) the date on which such Note has been effectively registered under the 1933 Act and disposed of in accordance with the Shelf Registration Statement or the Broker Shelf Registration Statement, (iv) the date on which such Note is eligible for distribution to the public pursuant to Rule 144(k) under the 1933 Act (or any similar provision then in force, but not Rule 144A under the 1933 Act), (v) the date on which such Note shall have been otherwise transferred by the Holder thereof and a new Note not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of such Note shall not require registration or qualification under the 1933 Act or any similar state law then in force or (vi) such Note ceases to be outstanding. "Trustee" shall mean the Trustee under the Indenture. ------- 2. Registration Under the 1933 Act. (a) Exchange Offer ------------------------------- -------------- Registration. To the extent not prohibited by any applicable law or applicable - ------------ interpretation of the staff of the SEC, the Company shall (A) file an Exchange Offer Registration Statement with the SEC within 90 days after the Original Issue Date covering the offer by the Company to the Holders to exchange Exchange Notes for all of their Transfer Restricted Notes, (B) use its best efforts to cause such Exchange Offer Registration Statement to be declared effective under the 1933 Act within 150 days after the Original Issue Date, (C) commence the Exchange Offer promptly after the Exchange Offer Registration Statement is declared effective by the SEC and keep the Exchange Offer open for acceptance for the Exchange Period, (D) use its best efforts to issue, promptly after the end of the Exchange Period, Exchange Notes in exchange for all Notes that have been properly tendered for exchange during the Exchange Period and (E) use its best efforts to maintain the effectiveness of the Exchange Offer Registration Statement during the Exchange Period and thereafter until such time as the Company has issued Exchange Notes in exchange for all Notes that have been properly tendered for exchange during the Exchange Period. Upon the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Exchange Offer, it being the objective of such Exchange Offer to enable each Holder (other than Participating Broker-Dealers) eligible and electing to exchange Transfer Restricted Notes for Exchange Notes (assuming that such Holder is not an affiliate of 5 the Company within the meaning of Rule 405 under the 1933 Act, acquires the Exchange Notes in the ordinary course of such Holder's business and has no arrangements or understandings with any person to participate in the Exchange Offer for the purpose of distributing the Exchange Notes) to trade such Exchange Notes from and after their receipt without any limitations or restrictions under the 1933 Act and without material restrictions under the securities laws of a substantial proportion of the several states of the United States. For the purposes of this Agreement, the Exchange Offer will be deemed consummated if the Company makes the Exchange Offer, the Exchange Offer remains open for a period (the "Exchange Period") of 20 business days after the date notice thereof is mailed to the Holders (or such longer period as may be required by law), and the Company issues Exchange Notes in respect of all Notes that are properly tendered during the Exchange Period. In connection with the Exchange Offer, the Company shall: (i) mail to each Holder a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (ii) keep the Exchange Offer open for the Exchange Period; (iii) use the services of the Depositary for the Exchange Offer with respect to Notes evidenced by global certificates; (iv) permit Holders to withdraw tendered Transfer Restricted Notes at any time prior to the close of business, New York City time, on the last business day on which the Exchange Offer shall remain open, by sending to the institution specified in the notice, a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Transfer Restricted Notes delivered for exchange, and a statement that such Holder is withdrawing its election to have such Notes exchanged; and (v) otherwise comply with all applicable laws relating to the Exchange Offer. Promptly after the close of the Exchange Offer, the Company shall use its best efforts to: (i) accept for exchange Transfer Restricted Notes duly tendered and not validly withdrawn pursuant to the Exchange Offer in accordance with the terms of the Exchange Offer Registration Statement and the letter of transmittal which is an exhibit thereto; (ii) deliver, or cause to be delivered, to the Trustee for cancellation all Transfer Restricted Notes so accepted for exchange by the Company; and 6 (iii) cause the Trustee promptly to authenticate and deliver Exchange Notes to each Holder of Transfer Restricted Notes equal in principal amount to the principal amount of the Transfer Restricted Notes of such Holder so accepted for exchange. The Exchange Offer shall not be subject to any conditions, other than (i) that the Exchange Offer, or the making of any exchange by a Holder, does not violate applicable law or any applicable interpretation of the staff of the SEC and (ii) the tendering of Transfer Restricted Notes in accordance with the Exchange Offer. Each Holder of Transfer Restricted Notes who wishes to exchange such Transfer Restricted Notes for Exchange Notes in the Exchange Offer shall have represented that (i) it is not an affiliate (as defined in Rule 405 under the 1933 Act) of the Company, (ii) any Exchange Notes to be received by it were acquired in the ordinary course of its business and, (iii) it has no arrangement with any person to participate in the distribution (within the meaning of the 1933 Act) of the Exchange Notes (except that a Participating Broker Dealer shall not be required to make the representation provided by this clause (iii)). In addition each such Holder shall be required to make such other representations as may be reasonably necessary under applicable SEC rules, regulations or interpretations to render the use of Form S-4 or another appropriate form under the 1933 Act available. To the extent permitted by law and ascertainable by the Company, the Company shall inform the Initial Purchasers of the names and addresses of the Holders to whom the Exchange Offer is made, and the Initial Purchasers shall have the right to contact such Holders and otherwise facilitate the tender of Transfer Restricted Notes in the Exchange Offer. Notwithstanding anything to the contrary contained herein, it is understood and agreed that no Holder may exchange in the Exchange Offer any Transfer Restricted Notes, to the extent such Holder is not permitted to do so by applicable law or SEC policy. (b) Shelf Registration. If (i) the Company is not permitted to ------------------ file the Exchange Offer Registration Statement or to consummate the Exchange Offer because the Exchange Offer is not permitted by applicable law or SEC policy; (ii) for any other reason, the Exchange Offer is not consummated (as defined in Section 2(a)) within 180 days after the Original Issue Date; (iii) any Holder of Notes notifies the Company prior to the 20th day following consummation of the Exchange Offer that (a) due to a change in law or SEC policy such Holder is not entitled to participate in the Exchange Offer, (b) due to a change in law or SEC policy such Holder may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such Holder or (c) such Holder is a broker-dealer and owns Notes acquired directly from the Company or an affiliate of the Company; or (iv) the Holders of a majority in aggregate principal amount of the Notes are not eligible to participate in the Exchange Offer and to receive Exchange Notes that they may resell to the public without restriction under the 1933 Act and without restriction under applicable blue sky or state securities laws, the Company shall, at its cost: (A) use its best efforts to file with the SEC, on or prior to the 90th day following the occurrence of any event specified in clauses (i) through (iv) above, a Shelf 7 Registration Statement relating to the offer and sale of the Transfer Restricted Notes by the Holders from time to time in accordance with the methods of distribution elected by the Majority Holders of such Transfer Restricted Notes and set forth in such Shelf Registration Statement, and use its best efforts to cause such Shelf Registration Statement to be declared effective under the Securities Act within 150 days after such filing obligation arises, provided that if the obligation to file the Shelf Registration Statement arises because the Exchange Offer has not been consummated within 180 days after the Original Issue Date, then the Company will use its best efforts to file the Shelf Registration Statement on or prior to the 30th day after such filing obligation arises, provided further that, with respect to Exchange Notes received by a broker-dealer in exchange for any securities that were acquired by such broker-dealer as a result of market making or other trading activities, the Company may, if permitted by current interpretations by the SEC's staff, file a post- effective amendment to the Exchange Offer Registration Statement containing the information required by Regulation S-K Items 507 and/or 508, as applicable, in satisfaction of its obligations under this paragraph (A) solely with respect to broker-dealers who acquired their Notes as a result of market making or other trading activities, and any such Exchange Offer Registration Statement, as so amended, shall be referred to herein as, and governed by the provisions herein applicable to, a Shelf Registration Statement. In the event that the Company is required to file a Shelf Registration Statement, upon notice from any Holder not eligible to participate in the Exchange Offer pursuant to clause (iii) above or pursuant to clause (iv) above, the Company shall file and use its best efforts to have declared effective by the SEC both an Exchange Offer Registration Statement pursuant to Section 2(a) with respect to all Transfer Restricted Notes that are eligible to participate in the Exchange Offer and a Shelf Registration Statement (which may be a combined Registration Statement with the Exchange Offer Registration Statement) with respect to offers and sales of Transfer Restricted Notes held by such Holder after completion of the Exchange Offer; (B) use its best efforts to keep the Shelf Registration Statement continuously effective in order to permit the Prospectus forming part thereof to be usable by Holders for a period of two years after its effective date (or until one year after the effective date of the Shelf Registration Statement if such Shelf Registration Statement is filed upon the request of any Initial Purchaser pursuant to clause (iv) above) or such shorter period which will terminate when all of the Transfer Restricted Notes covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement; and (C) notwithstanding any other provisions hereof, use its best efforts to ensure that (i) any Shelf Registration Statement and any amendment thereto and any Prospectus forming a part thereof and any supplement thereto complies in all material respects with the 1933 Act and the rules and regulations thereunder, (ii) any Shelf Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (iii) any 8 Prospectus forming part of any Shelf Registration Statement, and any supplement to such Prospectus (as amended or supplemented from time to time), does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company further agrees, if necessary, to supplement or amend the Shelf Registration Statement if reasonably requested by the Majority Holders with respect to information relating to the Holders and otherwise as required by Section 3(b) below, to use its best efforts to cause any such amendment to become effective and such Shelf Registration to become usable as soon as reasonably practicable thereafter and to furnish to the Holders of Transfer Restricted Notes copies of any such supplement or amendment promptly after its being used or filed with the SEC. (c) Expenses. Subject to Section 4(c) hereof, the Company shall -------- pay all Registration Expenses in connection with the registration pursuant to Section 2(a) and 2(b) and any registration of a Broker Shelf Registration Statement pursuant to Section 3(f)(E). In the case of any Shelf Registration Statement or Broker Shelf Registration Statement, the Majority Holders may, in each case, if they so elect, select Holders' Counsel to represent them (which may be counsel to the Initial Purchasers), in which event Registration Expenses shall include the reasonable fees and disbursements of such counsel up to a maximum of $80,000. Each Holder shall pay all expenses of its counsel other than as set forth in the preceding sentence, underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Transfer Restricted Notes pursuant to the Shelf Registration Statement or Broker Shelf Registration Statement. (d) Effective Registration Statement. (i) The Company will be -------------------------------- deemed not to have used its best efforts to cause a Registration Statement to become, or to remain, effective during the requisite periods set forth herein if the Company takes any action that could reasonably be expected to result in any such Registration Statement not being declared effective or in the Holders of Transfer Restricted Notes covered thereby not being able to exchange or offer and sell such Transfer Restricted Notes during that period unless (A) such action is required by applicable law or (B) such action is taken by the Company in good faith and for valid business reasons (but not including avoidance of the Company's obligations hereunder), including a material corporate transaction, so long as the Company promptly complies with the requirements of Section 3(k) hereof, if applicable. (ii) An Exchange Offer Registration Statement pursuant to Section 2(a) hereof, a Shelf Registration Statement pursuant to Section 2(b) or a Broker Shelf Registration Statement pursuant to Section 3(f)(E) hereof will not be deemed to have become effective unless it has been declared effective by the SEC; provided, however, that if, after it has been declared effective, the offering of Transfer Restricted Notes pursuant to a Registration Statement is interfered with by any stop order, injunction or other order or requirement of the SEC or any 9 other governmental agency or court, such Registration Statement will be deemed not to have been effective during the period of such interference, until the offering of Transfer Restricted Notes pursuant to such Registration Statement may legally resume. (iii) Subject to and without limiting the Company's obligations to pay additional interest as provided in Section 2(e) and subject to Section 2(d) hereof, the Company may suspend the availability of a Shelf Registration Statement or Broker Shelf Registration Statement or, only during the Broker Prospectus Period, an Exchange Offer Registration Statement, and the use of the related Prospectus, as provided in Section 3(e)(v) and the penultimate paragraph of Section 3 hereof, if any event shall occur as a result of which it shall be necessary, in the good faith determination of the Company, to amend the Shelf Registration Statement or Broker Shelf Registration Statement or Exchange Offer Registration Statement or amend or supplement any prospectus or prospectus supplement thereunder in order that each such document not include any untrue statement of fact or omit to state a material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made. If the Company shall so suspend the availability of a Shelf Registration Statement or Broker Shelf Registration Statement or Exchange Offer Registration Statement as aforesaid or if the Company shall give any notice to suspend the disposition of Transfer Restricted Notes pursuant to a Shelf Registration Statement or Broker Shelf Registration Statement or the disposition of Exchange Notes by Participating Broker-Dealers pursuant to the Exchange Offer Registration Statement as a result of the happening of any event or the discovery of any facts, each of the kind described in Section 3(e)(v) hereof, the Company shall be deemed to have used its best efforts to keep such Registration Statement effective during such period of suspension; provided that the Company shall use its best efforts to file and have declared effective (if an amendment) as soon as practicable an amendment or supplement to such Registration Statement and shall extend the period during which such Registration Statement shall be maintained effective pursuant to this Agreement by the number of days during the period from and including the date of the giving of such notice to and including the date when the Holders shall have received copies of the supplemented or amended Prospectus necessary to resume such dispositions. The Company may delay the filing of any such amendment or supplement pursuant to this paragraph if the Company in good faith has a valid business reason for such delay; provided, however, that any delay pursuant to this sentence shall not exceed 60 days in any period of 365 days. Notwithstanding the foregoing, if, pursuant to this paragraph, a Shelf Registration Statement or Broker Shelf Registration Statement or Exchange Offer Registration Statement is suspended or otherwise not usable in connection with resales of Notes covered thereby (or, in the case of the Exchange Offer Registration Statement, resales of Exchange Notes by Participating Broker- Dealers) for a period exceeding 60 days in the aggregate, whether or not consecutive, a Registration Default shall be deemed to have occurred under paragraph (iv) or (v), as the case may be, of the definition thereof in Section 2(e) hereof (whether or not any other Registration Default has occurred), and in all such events, the Company will be required to pay additional interest as provided in Section 2(e) hereof. 10 (e) Accrual and Payment of Additional Interest. For purposes of ------------------------------------------ this Section 2(e), the "Specified Notes" means the Notes (not including the Exchange Notes); provided, however, that the Specified Notes mean the Exchange -------- ------- Notes with respect to (a) any Registration Default that arises pursuant to clause (i) or (ii) of the definition of such term and relates solely to the Broker Shelf Registration Statement and (b) any Registration Default that arises solely pursuant to clauses (v) or (vi) of the definition of such term. In the event that a Registration Default exists, then the Company shall pay additional interest on the Specified Notes (in addition to the interest otherwise due on the Notes) in cash on each Interest Payment Date (as defined in the Indenture) in an amount equal to one-quarter of one percent (0.25%) per annum of the principal amount of the Specified Notes, with respect to the first 90-day period (or portion thereof) following such Registration Default. The amount of such additional interest will increase by an additional one-quarter of one percent (0.25%) to a maximum of one percent (1.0%) per annum for each subsequent 90-day period (or portion thereof) until each such Registration Default has been cured. A "Registration Default" will exist (subject to the following sentence) if (i) the Company fails to file any of the registration statements required by this Agreement on or prior to the date specified for such filing, (ii) any of such registration statements is not declared effective by the SEC on or prior to the date specified for such effectiveness, (iii) the Exchange Offer is required to be consummated under this Agreement and is not consummated within 180 days after the Original Issue Date, (iv) the Shelf Registration Statement is declared effective but thereafter, during the period for which the Company is required to maintain the effectiveness of such registration statement, it ceases to be effective or usable in connection with the resale of the Notes covered by such registration statement for a period of 60 days, whether or not consecutive, (v) the Exchange Offer Registration Statement is declared effective but thereafter, during the Broker Prospectus Period, it ceases to be effective (or the Company restricts the use of the prospectus included therein) for a period of 60 days, whether or not consecutive, or (vi) the Broker Shelf Registration Statement is declared effective but thereafter, during the period for which the Company is required to maintain the effectiveness of such registration statement, it ceases to be effective or usable in connection with the resale of the Exchange Notes covered by such registration statement for a period of 60 days, whether or not consecutive. Notwithstanding the foregoing, (a) any Registration Default specified in clause (i), (ii) or (iii) of the preceding sentence that relates to the Exchange Offer Registration Statement or the Exchange Offer shall be deemed cured at such time as the Shelf Registration Statement is declared effective by the SEC and (b) any Registration Default specified in clause (v) of the preceding sentence shall be deemed cured at such time as the Broker Shelf Registration Statement is declared effective by the SEC. Following the cure of all Registration Defaults the accrual of additional interest on the Specified Notes will cease and the interest rate will revert to the original rate; provided, however, that if, after any such additional interest ceases to accrue, a different event specified in clause (i), (ii), (iii), (iv), (v) or (vi) of the definition of Registration Default above occurs, such additional interest shall begin to accrue again pursuant to the foregoing provisions. The Company shall notify the Trustee within five business days after the occurrence of each event specified in clause (i), (ii), (iii), (iv), (v) or (vi) of the definition of 11 Registration Default above. The Company shall pay the additional interest due on the Specified Notes by depositing with the Trustee, in trust, for the benefit of the Holders thereof, by 12:00 noon, New York City time, on or before the applicable semi-annual Interest Payment Date for the Specified Notes, immediately available funds in sums sufficient to pay the additional interest then due. The additional interest amount due shall be payable on each Interest Payment Date to the record Holder of Specified Notes entitled to receive the interest payment to be made on such date as set forth in the Indenture. Additional interest pursuant to this Section 2(e) constitutes liquidated damages with respect to Registration Defaults and shall be the exclusive monetary remedy available to the Holders and/or the Initial Purchasers with respect to any Registration Default. (f) Specific Enforcement. Without limiting the remedies available -------------------- to the Initial Purchasers and the Holders, the Company acknowledges that any failure by it to comply with its obligations under Sections 2(a), 2(b) or 3(f) hereof may result in material irreparable injury to the Initial Purchasers or the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Initial Purchasers or any Holder may obtain such relief as may be required to specifically enforce the Company's obligations under Sections 2(a), 2(b) or 3(f). 3. Registration Procedures. In connection with the obligations of ----------------------- the Company with respect to the Registration Statements pursuant to Sections 2(a) and 2(b) hereof, the Company shall: (a) prepare and file with the SEC a Registration Statement, within the time period specified in Section 2, on the appropriate form under the 1933 Act, which form (i) shall be selected by the Company, (ii) shall, in the case of a Shelf Registration, be available for the sale of the Transfer Restricted Notes by the selling Holders thereof and (iii) shall comply as to form in all material respects with the requirements of the applicable form and include or incorporate by reference all financial statements required by the SEC to be filed therewith and use its best efforts to cause such Registration Statement to become effective and remain effective in accordance with Section 2 hereof; (b) prepare and file with the SEC such amendments and post- effective amendments to each Registration Statement as may be necessary under applicable law to keep such Registration Statement effective for the applicable period; cause each Prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the 1933 Act; and in the case of a Shelf Registration Statement or Broker Shelf Registration Statement comply with the provisions of the 1933 Act with respect to the disposition of all securities covered by each Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the selling Holders thereof; 12 (c) in the case of a Shelf Registration, (i) notify each Holder of Transfer Restricted Notes, at least five business days prior to filing, that a Shelf Registration Statement with respect to the Transfer Restricted Notes is being filed and advising such Holders that the distribution of Transfer Restricted Notes will be made in accordance with the method elected by the Majority Holders; provided that this clause (i) shall not apply with respect to regular filings of any document or report under the Exchange Act, at any time following the effectiveness of the applicable Registration Statement hereunder, where such filing is made as part of the Company's periodic disclosure obligations under Sections 13 and 15 of the Exchange Act; and (ii) furnish to each Holder of Transfer Restricted Notes, to counsel for the Initial Purchasers, to counsel for the Holders and to each underwriter of an underwritten offering of Transfer Restricted Notes, if any, without charge, as many copies of each Prospectus, including each preliminary Prospectus, and any amendment or supplement thereto and such other documents as such Holder or underwriter may reasonably request, including financial statements and schedules and, if the Holder so requests, all exhibits (including those incorporated by reference) in order to facilitate the public sale or other disposition of the Transfer Restricted Notes; and (iii) subject to the penultimate paragraph of this Section 3, hereby consent to the use of the Prospectus, including each preliminary Prospectus, or any amendment or supplement thereto by each of the selling Holders of Transfer Restricted Notes in connection with the offering and sale of the Transfer Restricted Notes covered by the Prospectus or any amendment or supplement thereto; (d) use its reasonable best efforts to register or qualify the Transfer Restricted Notes under all applicable state securities or "blue sky" laws of such jurisdictions as any Holder of Transfer Restricted Notes covered by a Registration Statement and each underwriter of an underwritten offering of Transfer Restricted Notes shall reasonably request by the time the Registration Statement is declared effective by the SEC, to cooperate with the Holders in connection with any filings required to be made with the NASD and do any and all other acts and things which may be reasonably necessary or advisable to enable such Holder to consummate the disposition in each such jurisdiction of such Transfer Restricted Notes owned by such Holder; provided, however, that the Company shall not be required to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d) or (ii) take any action which would subject it to general service of process or taxation in any such jurisdiction if it is not then so subject; (e) in the case of a Shelf Registration, notify each Holder of Transfer Restricted Notes and counsel for such Holders promptly and, if requested by such Holder or counsel, confirm such advice in writing promptly (i) when a Registration Statement has become effective and when any post-effective amendments and supplements thereto become effective, provided that this clause (i) shall not apply with respect to regular filings of any document or report under the Exchange Act, at any time following the effectiveness of the applicable Registration Statement hereunder, where such filing is 13 made as part of the Company's periodic disclosure obligations under Sections 13 and 15 of the Exchange Act; (ii) of any request by the SEC or any state securities authority for post-effective amendments and supplements to a Registration Statement and Prospectus or for additional information after the Registration Statement has become effective, (iii) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Transfer Restricted Notes for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (v) of the happening of any event or the discovery of any facts during the period a Shelf Registration Statement is effective (including as contemplated in Section 2(d)(iii) hereof) which makes any statement made in such Registration Statement or the related Prospectus untrue in any material respect or which requires the making of any changes in such Registration Statement or Prospectus in order to make the statements therein not misleading and (vi) of any determination by the Company that a post-effective amendment to a Registration Statement would be appropriate; (f) (A) in the case of the Exchange Offer, (i) include in the Exchange Offer Registration Statement a "Plan of Distribution" section covering the use of the Prospectus included in the Exchange Offer Registration Statement by broker-dealers who have exchanged their Transfer Restricted Notes for Exchange Notes for the resale of such Exchange Notes, (ii) furnish to each broker-dealer who desires to participate in the Exchange Offer, without charge, as many copies of each Prospectus included in the Exchange Offer Registration Statement, including any preliminary Prospectus, and any amendment or supplement thereto, as such broker-dealer may reasonably request, (iii) include in the Exchange Offer Registration Statement a statement that any broker-dealer who holds Transfer Restricted Notes acquired for its own account as a result of market-making activities or other trading activities (a "Participating Broker-Dealer"), and who --------------------------- receives Exchange Notes for Transfer Restricted Notes pursuant to the Exchange Offer, may be a statutory underwriter and must deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of such Exchange Notes, (iv) subject to Section 2(d)(iii) and the penultimate paragraph of Section 3, hereby consent to the use of the Prospectus forming part of the Exchange Offer Registration Statement or any amendment or supplement thereto, by any broker-dealer in connection with the sale or transfer of the Exchange Notes covered by the Prospectus or any amendment or supplement thereto, and (v) include in the transmittal letter or similar documentation to be executed by an exchange offeree in order to participate in the Exchange Offer the following provision: "If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Transfer Restricted Notes, it represents that the Transfer 14 Restricted Notes to be exchanged for Exchange Notes were acquired by it as a result of market-making activities or other trading activities and acknowledges that it will deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of such Exchange Notes pursuant to the Exchange Offer; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the 1933 Act;" (B) to the extent any Participating Broker-Dealer participates in the Exchange Offer, the Company shall use its best efforts to cause to be delivered at the request of an entity representing the Participating Broker-Dealers (which entity shall be one of the Initial Purchasers, unless it elects not to act as such representative) a "cold comfort" letter with respect to the Prospectus in the form existing on the last date for which exchanges are accepted pursuant to the Exchange Offer and with respect to each subsequent amendment or supplement, if any, effected during the period specified in clause (C) below; and (C) to the extent any Participating Broker-Dealer participates in the Exchange Offer, the Company shall use its best efforts to maintain the effectiveness of the Exchange Offer Registration Statement and to make available a prospectus meeting the requirements of the 1933 Act to any Participating Broker-Dealer for use in connection with any resale of any Exchange Notes acquired in the Exchange Offer (subject to the penultimate paragraph of Section 3). The obligation of the Company to maintain the effectiveness of the Exchange Offer Registration Statement and make such prospectus available will commence on the day that the Exchange Offer is consummated and continue in effect for a 30-day period (the "Broker Prospectus Period"); provided, however, that, if for any day during such period the Company restricts the use of such Exchange Offer Registration Statement or prospectus, the Broker Prospectus Period shall be extended on a day-for-day basis; (D) the Company shall not be required to amend or supplement the Prospectus contained in the Exchange Offer Registration Statement as would otherwise be contemplated by Section 3(b) hereof, or take any other action as a result of this Section 3(f), for any period following expiration of the Broker Prospectus Period (as such period may be extended hereunder) and Participating Broker-Dealers shall not be authorized by the Company to, and shall not, deliver such Prospectus after such period in connection with resales contemplated by this Section 3; and (E) If at the end of the Broker Prospectus Period any Participating Broker-Dealer that received Exchange Notes pursuant to the Exchange Offer continues to hold any such Exchange Notes, the Company will, if any such Participating Broker-Dealer so requests within 60 days after the end of the Broker Prospectus Period, file with the SEC a shelf registration statement (a "Broker Shelf Registration Statement") to cover the resale 15 of such Exchange Notes by Participating Broker-Dealers; provided, however, that (i) the Company may in lieu of filing such registration statement extend the Broker Prospectus Period by 60 days and (ii) the Company will not be required to file such registration statement until such time as the Company becomes eligible to use a Form S-3 for such registration statement. The Company will use its best efforts to satisfy the eligibility requirements for the use of Form S-3 for a registration statement under the 1933 Act as soon as reasonably practicable. If the Company is obligated to file a Broker Shelf Registration Statement, the Company will (i) file the Broker Shelf Registration Statement within 30 days following the date on which the Company first becomes eligible to use a Form S-3 for such registration statement (or, if later, within 30 days of the date the request for such registration statement is first made in accordance with this clause (E)) and (ii) use its best efforts to have the Broker Shelf Registration Statement declared effective by the SEC on or prior to the 90th day following the date on which the Company first becomes eligible to use a Form S-3 for such registration statement (or, if later, the 90th day following the date the request for such registration statement is first made in accordance with this clause (E)). The Company will be required to use its best efforts to keep the Broker Shelf Registration Statement continuously effective, supplemented and amended for a 60-day period; provided, however, that, if on any day during such period such registration statement is not usable in connection with the resale of the Exchange Notes covered thereby, such period shall be extended on a day-for-day basis. In connection with the Broker Shelf Registration Statement, the Company shall, in addition to its other obligations hereunder, comply with the obligations contained in Section 2(b)(C), the ultimate paragraph of Section 2(b), Sections 2(c) and (d) and Sections 3, 4 and 5 hereof with respect to the Broker Shelf Registration Statement as if references to Shelf Registration, Shelf Registration Statement and Holders (or Majority Holders) therein were also a reference to the Broker Shelf Registration Statement, the registration pursuant to this clause (E) and the Participating Broker- Dealers (or a majority thereof), respectively. (g) (A) in the case of an Exchange Offer, furnish counsel for the Initial Purchasers and (B) in the case of a Shelf Registration, furnish Holders' Counsel with copies of any request by the SEC or any state securities authority for amendments or supplements to a Registration Statement and Prospectus or for additional information; (h) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement at the earliest possible moment and provide immediate notice to each Holder of the withdrawal of any such order; (i) in the case of a Shelf Registration, furnish to each Holder of Transfer Restricted Notes, without charge, at least one conformed copy of each Registration Statement and any post-effective amendment thereto (without documents incorporated therein by reference or exhibits thereto, unless requested); 16 (j) in the case of a Shelf Registration, cooperate with the selling Holders of Transfer Restricted Notes to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Notes to be sold and not bearing any restrictive legends; and cause such Transfer Restricted Notes to be in such denominations (consistent with the provisions of the Indenture) in a form eligible for deposit with the Depositary and registered in such names as the selling Holders or the underwriters, if any, may reasonably request in writing at least one business day prior to the closing of any sale of Transfer Restricted Notes; (k) in the case of a Shelf Registration, upon the occurrence of any event or the discovery of any facts, each as contemplated by Section 3(e)(v) hereof, use their best efforts to prepare a supplement or post- effective amendment to a Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Transfer Restricted Notes, such Prospectus will not contain at the time of such delivery any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company agrees to notify each Holder to suspend use of the Prospectus as promptly as practicable after the occurrence of such an event, and each Holder hereby agrees to suspend use of the Prospectus until the Company has amended or supplemented the Prospectus to correct such misstatement or omission. At such time as such public disclosure is otherwise made or the Company determines that such disclosure is not necessary, in each case to correct any misstatement of a material fact or to include any omitted material fact, the Company agrees promptly to notify each Holder of such determination and to furnish each Holder such numbers of copies of the Prospectus, as amended or supplemented, as such Holder may reasonably request; (l) obtain CUSIP numbers for all Exchange Notes, or Transfer Restricted Notes, as the case may be, not later than the effective date of a Registration Statement, and provide the Trustee with printed certificates for the Exchange Notes in a form eligible for deposit with the Depositary; (m) (i) cause the Indenture to be qualified under the Trust Indenture Act of 1939, as amended (the "TIA"), in connection with the --- registration of the Exchange Notes, or Transfer Restricted Notes, as the case may be, (ii) cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the TIA and (iii) execute, and use its best efforts to cause the Trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner; (n) subject to Section 4(c), in the case of a Shelf Registration, take the following actions and take all other customary and appropriate actions (including those 17 reasonably requested by the holders of a majority in principal amount of the Transfer Restricted Notes being sold) in order to expedite or facilitate the disposition of such Transfer Restricted Notes and in such connection: (i) If requested by Holders' Counsel, make such representations and warranties to the Holders of such Transfer Restricted Notes in form, substance and scope as are customarily made in connection with shelf registrations of the type contemplated by this Agreement (such representations and warranties to be agreed upon by the Holders' Counsel and the Company, such agreement not to be unreasonably withheld); provided, however, that in the case of an underwritten offering the Company shall make such representations and warranties to the Holders of such Transfer Restricted Notes and the underwriters in form, substance and scope as are customarily made by issuers in connection with primary underwritten offerings of debt securities comparable to the Notes (such representations and warranties to be agreed upon by the Holders' Counsel, the underwriters and the Company, such agreement not to be unreasonably withheld); (ii) If requested by Holders' Counsel, obtain (at all times such opinions are customarily obtained) opinions of counsel to the Company and updates thereof addressed to each selling Holder covering the matters in form, substance and scope customarily covered in opinions delivered in connection with shelf registrations of the type contemplated by this Agreement (such opinions to be agreed upon by Holders' Counsel and the Company, such agreement not to be unreasonably withheld); provided, however, that in the case of an underwritten offering such opinions shall also be addressed to the underwriters and also cover the matters customarily covered in opinions delivered by issuers in connection with primary underwritten offerings of debt securities comparable to the Notes (such additional opinions to be agreed upon by the underwriters and the Company, such agreement not to be unreasonably withheld); (iii) If requested by Holders' Counsel, obtain (at all times such letters are customarily obtained) "cold comfort" letters and updates thereof from the independent certified public accountants to the Company and to any other entity for which financial statements or other financial information or schedules are included in the Registration Statement, each addressed to the selling Holders of Transfer Restricted Notes, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters delivered to selling security holders in connection with shelf registrations of the type contemplated by this Agreement (such letters to be agreed upon by Holders' Counsel and such accountants, such agreement not to be unreasonably withheld); provided, however, that in the case of an underwritten offering such letters shall also be addressed to the underwriters and cover the matters customarily covered in "comfort letters" delivered by issuers in connection with primary underwritten 18 offerings of debt securities comparable to the Notes (such letters to be agreed upon by the underwriters and such accountants, such agreement not to be unreasonably withheld); (iv) if requested by the Majority Holders, enter into a securities sales agreement with the Holders and an agent of the Holders providing for, among other things, the appointment of such agent for the selling Holders for the purpose of soliciting purchases of Transfer Restricted Notes, which agreement shall be in form, substance and scope customary for similar offerings; (v) if an underwriting agreement is entered into in the case of an underwritten offering, cause the same to set forth indemnification provisions and procedures substantially equivalent to the indemnification provisions and procedures set forth in Section 5 hereof with respect to the underwriters and all other parties to be indemnified pursuant to Section 5 hereof; (vi) deliver such documents and certificates as may be reasonably requested and as are customarily delivered in similar offerings; and (vii) in the case of an underwritten offering, enter into customary agreements required in connection therewith (including a customary underwriting agreement). The above shall be done at (i) the effectiveness of such Registration Statement (and, if appropriate, each post-effective amendment thereto) and (ii) each closing under any underwriting or similar agreement as and to the extent required thereunder. In the case of any underwritten offering, the Company shall provide written notice to the Holders of all Transfer Restricted Notes of such underwritten offering at least 30 days prior to the filing of a prospectus supplement for such underwritten offering. Such notice shall (x) offer each such Holder the right to participate in such underwritten offering, (y) specify a date, which shall be no earlier than 10 days following the date of such notice, by which such Holder must inform the Company of its intent to participate in such underwritten offering and (z) include the instructions such Holder must follow in order to participate in such underwritten offering; (o) For a reasonable period prior to the filing of a Shelf Registration Statement and prior to the execution of any underwriting or similar agreement make available for inspection by Holders' Counsel and any underwriters participating in an underwritten offering pursuant to a Shelf Registration Statement and not more than one accounting firm retained by the Majority Holders or underwriters, all financial and other records, pertinent corporate documents and properties of the Company reasonably requested by 19 any such Persons, and cause the respective officers, directors, employees, and any other agents of the Company to supply all information reasonably requested by any such Persons, in connection with a Registration Statement; provided that any such records, documents, properties and such information that is designated in writing by the Company, in good faith, as confidential at the time of delivery of such records, documents, properties or information shall be kept confidential by any such Persons and shall be used only in connection with such Registration Statement, unless disclosure thereof is made in connection with a court proceeding or required by law, or such information has become available (not in violation of this agreement) to the public generally or through a third party without an accompanying obligation of confidentiality, and the Company shall be entitled to request that such Persons sign a confidentiality agreement to the foregoing effect; (p) (i) in the case of an Exchange Offer, a reasonable time prior to the filing of any Exchange Offer Registration Statement, any Prospectus forming a part thereof, any amendment to an Exchange Offer Registration Statement or amendment or supplement to a Prospectus, provide copies of such document to the Initial Purchasers, and make such changes in any such document prior to the filing thereof as the Initial Purchasers or their counsel may reasonably request and is agreed to by the Company (such agreement not to be unreasonably withheld); (ii) in the case of a Shelf Registration, a reasonable time prior to filing any Shelf Registration Statement, any Prospectus forming a part thereof, any amendment to such Shelf Registration Statement or amendment or supplement to such Prospectus, other than amendments comprising regular filings of any document or report under the Exchange Act, at any time following the effectiveness of the applicable Registration Statement hereunder, where such filing is made as part of the Company's periodic disclosure obligations under Sections 13 and 15 of the Exchange Act, provide copies of such document to Holders' Counsel, to the Initial Purchasers, and to the underwriter or underwriters of an underwritten offering of Transfer Restricted Notes, if any, and make such changes in any such document prior to the filing thereof as counsel to the Initial Purchasers, Holders' Counsel or any underwriter may request and is agreed to by the Company (such agreement not to be unreasonably withheld); and (iii) cause the representatives of the Company to be available for discussion of such document as shall be reasonably requested by Holders' Counsel, the Initial Purchasers on behalf of such Holders or any underwriter, and shall not at any time make any filing of any such document of which Holders' Counsel, the Initial Purchasers or any underwriter shall not have previously been advised and furnished a copy or to which such Holders, the Initial Purchasers on behalf of such Holders, their counsel or any underwriter shall reasonably object within a reasonable time period; (q) in the case of a Shelf Registration, use its best efforts to cause all Transfer Restricted Notes to be listed on any securities exchange on which similar debt securities issued by the Company are then listed if requested by the Majority Holders or by the underwriter or underwriters of an underwritten offering of Transfer Restricted Notes, if any; 20 (r) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC and make available to its security holders, as soon as reasonably practicable (but not until the end of the first full fiscal quarter following effectiveness), an earnings statement covering at least 12 months which shall satisfy the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder; and (s) cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any underwriter and its counsel. In the case of a Shelf Registration Statement, the Company may (as a condition to such Holder's participation in the Shelf Registration) require each Holder of Transfer Restricted Notes to furnish to the Company such information regarding such Holder (and if such Holder is not the beneficial owner, the beneficial owner) and the proposed distribution by such Holder (and if such Holder is not the beneficial owner, the beneficial owner) of such Transfer Restricted Notes as the Company may from time to time reasonably request in writing. In the case of a Shelf Registration Statement or the filing of a Broker Shelf Registration Statement or, during the Broker Prospectus Period only, in the case of an Exchange Offer Registration Statement, each Holder agrees that, upon receipt of any notice from the Company of the happening of any event or the discovery of any facts, each of the kind described in Section 3(e)(ii)-(vii) hereof, such Holder will forthwith discontinue disposition of Transfer Restricted Notes pursuant to such Registration Statement until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(k) hereof, and, if so directed by the Company, such Holder will deliver to the Company (at the Company's expense) all copies in its possession, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Transfer Restricted Notes current at the time of receipt of such notice. Each Holder agrees to keep confidential the cause of any such notice of suspension or other information provided to them by the Company with respect thereto or any other event which would materially adversely affect the Company. If any such Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Company, then such Holder shall have the right to require (i) the insertion therein of language, in form and - substance satisfactory to such Holder, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such -- reference to such Holder by name or otherwise is not required by the Securities Act or any similar federal statute then in force, the deletion of the reference to such Holder. 4. Underwritten Registrations. (a) If any of the Transfer -------------------------- Restricted Notes covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be 21 selected by the Majority Holders of such Transfer Restricted Notes included in such offering, provided such banker or manager is acceptable to the Company, acting reasonably. (b) No Holder of Transfer Restricted Notes may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Transfer Restricted Notes on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. (c) Notwithstanding anything to the contrary contained herein, (i) the Company shall not be required to cooperate with an underwritten offering unless a request for an underwritten offering is made by holders of 33-1/3% of Transfer Restricted Notes outstanding, (ii) the Company shall not be obligated to cooperate with more than one underwritten offering pursuant to this Agreement, (iii) upon receipt of a request to prepare and file an amendment or supplement to a Registration Statement and Prospectus in connection with an underwritten offering, the Company may delay the filing of any such amendment or supplement for up to 120 days if the Company in good faith has a valid business reason for such delay provided that nothing in this clause (iii) limits the Company's obligations under Section 2(d)(iii), and (iv) the Company shall not be required to pay more than an aggregate of $200,000 of Registration Expenses, in addition to internal expenses of the Company (including, without limitation, salaries of officers and employees performing legal and accounting duties) in connection with any such underwritten offering. 5. Indemnification and Contribution. (a) Each of the Company and -------------------------------- the Guarantors, jointly and severally, agrees to indemnify and hold harmless each Initial Purchaser, each Holder, including Participating Broker-Dealers, each underwriter who participates in an offering of Transfer Restricted Notes, their respective affiliates, and their respective directors, officers, employees, agents and each Person, if any, who controls any of such parties within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto) pursuant to which Exchange Notes or Transfer Restricted Notes were registered under the 1933 Act, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; 22 (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever, in each case, based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 5(d) below) any such settlement is effected with the written consent of the Company; and (iii) against any and all expenses whatsoever, as incurred (including the reasonable fees and disbursements of one counsel chosen by any indemnified party), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any court or governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraph (i) or (ii) of this Section 5(a); provided, however, that this indemnity agreement does not apply to any loss, liability, claim, damage or expense to the extent (i) arising out of an untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by the Initial Purchasers, any Holder, including Participating Broker-Dealers, or any underwriter expressly for use in the Registration Statement (or any amendment thereto) or the Prospectus (or any amendment or supplement thereto) or (B) resulting from the use of the Prospectus during a period when the use of the Prospectus has been suspended in accordance with Section 2(d)(iii), Section 3(e)(v) and the penultimate paragraph of Section 3 hereof, provided, in each case, that Holders received prior notice of such suspension. (b) In the case of a Shelf Registration or Broker Shelf Registration Statement, each Holder agrees, severally and not jointly, to indemnify and hold harmless the Company, each Initial Purchaser, each underwriter who participates in an offering of Transfer Restricted Notes and the other selling Holders and each of their respective directors and officers (including each officer of the Company who signed the Registration Statement) and each Person, if any, who controls the Company, any Initial Purchaser, any underwriter or any other selling Holder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any and all loss, liability, claim, damage and expense described in the indemnity contained in Section 5(a) hereof, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such Holder expressly for use in the Registration Statement (or any amendment thereto), or the Prospectus (or any amendment or supplement thereto); provided, however, that no such Holder shall be liable for any claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Transfer Restricted Notes pursuant to such Shelf Registration Statement. 23 (c) In case any action shall be commenced involving any Person in respect of which indemnity may be sought pursuant to either paragraph (a) or (b) above, such Person (the "indemnified party") shall give notice as promptly as ----------------- reasonably practicable to each Person against whom such indemnity may be sought (the "indemnifying party"), but failure to so notify an indemnifying party shall ------------------ not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. In the case of parties indemnified pursuant to Section 5(a) above, counsel to the indemnified parties shall (subject to the following sentence) be selected by Merrill Lynch, and, in the case of parties indemnified pursuant to Section 5(b) above, counsel to the indemnified parties shall be selected by the Company. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof with counsel satisfactory to such indemnified party; provided, that if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be one or more legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnifying party shall not have the right to direct the defense of such action on behalf of such indemnified party or parties and such indemnified party or parties shall have the right to select separate counsel to defend such action on behalf of such indemnified party or parties. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances; after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof and approval by such indemnified party of counsel appointed to defend such action, the indemnifying party will not be liable to such indemnified party under this Section 5 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof, unless (i) the indemnified party shall have employed separate counsel in accordance with the provisos to the preceding sentence (it being understood, however, that in connection with such action the indemnifying party shall not be liable for the expenses of more than one separate counsel (in addition to local counsel) in any one action or separate but substantially similar actions in the same jurisdiction arising out of the same general allegations or circumstances, designated by Merrill Lynch in the case of paragraph (a) of this Section 5, representing the indemnified parties under such paragraph (a) who are parties to such action or actions) or (ii) the indemnifying party does not promptly retain counsel satisfactory to the indemnified party or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. The indemnifying party will not be liable for the costs and expenses of any settlement of such action effected by such indemnified party without the consent of the indemnifying party. 24 No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding, by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 5 (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 5(a)(ii) hereof effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. (e) If the indemnification provided for in any of the indemnity provisions set forth in this Section 5 is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, in such proportion as is appropriate to reflect the relative fault of such indemnifying party or parties on the one hand, and such indemnified party or parties on the other hand, in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party or parties on the one hand, and such indemnified party or parties on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or parties or such indemnified party or parties and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Guarantors, the Initial Purchasers and the Holders of the Transfer Restricted Notes agree that it would not be just and equitable if contribution pursuant to this Section 5 were determined by pro rata allocation (even if the Initial Purchasers were treated as one entity, and the Holders were treated as one entity, for such purpose) or by another method of allocation which does not take account of the equitable considerations referred to above in Section 5. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 5 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim 25 whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 5, each Person, if any, who controls an Initial Purchaser or Holder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such Initial Purchaser or Holder, and each director of the Company, each officer of the Company who signed the Registration Statement, and each Person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company. Notwithstanding the provisions of this Section 5(e), no Holder shall be required to contribute any amount in excess of the amount by which the net proceeds received by such Holder from the sale of Transfer Restricted Notes exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. 6. Miscellaneous. (a) Rule 144 and Rule 144A. For so long as the ------------- ---------------------- Company is subject to the reporting requirements of Section 13 or 15(d) of the 1934 Act, the Company covenants that it will file the reports required to be filed by it under Section 13(a) or 15(d) of the 1934 Act and the rules and regulations adopted by the SEC thereunder, and that if it ceases to be so required to file such reports, it will upon the request of any Holder of Transfer Restricted Notes (i) make publicly available such information as is necessary to permit sales pursuant to Rule 144 under the 1933 Act, (ii) deliver such information to a prospective purchaser as is necessary to permit sales pursuant to Rule 144A under the 1933 Act and take such further action as any Holder of Transfer Restricted Notes may reasonably request, and (iii) take such further action that is reasonable in the circumstances, in each case, to the extent required from time to time to enable such Holder to sell its Transfer Restricted Notes without registration under the 1933 Act within the limitation of the exemptions provided by (x) Rule 144 under the 1933 Act, as such Rule may be amended from time to time, (y) Rule 144A under the 1933 Act, as such Rule may be amended from time to time, or (z) any similar rules or regulations hereafter adopted by the SEC. Upon the written request of any Holder of Transfer Restricted Notes, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements. (b) No Inconsistent Agreements. The Company has not entered into -------------------------- nor will it on or after the date of this Agreement enter into any agreement which is inconsistent with the rights granted to the Holders of Transfer Restricted Notes in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's other issued and outstanding securities under any such agreements. (c) Amendments and Waivers. The provisions of this Agreement, ---------------------- including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has 26 obtained the written consent of Holders of at least a majority in aggregate principal amount of the outstanding Transfer Restricted Notes affected by such amendment, modification, supplement, waiver or departure; provided, however, that no amendment, modification, supplement or waiver or consent to any departure from the provisions of Section 5 hereof shall be effective as against any Holder of Transfer Restricted Notes unless consented to in writing by such Holder. (d) Notices. All notices and other communications provided for or ------- permitted hereunder shall be made in writing by hand-delivery, registered first- class mail, telecopier, or any courier guaranteeing overnight delivery (i) if to a Holder (other than an Initial Purchaser), at the most current address set forth on the records of the Registrar under the Indenture, (ii) if to an Initial Purchaser, at the most current address given by such Initial Purchaser to the Company by means of a notice given in accordance with the provisions of this Section 6(d), which address initially is the address set forth in the Purchase Agreement; and (iii) if to the Company, initially at the address set forth in the Purchase Agreement and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 6(d). All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when receipt is acknowledged, if telecopied; and on the next business day if timely delivered to an air courier guaranteeing overnight delivery. (e) Successors and Assigns. This Agreement shall inure to the ---------------------- benefit of and be binding upon the successors, assigns and transferees of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders; provided that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Transfer Restricted Notes in violation of the terms hereof or of the Purchase Agreement or the Indenture. If any transferee of any Holder shall acquire Transfer Restricted Notes, in any manner, whether by operation of law or otherwise, such Transfer Restricted Notes shall be held subject to all of the terms of this Agreement, and by taking and holding such Transfer Restricted Notes, such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement, including the restrictions on resale set forth in this Agreement and, if applicable, the Purchase Agreement, and such Person shall be entitled to receive the benefits hereof. (f) Third Party Beneficiary. The Holders shall be third party ----------------------- beneficiaries to the agreements made hereunder between the Company on the one hand, and the Initial Purchasers, on the other hand, and shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights or the rights of Holders hereunder. (g) Counterparts. This Agreement may be executed in any number of ------------ counterparts and by the parties hereto in separate counterparts, each of which when so executed 27 shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of -------- reference only and shall not limit or otherwise affect the meaning hereof. (i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED ------------- IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. (j) Entire Agreement. This Agreement embodies the entire agreement ---------------- and understanding between the Company and each other party hereto relating to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. (k) Severability. In the event that any one or more of the provisions ------------ contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. [signature page follows] 28 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. UNITED RENTALS, INC. By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: CHIEF FINANCIAL OFFICER A&A TOOL RENTALS & SALES, INC. By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY ACCESS RENTALS, INC. By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY ASC EQUIPMENT COMPANY, INC. By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY BNR EQUIPMENT, INC. By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY BRONCO HI-LIFT, INC. By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY C.C. RENTALS, INC. By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY CORAN ENTERPRISES, INCORPORATED By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY EQUIPMENT CAPITAL CORPORATION By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY HIGH REACH, INC. By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY INDUSTRIAL LIFT INC. By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY J&J RENTAL SERVICES, INC. By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY MERCER EQUIPMENT COMPANY By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY MISCO RENTS, INC. By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY MISSION VALLEY RENTALS, INC. By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY NEVADA HIGH REACH EQUIPMENT, INC. By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY PALMER EQUIPMENT COMPANY, INC. By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY PRO RENTALS, INC. By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY RENT-IT CENTER, INC. By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY RENTAL EQUIPMENT, INC. By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY RENTALS UNLIMITED INCORPORATED By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY RIVER CITY MACHINERY CO., INC. By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY SALT LAKE FORD NEW HOLLAND, INC. By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY SAN LEANDRO EQUIPMENT RENTAL SERVICE By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY SANTA FE SUPPLY & RENTAL, INC. By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY UNITED RENTALS OF NEW ENGLAND, INC. By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY UNITED RENTALS OF NEW YORK, INC. By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY UNITED RENTALS OF UTAH, INC. By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY UNITED RENTS ET. AL., INC. By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY VALLEY RENTALS, INC. By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY WEST MAIN RENTALS AND SALES, INC. By /s/ Michael J. Nolan ----------------------------------- Name: MICHAEL J. NOLAN Title: VICE PRESIDENT & SECRETARY Confirmed and accepted as of the date first above written: MERRILL LYNCH & CO., MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION GOLDMAN, SACHS & CO. SALOMON BROTHERS INC BANCAMERICA ROBERTSON STEPHENS By: MERRILL LYNCH & CO., MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: /s/ [SIGNATURE ILLEGIBLE]^^ ---------------------------------- Authorized Signatory Schedule C ---------- UNITED RENTALS, INC. Those corporations which are indented represent Subsidiaries of the corporation under which they are indented. Except as otherwise indicated, 100% of the voting stock of each of the Subsidiaries listed below is owned by its parent.
State of -------- Name of Subsidiary Incorporation ------------------ ------------- A&A Tool Rentals & Sales, Inc. California Access Rentals, Inc. New York ASC Equipment Company, Inc. North Carolina BNR Equipment, Inc. New York Bronco Hi-Lift, Inc. Colorado C.C. Rentals, Inc. Nevada Coran Enterprises, Incorporated (d/b/a A-1 Rents) California Equipment Capital Corporation (d/b/a Owens Equipment) Colorado High Reach, Inc. Oregon Industrial Lift, Inc. New Jersey J&J Rental Services, Inc. Texas Mercer Equipment Company North Carolina Misco Rents, Inc. Indiana Mission Valley Rentals, Inc. California Nevada High Reach Equipment, Inc. Nevada Palmer Equipment Company, Inc. Michigan Pro Rentals, Inc. Washington Rent-It Center, Inc. Utah Rental Equipment, Inc. (d/b/a Able Equipment) California Rentals Unlimited, Incorporated Rhode Island River City Machinery Co., Inc. Texas Salt Lake Ford New Holland, Inc. Utah San Leandro Equipment Rental Service California Santa Fe Supply & Rental, Inc. Colorado United Rentals of New England, Inc. Connecticut United Rentals of New York, Inc. New York United Rentals of Utah, Inc. Utah United Rents Et. Al., Inc. California Valley Rentals, Inc. Washington West Main Rentals and Sales, Inc. Oregon
EX-10.(A) 5 THIRD AMENDED AND RESTATED CREDIT AGREEMENT THIRD AMENDED AND RESTATED CREDIT AGREEMENT ------------------------------------------- THIS THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of May 12, 1998 is among United Rentals, Inc. (the "Company"), United Rentals of Canada, Inc. ("UR Canada"), various financial institutions, various Co-Agents, Bank of America Canada, as Canadian Agent (the "Canadian Agent"), and Bank of America National Trust and Savings Association, as U.S. Agent (the "U.S. Agent"), and amends and restates the Second Amended and Restated Credit Agreement dated as of March 30, 1998 (the "Credit Agreement") among the Company, UR Canada, various financial institutions, various Co-Agents, the Canadian Agent and the U.S. Agent. Terms defined in the Credit Agreement are, unless otherwise defined herein or the context otherwise requires, used herein as defined therein. WHEREAS, the parties hereto desire to amend the Credit Agreement as set forth herein and to restate the Credit Agreement in its entirety to read as set forth in the Credit Agreement with the amendments specified below; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1 Covenant Amendments. Effective upon the occurrence of the ------------------- Amendment Effective Date (as defined below), the Credit Agreement shall be amended in accordance with Sections 1.1 through 1.9 below. ------------ --- 1.1 Addition of Definition. Section 1.1 is amended by adding the ---------------------- following definition of "Cash Flow" in appropriate alphabetical sequence: Cash Flow means, as of the last day of any Fiscal Quarter, --------- 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, all calculated on a pro forma basis in accordance with Article II of Regulation S-X of the SEC. --- ----- 1.2 Amendment to Definition. The definition of Funded Debt to Cash Flow ----------------------- Ratio is amended in its entirety to read as follows: Funded Debt to Cash Flow Ratio means, as of the last day of any Fiscal ------------------------------ Quarter, the ratio of (i) Funded Debt as of such day to (ii) Cash Flow as of such day. 1.3 Amendment to Section 6.1. Section 6.1 is amended by (i) designating ------------------------ the existing text thereof, except the last sentence thereof, as subsection (a); (ii) adding the following subsection (b) immediately before the last sentence of the existing text thereof: "(b) The Company shall reduce the Aggregate Commitment at any time, and in the amount, required by Section ------- 10.23."; and (iii) designating the last sentence of the existing text thereof as - ----- subsection (c). 1.4 Amendment to Section 6.2.1. Section 6.2.1 is amended by adding the -------------------------- following sentence immediately before the last sentence of such Section: "In addition, the Company shall make any prepayment required by Section 10.23." ------------- 1.5 Amendments to Section 10.6. Section 10.6 is amended by (a) amending -------------------------- and restating Sections 10.6.2, 10.6.3, 10.6.4 and 10.6.5 in their entirety to read as set forth below, respectively, and (b) adding the Section 10.6.6 set forth below: 10.6.2 Maximum Leverage. Not permit the ratio of (i) Funded Debt to ---------------- (ii) Funded Debt plus Net Worth to exceed 0.65 to 1.0 at any time. ---- 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 1.50 to 1.0 3/31/99 through 12/31/99 1.75 to 1.0 3/31/2000 and thereafter 2.00 to I.O. 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 4.5 to 1.0. 10.6.5 Senior Debt to Tangible Assets. Not permit the ratio of (i) ------------------------------ Senior Debt to (ii) Tangible Assets to exceed 1.0 to 1.0 at any time. 10.6.6 Senior Debt to Cash Flow Ratio. Not permit the ratio of (i) ------------------------------ Senior Debt to (ii) Cash Flow as of the last day of any Fiscal Quarter to exceed 3.0 to 1.0. 1.6 Section 10.11. Section 10.11 is amended by (i) adding a comma and the ------------- words "but excluding any capital stock of or other equity interest in the Company which is part of such consideration" after the term "GAAP" and before the first close parenthesis in clause (c)(3)(i) and (ii) deleting the amount "U.S.$20,000,000" therein and substituting the amount "U.S.$40,000,000" therefor. 1.7 Addition of Section 10.23. The following Section 10.23 is added in ------------------------- appropriate numerical sequence: -2- 10.23 Asset Sales. Not later than one Business Day prior to the date ----------- on which the Company would be required to make, or offer to make, or give any notice of, any prepayment of Subordinated Debt (other than Seller Subordinated Debt) as a result of any sale or other disposition of assets, make a prepayment of the Loans and reduce the Aggregate Commitment by an amount at least equal to the amount which otherwise would be required to be applied to prepay such Subordinated Debt. 1.8 Amendment to Section 12.1.11. Section 12.1.11 shall be amended by ---------------------------- (a) deleting the word "or" after clause (b) thereof and (b) inserting a semi-colon and the following language before the period at the end thereof: or (d) any "Change of Control" shall occur under, and as defined in, the indenture for the Company's senior subordinated notes due 2008. 1.9 Amendment to Section 13.1(d). Section 13.1(d) is amended in its ---------------------------- entirety to read as follows: (d) The Banks authorize the U.S. Agent and the Canadian Agent to hold, for and on behalf of the Banks, security in the assets and properties of the Borrowers and their Subsidiaries securing the obligations of the Borrowers and their Subsidiaries under the Loan Documents. SECTION 2 Pricing Amendments. Effective upon the occurrence of the ------------------ Restatement Effective Date (as defined below), Schedule 1.1(C) to the Credit Agreement shall be amended in its entirety by substituting the Schedule 1.1(C) --------------- attached hereto therefor (and the pricing set forth in such Schedule shall become effective immediately upon such occurrence based upon the most recent financial statements and compliance certificate delivered by the Company). SECTION 3 Representations and Warranties. Each Borrower represents and ------------------------------ warrants to the Agents and the Banks that (a) each of the representations and warranties made by such Borrower in Section 9 of the Credit Agreement (excluding Sections 9.6 and 9.8), as amended and restated hereby (as so amended and restated, the "Restated Credit Agreement"), is true and correct as of the date hereof, with the same effect as if made on such date, (b) the execution and delivery hereof by such Borrower, and the performance by such Borrower of its obligations under the Restated Credit Agreement, (i) are within the powers of such Borrower, (ii) have been duly authorized by all necessary corporate action on the part of such Borrower, (iii) have received all necessary governmental approval and (iv) do not and will not contravene or conflict with (A) any provision of law or the certificate of incorporation or by-laws or other organizational documents of such Borrower or (B) any agreement, judgment, injunction, order, decree or other instrument binding upon such Borrower or any of its Subsidiaries, (c) the Restated Credit Agreement is the legal, valid and binding obligation of such Borrower enforceable, against such Borrower in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or other similar laws of -3- general application affecting the enforcement of creditors' rights or by general principles of equity limiting the availability of equitable remedies and (d) no Event of Default or Unmatured Event of Default has occurred or is continuing. SECTION 4 Effectiveness. The amendments set forth in Section 1 above shall ------------- --------- become effective on the date (the "Amendment Effective Date") when (a) the U.S. Agent shall have received counterparts hereof executed by the Company, the Required Banks and the U.S. Agent and (b) the Company shall have issued not less than $200,000,000 of Subordinated Debt. The amendments set forth in Section 2 --------- above shall become effective on the date (the "Restatement Effective Date") when (a) the U.S. Agent shall have received counterparts hereof executed by the Company, UR Canada, all of the Banks and each of the Agents and (b) the Company shall have issued not less than $200,000,000 of Subordinated Debt; it being understood that the Amendment Effective Date may occur prior to the Restatement Effective Date. SECTION 5 Miscellaneous. ------------- 5.1 Amendment and Restatement. Upon the Restatement Effective Date, the ------------------------- Restated Credit Agreement shall replace the Credit Agreement in its entirety and the Credit Agreement shall be of no further force or effect (except for any provisions thereof which be their terms survive termination thereof). After the Restatement Effective Date, all references in the Loan Documents to "Credit Agreement", "Second Amended and Restated Credit Agreement", "Agreement" or similar terms shall refer to the Restated Credit Agreement. 5.2 Counterparts. This agreement may be executed in any number of ------------ counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original but all such counterparts shall together constitute one and the same agreement. 5.3 Fees. The Company agrees to pay to the U.S. Agent for the account of ---- each U.S. Bank on the Restatement Effective Date a restatement fee in an amount equal to 0.075% of such U.S. Bank's Percentage of the Aggregate Commitment. 5.4 Expenses. The Company agrees to pay all reasonable expenses of the -------- U.S. Agent, including fees and charges of counsel, in connection with the preparation, execution and delivery of this agreement. 5.5 Governing Law. This agreement shall be construed in accordance with ------------- and governed by the substantive laws of the State of Illinois applicable to contracts made and to be performed entirely within such State. 5.6 Successors and Assigns. This agreement shall be binding upon the ---------------------- Company, UR Canada, the Banks and the Agents and their respective successors and assigns, and shall inure to the 4 benefit of the Company, UR Canada, the Banks and the Agents and the respective successors and assigns of the Banks and the Agents. 5 Delivered at Chicago, Illinois, as of the day and year first above written. UNITED RENTALS, INC. By____________________________________________ Chief Financial Officer UNITED RENTALS OF CANADA, INC. By____________________________________________ Title_________________________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as U.S. Agent By____________________________________________ Title_________________________________________ BANK OF AMERICA NATIONAL TRUST AND SAVING ASSOCIATION, as a U.S. Bank, as Issuing Bank and as Swing Line Bank By____________________________________________ Title_________________________________________ THE BANK OF NEW YORK, as a U.S. Bank By____________________________________________ Title_________________________________________ S-1 CREDIT LYONNAIS NEW YORK BRANCH, as a U.S. Bank By____________________________________________ Title_________________________________________ DEUTSCHE BANK AG, New York Branch and/or Cayman Islands Branch, as a U.S. Bank By____________________________________________ Title_________________________________________ By____________________________________________ Title_________________________________________ FIRST NATIONAL BANK OF MARYLAND, as a U.S. Bank By____________________________________________ Title_________________________________________ SUMMIT BANK, as a U.S. Bank By____________________________________________ Title_________________________________________ NATIONAL CITY BANK, as a U.S. Bank By____________________________________________ Title_________________________________________ S-2 BANKBOSTON, N.A., as a U.S. Bank By____________________________________________ Title_________________________________________ COMERICA BANK, as a U.S. Bank By____________________________________________ Title_________________________________________ FLEET BANK, N.A., as a U.S. Bank By____________________________________________ Title_________________________________________ HARRIS TRUST AND SAVINGS BANK, as a U.S. Bank By____________________________________________ Title_________________________________________ LASALLE NATIONAL BANK, as a U.S. Bank By____________________________________________ Title_________________________________________ THE BANK OF NOVA SCOTIA, as a U.S. Bank By____________________________________________ Title_________________________________________ S-3 UNION BANK OF CALIFORNIA, N.A., as a U.S. Bank By____________________________________________ Title_________________________________________ THE CHASE MANHATTAN BANK, as a U.S. Bank By____________________________________________ Title_________________________________________ BANK OF AMERICA CANADA, as Canadian Agent By____________________________________________ Title_________________________________________ BANK OF AMERICA CANADA, as a Canadian Bank By____________________________________________ Title_________________________________________ CREDIT LYONNAIS CANADA, as a Canadian Bank By____________________________________________ Title_________________________________________ THE BANK OF NOVA SCOTIA, as a Canadian Bank By____________________________________________ Title_________________________________________ S-4 DEUTSCHE BANK CANADA, as a Canadian Bank By____________________________________________ Title_________________________________________ S-5 SCHEDULE 1.1(C) PRICING SCHEDULE The Floating Rate Margin, the Fixed Rate Margin, the rate per annum applicable for facility 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 1.1(C). ---------------
================================================================================ LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V - -------------------------------------------------------------------------------- Rate for Facility Fee 0.3750% 0.3750% 0.3750% 0.3750% 0.3000% - -------------------------------------------------------------------------------- Fixed Rate Margin 1.6250% 1.3750% 1.1250% 1.0000% 0.9500% - -------------------------------------------------------------------------------- Floating Rate Margin 0 0 0 0 0 - -------------------------------------------------------------------------------- Rate for Non-Financial LC Fee 0.6250% 0.5000% 0 .3750% 0.3125% 0.3250% - -------------------------------------------------------------------------------- Rate for Financial LC Fee 1.6250% 1.3750% 1.1250% 1.0000% 0.9500% ================================================================================
Level I applies when the Funded Debt to Cash Flow Ratio is equal to or ------- greater than 4.0 to 1.0. Level II applies when the Funded Debt to Cash Flow Ratio is equal to or -------- greater than 3.5 to 1.0 but less than 4.0 to 1.0. Level III applies when the Funded Debt to Cash Flow Ratio is equal to or --------- greater than 3.0 to 1.0 but less than 3.5 to 1.0. Level IV applies when the Funded Debt to Cash Flow Ratio is equal to or -------- greater than 2.5 to 1.0 but less than 3.0 to 1.0. Level V applies when the Funded Debt to Cash Flow Ratio is less than 2.5 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. FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT ------------------------------------------- THIS FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of July 10, 1998 (this "First Amendment") amends the Third Amended and Restated Credit Agreement dated as of May 12, 1998 (the "Credit Agreement") among United Rentals, Inc. (the "Company"), United Rentals of Canada, Inc., various financial institutions, various Co-Agents, Bank of America Canada, as Canadian Agent, and Bank of America National Trust and Savings Association, as U.S. Agent (the "U.S. Agent"). Terms defined in the Credit Agreement are, unless otherwise defined herein or the context otherwise requires, used herein as defined therein. WHEREAS, the parties hereto desire to amend the Credit Agreement as set forth herein; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1 Amendments. Effective on (and subject to the occurrence of) the ---------- Amendment Effective Date (as defined below), the Credit Agreement shall be amended in accordance with Sections 1.1 through 1.5 below. ------------ --- 1.1 Amendment to Section 1.1, Section 9, Section 10 and Section 12. -------------------------------------------------------------- Section 1.1, Section 9, Section 10 and Section 12 are amended and restated in their entirety to read as set forth on Schedule I, Schedule II, Schedule III and ---------- ----------- ------------ Schedule IV hereto, respectively. - ----------- 1.2 Amendment to Section 13.1 (d). Section 13. 1 (d) is amended by ----------------------------- adding a comma and the words "Collateral Agent" immediately following the reference to "U.S. Agent" therein. 1.3 Amendment to Section 15.1. Section 15.1 is amended by adding the ------------------------- words "or of Parent under the Parent Guaranty" immediately following the reference to "Section 14" therein. 1.4 Amendment to Section 15.4. Section 15.4 is amended by (a) deleting all ------------------------- of the references to "the Company" therein and substituting the word "Parent" therefor and (b) deleting the reference to "the Company's" therein and substituting the word "Parent's" therefor. 1.5 Amendment to Section 15.6. Section 15.6 is amended by deleting the ------------------------- reference to "the Company's auditors" therein and substituting the words "Parent's auditors" therefor. SECTION 2 Authorization of Intercreditor Agreement. The Required Banks ---------------------------------------- hereby authorize the U.S. Agent and BofA, in its capacity as Collateral Agent (in such capacity, the "Collateral Agent"), to execute and deliver an Intercreditor Agreement substantially in the form of Exhibit D. --------- SECTION 3 Representations and Warranties. The Company represents and ------------------------------ warrants to the Agents and the Banks that (a) each of the representations and warranties made by the Borrowers in Section 9 (excluding Sections 9.6 and 9.8) of the Credit Agreement, as amended hereby (as so amended, the "Amended Credit Agreement"), is true and correct as of the date hereof, with the same effect as if made on such date, (b) the execution and delivery hereof by the Borrowers, and the performance by the Borrowers of their respective obligations under the Amended Credit Agreement, (i) are within the powers of each Borrower, (ii) have been duly authorized by all necessary corporate action on the part of each Borrower, (iii) have received all necessary governmental approval and (iv) do not and will not contravene or conflict with (A) any provision of law or the certificate of incorporation or by-laws or other organizational documents of either Borrower or (B) any agreement, judgment, injunction, order, decree or other instrument binding upon the Company or any of its Subsidiaries, (c) the Amended Credit Agreement is the legal, valid and binding obligation of each Borrower, enforceable against such Borrower in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditors' rights or by general principles of equity limiting the availability of equitable remedies and (d) no Event of Default or Unmatured Event of Default has occurred or is continuing. SECTION 4 Effectiveness. The amendments set forth in Section 1 above shall ------------- --------- become effective on the date (the "Amendment Effective Date") when the U.S. Agent shall have received (a) counterparts hereof executed by the Borrowers, the Required Banks and the U.S. Agent, (b) a Restated Company Pledge Agreement, substantially in the form of Exhibit A, signed by the Company and the Collateral --------- Agent, (c) a Restated U. S. Guaranty, substantially in the form of Exhibit B, --------- signed by each U. S. Subsidiary of the Company, and (d) a Restated U. S. Security Agreement, substantially in the form of Exhibit D, signed by the --------- Company, each U.S. Subsidiary of the Company and the Collateral Agent. SECTION 5 Miscellaneous. --------------- 5.1 Continuing Effectiveness, etc. As herein amended, the Credit ------------------------------ Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. After the Amendment Effective Date, all references in the Credit Agreement and the other Loan Documents to "Credit Agreement", "Agreement" or similar terms shall refer to the Amended Credit Agreement. 5.2 Counterparts. This First Amendment may be executed in any number of ------------ counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original but all such counterparts shall together constitute one and the same agreement. 5.3 Expenses. The Company agrees to pay all reasonable expenses of the -------- U.S. Agent, including reasonable fees and charges of counsel for the U.S. Agent, in connection with the preparation, execution and delivery of this First Amendment. -2- 5.4 Governing Law. This First Amendment shall be construed in accordance ------------- with and governed by the substantive laws of the State of Illinois applicable to contracts made and to be performed entirely within such State. 5.5 Successors and Assigns. This First Amendment shall be binding upon the ---------------------- Borrowers, the Banks and the Agents and their respective successors and assigns, and shall inure to the benefit of the Borrowers, the Banks and the Agents and the respective successors and assigns of the Banks and the Agents. -3- Delivered at Chicago, Illinois, as of the day and year first above written. UNITED RENTALS, INC. By________________________________________________ Chief Financial Officer UNITED RENTALS OF CANADA, INC. By________________________________________________ Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as U.S. Agent By________________________________________________ Title_____________________________________________ BANK OF AMERICA NATIONAL TRUST AND SAVING ASSOCIATION, as a U.S. Bank, as Issuing Bank and as Swing Line Bank By________________________________________________ Title_____________________________________________ THE BANK OF NEW YORK, as a U.S. Bank By________________________________________________ Title_____________________________________________ S-1 CREDIT LYONNAIS NEW YORK BRANCH, as a U.S. Bank By_________________________________________ Title______________________________________ DEUTSCHE BANK AG, New York Branch and/or Cayman Islands Branch, as a U.S. Bank By_________________________________________ Title______________________________________ By_________________________________________ Title______________________________________ FIRST NATIONAL BANK OF MARYLAND, as a U.S. Bank By_________________________________________ Title______________________________________ SUMMIT BANK, as a U.S. Bank By_________________________________________ Title______________________________________ NATIONAL CITY BANK, as a U.S. Bank By_________________________________________ Title______________________________________ S-2 BANKBOSTON, N.A., as a U.S. Bank By_________________________________________ Title______________________________________ COMERICA BANK, as a U.S. Bank By_________________________________________ Title______________________________________ FLEET BANK, N.A., as a U.S. Bank By________________________________________ Title_____________________________________ HARRIS TRUST AND SAVINGS BANK, as a U.S. Bank By________________________________________ Title_____________________________________ LASALLE NATIONAL BANK, as a U.S. Bank By_________________________________________ Title______________________________________ THE BANK OF NOVA SCOTIA, as a U.S. Bank By_________________________________________ Title______________________________________ S-3 UNION BANK OF CALIFORNIA, N.A., as a U.S. Bank By_________________________________________ Title______________________________________ THE CHASE MANHATTAN BANK, as a U.S. Bank By________________________________________ Title_____________________________________ S-4 Schedule I ---------- See attached. S-5 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 a Borrower (which has ------------- not been rescinded) of (i) any obligation of such Borrower 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 each of the Canadian Agent and the U.S. Agent. ----- Agent-Related Persons means either Agent and any successor thereto in such --------------------- capacity hereunder, together with their respective Affiliates (including the Arranger) and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates. Aggregate Canadian Commitment means at any time an amount equal to the lesser ----------------------------- of (a) the Aggregate Commitment and (b) a Dollar Equivalent amount of U. S.$40,000,000. Aggregate Commitment means at any time an amount equal to the aggregate -------------------- amount of the Commitments of all U.S. Banks. The initial amount of the Aggregate Commitment is U.S. $300,000,000. Aggregate Outstandings means at any time the sum of (a) the aggregate Dollar ---------------------- Equivalent principal amount of all outstanding Loans and (b) the Stated Amount of all Letters of Credit. Agreement - see the Preamble. --------- -------- Arranger means BancAmerica Robertson Stephens, a Delaware corporation. -------- Assignment Agreement - see Section 15.9.1. -------------------- ------ BAC - see the Preamble. --- -------- BA Rate means, with respect to any BA Rate Loan for any Interest Period, the ------- rate of interest per annum as announced by BAC in Toronto, Ontario as its "BA Rate" on the first day of such Interest Period for a period comparable to such Interest Period. BA Rate Loan means a Loan to UR Canada that bears interest based on the BA ------------ Rate. S-6 Bank - see the Preamble. References to the "Banks" shall include the ---- -------- Issuing Bank and the Swing Line Bank; for purposes of clarification only, to the extent that BofA (or any successor Issuing Bank or Swing Line Bank) may have any rights or obligations in addition to those of the other Banks due to its status as Issuing Bank or Swing Line Bank, its status as such will be specifically referenced. Bank Act Security means assignments of inventory and proceeds by UR Canada ----------------- to and in favour of each Canadian Bank creating a first fixed charge on such assets pursuant to Section 427 of the Bank Act (Canada), together with all documents related or ancillary thereto. Base Rate means at any time the greater of (a) the Federal Funds Rate plus --------- 0.5% and (b) the Reference Rate. Base Rate Loan means any Loan to the Company which bears interest at or by --------- reference to the Base Rate. BofA - see the Preamble. ---- -------- Borrower means each of the Company and UR Canada. -------- 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 payments and disbursements in Canadian Dollars, on which BAC is open for commercial banking business in Toronto) and, in the case of a Business Day which relates to a Eurodollar Loan, on which dealings are carried on in the applicable offshore U.S. Dollar or Canadian Dollar interbank market. Canadian Agent means BAC in its capacity as agent for the Canadian Banks -------------- hereunder and any successor thereto in such capacity. Canadian Bank means each Bank listed on Schedule 1.1(B) and its permitted ------------- --------------- successors and assigns. Each Canadian Bank shall be either (i) a U.S. Bank or (ii) an Affiliate of a U.S. Bank which has been designated to be a Canadian Bank hereunder by such U.S. Bank. Canadian Cost of Funds Rate means, for any day, a rate per annum equal to --------------------------- the cost of funds of the Canadian Agent as established by the Canadian Agent based on its customary practice. Canadian Dollar and Cdn.$ mean lawful money of Canada. --------------- ----- Canadian Guaranty means a guaranty issued by a Subsidiary of UR Canada ----------------- substantially in the form of Exhibit I hereto. --------- Canadian Loan - see Section 2.1.2. ------------- ------------- S-7 Canadian Participation Funding Notice means a written notice from any Bank -------------------------------------- (including any Canadian Bank) informing the U.S. Agent that an Event of Default has occurred and is continuing and directing the U. S. Agent to notify all Banks thereof and to notify all Non-Canadian Banks to fund their participations in the Canadian Loans as provided in Section 2.3.4. ------------- Canadian Percentage means, with respect to any Canadian Bank, the percentage ------------------- specified opposite such Canadian Bank's name on Schedule 1.1 (B), reduced (or ------------ increased) by assignments pursuant to Section 15.9.1. -------------- Canadian Security Agreement means a security agreement issued by UR Canada --------------------------- or a Subsidiary thereof substantially in the form of Exhibit J hereto. --------- Canadian Subsidiary means any Subsidiary of the Company which is organized ------------------- under the federal or provincial laws of Canada and which carries on its business primarily in Canada. 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 "Lender" under and as defined in the Term Loan Agreement or a Bank or its holding company) for such a "Lender" or a Bank (any such Person a "Permitted Bank") rated at least A-1 by Standard & Poor's Ratings Group or P-1 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 any Permitted Bank or 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 U.S.$500,000,000, (d) any repurchase agreement entered into with any Permitted 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 Permitted Bank (or other commercial banking institution) thereunder and (e) investments in short-term asset management accounts offered by any Permitted Bank for the purpose of investing in loans to any corporation (other than Parent or an Affiliate of Parent), state or municipality, in each case organized under the laws of any state of the United States or of the District of Columbia. Cash Flow means, as of the last day of any Fiscal Quarter, Consolidated Net --------- Income for the period of four Fiscal Quarters ending on the last day of such Fiscal Quarter @us, to the extent deducted in determining such Consolidated Net Income, Interest Expense, income tax expense, S-8 depreciation and amortization for such period, all calculated on a pro forma --------- basis in accordance with Article II of Regulation S-X of the SEC. Code means the Internal Revenue Code of 1986. ---- Collateral Agent means BofA in its capacity as Collateral Agent under the ---------------- Intercreditor Agreement and any successor thereto in such capacity. Collateral Documents means the Company Pledge Agreement, each Subsidiary -------------------- Pledge Agreement, the U.S. Security Agreement, each Canadian Security Agreement, the Bank Act Security and any other agreement pursuant to which the Company or any Subsidiary grants a Lien on collateral to the Collateral Agent, either Agent or any Bank for the benefit of the Banks. Commitment means (a) as to any U.S. Bank, the obligation of such U.S. Bank ---------- to make U.S. Loans, and to issue or participate in Letters of Credit, hereunder; and (b) as to any Canadian Bank, the obligation of such Canadian Bank to make Canadian Loans hereunder. The amount of the Commitment of each Bank is set forth on Schedule 1.1(A) and/or 1.1(B), as applicable. --------------- ------ Company - see the Preamble. ------- -------- Company Pledge Agreement means the Restated Company Pledge Agreement dated ------------------------ as of July 10, 1998 between the Company and the Collateral Agent, substantially in the form of Exhibit A to the First Amendment to this Agreement. Computation Date means the last Business Day of each calendar month, each ---------------- date on which UR Canada borrows, converts or continues any Canadian Loan hereunder and each date on which the Dollar Equivalent principal amount of a Canadian Loan of an Affected Bank is required to be determined under Section ------- 8.3. - --- Computation Period means each of the following periods: (i) the Fiscal ------------------ Quarter ended March 31, 1998; (ii) the period of two Fiscal Quarters ended 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 Parent and its Subsidiaries ----------------------- for any period, the net income (or loss) of Parent 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 S-9 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 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 Parent, 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 Suretyship Liabilities of such Person. Dollar Equivalent means, at any time, (a) as to any amount denominated in ----------------- U. S. Dollars, the amount thereof at such time, and (b) as to any amount denominated in Canadian Dollars, the equivalent amount in U.S. Dollars as determined by the U.S. Agent at such time on the basis of the Spot Rate for the purchase of U.S. Dollars with Canadian Dollars on the most recent Computation Date or such other date as is specified herein. S-10 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, provincial 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. ----- Eurodollar Loan means any Loan which bears interest at a rate determined by --------------- reference to the Eurodollar Rate. 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 of interest per annum (rounded upward, if necessary, to the next 1/16th of 1%) determined by the applicable Agent as follows: (a) In the case of Eurodollar Loans to the Company: Eurodollar Rate = IBOR ---- 1.00 - Eurodollar Reserve Percentage where, Eurodollar Reserve Percentage means, for any day for any ----------------------------- Interest Period, a percentage (expressed as a decimal, rounded upward, if necessary, to an integral multiple of 1/100th of 1%) in effect on such day under regulations issued from time to time by the FRB for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities"); and IBOR means the rate per annum at which deposits in U.S. Dollars ---- in immediately available funds are offered by the Eurodollar Office of BofA two Business Days prior to the beginning of such Interest Period to major banks in the S-11 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. (b) In the case of Eurodollar Loans to UR Canada: Eurodollar Rate = Canadian IBOR ------------- 1.00 - Canadian Eurodollar Reserve Percentage where, Canadian Eurodollar Reserve Percentage means for any day for any -------------------------------------- Interest Period, a percentage (expressed as a decimal, rounded upward, if necessary, to an integral multiple of 1/100th of 1%) in effect on such day under regulations issued from time to time by the Bank of Canada or any other relevant governmental authority in Canada for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding, and Canadian IBOR means the rate per annum at which deposits in ------------- Canadian Dollars in immediately available funds are offered by the Eurodollar Office of BAC two Business Days prior to the first day of such Interest Period to 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 BAC for such Interest Period. 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 U. S. 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 U.S. Agent. Financial Letter of Credit means any Letter of Credit determined by the -------------------------- U.S. Agent to be a "financial guaranty-type Standby Letter of Credit" as defined in footnote 13 to Appendix A to the S-12 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 Parent 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. Fixed Rate Loan means a Eurodollar Loan or a BA Rate Loan. --------------- Fixed Rate Margin - see Schedule 1.1(C). ----------------- --------------- Floating Rate Margin - see Schedule 1.1(C). -------------------- --------------- Foreign Subsidiary means each Subsidiary of the Company which is organized ------------------ under the laws of any jurisdiction other than, and which is conducting the majority of its business outside of, the United States or any state thereof. FRB means the Board of Governors of the Federal Reserve System, and any --- governmental authority succeeding to any of its principal functions. Funded Debt means all Debt of Parent and its Subsidiaries, excluding (i) ----------- contingent obligations in respect of undrawn letters of credit and Suretyship Liabilities (except to the extent constituting contingent obligations or Suretyship Liabilities in respect of Funded Debt of a Person other than Parent or any Subsidiary), (ii) Hedging Obligations, (iii) Debt of the Company to Subsidiaries and Debt of Subsidiaries to the Company or to other Subsidiaries and (iv) Debt (including guaranties thereof) in respect of the QuIPS Debentures and the QuIPS Preferred Securities. Funded Debt to Cash Flow Ratio means, as of the last day of any Fiscal ------------------------------ Quarter, the ratio of (i) Funded Debt as of such day to (ii) Cash Flow as of such day. 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 of Loans means Loans of the same type made by the U.S. Banks or the -------------- Canadian Banks, as the case may be, to the same Borrower which have the same Interest Period. S-13 Guaranty means each Canadian Guaranty and the U.S. Guaranty. -------- 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 Parent 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 Parent or any Subsidiary; provided that no provision of any Environmental Law shall be an Immaterial Law if the U.S. Agent has notified the Company that the Required Banks have determined in good faith that such provision is material. Interest Coverage Ratio means the ratio of (a) Consolidated Net Income ----------------------- before deducting Interest Expense, income tax expense and Rentals for any Computation Period to (b) Interest Expense plus Rentals for such Computation ---- Period. Interest Expense means for any period the consolidated interest expense of ---------------- Parent and its Subsidiaries for such period (including, without duplication, interest paid on the QuIPS Debentures, distributions on (but not redemptions of) the QuIPS Preferred Securities, imputed interest on Capital Leases and any interest which is capitalized but excluding amortization of deferred financing costs). Interest Period means, (a) as to any Eurodollar Loan, the period commencing --------------- on the date such Loan is borrowed or continued as, or converted into, a Eurodollar Loan and ending on the date one, two, three or six months thereafter as selected by the applicable Borrower pursuant to Section 2.2 or 2.3, as the ----------- --- case may be; and (b) as to any BA Rate Loan, the period commencing on the date on which such Loan is borrowed or continued as, or converted into, a BA Rate Loan and ending on the date 30, 60 or 90 days thereafter, as selected by UR Canada pursuant to Section 2.3; provided that: ----------- -------- (i) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the following Business Day unless, in the case of a Eurodollar Loan, the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; (ii) any Interest Period for a Eurodollar Loan that begins on a day for which there is no numerically corresponding day in the calendar month at the end of such S-14 Interest Period shall end on the last Business Day of the calendar month at the end of such Interest Period; and (iii) neither Borrower may select any Interest Period for any Loan which would extend beyond the scheduled Termination Date. 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 Parent or any of its Subsidiaries), (b) any Suretyship Liability of such Person, (c) any ownership or similar interest held by such Person in any other Person and (d) deposits and the like relating to prospective acquisitions of businesses (excluding deposits placed in escrow pursuant to bona fide arrangements that provide for the return of such deposits to the Company or the applicable Subsidiary in the event that the related transaction is not consummated for any reason by a date certain). Issuing Bank means BofA in its capacity as issuer of one or more Letters of ------------ Credit hereunder, together with any replacement letter of credit issuer under Section 13.9. - ------------ 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 the Issuing Bank at the time of such request for the type of letter of credit requested. Letter of Credit - see Section 2.1.3. ---------------- ------------- 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, hypothecation or other security interest of any kind, whether arising by contract, as a matter of law, by judicial process or otherwise. Loan Documents means this Agreement, the Notes, each Guaranty, the L/C -------------- Applications, the Collateral Documents and, after the Restructuring, the Parent Guaranty. Loan Party means each Borrower, each Subsidiary which is a party to any Loan ---------- Document and, after the Restructuring, Parent. Loans means U.S. Loans, Canadian Loans and Swing Line Loans. ----- Margin Stock means any "margin stock" as defined in Regulation U of the FRB. ------------ 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 Parent, and its Subsidiaries taken as a whole, or (b) a material adverse effect upon any substantial portion of the S-15 collateral under the Collateral Documents or upon the legality, validity, binding effect or enforceability against Parent, the Company or any Subsidiary of the Company 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 Parent or any member of the Controlled Group may have any liability. Net Worth means the sum of (a) Parent's consolidated stockholders' equity --------- (including preferred stock accounts) plus (b) to the extent, if any, not included in such stockholders' equity, the outstanding amount of the QuIPS Preferred Securities. Non-Canadian Bank means a U.S. Bank which is not, and has not designated an ----------------- Affiliate as, a Canadian Bank. Non-Financial Letter of Credit means any Letter of Credit other than a ------------------------------ Financial Letter of Credit. Note - see Section 3. 1. ---- ------------ PBGC means the Pension Benefit Guaranty Corporation and any entity ---- succeeding to any or all of its functions under ERISA. Parent means (a) prior to the Restructuring, the Company, and (b) ------ thereafter, the holding company of which the Company becomes a direct wholly- owned Subsidiary as a result of the Restructuring. Parent Guaranty - see Section 10.14. --------------- ------------- 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 Parent 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 U.S. Bank, the percentage specified ---------- opposite such U.S. Bank's name on Schedule 1.1(A), reduced (or increased) by ---------------- assignments pursuant to Section 15.9.1. -------------- 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. S-16 Prime Rate means, for any day, the per annum rate of interest in effect for ---------- such day as publicly announced from time to time by BAC in Toronto, Ontario as its "prime rate." (The "prime rate" is a rate set by BAC based upon various factors including BAC'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 prime rate announced by BAC shall take effect at the opening of business on the day specified in the public announcement of such change. Prime Rate Loan means a Canadian Loan that bears interest based on the --------------- Prime Rate. QuIPS Debentures means convertible subordinated debentures issued by Parent ---------------- to a QuIPS Trust relating to QuIPS Preferred Securities substantially on the terms set forth in the QuIPS Term Sheet. QuIPS Preferred Securities means convertible trust originated preferred -------------------------- securities issued by a QuIPS Trust substantially on the terms set forth in the QuIPS Term Sheet. QuIPS Term Sheet means the Indicative Term Sheet for the proposed quarterly ---------------- income preferred securities to be issued by the QuIPS Trust delivered to the Lenders on July 2, 1998. QuIPS Trust means a special purpose Delaware business trust established by ----------- Parent, of which Parent holds all the common securities, which is to issue QuIPS Preferred Securities, and which is to lend to Parent (such loan to be evidenced by QuIPS Debentures) the net proceeds of issuance and sale of such QuIPS Preferred Securities. 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 San Francisco, California, as its "reference rate." (The "reference rate" is a rate set by BofA based upon various factors, including BofA's costs and desired return, general economic conditions and other factors, and is used as a reference point for 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. Rentals means the aggregate fixed amounts payable by Parent or any ------- Subsidiary under any lease of (or other agreement conveying the right to use) any real or personal property by Parent 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. Required Banks means U.S. Banks having Percentages aggregating 66-2/3% or -------- more; provided that if and so long as any Bank falls to fund its participation -------- in any Canadian Loan, Letter of Credit or Swing Line Loan when required by Section 2.3.4, 2.4.5 or 2.5.3, as the case may be, such Bank's Percentage shall - ------------- ----- ----- be deemed for purposes of this definition to be reduced by the percentage which the defaulted amount constitutes of such Bank's Percentage, and the Percentage S-17 of each Canadian Bank (to the extent of its Canadian Percentage of the defaulted amount), the Issuing Bank or the Swing Line Bank, as applicable, shall be deemed for purposes of this definition to be increased by such percentage. Restructuring means a transaction effected to create a holding company of ------------- the Company, pursuant to which the Company becomes a direct wholly-owned Subsidiary of such holding company, and as a result of which the holders of capital stock of such holding company are, upon consummation of such transaction, substantially the same as the holders of the common stock of the Company immediately prior to such transaction. SEC means the Securities and Exchange Commission. --- 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 Agents 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 Parent and its Subsidiaries other than ----------- Subordinated Debt. Senior Subordinated Indenture means the Indenture dated as of May 22, 1998 ----------------------------- among the Company, various Subsidiaries of the Company and State Street Bank and Trust Company, as Trustee. Spot Rate for a currency means the rate quoted by BofA as the spot rate for --------- the purchase by BofA of such currency with another currency in accordance with its customary procedures at approximately 10:00 a.m. (Chicago time) on the date on which the foreign exchange computation is made. 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) the $200,000,000 of unsecured senior ----------------- subordinated notes issued pursuant to the Senior Subordinated Indenture and the unsecured subordinated guarantees thereof provided for in the Senior Subordinated Indenture, (ii) Seller Subordinated Debt and (iii) any other S-18 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, limited ---------- liability company, partnership or other entity of which such Person and/or its other Subsidiaries own, directly or indirectly, more than 50% of the voting stock, membership interests or similar equity interests. Unless the context otherwise requires, each reference to Subsidiaries herein shall be a reference to Subsidiaries of Parent. Subsidiary Pledge Agreement means each pledge agreement substantially in --------------------------- the form of Exhibit F (or such other form as is acceptable to the Collateral --------- Agent or U.S. Agent, as applicable) issued by any Subsidiary, whether pursuant to Section 11.1.7 or Section 10.14. -------------- ----- Suretyship Liability means, with respect to any Person, any liability of -------------------- such Person with respect to any agreement, undertaking or arrangement by which such 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 in respect of any Suretyship Liability shall (subject to any limitation set forth therein) be deemed to be the principal amount of the debt, obligation or other liability supported thereby. Swing Line Bank means BofA in its capacity as swing, line lender hereunder, --------------- together with any replacement swing line lender arising, under Section 13.9. ------------ Swing Line Loan - see Section 2.5.1. --------------- ------------- Tangible Assets means at any time all assets of Parent 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. Term Loan Agreement means the Term Loan Agreement dated as of July 10, 1998 ------------------- among the Company, various financial institutions and BofA, as agent. Termination Date means the earlier to occur of (a) March 30, 2001, 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. --------- -- S-19 Type of Loan or Borrowing refers to the interest rate basis for a loan or ------------------------- borrowing. The "types" of U.S. Loans or borrowings are Base Rate Loans or borrowings and Eurodollar Loans or borrowings. The "types" of Canadian Loans or borrowings are Prime Rate Loans or borrowings, BA 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. UR Canada - see the Preamble. --------- -------- U.S. Agent means BofA in its capacity as agent for the Banks hereunder and ---------- any successor thereto in such capacity. U.S. Bank means each Bank listed on Schedule 1.1(A) and its permitted --------- --------------- successors and assigns. U.S. Dollar and the sign "U.S.$" mean lawful money of the United States of ----------- America. U.S. Guaranty means the Restated U.S. Guaranty dated as of July 10, 1998 ------------- executed by various Subsidiaries of the Company, substantially in the form of Exhibit B to the First Amendment to this Agreement. U.S. Loan - see Section 2.1.1. ---------- ------------- USR Merger Agreement means the Agreement and Plan of Merger among U.S. --------------------- Rentals, Inc., the Company and UR Acquisition Corporation dated as of June 15, 1998, as the same may be amended pursuant to its terms. U.S. Security Agreement means the Restated U.S. Security Agreement dated as ----------------------- of July 10, 1998 among the Company, various Subsidiaries of the Company and the Collateral Agent, substantially in the form of Exhibit C to the First Amendment to this Agreement. U.S. Subsidiaries means any Subsidiary of the Company other than a Foreign ----------------- Subsidiary. Welfare Plan means a "welfare plan", as such term is defined in Section ------------ 3(l) of ERISA. This Agreement and the other Loan Documents are the result of negotiations among and have been reviewed by counsel to the Agents, the Company, the Banks and the other parties thereto and are the products of all parties. Accordingly, they shall not be construed against the Agents or the Banks merely because of the Agents' or Banks' involvement in their preparation. S-20 Schedule II ----------- See attached. S-21 SECTION 9 WARRANTIES. To induce the Issuing Bank to issue Letters of Credit and to induce the Agents and the Banks to enter into this Agreement and to induce the Banks to make and participate in Loans and purchase participations in Letters of Credit hereunder, Parent and the Company warrant to the Agents and the Banks (and, with respect to Sections 9.1 through 9.4, UR Canada warrants with respect to itself) ------------ --- 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; UR Canada is a corporation duly organized, validly existing and in good standing under the laws of the Province of Ontario and is a wholly-owned Subsidiary of the Company; each of Parent and each other Subsidiary is a duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization; and each of the Company, Parent 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 each -------------------------- Borrower 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 other Loan Party of each Loan Document to which it is a party and the performance by each Borrower and each other Loan Party of its obligations under each Loan Document to which it is a party are within the corporate powers of each Borrower and each other Loan Party, have been duly authorized by all necessary corporate action (including any necessary shareholder action) on the part of each Borrower and each other Loan Party, 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 either Borrower, any other Loan Party or any other Subsidiary, (b) contravene or conflict with, or result in a breach of, any provision of the Certificate or Articles of Incorporation, By-Laws or other organizational documents of either Borrower, any other Loan Party or any other Subsidiary or of any agreement, indenture, instrument or other document which is binding on either Borrower, any other Loan Party or any other Subsidiary or (c) result in, or require, the creation or imposition of any Lien on any property of either Borrower, any other Loan Party 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; each of this Agreement and each other Loan Document to which UR Canada is a party is the legal, valid and binding obligation of UR Canada, enforceable against UR Canada in accordance with its terms; and each Loan Document to which any other Loan Party is a party is, or upon the execution and delivery thereof by such Loan Party will be, the legal, valid and binding obligation of such Loan Party, enforceable against such Loan Party in accordance with its terms. S-22 9.4 Information. All information heretofore or contemporaneously herewith ----------- furnished in writing by Parent, either Borrower or any other 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 Parent, either Borrower 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 Agents and the Banks that any projections and forecasts provided by Parent or any Subsidiary are based on good faith estimates and assumptions believed by Parent or such Subsidiary 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. -------------------------- (a) The audited consolidated financial statements of the Company and its Subsidiaries at December 31, 1997, copies of each of which have been delivered to each Bank, have been prepared in accordance with generally accepted accounting principles and present fairly the consolidated financial condition of the Company and its Subsidiaries taken as a whole as at such date and the results of their operations for the period then ended. (b) Since December 31, 1997, there has been no material adverse change in the financial condition, operations, assets, business, properties or prospects of the Parent and its Subsidiaries taken as a whole. 9.6 Litigation and Contingent Liabilities. ------------------------------------- No litigation (including derivative actions), arbitration proceeding, labor controversy or governmental investigation or proceeding is pending or, to Parent's knowledge, threatened against Parent 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 Parent nor any Subsidiary has any material contingent liabilities not listed in Schedule 9.6(a) or 9.6(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 Parent 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 S-23 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. ------------------------- During the twelve-consecutive-month period prior to the date of the execution and delivery of this Agreement or the making of any Loan hereunder, (i) no steps have been taken to terminate any Pension Plan and (ii) no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a Lien under Section 302(0 of ERISA. No condition exists or event or transaction has occurred with respect to any Pension Plan which could result in the incurrence by Parent of any material liability, fine or penalty. Parent 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. All contributions (if any) have been made to any Multiemployer Pension Plan that are required to be made by Parent 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 Parent 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, or 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 Parent 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. All contributions required under applicable law have been made in respect of all pension plans of UR Canada and each of its S-24 Subsidiaries and each such pension plan is fully funded on an ongoing and termination basis. 9.10 Investment Company Act. Neither Parent 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 Parent 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 purchasing or carrying Margin Stock or extending credit for the purpose of purchasing or carrying Margin Stock. 9.13 Taxes. Each of Parent 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 Loan Party after the Effective Date, on the date such Person becomes a Loan Party), and immediately prior to and after giving effect to the issuance of each Letter of Credit and each borrowing hereunder and the use of the proceeds thereof, (a) each of the Company's and each other Loan Party's assets will exceed its liabilities and (b) each of the Company and each other Loan Party 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. Parent 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 Parent 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. Parent 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 Parent 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). S-25 Based on such review and program, Parent reasonably believes that the "Year 2000 Problem" will not have a Material Adverse Effect. 9.17 Senior Debt. The obligations of the Company hereunder constitute ----------- "Senior Indebtedness" as such term is defined in the Senior Subordinated Indenture. S-26 Schedule III ------------ See attached. S-27 SECTION 10 COVENANTS. Until the expiration or termination of the Commitments and thereafter until all obligations of the Borrowers hereunder and under the other Loan Documents are paid in full and all Letters of Credit have been terminated, Parent agrees that, unless at any time the Required Banks shall otherwise expressly consent in writing, it will: 1O.1 Reports, Certificates and Other Information. Furnish to the U.S. ------------------------------------------- Agent, the Canadian 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 Parent and its Subsidiaries for such Fiscal Year, including therein a consolidated balance sheet of Parent and its Subsidiaries as of the end of such Fiscal Year and consolidated statements of earnings and cash flow of Parent and its Subsidiaries for such Fiscal Year certified without qualification by Ernst & Young or other independent auditors of recognized standing selected by Parent 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 Parent and its Subsidiaries as of the end of such Fiscal Year and consolidating statements of earnings for Parent and its Subsidiaries for such Fiscal Year, certified by the Chief Financial Officer or the Vice President, Finance of Parent; and (c) commencing with the Fiscal Year ending december 31, 1998, a copy of an annual agreed-upon procedures report on the equipment fleet of the Company and its Subsidiaries for such Fiscal Year as performed by the Company's independent auditors. 10.1.2 Quarterly Reports. Promptly when available and in any event ----------------- within 45 days after the end of each Fiscal Quarter (except the last Fiscal Quarter) of each Fiscal Year, consolidated and consolidating balance sheets of Parent 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 Parent. 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 Parent 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 Parent. S-28 10.1.4 Compliance Certificates. Contemporaneously with the ----------------------- furnishing of a copy of each annual audit report pursuant to Section 1O.1.1 -------------- and of each set of quarterly statements pursuant to Section 10.1.2, (a) 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 Parent, 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; and (b) an updated organizational chart listing all Subsidiaries and the locations of their businesses. 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 Parent or any Subsidiary filed with the SEC (excluding exhibits thereto, provided that Parent shall promptly deliver any such exhibit to the Agent or any Bank upon request therefor); copies of all registration statements of Parent 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 Parent 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 Parent or the Subsidiary affected thereby with respect thereto: (a) the occurrence of an Event of Default or an Unmatured Event of Default; (b) any litigation, arbitration or governmental investigation or proceeding not previously disclosed by Parent to the Lenders which has been instituted or, to the knowledge of Parent, is threatened against Parent 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 Parent 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 Parent 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 S-29 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 (without replacement) or material change in any insurance maintained by Parent 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 either Agent ------------------- or any Bank, copies of all detailed financial and management reports submitted to Parent by independent auditors in connection with each annual audit made by such auditors of the books of Parent. 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 Parent and its Subsidiaries for such Fiscal Year prepared in a manner consistent with those projections delivered by the Company to the Banks prior to the Effective Date or otherwise in a manner satisfactory to the U.S. Agent. 10.1.10 Other Information. From time to time such other information ------------------ concerning Parent and its Subsidiaries as any Bank or either 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 either Agent or any representative thereof to inspect the properties and operations of Parent 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 either 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 Parent hereby authorizes such independent auditors to discuss such financial matters with any Bank or either Agent or any representative thereof whether or not any representative of Parent or any Subsidiary is present), and to examine (and, at the expense of Parent or the applicable Subsidiary, photocopy extracts from) any of its books or other corporate records. S-30 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 either Agent or any Bank, furnish to such Agent or such Bank a certificate setting forth in reasonable detail the nature and extent of all insurance maintained by Parent 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 Parent or any Subsidiary to pay any such tax or charge so long as it shall contest the validity thereof in good faith by appropriate proceedings and shall set aside on its books adequate reserves with respect thereto in accordance with GAAP. 10.5 Maintenance of Existence, etc. Maintain and preserve, and ----------------------------- (subject to Section 10.11) cause each Subsidiary to maintain and preserve, (a) ------------- its existence and good standing in the jurisdiction of its incorporation and (b) its qualification and good standing as a foreign corporation in each jurisdiction where the nature of its business makes such qualification necessary (except in those instances in which the failure to be qualified or in good standing does not have a Material Adverse Effect). 10.6 Financial Covenants. ------------------- 10.6.1 Minimum Net Worth. Not permit its Net Worth at the ----------------- end of any month to be less than the sum of (a) U.S.$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 (including the QuIPS ---- Preferred Securities) issued by Parent or any of its Subsidiaries (on a consolidated basis) after October 1, 1997. 10.6.2 Maximum Leverage. Not permit the ratio of (i) Funded ---------------- Debt to (ii) Funded Debt plus Net Worth to exceed 0.65 to 1.0 at any ---- time. 10.6.3 Minimum Interest Coverage Ratio. Not permit the ------------------------------- Interest Coverage Ratio for any Computation Period to be less than the applicable ratio set forth below: S-31 COMPUTATION INTEREST PERIOD ENDING: COVERAGE RATIO ------------- -------------- 3/31/98 through 12/31/98 1.50 to 1.0 3/31/99 through 12/31/99 1.75 to 1.0 3/31/2000 and thereafter 2.00 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 4.5 to 1.0. 10.6.5 Senior Debt to Tangible Assets. Not permit the ratio of (i) ------------------------------ Senior Debt to (ii) Tangible Assets to exceed 1.0 to 1.0 at any time. 10.6.6 Senior Debt to Cash Flow Ratio. Not permit the ratio of (i) ------------------------------ Senior Debt to (ii) Cash Flow as of the last day of any Fiscal Quarter to exceed 3.0 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 hereunder, under the other Loan Documents, under the Term Loan Agreement and under the other "Loan Documents" as defined in the Term Loan Agreement; (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 a Dollar Equivalent amount equal to U.S.$10,000,000; (c) Debt of the Company or any Subsidiary 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 1O.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 a Dollar Equivalent amount equal to U.S.$30,000,000; (d) Debt of Subsidiaries owed to the Company; provided that the aggregate amount of all such Debt of Foreign Subsidiaries owed to the Company shall not (i) at any time prior to January 1, 1999, exceed 15% of the consolidated assets of the Company and its Subsidiaries S-32 and (ii) at any time on or after January 1, 1999, exceed 10% of the consolidated assets of the Company and its Subsidiaries; (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 a Dollar Equivalent amount of U.S.$15,000,000; (g) other Debt of the Company or any Subsidiary, not of a type described in clause (c), outstanding on the date hereof and listed in Schedule ---------- -------- 10.7(g); ------- (h) Contingent Payments, provided that the Company shall not, and shall -------- not permit any Subsidiary to, incur any obligation to make Contingent Payments the maximum possible amount of which exceeds a Dollar Equivalent amount of U.S.$25,000,000 in the aggregate for all Contingent Payments at any time outstanding; and (i) the QuIPS Debentures, the QuIPS Preferred Securities and a guaranty of the QuIPS Preferred Securities by Parent (provided that such guaranty is subordinated to the obligations of Parent under the Parent Guaranty), provided that (v) the net proceeds received by Parent pursuant thereto are -------- promptly invested in the Company, (w) the interest rate on the QuIPS Debentures is not more than 8% per annum, (x) neither the aggregate principal amount of the QuIPS Debentures nor the liquidation preference of the QuIPS Preferred Securities shall at any time exceed $400,000,000, (y) no Event of Default or Unmatured Event of Default shall exist at the time of issuance thereof or will result from such issuance and (z) prior to the issuance thereof, Parent shall have delivered to the Agent a certificate demonstrating that, after giving effect to such issuance, Parent will be in pro forma compliance with the covenants set forth in Section 10.6. ------------ For purposes of clause (h) above, 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; S-33 (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 a Dollar Equivalent amount of U.S.$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 arising under the Loan Documents and Liens securing Debt permitted by clause (a) of Section 10.7. ---------- ------------ 10.9 Asset Sales. Not later than one Business Day prior to the date on ----------- which the Company would be required to make, or offer to make, or give any notice of, any prepayment of Subordinated Debt (other than Seller Subordinated Debt) as a result of any sale or other disposition of assets, make a prepayment of the Loans by an amount at least equal to the amount which otherwise would be required to be applied to repay such Subordinated Debt. 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, (e) make any payment of principal of or interest on, or acquire, redeem or otherwise retire, or make any other distribution in respect of, any of the QuIPS Debentures or the QuIPS Preferred Securities or (f) set aside funds for any of the foregoing; provided that (i) any Subsidiary of the -------- Company may declare and pay dividends to the Company or to any other wholly- owned Subsidiary of the Company; (ii) after the Restructuring, the Company may declare and pay dividends to Parent to the extent necessary to enable Parent to pay its taxes, accounting, legal and corporate overhead expenses S-34 (including all SEC and stock exchange fees and expenses), the payables described in Section 10.23 and the Investments in the QuIPS Trust described in Section ------------- ------- 10.23; (iii) the QuIPS Trust may make a distribution of Parent's common stock - ----- pursuant to the terms of the QuIPS Preferred Securities or the QuIPS Debentures; (iv) so long as no Event of Default or Unmatured Event of Default exists or would result therefrom, (A) Parent may make payments on the QuIPS Debentures and permit the QuIPS Trust to make corresponding distributions on the QuIPS Preferred Securities in accordance with the terms set forth in the QuIPS Term Sheet and (B) the Company may declare and pay dividends to Parent in the amount necessary for Parent to make such payments; and (v) 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 a Dollar Equivalent amount of U.S.$12,000,000, Parent 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, Amalgamations, Sales. Not, and not permit --------------------------------------------- any Subsidiary to, be a party to any merger, consolidation or amalgamation, 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, amalgamation, sale, transfer, conveyance, lease or assignment of or by any wholly-owned Subsidiary of the Company into the Company or into, with or to any other wholly-owned Subsidiary of the Company; (b) any such purchase or other acquisition by the Company or any wholly-owned Subsidiary of the Company of the assets or stock of any wholly-owned Subsidiary of the Company, (c) any such purchase or other acquisition (including pursuant to a merger) by the Company or any wholly-owned Subsidiary of the Company 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 Parent and its Subsidiaries (including any Debt assumed or issued in connection therewith, the amount thereof to be calculated in accordance with GAAP, but excluding any capital stock of or other equity interest in Parent which is part of such consideration) in connection with such purchase or other acquisition (or any series of related acquisitions) is less than a Dollar Equivalent amount of U.S.$40,000,000 or (ii) (x) Parent 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 Banks 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 Parent and its Subsidiaries as of the last day of the preceding Fiscal Year. S-35 10.12 Modification of Certain Documents. Not permit the Certificate or --------------------------------- Articles of Incorporation, By-Laws or other organizational documents of Parent or any Subsidiary, or the Senior Subordinated Indenture or any other document evidencing or setting forth the terms applicable to any Subordinated Debt, 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 either 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 U.S. Subsidiaries (including, promptly upon the acquisition or creation thereof, any U.S. Subsidiary acquired or created after the date hereof) by execution of a counterpart of the U.S. Guaranty (provided that the QuIPS Trust shall have no obligation to execute the U.S. Guaranty), and (ii) the obligations of each U.S. Subsidiary (other than the QuIPS Trust) under the U.S. Guaranty are secured by substantially all of the assets (other than real property) of such U.S. Subsidiary, (iii) the obligations of UR Canada hereunder and under the other Loan Documents are secured by substantially all of the assets (other than real property) of UR Canada and guaranteed by all of the Canadian Subsidiaries (including, promptly upon the acquisition or creation thereof, any Candian Subsidiary acquired or created after the date hereof) by execution of a Candaian Guaranty and (iv) the obligations of each Canadian Subsidiary under its Canadian Guaranty are secured by substantially all assets (other than real property) of such Canadian Subsidiary. In addition, (a) upon the occurrence of any Event of Default or Unmatured Event of Default and the request of U.S. Banks having Percentages aggregating 80% or more, the Company will cause each Canadian Subsidiary to guaranty all of the obligations of the Company hereunder and to take all actions necessary so that the obligations of such Canadian Subsidiary under such guaranty are secured by substantially all of the assets (other than real property) of such Canadian Subsidiary (it being understood that, at the request of the Company at any time thereafter when no Event of Default or Unmatured Event of Default exists, such guaranties and collateral security shall be released); and (b) on the date of the Restructuring, Parent shall issue an unconditional guaranty of all obligations of the Company hereunder (such guaranty, the "Parent Guaranty "), which guaranty shall contain an undertaking --------------- by Parent to comply with and perform the covenants set forth in this Section 10. ---------- 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 S-36 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 and each Canadian 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. 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 Parent or any Subsidiary of any of its obligations hereunder or under any other Loan Document or (b) would prohibit the Company or any Subsidiary of the Company from granting to the Collateral Agent or either 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 of the Company identified in Schedule 9.8; ------------ (b) equity Investments in Subsidiaries of the Company acquired after the Effective Date in transactions permitted as acquisitions of stock or assets pursuant to Section 1O.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; S-37 (d) in the ordinary course of business, Investments by the Company in any Subsidiary of the Company or by any of the Subsidiaries of the Company in the Company, by way of intercompany loans, advances or guaranties, all to the extent permitted by Section 10.7; ------------ (e) Suretyship Liabilities 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) a Dollar Equivalent amount of U.S.$100,000 in the aggregate to any single individual or (ii) a Dollar Equivalent amount of U.S.$300,000 in the aggregate for all such individuals, (h) Investments by Parent in the Company; (i) other Investments by Parent permitted by Section 10.23; and ------------- (j) 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; (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; and (z) the aggregate principal amount of Investments by the Company in Foreign Subsidiaries pursuant to clauses (b), (c), (d), (e), and (f) plus, without duplication, the ----------- --- --- --- --- aggregate amount of all Canadian Loans shall not (i) at any time prior to January 1, 1999, exceed 15% of the consolidated assets of Parent and its Subsidiaries and (ii) at any time on or after January 1, 1999, exceed 10% of the consolidated assets of Parent and its Subsidiaries. 10.22 Location of Assets. Not permit (a) at any time prior to January 1, ------------------ 1999, more than 15% of the consolidated assets of Parent and its Subsidiaries to be owned by Foreign Subsidiaries and (b) at any time on or after January 1, 1999, more than 10% of the consolidated assets of Parent and its Subsidiaries to be owned by Foreign Subsidiaries. 10.23 Activities of Parent. Not, at any time after the occurrence of the -------------------- Restructuring, engage in any business other than ownership of the Company and the QuIPS Trust and activities reasonably related thereto (including the incurrence of Debt permitted by Section 10.7 and the incurrence of unsecured ------------ trade obligations in respect of goods to be delivered and services to be performed for the benefit of, and unsecured lease obligations incurred for the benefit of, Subsidiaries). Without limiting the foregoing, Parent will not (a) incur any Debt other than the QuIPS Debentures, the QuIPS Preferred Securities and the Parent Guaranty, (b) make any Investments other than (i) Investments in the Company and (ii) Investments in the QuIPS Trust in an amount not exceeding U.S. S-38 $12,000,000, (c) grant any Liens on any of its assets or (d) permit any amendment to or modification of the QuIPS Debentures, the QuIPS Preferred Securities or the Indenture for the QuIPS Debentures which, in any such case, is adverse to the interests of the Lenders. Notwithstanding the foregoing, Parent may become a party to the USR Merger Agreement. S-39 Schedule IV ----------- See attached. S-40 SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT. 12.1 Events of Default. Each of the following shall constitute an Event ----------------- of Default: 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 either Borrower 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 Parent or any Subsidiary (excluding Holdbacks) in an aggregate amount (for all such Debt so affected) exceeding a Dollar Equivalent amount of U.S. $5,000,000 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 a Dollar Equivalent amount of U.S. $10,000,000, 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, Parent or any Subsidiary with respect to any material purchase or lease of goods or services where such default, singly or in the aggregate with other such defaults might reasonably be expected to have a Material Adverse Effect (except only to the extent that the existence of any such default is being contested by Parent 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. Parent 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 Parent or any Subsidiary applies for, consents to, or acquiesces in the appointment of a trustee, receiver or other custodian for Parent 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 Parent 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 any Subsidiary other than the Company or UR Canada), is commenced in respect of Parent or any Subsidiary, and if such case or proceeding is not commenced by Parent or such Subsidiary, it is consented to or acquiesced in by Parent or such Subsidiary, or remains for 60 days undismissed; S-41 or Parent 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 ------------------------------------------------ Parent 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 Parent or 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 either Borrower ---------- 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 Parent or either Borrower to either 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 Parent or any other ------------- Person to terminate a Pension Plan if as a result of such termination Parent 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 U.S.$5,000,000; (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 Parent and the Controlled Group have incurred on the date of such withdrawal) exceeds U.S.$5,000,000. 12.1.8 Judgments. Final judgments which exceed an aggregate Dollar --------- Equivalent amount of U.S.$5,000,000 shall be rendered against Parent 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 U.S. Guaranty, etc. Any Guaranty shall cease to be -------------------------------- in full force and effect with respect to any applicable Subsidiary, any applicable Subsidiary shall fall (subject to any applicable grace period) to comply with or to perform any applicable provision of the applicable Guaranty, or any Subsidiary (or any Person by, through or on behalf of such Subsidiary) shall contest in any manner the validity, binding, nature or enforceability of the applicable Guaranty with respect to such Subsidiary. 12.1.1O Invalidity of Collateral Documents, etc. Any Collateral Document --------------------------------------- shall cease to be in full force and effect with respect to the Company or any Subsidiary, the Company or any Subsidiary 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 S-42 any Subsidiary (or any Person by, through or on behalf of the Company or such Subsidiary) 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 Parent; (b) during any 24-month period, individuals who at the beginning of such period constituted Parent's Board of Directors (together with any new directors whose election by Parent's Board of Directors or whose nomination for election by Parent'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 Parent; (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 ---------------- Parent 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); (d) any - ---------------- "Change of Control" shall occur under, and as defined in, the Senior Subordinated Indenture; or (e) at any time after the date of the Restructuring, the Company shall cease to be a direct, wholly-owned Subsidiary of Parent. 12.1.12 Invalidity of Parent Guaranty, etc. The Parent Guaranty shall ---------------------------------- cease to be in full force and effect at any time after the Restructuring, Parent shall fail (subject to any applicable grace period) to comply with or to perform any provision of the Parent Guaranty, or Parent (or any Person by, through or on behalf of Parent) shall contest in any manner the validity, binding nature or enforceability of the Parent Guaranty. 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 U.S. Agent cash collateral in an amount equal to the outstanding face amount of all Letters of Credit, all without presentment, demand, protest or notice of any kind; and, if any other Event of Default shall occur and be continuing, the U.S. 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 U.S. Agent cash collateral in an 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 U.S. 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 U.S. Agent shall promptly advise the Borrowers of any S-43 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 U.S. 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 U.S Agent to any remaining obligations hereunder and any excess shall be delivered to the Company or as a court of competent jurisdiction may elect. S-44 EX-10.(BB) 6 PURCHASE AGREEMENT DATED MAY 19, 1998 EXHIBIT 10(BB) UNITED RENTALS, INC. (a Delaware corporation) PURCHASE AGREEMENT ------------------ May 19, 1998 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated Donaldson, Lufkin & Jenrette Securities Corporation Goldman, Sachs & Co. Salomon Brothers Inc BancAmerica Robertson Stephens as Representatives of the several Initial Purchasers C/O MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED North Tower World Financial Center New York, New York 10281-1209 Ladies and Gentlemen: United Rentals, Inc., a Delaware corporation (the "Company"), confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and each of the other Initial Purchasers named in Schedule A hereto (collectively, the "Initial Purchasers", which term shall also include any initial purchaser substituted as hereinafter provided in Section 11 hereof), for whom Merrill Lynch, Donaldson, Lufkin & Jenrette Securities Corporation, Goldman, Sachs & Co., Salomon Brothers Inc and BancAmerica Robertson Stephens are acting as representatives (in such capacity, the "Representatives"), with respect to the issue and sale by the Company and the purchase by the Initial Purchasers, acting severally and not jointly, of the respective principal amounts set forth in said Schedule A of the Company's $200 million aggregate principal amount of 9 1/2% Series A Senior Subordinated Notes due 2008 (the "Securities"). The Securities are to be issued pursuant to an indenture to be dated as of the Closing Time (as defined herein) (the "Indenture") between the Company, the United States subsidiaries of the Company (the "Guarantors") and State Street Bank and Trust Company, as trustee (the "Trustee"). The Securities and the Exchange Notes (as defined below) issuable in exchange therefor are collectively referred to herein as the "Notes." Pursuant to the Indenture and certain guarantees (the "Guarantees"), the Guarantors have agreed to guaranty the Company's payment and other obligations under Indenture and the Securities. Securities issued in book- entry form will be issued to Cede & Co. as nominee of The Depository Trust Company ("DTC") pursuant to a letter agreement, to be dated as of the Closing Time (as defined in Section 2(b)) (the "DTC Agreement"), among the Company, the Trustee and DTC. The Company understands that the Initial Purchasers propose to make an offering of the Securities on the terms and in the manner set forth herein and agrees that the Initial Purchasers may resell, subject to the conditions set forth herein, all or a portion of the Securities to purchasers ("Subsequent Purchasers") at any time after the date of this Agreement. The Securities are to be offered and sold through the Initial Purchasers without being registered under the Securities Act of 1933, as amended (the "1933 Act"), in reliance upon exemptions therefrom. Pursuant to the terms of the Securities and the Indenture, investors that acquire Securities may only resell or otherwise transfer such Securities if such Securities are hereafter registered under the 1933 Act or if an exemption from the registration requirements of the 1933 Act is available (including the exemption afforded by Rule 144A ("Rule 144A") or Regulation S ("Regulation S") of the rules and regulations promulgated under the 1933 Act by the Securities and Exchange Commission (the "Commission")). Holders (including subsequent transferees) of the Securities will have the registration rights set forth in the Notes Registration Rights Agreement (the "Notes Registration Rights Agreement") to be dated as of the Closing Time among the Company, the Guarantors and the Initial Purchasers and for so long as such Securities constitute "Registrable Securities" (as defined in such agreement). Pursuant to the Notes Registration Rights Agreement, the Company will agree to file with Commission, under the circumstances set forth therein, (i) a registration statement under the 1933 Act (the "Exchange Offer Registration Statement") relating to the Company's 9 1/2% Series B Senior Subordinated Notes due 2008 (the "Exchange Notes"), to be offered in exchange for the Securities (such offer to exchange being referred to as the "Exchange Offer") and (ii) a shelf registration statement pursuant to Rule 415 under the 1933 Act (the "Shelf Registration Statement" and, together with the Exchange Offer Registration Statement, the "Notes Registration Statements") relating to the resale by certain holders of the Securities and to use its best efforts to cause such Notes Registration Statements to be declared and remain effective and usable for the periods specified in the Notes Registration Rights Agreement and to consummate the Exchange Offer. The Company has prepared and delivered to each Initial Purchaser copies of a preliminary offering memorandum dated May 4, 1998 (the "Preliminary Offering Memorandum") and has prepared and will deliver to each Initial Purchaser, on the date hereof or the next succeeding day, copies of a final offering memorandum dated May 19, 1998 (the "Final Offering Memorandum"), each for use by such Initial Purchaser in connection with its solicitation of purchases of, or offering of, the Securities. "Offering Memorandum" means, with respect to any date or time 2 referred to in this Agreement, the most recent offering memorandum (whether the Preliminary Offering Memorandum or the Final Offering Memorandum, or any amendment or supplement to either such document), including exhibits thereto and any documents incorporated therein by reference, if any, which has been prepared and delivered by the Company to the Initial Purchasers in connection with their solicitation of purchases of, or offering of, the Securities. All references in this Agreement to financial statements and schedules and other information which is "contained," "included" or "stated" in the Offering Memorandum (or other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which are incorporated by reference in the Offering Memorandum, if any; and all references in this Agreement to amendments or supplements to the Offering Memorandum shall be deemed to mean and include the filing of any document under the Securities Exchange Act of 1934 (the "1934 Act") which is incorporated by reference in the Offering Memorandum. SECTION 1. Representations and Warranties. ------------------------------ (a) Representations and Warranties by the Company. The Company represents and warrants to each Initial Purchaser as of the date hereof (and also agrees that each such representation and warranty will be deemed to be made by the Company as of the Closing Time referred to in Section 2(b) hereof) and agrees with each Initial Purchaser as follows: (i) Similar Offerings. The Company has not, directly or ----------------- indirectly, solicited any offer to buy or offered to sell, and will not, directly or indirectly, solicit any offer to buy or offer to sell, in the United States or to any United States citizen or resident, any security which is or would be integrated with the sale of the Securities in a manner that would require the Securities to be registered under the 1933 Act. (ii) Offering Memorandum. The Offering Memorandum does not, and at ------------------- the Closing Time will not, include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that this representation, warranty and agreement shall not apply to statements in or omissions from the Offering Memorandum made in reliance upon and in conformity with information furnished to the Company in writing by any Initial Purchaser through the Representatives expressly for use in the Offering Memorandum. (iii) Incorporated Documents. The Final Offering Memorandum (as ---------------------- amended or supplemented) as delivered from time to time shall incorporate by reference the most recent Quarterly Report of the Company on Form 10-Q filed with the Commission. The documents incorporated or deemed to be incorporated by reference in the Offering Memorandum, if any, at the time they were or hereafter are filed with the Commission complied and will comply in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission (the "1934 Act Regulations"), and, when 3 read together with the other information in the Offering Memorandum, at the date of the Offering Memorandum and at the Closing Time, do not and will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (iv) Independent Accountants. The accountants who certified the ----------------------- financial statements and supporting schedules included in the Offering Memorandum are independent certified public accountants with respect to the Company and its Subsidiaries within the meaning of Regulation S-X under the 1933 Act. (v) Financial Statements. Each of the historical financial -------------------- statements included in the Offering Memorandum, together with related schedules and notes, present fairly (on a consolidated basis where so indicated) the financial condition of the entity or entities to which such financial statement purports to relate (the "Reported Entity") at the date(s) indicated and the statement of operations (or income or earnings as indicated in the applicable financial statement) and cash flows and (in the case of a Reported Entity for which a statement of stockholders' equity is included) stockholders' equity (and partners' capital if so indicated in the applicable financial statement) of the Reported Entity for the period(s) specified; said financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved (except as otherwise indicated in such financial statements). Any supporting schedules included in the Offering Memorandum present fairly in accordance with GAAP the information required to be stated therein. The selected historical financial information and the summary historical financial information included in the Offering Memorandum present fairly the information shown therein and, in the case of historical financial data or information of the Company, have been compiled on a basis consistent with that of the audited financial statements included in the Offering Memorandum. The pro forma financial statements and the related notes thereto included in the Offering Memorandum present fairly the information shown therein, have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements and have been properly compiled on the bases described therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. (vi) No Manipulation of Market Prices. The Company has not taken or -------------------------------- caused to be taken and will not take or cause to be taken, either directly or indirectly, any action designed to cause or result in, or which action constitutes or which might reasonably be expected to constitute, the stabilization or manipulation of the market price of any security in contravention of any applicable law, including but not limited to those actions prohibited by Section 9(a) of the 1934 Act, the 1934 Act Regulations and Regulation M promulgated by the Commission. 4 (vii) No Material Adverse Change in Business. Since the respective -------------------------------------- dates as of which information is given in the Offering Memorandum, except as otherwise stated therein, (A) there has been no material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its Subsidiaries considered as one enterprise (a "Material Adverse Effect"), whether or not arising in the ordinary course of business, (B) there have been no transactions entered into by the Company or any of its Subsidiaries, other than those in the ordinary course of business, which are material with respect to the Company and its Subsidiaries considered as one enterprise, and (C) there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (viii) Good Standing of the Company. The Company has been duly ---------------------------- organized and is validly existing as a corporation in good standing under the laws of the State of Delaware and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Offering Memorandum and to enter into and perform its obligations under this Agreement; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect. (ix) Good Standing of Subsidiaries. Each subsidiary of the Company ----------------------------- (each, a "Subsidiary") has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Offering Memorandum and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect; except as otherwise disclosed in the Offering Memorandum, all of the issued and outstanding capital stock of each such Subsidiary has been duly authorized and validly issued, is fully paid and non-assessable and is owned by the Company, directly or through Subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity (except for any security interest or pledge contemplated by the Third Amended and Restated Credit Agreement dated May 12, 1998 between the Company, United Rentals of Canada, Inc. and Bank of America National Trust and Savings Association, as U.S. Agent, Bank of America Canada, as Canadian Agent, and various financial institutions (the "Credit Agreement")); none of the outstanding shares of capital stock of any Subsidiary was issued in violation of the preemptive or similar rights of any security holder of such Subsidiary. The only Subsidiaries of the Company (other than inactive Subsidiaries) are the Subsidiaries listed in Schedule C hereto and each Subsidiary of the Company which constitutes a "significant subsidiary" (as such term is defined in Rule 1-02 of Regulation S-X under the 1933 Act) provided, however, that such determination shall be made by reference to -------- ------- the Company's 5 pro forma financial statements as permitted by Rule 3-05(b)(3) of Regulation S-X (each, a "Significant Subsidiary"), is marked with a "*" in Schedule C hereto. (x) Capitalization. The authorized capital stock of the Company -------------- consists of 75,000,000 shares of common stock, par value $0.01 per share (the "Common Stock"), and 5,000,000 shares of preferred stock. As of the date hereof, there were no shares of preferred stock outstanding and 33,761,315 shares of Common Stock outstanding (except for subsequent issuances, if any, pursuant to reservations, agreements or employee benefit plans referred to in the Offering Memorandum or pursuant to the exercise of convertible securities, warrants or options referred to in the Offering Memorandum). The shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; none of the outstanding shares of capital stock of the Company was issued in violation of the preemptive or other similar rights of any security holder of the Company. (xi) Authorization of Agreement. This Agreement has been duly -------------------------- authorized, executed and delivered by the Company. (xii) Authorization of the Indenture. The Indenture has been duly ------------------------------ authorized by the Company and each Guarantor, and, at the Closing Time, will have been duly executed and delivered by the Company and each such Guarantor and will constitute a valid and binding agreement of the Company and each such Guarantor, enforceable against the Company and each such Guarantor in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or other similar laws relating to or affecting enforcement of creditors' rights generally, or by general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). (xiii) Authorization of the Securities. The Securities have been ------------------------------- duly authorized and, at the Closing Time, will have been duly executed by the Company and, when authenticated in the manner provided for in the Indenture and delivered against payment of the purchase price therefor will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or other similar laws relating to or affecting enforcement of creditors' rights generally, or by general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), and will be in the form contemplated by, and, subject to the foregoing limitations, entitled to the benefits of, the Indenture. At the Closing Time, the Securities will conform in all material respects to the description thereof contained in the Offering Memorandum. (xiv) Authorization of the Guarantees. Each Guaranty has been duly ------------------------------- authorized 6 by the applicable Guarantor under the laws of its state of incorporation, and, at the Closing Time, each Guaranty relating to Securities being issued as of Closing Time that appears on or is attached to such Securities, will have been duly executed by such Guarantor and, when issued in the manner provided for in the Indenture and delivered in accordance with this Agreement, will constitute a valid and binding obligation of such Guarantor, enforceable against such Guarantor in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or other similar laws relating to or affecting enforcement of creditors' rights generally, or by general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), and will be in the form contemplated by, and, subject to the foregoing limitations, entitled to the benefits of, the Indenture. At the Closing Time, the Guarantees will conform in all material respects to the description thereof contained in the Offering Memorandum. (xv) Authorization of the Exchange Notes. The Exchange Notes have ----------------------------------- been duly authorized by the Company. When the Exchange Notes are issued, executed and authenticated in the manner provided for by the terms of the Exchange Offer and the Indenture, the Exchange Notes will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or other similar laws relating to or affecting enforcement of creditors' rights generally, or by general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), and will be in the form contemplated by, and, subject to the foregoing limitations, entitled to the benefits of, the Indenture. (xvi) Authorization of the Notes Registration Rights Agreement. The -------------------------------------------------------- Notes Registration Rights Agreement has been duly authorized by the Company and each Guarantor, and, at the Closing Time, will have been duly executed and delivered by the Company and each Guarantor, and will constitute valid and binding obligations of the Company and each Guarantor, enforceable against the Company and each such Guarantor in accordance with its terms except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or other similar laws relating to or affecting enforcement of creditors' rights generally, or by general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). At the Closing Time, the Notes Registration Rights Agreement will conform in all material respects to the description thereof contained in the Offering Memorandum. (xvii) Description of the Securities and the Indenture. The ----------------------------------------------- Securities, the Guarantees and the Indenture will conform in all material respects to the respective statements relating thereto contained in the Offering Memorandum and will be in substantially the respective forms previously delivered to the Initial Purchasers. 7 (xviii) Absence of Defaults and Conflicts. Neither the Company nor --------------------------------- any of its Subsidiaries is in violation of its charter or by-laws or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any of them may be bound, or to which any of the property or assets of the Company or any of its Subsidiaries is subject (collectively, "Agreements and Instruments") except for such defaults that would not result in a Material Adverse Effect; and the execution, delivery and performance of this Agreement, the Indenture, the Securities, the Guarantees, the Notes Registration Rights Agreement, and any other agreement or instrument entered into or issued or to be entered into or issued by the Company in connection with the transactions contemplated hereby or thereby or in the Offering Memorandum and the consummation of the transactions contemplated herein and in the Offering Memorandum (including the issuance and sale of the Securities and the use of a portion of the proceeds from the sale of the Securities to repay indebtedness as described in the Offering Memorandum under the caption "Use of Proceeds") and compliance by the Company with its obligations hereunder have been duly authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or a Repayment Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its Subsidiaries pursuant to, the Agreements and Instruments except for such conflicts, breaches or defaults or liens, charges or encumbrances that, singly or in the aggregate, would not result in a Material Adverse Effect, nor will such action result in any violation of the provisions of the charter or by-laws of the Company or any of its Subsidiaries or any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any of its Subsidiaries or any of their assets or properties. As used herein, a "Repayment Event" means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any of its Subsidiaries. (xix) Absence of Labor Dispute. No labor dispute with the ------------------------ employees of the Company or any of its Subsidiaries exists or, to the knowledge of the Company, is imminent, and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its or any of its Subsidiaries' principal suppliers, manufacturers, customers or contractors, which, in either case, may reasonably be expected to result in a Material Adverse Effect. (xx) Absence of Proceedings. There is no action, suit, proceeding, ---------------------- inquiry or investigation before or by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened, against or affecting the Company or any Subsidiary thereof which is required to be disclosed in the 8 Offering Memorandum (other than as disclosed therein), or which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the consummation of this Agreement or the performance by the Company of its obligations hereunder. The aggregate of all pending legal or governmental proceedings to which the Company or any Subsidiary thereof is a party or of which any of their respective property or assets is the subject which are not described in the Offering Memorandum, including ordinary routine litigation incidental to the business, could not reasonably be expected to result in a Material Adverse Effect. (xxi) Accuracy of Representations and Warranties. To the knowledge ------------------------------------------ of the Company, the representations and warranties made by each of the Acquired Companies (as defined in the Offering Memorandum) and the selling stockholders in the respective agreements pursuant to which the Company acquired the Acquired Companies did not as of the respective dates thereof contain any inaccuracies that might, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect. (xxii) Description of Contracts. There are no contracts or ------------------------ documents which are required to be described in the Offering Memorandum which have not been so described. (xxiii) Possession of Intellectual Property. The Company and its ----------------------------------- Subsidiaries own or possess, or can acquire on reasonable terms, adequate patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, trade names or other intellectual property (collectively, "Intellectual Property") necessary to carry on the business now operated by them, and neither the Company nor any of its Subsidiaries has received any notice or is otherwise aware of any infringement of or conflict with asserted rights of others with respect to any Intellectual Property or of any facts or circumstances which would render any Intellectual Property invalid or inadequate to protect the interest of the Company or any of its Subsidiaries therein, and which infringement or conflict (if the subject of any unfavorable decision, ruling or finding) or invalidity or inadequacy, singly or in the aggregate, would result in a Material Adverse Effect. (xxiv) Absence of Further Requirements. No filing with, or ------------------------------- authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency is necessary or required for the performance by the Company of its obligations hereunder, by the Company or any Guarantor in connection with the offering, issuance or sale of the Securities and Guarantees hereunder or the consummation of the transactions contemplated by this Agreement, except (i) for filings and qualifications contemplated by the Notes Registration Rights Agreement, (ii) such as may be required under foreign or state securities or blue sky laws and (iii) such as may be required after the Closing Date pursuant to the Company's periodic reporting requirements on its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current 9 Reports on Form 8-k to be filed with the Commission under Sections 13 and 15(d), respectively, of the 1934 Act. (xxv) Possession of Licenses and Permits. The Company and its ---------------------------------- Subsidiaries possess such permits, licenses, approvals, consents and other authorizations (collectively, "Governmental Licenses") issued by the appropriate federal, state, local or foreign regulatory agencies or bodies necessary to conduct the business now operated by them, except where the failure to so possess such Government Licenses would not, singly or in the aggregate, have a Material Adverse Effect; the Company and its Subsidiaries are in compliance with the terms and conditions of all such Governmental Licenses, except where the failure so to comply would not, singly or in the aggregate, have a Material Adverse Effect; all of the Governmental Licenses are valid and in full force and effect, except when the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect would not have, singly or in the aggregate, a Material Adverse Effect; and neither the Company nor any of its Subsidiaries has received any notice of proceedings relating to the revocation or modification of any such Governmental Licenses which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Effect. (xxvi) Title to Property. The Company and its Subsidiaries have ----------------- good and marketable title to all real property described in the Offering Memorandum as owned by the Company and its Subsidiaries and good title to all other properties described in the Offering Memorandum as owned by them, in each case, free and clear of all mortgages, pledges, liens, security interests, claims, restrictions or encumbrances of any kind except such as (a) are pursuant to the Credit Agreement as described in the Offering Memorandum or (b) do not, singly or in the aggregate, materially interfere with the use made and proposed to be made of such property by the Company or any of its Subsidiaries; and all of the leases and subleases material to the business of the Company and its Subsidiaries, considered as one enterprise, and under which the Company or any of its Subsidiaries holds properties described in the Offering Memorandum, are in full force and effect, and neither the Company nor any Subsidiary has any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any Subsidiary under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or such Subsidiary to the continued possession of the leased or subleased premises under any such lease or sublease, which claim, if upheld, would result in a Material Adverse Effect. (xxvii) Investment Company Act. Neither the Company nor any ---------------------- Guarantor is, or upon the issuance and sale of the Securities as herein contemplated and the application of the net proceeds therefrom as described in the Offering Memorandum will be, an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (the "1940 Act"). 10 (xxviii) Environmental Laws. Except as described in the Offering ------------------ Memorandum or except as would not, singly or in the aggregate, result in a Material Adverse Effect: (A) neither the Company nor any of its Subsidiaries is in violation of any federal, state, local or foreign statute, law, rule, regulation, ordinance, code, policy or rule of common law or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent, decree or judgment, relating to pollution or protection of human health, the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including, without limitation, laws and regulations relating to the release or threatened release of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum products (collectively, "Hazardous Materials") or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials (collectively, "Environmental Laws"), (B) neither the Company nor any of its Subsidiaries is lacking any permits, authorizations and approvals required under any applicable Environmental Laws or are in violation of the requirements of such Environmental Laws, (C) there are no pending or, to the best knowledge of the Company, threatened administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigation or proceedings relating to any Environmental Law against the Company or any of its Subsidiaries and (D) to the knowledge of the Company there are no events or circumstances that might reasonably be expected to form the basis of an order for clean-up or remediation, or an action, suit or proceeding by any private party or governmental body or agency, against or affecting the Company or any of its Subsidiaries relating to Hazardous Materials or any Environmental Laws. (xxix) Statistical and Market Data. Nothing has come to the --------------------------- attention of the Company that has caused the Company to believe that the statistical and market-related data included in the Offering Memorandum are not based on or derived from sources that are reliable and accurate in all material respects. (xxx) Taxes. The Company and each of its Subsidiaries have filed ----- all necessary federal, state, local and foreign income, payroll, franchise and other tax returns (after giving effect to extensions) and have paid all taxes shown as due thereon (except where the failure to so file or pay would not, singly or in the aggregate, have a Material Adverse Effect), and there is no tax deficiency that has been, or to the knowledge of the Company is likely to be, asserted against the Company, any of its Subsidiaries or any of their properties or assets that would result in a Material Adverse Effect, except for taxes that are being contested in good faith by appropriate proceedings and with respect to which the Company has established adequate reserves in accordance with GAAP. (xxxi) Rule 144A Eligibility. The Securities are eligible for --------------------- resale pursuant to Rule 144A and will not be, at the Closing Time, of the same class as securities listed on a national securities exchange registered under Section 6 of the 1934 Act, or quoted in a U.S. automated interdealer quotation system. 11 (xxxii) No General Solicitation. None of the Company, its ----------------------- affiliates, as such term is defined in Rule 501(b) under the 1933 Act ("Affiliates"), or any person acting on its or any of their behalf (other than the Initial Purchasers, as to whom the Company makes no representation) has engaged or will engage, in connection with the offering of the Securities, in any form of general solicitation or general advertising within the meaning of Rule 502(c) under the 1933 Act. (xxxiii) No Registration Required. Assuming (i) the accuracy of the ------------------------ representations and warranties of the Initial Purchasers set forth in Section 2(c) hereof and compliance by the Initial Purchasers with the provisions of Sections 6(a) and 6(c) hereof and (ii) the accuracy of the representations made by each Subsequent Purchaser of the Securities under Regulation S of the 1933 Act, as to such Subsequent Purchaser not being a "U.S. Person," within the meaning of Rule 902 of Regulation S of the 1933 Act, it is not necessary in connection with the offer, sale and delivery of the Securities to the Initial Purchasers and to each Subsequent Purchaser in the manner contemplated by this Agreement and the Offering Memorandum to register the Securities under the 1933 Act or to qualify the Indenture under the Trust Indenture Act of 1939, as amended (the "1939 Act"). (xxxiv) No Directed Selling Efforts. With respect to those --------------------------- Securities sold in reliance on Regulation S, (A) none of the Company, its Affiliates or any person acting on its or their behalf (other than the Initial Purchasers, as to whom the Company makes no representation) has engaged or will engage in any directed selling efforts within the meaning of Regulation S and (B) each of the Company and its Affiliates and any person acting on its or their behalf (other than the Initial Purchasers, as to whom the Company makes no representation) has complied and will comply with the offering restrictions requirement of Regulation S. (xxxv) Personal Holding Company. Neither the Company nor any of ------------------------ its Subsidiaries is or has ever been a Personal Holding Company within the meaning of Section 542 of the Internal Revenue Code of 1986, as amended (a "Personal Holding Company"). (xxxvi) Insurance. Neither the Company nor any Subsidiary has --------- received notice from any insurer providing insurance coverage for the Company and its Subsidiaries or agent of such insurer that capital improvements or other expenditures will have to be made in order to continue present insurance coverage, except such as could not reasonably be expected, singularly or in the aggregate, to have a Material Adverse Effect. (xxxvii) Maintenance of Sufficient Internal Controls. The Company ------------------------------------------- and its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only 12 in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (xxxviii) Fees. Other than pursuant to this Agreement, there are no ---- contracts, agreements or understandings between either the Company or its Subsidiaries and any person that give rise to a valid claim against the Company, any of its Subsidiaries or any of the Initial Purchasers for a brokerage commission, finder's fee or other like payment relating to the transactions contemplated hereby. (xxxix) No Agreement for Filing a Registration Statement. There ------------------------------------------------ are no persons with registration rights or other similar rights to have any debt securities registered pursuant to any registration statement or otherwise registered by the Company under the 1933 Act, except persons having such rights pursuant to the Notes Registration Rights Agreement. (xl) Compliance with Federal Reserve System Regulations. -------------------------------------------------- Neither the Company, any of its Subsidiaries or any agent thereof acting on the behalf of any of them, has taken, and none of them will take, any action that might cause this Agreement or the issuance or sale of the Securities to violate Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the Board of Governors of the Federal Reserve System. (xli) Compliance with Rule 144A. Each of the Preliminary ------------------------- Offering Memorandum and the Final Offering Memorandum, as of its date, contains all the information specified in, and meeting the requirements of, Rule 144A(d)(4) under the 1933 Act. (xlii) ERISA. Neither the Company nor any of its Subsidiaries has ----- violated any provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or the rules and regulations promulgated thereunder, except for such violations which, singly or in the aggregate, would not have a Material Adverse Effect. If any such plan is adopted, the execution and delivery of this Agreement and the sale of the Securities will not involve any non-exempt prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended. The representations made in the preceding sentence are made in reliance upon and subject to the accuracy of, and compliance with, the representations and covenants made or deemed made by the purchasers of the Securities as set forth in the Offering Memorandum under "Notice to Investors." (xliii) Limitations on Dividends and other Payment Restrictions. ------------------------------------------------------- There are, and as of the Closing Time, there will be no agreements containing any limitation on dividends or any other payment restrictions of the type referred to in clause (vii) of the covenant captioned "Description of the Notes -- Limitation on Dividends and other 13 Payment Restrictions Affecting Restricted Subsidiaries" contained in the Offering Memorandum. (xliv) Agreements with Affiliates. Except as listed on Schedule D -------------------------- attached hereto, there are, and as of the Closing Time, there will be no agreements of the type referred to in clause (vi) of the second paragraph of the covenant captioned "Description of the Notes -- Limitation on Transactions with Affiliates" contained in the Offering Memorandum. (xlv) Permitted Indebtedness. To the best of the Company's ---------------------- knowledge and belief, except as listed on Schedule E attached hereto, there are, and as of the Closing Time, there will be no agreements existing of the type referred to in clause (c) of the definition of "Permitted Indebtedness" under "Description of Notes Certain Definitions" contained in the Offering Memorandum. As of the Closing Time, but without giving effect to the issuance of the Securities and the application of the net proceeds therefrom, the aggregate outstanding Indebtedness (as defined in the Offering Memorandum under "Description of Notes -- Certain Definitions" of the Company and its Subsidiaries will not exceed $113.5 million. (xlvi) Disclosure of Scheduled Information. All information ----------------------------------- contained in the Schedules hereto which would be required to be disclosed in the Offering Memorandum if the Offering Memorandum was a prospectus forming part of a registration statement filed with the Commission under the 1933 Act, has been disclosed in the Offering Memorandum. (b) Officer's Certificates. Any certificate signed by any officer of the ---------------------- Company or any of its Subsidiaries delivered to the Representative(s) or to counsel for the Initial Purchasers pursuant to this Agreement shall be deemed a representation and warranty by the Company to each Initial Purchaser as to the matters covered thereby. SECTION 2. Sale and Delivery to Initial Purchasers; Closing. ------------------------------------------------ (a) Securities. On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each Initial Purchaser, severally and not jointly, and each Initial Purchaser, severally and not jointly, agrees to purchase from the Company, at the price set forth in Schedule B, the aggregate principal amount of Securities set forth in Schedule A opposite the name of such Initial Purchaser, plus any additional principal amount of Securities which such Initial Purchaser may become obligated to purchase pursuant to the provisions of Section 11 hereof. (b) Payment. Payment of the purchase price for, and delivery of certificates for, the Securities shall be made at the office of Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022, or at such other place as shall be agreed upon by the Representative(s) and the Company, at 9:00 A.M. New York City time on the third business day 14 after the date hereof (unless postponed in accordance with the provisions of Section 11), or such other time not later than ten business days after such date as shall be agreed upon by the Representative(s) and the Company (such time and date of payment and delivery being herein called the "Closing Time"). Payment shall be made to the Company by wire transfer of immediately available funds to a bank account designated by the Company, against delivery to the Representative(s) for the respective accounts of the Initial Purchasers of certificates for the Securities to be purchased by them. It is understood that each Initial Purchaser has authorized the Representative(s), for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Securities which it has agreed to purchase. Merrill Lynch, individually and not as representative of the Initial Purchasers, may (but shall not be obligated to) make payment of the purchase price for the Securities to be purchased by any Initial Purchaser whose funds have not been received by the Closing Time, but such payment shall not relieve such Initial Purchaser from its obligations hereunder. (c) Qualified Institutional Buyer. Each Initial Purchaser severally and not jointly represents and warrants to, and agrees with, the Company that it is a "qualified institutional buyer" within the meaning of Rule 144A under the 1933 Act (a "Qualified Institutional Buyer") and an "accredited investor" within the meaning of Rule 501(a) under the 1933 Act (an "Accredited Investor"). (d) Denominations; Registration. One or more Securities in definitive global form, registered in the name of Cede & Co., as nominee of DTC, having an aggregate amount corresponding to the aggregate amount of the Securities sold to Subsequent Purchasers (collectively, the "Global Note"), shall be delivered by the Company to the Representatives (or as the Representatives direct) in each case with any transfer taxes thereon duly paid by the Company, against payment by the Representatives of the purchase price therefor in accordance with this Section 2. The Global Note shall be made available for examination by the Representatives in The City of New York not later than 10:00 a.m. on the business day prior to the Closing Time. SECTION 3. Covenants of the Company. The Company covenants with each ------------------------ Initial Purchaser as follows: (a) Offering Memorandum. The Company, as promptly as possible, will furnish to each Initial Purchaser, without charge, such number of copies of the Preliminary Offering Memorandum, the Final Offering Memorandum and any amendments and supplements thereto and documents incorporated by reference therein as such Initial Purchaser may reasonably request. (b) Notice and Effect of Material Events. The Company will immediately notify each Initial Purchaser, and confirm such notice in writing, of (x) any filing made by the Company of information relating to the offering of the Securities with any securities exchange or any other regulatory body in the United States or any other jurisdiction, and (y) prior to the completion of 15 the placement of the Securities by the Initial Purchasers as evidenced by a notice in writing from the Initial Purchasers to the Company, any material changes in or affecting the earnings, business affairs or business prospects of the Company and its Subsidiaries which (i) make any statement in the Offering Memorandum false or misleading or (ii) are not disclosed in the Offering Memorandum. In such event or if during such time any event shall occur as a result of which it is necessary, in the reasonable opinion of the Company, its counsel, the Initial Purchasers or counsel for the Initial Purchasers, to amend or supplement the Final Offering Memorandum in order that the Final Offering Memorandum not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances then existing, the Company will forthwith amend or supplement the Final Offering Memorandum by preparing and furnishing to each Initial Purchaser an amend-ment or amendments of, or a supplement or supplements to, the Final Offering Memorandum (in form and substance satisfactory in the reasonable opinion of counsel for the Initial Purchasers) so that, as so amended or supplemented, the Final Offering Memorandum will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time it is delivered to a Subsequent Purchaser, not misleading. To the extent permitted by applicable law, such amendment or supplement may incorporate documents filed with the Commission under the 1934 Act. (c) Amendment to Offering Memorandum and Supplements. The Company will advise each Initial Purchaser promptly of any proposal to amend or supplement the Offering Memorandum and will not effect such amendment or supplement without the consent of the Initial Purchasers. Neither the consent of the Initial Purchasers, nor the Initial Purchaser's delivery of any such amendment or supplement, shall constitute a waiver of any of the conditions set forth in Section 5 hereof. (d) Qualification of Securities for Offer and Sale. The Company will use its best efforts, in cooperation with the Initial Purchasers, to qualify the Securities for offering and sale under the applicable securities laws of such jurisdictions as the Representative(s) may designate and will maintain such qualifications in effect as long as required for the sale of the Securities; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. (e) Rating of Securities. The Company shall take all reasonable action necessary to enable Standard & Poor's Ratings Group, a division of McGraw Hill, Inc. ("S&P"), and Moody's Investors Service, Inc. ("Moody's") to provide their respective credit ratings of the Securities. (f) DTC. The Company will cooperate with the Representative(s) and use its best efforts to permit the Securities to be eligible for clearance and settlement through the facilities of DTC. 16 (g) Use of Proceeds. The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Offering Memorandum under "Use of Proceeds". (h) Restriction on Sale of Securities. During a period of 120 days from the date of the Offering Memorandum, the Company will not, without the prior written consent of Merrill Lynch, directly or indirectly, issue, sell, offer or agree to sell, grant any option for the sale of, or otherwise dispose of, any other debt securities of the Company comparable to the Securities or securities of the Company that are convertible into, or exchangeable for, the Securities or any such other debt securities (other than (i) the Exchange Notes, (ii) any debt securities convertible into, or exchangeable for, equity securities of the Company; and (iii) any debt securities of another entity acquired by the Company or assumed by the Company in connection with an acquisition of the assets of such entity, which debt securities were (a) existing prior to such acquisition; and (b) were not issued in connection with, or in contemplation of, such acquisition). (i) Comply with Agreements. To comply and cause each Guarantor to comply with all of its respective agreements set forth in the Notes Registration Rights Agreement. (j) Furnish Reports. So long as any Securities are outstanding, to furnish to the Initial Purchasers as promptly as practicable after they are available copies of all reports or other communications furnished to or filed with the Commission or any national securities exchange on which any class of securities of the Company is listed and such other publicly available information concerning the Company and/or its Subsidiaries as the Initial Purchasers may reasonably request. (k) PORTAL Registration. To use its best efforts to effect the inclusion of the Securities in PORTAL and to maintain the listing of the Securities on PORTAL for so long as any of such Securities are outstanding. (l) Performance of Duties. To use its best efforts (i) to do and perform all things required or necessary to be done and performed on its part under this Agreement by it prior to the Closing Time and (ii) to the extent within the Company's control, to satisfy all conditions precedent to the delivery of the Securities. (m) Corporate Records of Misco Rents, Inc. Within 30 days following the Closing Time, to ensure that the corporate records, articles of incorporation, by-laws, shareholder minutes and director minutes are amended or supplemented to the extent necessary to ensure that they are complete and accurate and comply in all material respects with applicable law. SECTION 4. Payment of Expenses. ------------------- (a) Expenses. The Company will pay all expenses incident to the performance of its obligations under this Agreement, including (i) the preparation, printing and any filing of the Offering Memorandum (including financial statements and any schedules or exhibits and any 17 document incorporated therein by reference, if any) and of each amendment or supplement thereto, (ii) the preparation, printing and delivery to the Initial Purchasers of this Agreement, any Agreement among Initial Purchasers, the Indenture, the Notes Registration Rights Agreement, and such other documents as may be required in connection with the offering, purchase, sale and delivery of the Securities, (iii) the preparation, issuance and delivery of the certificates for the Securities to the Initial Purchasers, including any charges of DTC in connection therewith; (iv) the fees and disbursements of the Company's counsel, accountants and other advisors, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(d) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Initial Purchasers in connection therewith and in connection with the preparation of the Blue Sky Survey, any supplement thereto and any Legal Investment Survey, (vi) the fees and expenses of the Trustee, including the fees and disbursements of counsel for the Trustee in connection with the Indenture and the Notes, (viii) any fees payable to the National Association of Securities Dealers, Inc. (the "NASD") in connection with the initial and continued designation of the Securities as PORTAL securities under the PORTAL Market Rules pursuant to NASD Rule 5322, and (ix) all costs and expenses of the Exchange Offer and any Registration Statement, as set forth in and subject to the Notes Registration Rights Agreement. (b) Termination of Agreement. If this Agreement is terminated by the Representative(s) in accordance with the provisions of Section 5 or Section 10(a)(i) hereof, the Company shall reimburse the Initial Purchasers for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Initial Purchasers, provided, however, that any reimbursement by the Company pursuant to this Section 4(b) shall be limited to an aggregate of $500,000. SECTION 5. Conditions of Initial Purchasers' Obligations. The obligations --------------------------------------------- of the several Initial Purchasers hereunder are subject to the accuracy of the representations and warranties of the Company contained in Section 1 hereof or in certificates of any officer of the Company or any of its Subsidiaries delivered pursuant to the provisions hereof, to the performance by the Company of its covenants and other obligations hereunder, and to the following further conditions: (a) Opinions of Counsel for Company. At Closing Time, the Initial Purchasers shall have received the favorable opinions, dated as of Closing Time, of Ehrenreich Eilenberg Krause & Zivian LLP and Weil, Gotshal & Manges LLP, counsel for the Company, in form and substance reasonably satisfactory to counsel for the Initial Purchasers, together with signed or reproduced copies of such letters for each of the other Initial Purchasers, to the effect set forth in Exhibits A-1 and A-2, respectively, hereto and to such further effect as counsel to the Initial Purchasers may reasonably request. In giving such opinions, such counsel may rely, as to all matters governed by the laws of jurisdictions other than the law of the State of New York, the federal law of the United States and the General Corporation Law of the State of Delaware, upon the opinions of counsel reasonably satisfactory to counsel to the Initial Purchasers. Such counsel may also state that, insofar as such opinions involve factual matters, they have relied, to the 18 extent they deem proper, upon certificates of officers of the Company and its Subsidiaries and certificates of public officials. (b) Opinion of Counsel for Initial Purchasers. At the Closing Time, the Representative(s) shall have received the favorable opinion, dated as of the Closing Time, of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Initial Purchasers, with respect to the matters set forth in (i) through (vii), inclusive, and (viii) (solely as to the information in the Offering Memorandum under "Description of the Notes") and the penultimate paragraph of Exhibit A-2 hereto. In giving such opinion such counsel may rely, as to all matters governed by the laws of jurisdictions other than the law of the State of New York and the federal law of the United States and the General Corporation Law of the State of Delaware, upon the opinions of counsel satisfactory to the Representative(s). Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and its Subsidiaries and certificates of public officials. (c) Officers' Certificate. At the Closing Time, there shall not have been, since the date hereof or since the respective dates as of which information is given in the Offering Memorandum, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its Subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, and the Represen-tative(s) shall have received a certificate of the Chief Executive Officer or a Vice President of the Company and of the chief financial or chief accounting officer of the Company, dated as of the Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties in Section 1 hereof are true and correct with the same force and effect as though expressly made at and as of the Closing Time, and (iii) the Company has complied in all material respects with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to the Closing Time. (d) Accountant's Comfort Letter. At the time of the execution of this Agreement, the Representative(s) shall have received from each of Ernst & Young LLP, Webster, Duke & Co. PA, KPMG Peat Marwick LLP, Grant Thornton, LLP, KPMG Peat Marwick (Canada), Battaglia, Andrews & Moag, P.C. and Moss-Adams LLP a letter dated such date, to the effect of Exhibit B and otherwise in form and substance satisfactory to the Representative(s), together with signed or reproduced copies of such letter for each of the other Initial Purchasers containing statements and information of the type ordinarily included in accountants' "comfort letters" to Initial Purchasers with respect to the financial statements and certain financial information contained in the Offering Memorandum. (e) Bring-down Comfort Letter. At the Closing Time, the Representative(s) shall have received from each of Ernst & Young LLP, Webster, Duke & Co. PA, KPMG Peat Marwick LLP, Grant Thornton, LLP, KPMG Peat Marwick (Canada), Battaglia, Andrews & Moag, P.C. and Moss-Adams LLP a letter, dated as of the Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (d) of this Section, 19 except that the specified date referred to shall be a date not more than three business days prior to the Closing Time. (f) Maintenance of Rating. At the Closing Time, the Securities shall be rated at least B2 by Moody's and B+ by S&P, and the Company shall have delivered to the Representative(s) a letter dated the Closing Time, from each such rating agency, or other evidence satisfactory to the Representative(s), confirming that the Securities have such ratings; and since the date of this Agreement, there shall not have occurred a downgrading in the rating assigned to the Securities or any of the Company's other debt securities by any "nationally recognized statistical rating agency" within the meaning of Rule 436(g)(2) of the 1933 Act, and no such securities rating agency shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of the Securities or any of the Company's other debt securities. (g) PORTAL. At the Closing Time, the Securities shall have been designated for trading on PORTAL. (h) Additional Documents. At the Closing Time, counsel for the Initial Purchasers shall have been furnished with such documents and opinions as they may reasonably require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Securities as herein contemplated shall be reasonably satisfactory in form and substance to the Representative(s) and counsel for the Initial Purchasers. (i) Termination of Agreement. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Representative(s) by notice to the Company at any time at or prior to the Closing Time, and such termination shall be without liability of any party to any other party except as provided in Section 4 and except that Sections 1, 7 and 8 shall survive any such termination and remain in full force and effect. SECTION 6. Subsequent Offers and Resales of the Securities. ----------------------------------------------- (a) Offer and Sale Procedures. Each of the Initial Purchasers and the Company hereby establish and agree to observe the following procedures in connection with the offer and sale of the Securities: (i) Offers and Sales only to Qualified Institutional Buyers and Non- ---------------------------------------------------------------- U.S. Persons. Offers and sales of the Securities will be made only by the ------------ Initial Purchasers or Affiliates thereof qualified to do so in the jurisdictions in which such offers or sales are made. Each such offer or sale shall only be made (A) to persons whom the offeror or seller reasonably believes to be qualified institutional buyers (as defined in Rule 144A under the 1933 Act) or (B) in offshore transactions (as defined in Rule 902 under the 20 Securities Act) to persons to whom the offeror or seller reasonably believes offers and sales of the Securities may be made in reliance upon Regulation S under the 1933 Act. (ii) No General Solicitation. The Securities will be offered by ----------------------- approaching prospective Subsequent Purchasers on an individual basis. No general solicitation or general advertising (within the meaning of Rule 502(c) under the 1933 Act) will be used in the United States in connection with the offering of the Securities. (iii) Subsequent Purchaser Notification. Each Initial Purchaser will --------------------------------- take reasonable steps to inform, and cause each of its U.S. Affiliates to take reasonable steps to inform, persons acquiring Securities from such Initial Purchaser or affiliate, as the case may be, in the United States that the Securities (A) have not been and will not be registered under the 1933 Act, (B) are being sold to them without registration under the 1933 Act in reliance on Rule 144A or in accordance with another exemption from registration under the 1933 Act, as the case may be, and (C) may not be offered, sold or otherwise transferred except (1) to the Company, (2) outside the United States in accordance with Rule 904 of Regulation S, or (3) inside the United States in accordance with (x) Rule 144A to a person whom the seller reasonably believes is a Qualified Institutional Buyer that is purchasing such Securities for its own account or for the account of a Qualified Institutional Buyer to whom notice is given that the offer, sale or transfer is being made in reliance on Rule 144A or (y) the exemption from registration under the 1933 Act provided by Rule 144, if available. (iv) Restrictions on Transfer. The transfer restrictions and the ------------------------ other provisions set forth in Section 3.14 of the Indenture, including the legend required thereby, shall apply to the Securities except as otherwise agreed by the Company and the Initial Purchasers. Following the sale of the Securities by the Initial Purchasers to Subsequent Purchasers pursuant to the terms hereof, the Initial Purchasers shall not be liable or responsible to the Company for any losses, damages or liabilities suffered or incurred by the Company, including any losses, damages or liabilities under the 1933 Act, arising from or relating to any resale or transfer of any Security (except that the foregoing disclaimer of liability and responsibility shall not apply where the Company has complied with each of its representations, warranties, covenants and agreements under this Agreement and any such loss, damage or liability is solely attributable to the failure of the Initial Purchasers to comply with their obligations under Sections 6(a) and 6(c) hereof or the inaccuracy of the representations and warranties of the Initial Purchasers set forth in Section 2(c) hereof). (v) Delivery of Offering Memorandum. Each Initial Purchaser will ------------------------------- deliver to each purchaser of the Securities from such Initial Purchaser, in connection with its original distribution of the Securities, a copy of the Offering Memorandum, as amended and supplemented at the date of such delivery. 21 (b) Covenants of the Company. The Company covenants with each Initial Purchaser as follows: (i) Due Diligence. In connection with the original distribution of ------------- the Securities, the Company agrees that, prior to any offer or resale of the Securities by the Initial Purchasers, the Initial Purchasers and counsel for the Initial Purchasers shall have the right to make reasonable inquiries into the business of the Company and its Subsidiaries. The Company also agrees to provide answers to each prospective Subsequent Purchaser of Securities who so requests concerning the Company and its Subsidiaries (to the extent that such information is available or can be acquired and made available to prospective Subsequent Purchasers without unreasonable effort or expense and to the extent the provision thereof is not prohibited by applicable law, and so long as the Company is a "reporting issuer" subject to the periodic reporting requirements of Section 13 and 15(d) of the 1934 Act, it will not be required to disclose any material non-public information not otherwise required to be disclosed under applicable law and which has not at that time been disclosed) and the terms and conditions of the offering of the Securities, as provided in the Offering Memorandum. (ii) Integration. The Company agrees that it will not and will ----------- cause its Affiliates not to make any offer or sale of securities of the Company of any class if, as a result of the doctrine of "integration" referred to in Rule 502 under the 1933 Act, such offer or sale would render invalid (for the purpose of (i) the sale of the Securities by the Company to the Initial Purchasers, (ii) the resale of the Securities by the Initial Purchasers to Subsequent Purchasers or (iii) the resale of the Securities by such Subsequent Purchasers to others) the exemption from the registration requirements of the 1933 Act provided by Section 4(2) thereof or by Rule 144A or by Regulation S thereunder or otherwise. (iii) Rule 144A Information. The Company agrees that, in order to --------------------- render the Securities eligible for resale pursuant to Rule 144A under the 1933 Act, while any of the Securities remain outstanding, it will make available, upon request, to any holder of Securities or prospective purchasers of Securities the information specified in Rule 144A(d)(4), unless the Company furnishes information to the Commission pursuant to Section 13 or 15(d) of the 1934 Act (such information, whether made available to holders or prospective purchasers or furnished to the Commission, is herein referred to as "Additional Information"). (iv) Restriction on Repurchases. Until the expiration of two years -------------------------- after the original issuance of the Securities, the Company will not, and will cause its Affiliates not to, purchase or agree to purchase or otherwise acquire any Securities which are "restricted securities" (as such term is defined under Rule 144(a)(3) under the 1933 Act), whether as beneficial owner or otherwise, unless, immediately upon any such purchase, the Company or any Affiliate shall submit such Securities to the Trustee for cancellation. 22 (c) Resale Pursuant to Rule 903 of Regulation S or Rule 144A. Each Initial Purchaser understands that the Securities have not been and will not be registered under the 1933 Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S under the 1933 Act or pursuant to an exemption from the registration requirements of the 1933 Act. Each Initial Purchaser represents and agrees, that, except as permitted by Section 6(a) above, it has offered and sold Securities and will offer and sell Securities (i) as part of their distribution at any time and (ii) otherwise until expiration of the 40-day distribution compliance period specified in Rule 903(b)(2) of the 1933 Act (the commencement of the "distribution compliance period" to be determined in accordance with the definition of such term set forth in Rule 902 of Regulation S under the 1933 Act), only in accordance with Rule 903 of Regulation S or Rule 144A under the 1933 Act. Accordingly, neither the Initial Purchasers, their affiliates nor any persons acting on their behalf have engaged or will engage in any directed selling efforts with respect to Securities, and the Initial Purchasers, their affiliates and any person acting on their behalf have complied and will comply with the offering restriction requirements of Regulation S. Each Initial Purchaser agrees that, at or prior to confirmation of a sale of Securities (other than a sale of Securities pursuant to Rule 144A), it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Securities from it or through it during the distribution compliance period a confirmation or notice to substantially the following effect: "The Securities covered hereby have not been registered under the United States Securities Act of 1933 (the "Securities Act") and may not be offered or sold (i) as part of their distribution at any time and (ii) otherwise until forty days after the later of the date upon which the offering of the Securities commenced and the date of closing, except in either case in accordance with Regulation S or Rule 144A under the Securities Act. Terms used above have the meaning given to them by Regulation S." Terms used in the above paragraph have the meanings given to them by Regulation S. SECTION 7. Indemnification. --------------- (a) Indemnification of Initial Purchasers. The Company agrees to indemnify and hold harmless each Initial Purchaser and each person, if any, who controls any Initial Purchaser within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Offering Memorandum or the Final Offering Memorandum (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; 23 (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 7(d) below) any such settlement is effected with the written consent of the Company; and (iii) against any and all expense whatsoever, as incurred (including, subject to Section 7(c) hereof, the fees and disbursements of counsel chosen by Merrill Lynch), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above; provided, however, that this indemnity agreement shall not apply to any loss, - -------- ------- liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by any Initial Purchaser through Merrill Lynch expressly for use in the Offering Memorandum (or any amendment thereto). The foregoing indemnity with respect to any untrue statement contained in or any omission from the Preliminary Offering Memorandum shall not inure to the benefit of any Initial Purchaser (or any person controlling such Initial Purchaser) from whom the person asserting such loss, liability, claim, damage or expense purchased any of the Securities that are the subject thereof if (i) the untrue statement or omission contained in the Preliminary Offering Memorandum (excluding documents incorporated by reference, if any) was corrected in the Final Offering Memorandum; (ii) such person was not sent or given a copy of the Final Offering memorandum (excluding documents incorporated by reference, if any) which corrected the untrue statement or omission at or prior to the written confirmation of the sale of such Securities to such person; and (iii) the Company satisfied its obligation pursuant to Section 3(a) of this Agreement to provide a sufficient number of copies of the Final Offering Memorandum to the Initial Purchasers. (b) Indemnification of Company, Directors and Officers. Each Initial Purchaser severally agrees to indemnify and hold harmless the Company, its directors, each of its officers, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Offering Memorandum in reliance upon and in conformity with written information furnished to the Company by such Initial Purchaser through Merrill Lynch expressly for use in the Offering Memorandum. (c) Actions against Parties; Notification. Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against 24 it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. In the case of parties indemnified pursuant to Section 7(a) above, counsel to the indemnified parties shall be selected by Merrill Lynch, and, in the case of parties indemnified pursuant to Section 7(b) above, counsel to the indemnified parties shall be selected by the Company. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof with counsel satisfactory to such indemnified party; provided, however, that if the defendants in any such action -------- ------- include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be one or more legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnifying party shall not have the right to direct the defense of such action on behalf of such indemnified party or parties and such indemnified party or parties shall have the right to select separate counsel to defend such action on behalf of such indemnified party or parties. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances; after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof and approval by such indemnified party of counsel appointed to defend such action, the indemnifying party will not be liable to such indemnified party under this Section 7 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof, unless (i) the indemnified party shall have employed separate counsel in accordance with the provisos to the preceding sentence (it being understood, however, that in connection with such action the indemnifying party shall not be liable for the expenses of more than one separate counsel (in addition to local counsel) in any one action or separate but substantially similar actions in the same jurisdiction arising out of the same general allegations or circumstances, designated by the Initial Purchasers in the case of paragraph (a) of this Section 7, representing the indemnified parties under such paragraph (a) who are parties to such action or actions) or (ii) the indemnifying party does not promptly retain counsel satisfactory to the indemnified party or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. The indemnifying party will not be liable for the costs and expenses of any settlement of such action effected by such indemnified party without the consent of the indemnifying party. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 7 or Section 8 hereof (whether or not the indemnified parties are actual or 25 potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) Settlement without Consent if Failure to Reimburse. If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 7(a)(ii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. SECTION 8. Contribution. If the indemnification provided for in Section 7 ------------ hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Initial Purchasers on the other hand from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Initial Purchasers on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Initial Purchasers on the other hand in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company and the total underwriting discount received by the Initial Purchasers, bear to the aggregate initial offering price of the Securities. The relative fault of the Company on the one hand and the Initial Purchasers on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by the Initial Purchasers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 8 were determined by pro rata allocation (even if the Initial 26 Purchasers were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 8. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 8 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. Notwithstanding the provisions of this Section 8, no Initial Purchaser shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public as contemplated by this Agreement exceeds the amount of any damages which such Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 8, each person, if any, who controls an Initial Purchaser within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such Initial Purchaser, and each director of the Company, each officer of the Company, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company. The Initial Purchasers' respective obligations to contribute pursuant to this Section 8 are several in proportion to the principal amount of Securities set forth opposite their respective names in Schedule A hereto and not joint. SECTION 9. Representations, Warranties and Agreements to Survive Delivery. -------------------------------------------------------------- All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Initial Purchaser or controlling person, or by or on behalf of the Company, and shall survive delivery of the Securities to the Initial Purchasers. SECTION 10. Termination of Agreement. ------------------------ (a) Termination; General. The Representative(s) may terminate this Agreement, by notice to the Company, at any time at or prior to the Closing Time (i) if there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the Offering Memorandum, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its Subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the 27 United States or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of the Representative(s), impracticable to market the Securities or to enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Company has been suspended or limited by the Commission, or if trading generally on the American Stock Exchange or the New York Stock Exchange or on The Nasdaq National Market has been suspended or limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by such system or by order of the Commission, the National Association of Securities Dealers, Inc. or any other governmental authority, or (iv) if a banking moratorium has been declared by either Federal or New York authorities. (b) Liabilities. If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 1, 7 and 8 shall survive such termination and remain in full force and effect. SECTION 11. Default by One or More of the Initial Purchasers. If one or ------------------------------------------------ more of the Initial Purchasers shall fail at the Closing Time to purchase the Securities which it or they are obligated to purchase under this Agreement (the "Defaulted Securities"), the Representative(s) shall have the right, but not the obligation, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Initial Purchasers, or any other Initial Purchasers, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representative(s) shall not have completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Securities does not exceed 10% of the aggregate principal amount of the Securities to be purchased hereunder, each of the non-defaulting Initial Purchasers shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Initial Purchasers, or (b) if the number of Defaulted Securities exceeds 10% of the aggregate principal amount of the Securities to be purchased hereunder, this Agreement shall terminate without liability on the part of any non- defaulting Initial Purchaser. No action pursuant to this Section shall relieve any defaulting Initial Purchaser from liability in respect of its default. In the event of any such default which does not result in a termination of this Agreement, either the Representative(s) or the Company shall have the right to postpone the Closing Time for a period not exceeding seven days in order to effect any required changes in the Offering 28 Memorandum or in any other documents or arrangements. As used herein, the term "Initial Purchaser" includes any person substituted for an Initial Purchaser under this Section 11. SECTION 12. Notices. All notices and other communications hereunder shall ------- be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Initial Purchasers shall be directed to the Representative(s) at North Tower, World Financial Center, New York, New York 10281-1201, attention of Michael Senft; notices to the Company shall be directed to it at United Rentals, Inc., Four Greenwich Office Park, 3/rd/ Floor, Greenwich, CT 06830 attention of Bradley S. Jacobs, with copies to Oscar D. Folger, 521 Fifth Avenue, 24/th/ Floor, New York, New York 10175 and Joseph Ehrenreich, Ehrenreich Eilenberg Krause & Zivian LLP, 11 East 44th Street, New York, New York 10017. SECTION 13. Parties. This Agreement shall inure to the benefit of and be ------- binding upon the Initial Purchasers and the Company and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Initial Purchasers and the Company and their respective successors and the controlling persons and officers and directors referred to in Sections 7 and 8 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Initial Purchasers and the Company and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Initial Purchaser shall be deemed to be a successor by reason merely of such purchase. SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY ---------------------- AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME. SECTION 15. Effect of Headings. The Article and Section headings herein ------------------ and the Table of Contents are for convenience only and shall not affect the construction hereof. 29 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Initial Purchasers and the Company in accordance with its terms. Very truly yours, UNITED RENTALS, INC. By /s/ Michael J. Nolan -------------------------------- Name: MICHAEL J. NOLAN Title: CHIEF FINANCIAL OFFICER CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION GOLDMAN, SACHS & CO. SALOMON BROTHERS INC BANCAMERICA ROBERTSON STEPHENS By: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By __________________________________ Authorized Signatory For themselves and as Representative(s) of the other Initial Purchasers named in Schedule A hereto. If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Initial Purchasers and the Company in accordance with its terms. Very truly yours, UNITED RENTALS, INC. By ________________________________ Name: Title: CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION GOLDMAN, SACHS & CO. SALOMON BROTHERS INC BANCAMERICA ROBERTSON STEPHENS By: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By /s/ [SIGNATURE ILLEGIBLE]^^ ------------------------------ Authorized Signatory For themselves and as Representative(s) of the other Initial Purchasers named in Schedule A hereto. SCHEDULE A
Principal Amount of Name of Initial Purchaser Securities ------------------------- ---------- Merrill Lynch, Pierce, Fenner & Smith Incorporated.......................................... 110,000,000 Donaldson, Lufkin & Jenrette Securities Corporation............. 26,000,000 Goldman, Sachs & Co............................................. 26,000,000 Salomon Brothers Inc............................................ 26,000,000 BancAmerica Robertson Stephens.................................. 12,000,000 ----------- Total........................................................... 200,000,000 ===========
Sch A - 1 SCHEDULE B UNITED RENTALS, INC. $200 million aggregate principal amount of Senior Subordinated Notes due 2008 of United Rentals, Inc. 1. The initial offering price to investors of the Securities shall be prevailing market prices at the time of resale to be determined by the Initial Purchasers at the time of each sale. 2. The purchase price to be paid by the Initial Purchasers for the Securities shall be 97.25% of the principal amount thereof plus accrued interest, if any, from the date of issuance. 3. The interest rate on the Securities shall be 9 1/2% per annum. Sch B - 1 SCHEDULE C UNITED RENTALS, INC. Those corporations which are indented represent Subsidiaries of the corporation under which they are indented. Except as otherwise indicated, 100% of the voting stock of each of the Subsidiaries listed below is owned by its parent.
NAME OF SUBSIDIARY STATE OF ------------------ -------- INCORPORATION ------------- A&A Tool Rentals & Sales, Inc. California Access Rentals, Inc.* New York Archer Construction Equipment, Inc. (d/b/a Ace Equipment) North Carolina ASC Equipment Company, Inc. North Carolina BNR Equipment, Inc. New York Bronco Hi-Lift, Inc. Colorado C.C. Rentals, Inc. Nevada Coran Enterprises, Incorporated (d/b/a A-1 Rents) California Equipment Capital Corporation (d/b/a Owens Equipment) Colorado High Reach, Inc. Oregon Industrial Lift, Inc. New Jersey J&J Rental Services, Inc. Texas Mercer Equipment Company* North Carolina Equipment Rental & Sales of Monroe North Carolina Misco Rents, Inc. Indiana Mission Valley Rentals, Inc. California Nevada High Reach Equipment, Inc. Nevada Palmer Equipment Company, Inc. Michigan Pro Rentals, Inc. Washington Rent-It Center, Inc. Utah Rental Equipment, Inc. (d/b/a Able Equipment) California Rentals Unlimited, Incorporated Rhode Island River City Machinery Co., Inc. Texas Salt Lake Ford New Holland, Inc. Utah San Leandro Equipment Rental Service California Santa Fe Supply & Rental, Inc. Colorado United Rentals of Canada, Inc.* Ontario, Canada Access Lift Equipment, Inc. Ontario, Canada 1292655 Ontario, Inc. Ontario, Canada United Rentals of New England, Inc. Connecticut United Rentals of New York, Inc. New York United Rentals of Utah, Inc. Utah United Rents Et. Al., Inc. California Valley Rentals, Inc. Washington West Main Rentals and Sales, Inc. Oregon
"*" indicates Significant Subsidiary Sch C - 1 SCHEDULE D AGREEMENTS WITH AFFILIATES 1. Private Placement Purchase Agreements entered into with each officer of the Company in connection with the purchase by such officer of securities of the Company (as described in the Offering Memorandum under "Management Capital Contributions by officers and directors"). The form of this agreement is filed as an exhibit to the Company's Report on 10-K for the year ended December 31, 1997. 2. Amendments to the agreements referred to in paragraph 1 above (the form of which is filed as an Exhibit to the Company's Report on Form 10-Q for the quarter ended March 31, 1998). Sch D - 1 SCHEDULE E PERMITTED INDEBTEDNESS 1. The Company's Permitted Indebtedness as of the Closing Time consists of the following: a) Credit Facility $ 99,401,408 b) Equipment notes 9,117,052 c) Outstanding letter of credit 1,400,000 d) Due to seller obligations 3,374,866 e) Convertible note 275,000 -------------- $ 113,568,326 ============== Sch E - 1 Exhibit A FORM OF OPINION OF COMPANY'S COUNSEL TO BE DELIVERED PURSUANT TO SECTION 5(a) As to various questions of fact material to our opinion, we have relied upon the certificates of officers and upon certificates of public officials. With regard to the due incorporation of corpora-corporations (other than the Company) and the good standing of corporations (other than the Company), we have (subject to the next sentence) relied entirely upon certificates of public officials. With regard to the tax good standing of certain corporations (other than the Company), we have relied solely upon a certificate of an officer of such corporation to the effect that the corporation has filed the most recent annual report required by the law of such jurisdiction and that all franchise taxes required to be paid under such law have been paid. We have also examined such corporate documents and records and other certificates, and have made such investigations of law, as we have deemed necessary in order to render the opinion hereinafter set forth. We have assumed the authenticity of all documents submitted to us as originals, the genuineness of all signatures, the legal capacity of natural persons and the conformity to the originals of all documents submitted to us as copies. We have also assumed that all documents examined by us have been duly and validly authorized, executed and delivered by each of the parties thereto other than the Company. The opinions provided in Clause (viii) below, as they concern the Guarantors (other than those Guarantors incorporated in the State of New York), may be provided in reliance on the opinions of local counsel reasonably satisfactory to the Initial Purchasers, provided that such opinions of local ------------- counsel are also addressed to and may also be relied upon by the Initial Purchasers. We have reviewed such opinions provided by local counsel and, based upon such review, we believe that you are justified in relying thereon. (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware. (ii) The Company has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Offering Memorandum and to enter into and perform its obligations under the Purchase Agreement. (iii) The Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect. (iv) The authorized, issued and outstanding capital stock of the Company consists of 75,000,000 shares of Common Stock, $.01 par value $0.01 per share (the "Common Stock"), and 5,000,000 shares of preferred stock. As of the date hereof, there were no shares of preferred stock outstanding and 33, 761, 315 shares of Common Stock outstanding. The shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued and are fully A-1-1 paid and non-assessable; and none of the outstanding shares of capital stock of the Company was issued in violation of any preemptive or other similar rights of any security holder of the Company arising by statute or the Company's certificate of incorporation or by-laws or, to the best of our (after due inquiry), any other preemptive or other similar rights of any security holder of the Company. (v) Each Significant Subsidiary is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect. (vi) Each Significant Subsidiary has been duly incorporated and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Offering Memorandum. Except as otherwise disclosed in the Offering Memorandum and other than as contemplated by the Credit Agreement dated May 12, 1998, as amended, among the Company, United Rentals of Canada, Inc., Bank of America Canada, as Canadian Agent, and various financial institutions Bank of America National Trust and Savings Association, as U.S. Agent, all of the issued and outstanding capital stock of each Significant Subsidiary has been duly authorized and validly issued and is fully paid and non-assessable and, to the best of our knowledge, is owned by the Company, directly or through Subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity. None of the outstanding shares of capital stock of any Significant Subsidiary was issued in violation of the preemptive or similar rights of any security holder of such Significant Subsidiary arising pursuant to statute or such Subsidiary's certificate of incorporation or by-laws or, to the best of our knowledge, any other preemptive or other similar rights of any security holder of such Significant Subsidiary. (vii) The Purchase Agreement has been duly authorized, executed and delivered by the Company. (viii) The execution, delivery and performance of the Indenture, the Registration Rights Agreement and the Guarantees, and the consummation of the transactions contemplated thereby, have been duly authorized by all necessary corporate action on the part of each Guarantor. Each Guarantor has duly executed and delivered (i) the Indenture, (ii) the Registration Rights Agreement and (iii) the Guarantees relating to the Securities being issued on the date hereof that appear on or are attached to such Securities. (ix) The Notes Registration Rights Agreement has been duly authorized, executed and delivered by the Company, and constitutes a valid and binding agreement of the Company and each Guarantor, enforceable against the Company and each Guarantor in accordance with its terms except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or other similar laws relating to or affecting enforcement of creditors' rights generally, or by general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). A-1-2 (x) If any documents are incorporated by reference in the Offering Memorandum, such documents (other than the financial statements and supporting schedules therein, as to which no opinion need be rendered), when they were filed with the Commission, complied as to form in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission thereof. (xi) To the best of our knowledge, there is not pending or threatened any action, suit, proceeding, inquiry or investigation, to which the Company or any Subsidiary is a party, or to which the property or assets of the Company or any Subsidiary thereof is subject, before or brought by any court or governmental agency or body, domestic or foreign, which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the consummation of the transactions contemplated in the Purchase Agreement or the performance by the Company of its obligations thereunder or the transactions contemplated by the Offering Memorandum; (xii) The information in the Offering Memorandum under "Business Environmental Regulation," to the extent that it constitutes summaries of matters of law, has been reviewed by us and is correct in all material respects. Additionally, the information in the Offering Memorandum in the first sentence of the third paragraph under the caption "Exchange Offer; Registration Rights" is correct in all material respects. We have drawn your attention to the fact that (i) the interpretations of the Commission described in such sentence are contained solely in no-action letters issued by the Commission to various third parties, (ii) the Company has not requested a no-action letter from the Commission relating to the transactions contemplated by the Offering Memorandum and (iii) the Commission is not precluded from changing the interpretations set forth in such no-action letters or from not following such interpretations with respect to the transactions contemplated by the Offering Memorandum. The statements set forth in the Offering Memorandum under the caption "Exchange Offer; Registration Rights," insofar as they purport to constitute a summary of the terms of the Notes, the Guarantees, and the Notes Registration Rights Agreement, are accurate summaries in all respects of such terms. (xiii) To the best of our knowledge (after due inquiry), neither the Company nor any Subsidiary is in violation of its charter or by-laws. (xiv) To the best of our knowledge, neither the Company nor any Subsidiary thereof is in default in the due performance or observance of, or is in violation of, any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument that is described or referred to in the Offering Memorandum or incorporated by reference therein which violations or defaults are required to be described in the Offering Memorandum and are not so described or would, individually or in the aggregate, have a Material Adverse Effect or effect the validity of the Securities or the Guarantees. (xv) No filing (except for filings under the 1933 Act and 1939 Act pursuant to the Notes Registration Rights Agreement), authorization, approval, consent or order of any court or governmental authority or agency (other than such as may be required under the applicable securities laws of the various jurisdictions in which the Securities will be offered or sold, as to which we need express no opinion) is required by the Company in connection with the due authorization, execution A-1-3 and delivery of the Purchase Agreement or by the Company or any Guarantor in connection with the due authorization, execution, delivery or performance of the Indenture or the Notes Registration Rights Agreement or in connection with the offering, issuance, sale or delivery of the Securities and the Guarantees, as applicable, to the Initial Purchasers or the resale thereof by the Initial Purchasers in accordance with the Purchase Agreement. (xvi) Assuming persons to whom sales are purported to be made under Regulation S of the 1933 Act ("Regulation S") are not in fact "U.S. persons" (as defined in Rule 902 of Regulation S), it is not necessary in connection with the offer, sale and delivery of the Securities to the Initial Purchasers and to each Subsequent Purchaser in the manner contemplated by the Purchase Agreement and the Offering Memorandum to register the Securities under the 1933 Act or to qualify the Indenture under the 1939 Act. (xvii) The execution, delivery and performance of the Purchase Agreement, the DTC Agreement, the Indenture, the Notes Registration Rights Agreement, the Notes, the Guarantees and the consummation of the transactions contemplated in the Purchase Agreement and in the Offering Memorandum (including the use of a portion of the proceeds from the sale of the Securities to repay indebtedness as described in the Offering Memorandum under the caption "Use Of Proceeds") and compliance by the Company and each Guarantor, as applicable, with its obligations under the Purchase Agreement, the Indenture, the Notes Registration Rights Agreement, the Notes and the Guarantees, (A) after reasonable investigation, do not and will not (subject to the next sentence), whether with or without the giving of notice or lapse of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined in Section 1(a)(xvii) of the Purchase Agreement) under or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any Subsidiary thereof pursuant to any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or any other agreement or instrument, known to us, to which the Company or any of its Subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any Subsidiary is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any Subsidiary is subject (except for such conflicts, breaches or defaults, Repayment Events or liens, charges or encumbrances that would not have a Material Adverse Effect), (B) result in any violation of the provisions of the charter or by-laws of the Company or any Subsidiary, or (C) to the best of our knowledge (after due inquiry), result in any violation of the provisions of any applicable law, statute, rule or regulation of the United States of America or included in the Delaware General Corporate Law (except we express no opinion as to "blue sky" laws), judgment, order, writ or decree, known to us, of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any Subsidiary or any of their respective properties, assets or operations. No opinion is rendered pursuant to clause A of the preceding sentence with respect to the Credit Agreement (or any agreement or instrument entered into or executed by the Company or any Subsidiary pursuant to the Credit Agreement or as contemplated thereby). (xviii) Neither the Company nor any Subsidiary which is a Guarantor is an "investment company" or an entity "controlled" by an "investment company," as such terms are defined in the 1940 Act. A-1-4 In addition, we have participated in conferences with officers and representatives of the Company, counsel to the Initial Purchasers, representatives of the independent accountants for the Company and the Initial Purchasers at which the contents of the Offering Memorandum and related matters were discussed. Although we have not undertaken, except as otherwise indicated in this opinion, to investigate or verify independently, and do not assume responsibility for, the accuracy, completeness or fairness of the statements contained in the Offering Memorandum, on the basis of the information that we gained in the course of the performance of such services and our representation of the Company, we confirm to you that nothing that came to our attention in the course of such review or representation has caused us to believe that (i) the Offering Memorandum (except for financial statements and schedules and other financial data included or incorporated by reference therein, if any, as to which we make no statement), contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Offering Memorandum or any amendment or supplement thereto (except for financial statements and schedules and other financial data included or incorporated by reference therein, if any, as to which such counsel need make no statement), at the time the Offering Memorandum was issued, at the time any such amended or supplemented Offering Memorandum was issued or at the Closing Time, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading or (ii) that there are any franchise agreements, indentures, mortgages, loan agreements, notes, leases or other contracts or instruments required to be described or referred to in the Offering Memorandum that are not described or referred to in the Offering Memorandum or that any descriptions of or references to any of the foregoing are not correct in all material respects (except that we express no view with respect to the descriptions of the Notes, the Indenture or the Credit Agreement contained in the Offering Memorandum). In rendering such opinion, such counsel may rely, as to matters of fact (but not as to legal conclusions), to the extent they deem proper, on certificates of responsible officers of the Company and public officials. Such opinion shall not state that it is to be governed or qualified by, or that it is otherwise subject to, any treatise, written policy or other document relating to legal opinions, including, without limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991). Such counsel may in addition rely, as to all matters governed by the laws of jurisdictions other than the law of the State of New York, the federal law of the United States and the General Corporation Law of the State of Delaware, upon the opinions of counsel reasonably satisfactory to counsel to the Initial Purchasers. A-1-5 Exhibit A-2 FORM OF OPINION OF COMPANY'S COUNSEL TO BE DELIVERED PURSUANT TO SECTION 5(a) 1. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as described in the Offering Memorandum and to enter into and perform its obligations under the Purchase Agreement. 2. The Securities are in the form contemplated by the Indenture. The Securities have been duly authorized by all necessary corporate action on the part of the Company and, when executed by the Company, authenticated by the Trustee, and issued and delivered in the manner provided in the Purchase Agreement and the Indenture against payment of the consideration therefor, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, 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), and will be entitled to the benefits of the Indenture. 3. The Guarantees are in the form contemplated by the Indenture. Assuming the Guarantees have been duly authorized, executed and delivered on the part of each Guarantor, the Guarantees will constitute a valid and binding obligation of each such Guarantor, enforceable against each such Guarantor in accordance with their terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, 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), and will be entitled to the benefits of the Indenture. 4. The execution, delivery and performance of the Purchase Agreement by the Company have been duly authorized by all necessary corporate action on the part of the Company. The Purchase Agreement has been duly and validly executed and delivered by the Company. 5. The execution, delivery and performance of the Indenture by the Company has been duly authorized by all necessary corporate action on the part of the Company. The Indenture has been duly and validly executed and delivered by the Company. Assuming the due authorization, execution and delivery of the Indenture by each Guarantor and assuming the due authorization, execution and delivery thereof by the Trustee, the Indenture constitutes the legal, valid and binding obligation of the Company and each such Guarantor, enforceable against the Company and each such Guarantor in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of A-2-1 commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). 6. The execution, delivery and performance of the Notes Registration Rights Agreement by the Company has been duly authorized by all necessary corporate action on the part of the Company. The Notes Registration Rights Agreement has been duly and validly executed and delivered by the Company. Assuming the due authorization, execution and delivery thereof by the Guarantors, and assuming the due authorization, execution and delivery thereof by the Initial Purchasers, the Notes Registration Statement constitutes the legal, valid and binding obligation of the Company and each such Guarantor, enforceable against the Company and each such Guarantor in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, 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) and except that rights to indemnification and contribution thereunder may be limited by federal or state securities laws or public policy relating thereto. 7. The Exchange Notes, when duly executed by the Company, authenticated by the Trustee, and issued and delivered in accordance with and in the manner provided in the Notes Registration Rights Agreement and the Indenture, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, 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), and will be entitled to the benefits of the Indenture. 8. The statements contained in the Offering Memorandum under the captions "Offering Memorandum Summary B The Offering", "Description of the Notes", "Exchange Offer; Registration Rights", "Certain United States Federal Income Tax Considerations" and the description of the Credit Agreement under the second paragraph of "Use of Proceeds", in the second, third and fifth paragraphs under "Management's Discussion and Analysis of Financial Condition and Results of Operations B Liquidity and Capital Resources", insofar as they purport to describe provisions of the Indenture, the Notes, the Guarantees, the Notes Registration Rights Agreement and the Credit Agreement, or matters of federal or New York law, constitute a fair and accurate summary thereof in all material respects. We have drawn your attention to the fact that (i) the interpretations of the Commission described in such sentence are contained solely in no-action letters issued by the Commission to various third parties, (ii) the Company has not requested a no-action letter from the Commission relating to the transactions contemplated by the Offering Memorandum and (iii) the Commission is not precluded from changing the interpretations set forth in such no-action letters or from not following such interpretations with respect to the transactions contemplated by the Offering Memorandum. 9. No consent, approval, waiver, license or authorization or other action by or filing with any New York, Delaware corporate or federal governmental authority is required in connection with the execution and delivery by the Company of the Purchase Agreement or the consummation by A-2-2 the Company or any Guarantor of the transactions contemplated thereby, except for filings and other actions required under or pursuant to the 1933 Act, the 1934 Act, the 1939 Act and other federal or state securities or "blue sky" laws and the rules of the New York Stock Exchange, as to which we express no opinion. 10. Assuming (a) the accuracy of the representations and warranties of the Initial Purchasers contained in Sections 2(c), 6(a) and 6(c) of the Purchase Agreement and (b) compliance by the Initial Purchasers with their covenants and agreements set forth in the Purchase Agreement, it is not necessary in connection with the offer, sale and delivery of the Securities to the Initial Purchasers pursuant to the Purchase Agreement or the initial resales of the Securities by the Initial Purchasers in the manner contemplated by and in accordance with the Purchase Agreement to register the Securities under the 1933 Act or to qualify the Indenture under the 1939 Act, it being understood that we express no opinion as to any subsequent resale of the Securities. 11. The Company is not an "investment company" nor an entity "controlled" by an "investment company ," as such terms are defined in the 1940 Act. 12. The execution and delivery of the Purchase Agreement, the Indenture, the Notes Registration Rights Agreement, the Notes and the Guarantees, the consummation of the transactions contemplated thereby and compliance by the Company and the Guarantors with the provisions thereof, do not and will not, whether with or without the giving of notice or lapse of time or both, conflict with or constitute a breach of, or a default or Repayment Event (as defined in Section 1(a) (xvii) of the Purchase Agreement) under or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any Subsidiary thereof pursuant to the Credit Agreement (or any agreement or instrument entered into or executed by the Company or any Subsidiary pursuant to the Credit Agreement or as contemplated thereby). We have participated in conferences with officers and other representatives of the Company and representatives of the independent public accountants for the Company in connection with the preparation of the Offering Memorandum and although we have not independently verified and are not passing upon and assume no responsibility for the accuracy, completeness or fairness of the statements contained in the Offering Memorandum (except to the extent specified in paragraph 8 above) no facts have come to our attention which lead us to believe that the Offering Memorandum, at any time from the date thereof through the Closing Time, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading (it being understood that we express no view with respect to the financial statements and related notes and the other financial and accounting data included in the Offering Memorandum). In rendering this opinion, we have relied, as to all matters governed by the laws of jurisdictions other than the law of the State of New York, the federal law of the United States and the General Corporation Law of the State of Delaware, upon the opinions of counsel reasonably satisfactory to counsel to the Initial Purchasers. A-2-3 Exhibit B FORM OF ACCOUNTANTS' COMFORT LETTER PURSUANT TO SECTION 5(d) (i) We are independent public accountants with respect to the Company/1/ within the meaning of the 1933 Act and the applicable published 1933 Act Regulations. (ii) In our opinion, the financial statements audited by us and the related financial statement schedules included in the Offering Memorandum comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the published rules and regulations thereunder. (iii)/2/ On the basis of procedures (but not an examination in accordance with generally accepted auditing standards) consisting of a reading of the unaudited interim financial statements of the Company for the _____ month periods ended _____________, 1996 and ______________, 1997, (collectively, the "Quarterly Financials"), a reading of the latest available unaudited interim financial statements of the Company, a reading of the minutes of all meetings of the stockholders and directors of the Company and the _________________ and __________________ Committees of the Board of Directors of the Company since _____, 1997/3/, inquiries of certain officials of the Company responsible for financial and accounting matters, a review of interim financial information in accordance with standards established by the American Institute of Certified Public Accountants in Statement on Auditing Standards No. 71, Interim Financial Information ("SAS 71"), with respect to the Quarterly Financials and such other inquiries and procedures as may be specified in such letter, nothing came to our attention that caused us to believe that: (A) the Quarterly Financials included in the Offering Memorandum do not comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the 1933 Act Regulations or any material modifications should be made to the unaudited financial statements included in the Offering Memorandum for them to be in conformity with generally accepted accounting principles; ______________________ /1/ As used in this Annex A, the "Company" refers to United Rentals, Inc. or any of its Subsidiaries, the respective financial statements of which have been prepared by the accounting firm rendering the comfort letter. /2/ Paragraph (iii) should be included for those comfort letters addressing financial statements that include unaudited interim information. /3/ Insert date that is one day after the end of the last audit period. B-1 (B) at _______, 199__/4/ and at a specified date not more than five days/5/ prior to the date of this Agreement, there was any change in the shareholder's equity of the Company or any decrease in the assets of the Company or any increase in the liabilities of the Company in each case as compared with amounts shown in the latest balance sheet of the Company included in the Offering Memorandum, except in each case for changes, decreases or increases that the Offering Memorandum discloses have occurred or may occur; or (C) for the period from _________, 19___ to _________, 19___ and/6/ for the period from _________, 19___ to a specified date not more than five days prior to the date of this Agreement, there was any decrease in the cash and cash equivalents, net rental equipment, total assets, debt or stockholders' equity in each case as compared with the comparable period in the preceding year, except in each case for any decreases that the Offering Memorandum discloses have occurred or may occur. (iv) Based upon the procedures set forth in clause (ii) above and a reading of the Selected Financial Data included in the Offering Memorandum and a reading of the financial statements from which such data were derived, nothing came to our attention that caused us to believe that the Selected Financial Data included in the Offering Memorandum do not comply as to form in all material respects with the disclosure requirements of Item 301 of Regulation S-K of the 1933 Act, that the amounts included in the Selected Financial Data are not in agreement with the corresponding amounts in the audited financial statements for the respective periods or that the financial statements not included in the Offering Memorandum from which certain of such data were derived are not in conformity with generally accepted accounting principles. [(v) We have compared the information in the Offering Memorandum under selected captions with the disclosure requirements of Regulation S-K of the 1933 Act and on the basis of limited procedures specified herein nothing came to our attention that caused ______________________ /4/ Insert the date of most recent balance sheet of the Company, if those statements are more recent than the unaudited interim financial statements included in the Registration Statement. /5/ The specified date should be five calendar days prior to the date of the Underwriting Agreement. /6/ Insert dates to describe the period from the date of the most recent financial statements in the Registration Statement to the date of the most recent unaudited interim financial statements of the Company, if those dates are different. Regardless of whether this language is inserted or not, the period including five days prior to the date of the Underwriting Agreement should run from the date of the last financial statement included in the Registration Statement, not from the later one that is not included in the Registration Statement. B-2 us to believe that this information does not comply as to form in all material respects with the disclosure requirements of Items 302, 402 and 503(d), respectively, of Regulation S-K.] (vi) Based upon the procedures set forth in clause (iii) above, a reading of the unaudited financial statements of the Company for the most recent period that have not been included in the Prospectus and a review of such financial statements in accordance with SAS 71, nothing came to our attention that caused us to believe that the unaudited amounts for the most recent period do not agree with the amounts set forth in the unaudited financial statements for those periods or that such unaudited amounts were not determined on a basis substantially consistent with that of the corresponding amounts in the audited financial statements. (vii) We are unable to and do not express any opinion on the Pro Forma Consolidated Financial Statements (the "Pro Forma Statement") included in the Offering Memorandum or on the pro forma adjustments applied to the historical amounts included in the Pro Forma Statement; however, for purposes of this letter we have: (A) read the Pro Forma Statement; (B) performed an audit of the financial statements to which the pro forma adjustments were applied; (C) made inquiries of certain officials of the Company who have responsibility for financial and accounting matters about the basis for their determination of the pro forma adjustments and whether the Pro Forma Statement complies as to form in all material respects with the applicable accounting requirements of Rule 11-02 of Regulation S-X; and (D) proved the arithmetic accuracy of the application of the pro forma adjustments to the historical amounts in the Pro Forma Statement; and on the basis of such procedures and such other inquiries and procedures as specified herein, nothing came to our attention that caused us to believe that (i) the Pro Forma Statement included in the Offering Memorandum does not comply as to form in all material respects with the applicable requirements of Rule 11-02 of Regulation S-X or (ii) the pro forma adjustments have not been properly applied to the historical amounts in the compilation of those statements. (viii) In addition to the procedures referred to in clause (iii) above, we have performed other procedures, not constituting an audit, with respect to certain amounts, percentages, numerical data and financial information appearing in the Offering Memorandum, which are specified herein, and have compared certain of such items with, and have found such items to be in agreement with, the accounting and financial records of the Company. B-3 EX-10.CC 7 TERM LOAN AGREEMENT DATED 7-10-98 ================================================================================ TERM LOAN AGREEMENT dated as of July 10, 1998 among UNITED RENTALS, INC., VARIOUS FINANCIAL INSTITUTIONS and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent Arranged by BANCAMERICA ROBERTSON STEPHENS ================================================================================ TABLE OF CONTENTS
Page SECTION 1 DEFINITIONS, ETC.................................................................................... -1- 1.1 Definitions.......................................................................................... -1- 1.2 Other Interpretive Provisions........................................................................ -12- SECTION 2 COMMITMENT TO LEND; TRANCHES OF LOANS............................................................... -13- 2.1 Term Loans........................................................................................... -13- 2.2 Borrowing Procedure.................................................................................. -13- 2.3 Conversion and Continuation Procedures............................................................... -14- 2.4 Pro Rata Treatment................................................................................... -15- 2.5 Commitments Several.................................................................................. -15- SECTION 3 NOTES EVIDENCING LOANS.............................................................................. -15- SECTION 4 INTEREST............................................................................................ -15- 4.1 Interest Rates....................................................................................... -15- 4.2 Interest Payment Dates............................................................................... -15- 4.3 Setting and Notice of Certain Rates.................................................................. -16- 4.4 Computation of Interest.............................................................................. -16- SECTION 5 FEES................................................................................................ -17- 5.1 Closing Fees......................................................................................... -17- 5.2 Arrangement and Agent's Fees......................................................................... -17- SECTION 6 PREPAYMENTS......................................................................................... -17- 6.1 The Company.......................................................................................... -17- SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES..................................................... -17- 7.1 Making of Payments................................................................................... -17- 7.2 Due Date Extension................................................................................... -18- 7.3 Setoff............................................................................................... -18- 7.4 Proration of Payments................................................................................ -18- 7.5 Taxes................................................................................................ -18- SECTION 8 INCREASED COSTS; SPECIAL PROVISIONS FOR EURODOLLAR TRANCHES......................................... -19- 8.1 Increased Costs...................................................................................... -19- 8.2 Basis for Determining Interest Rate Inadequate or Unfair............................................. -21- 8.3 Changes in Law Rendering Eurodollar Lending Unlawful................................................. -21- 8.4 Funding Losses....................................................................................... -22-
-i- 8.5 Right of Lenders to Fund through Other Offices...................................................... -22- 8.6 Discretion of Lenders as to Manner of Funding....................................................... -22- 8.7 Mitigation of Circumstances; Replacement of Affected Lender......................................... -22- 8.8 Conclusiveness of Statements, Survival of Provisions................................................ -23- SECTION 9 WARRANTIES.......................................................................................... -23- 9.1 Organization, etc................................................................................... -23- 9.2 Authorization; No Conflict.......................................................................... -23- 9.3 Validity and Binding Nature......................................................................... -24- 9.4 Information......................................................................................... -24- 9.5 No Material Adverse Change.......................................................................... -24- 9.6 Litigation and Contingent Liabilities............................................................... -25- 9.7 Ownership of Properties; Liens...................................................................... -25- 9.8 Subsidiaries........................................................................................ -25- 9.9 Pension and Welfare Plans........................................................................... -25- 9.10 Investment Company Act............................................................................. -26- 9.11 Public Utility Holding Company Act................................................................. -26- 9.12 Regulation U....................................................................................... -26- 9.13 Taxes.............................................................................................. -26- 9.14 Solvency, etc...................................................................................... -26- 9.15 Environmental Matters.............................................................................. -26- 9.16 Year 2000 Problem.................................................................................. -27- 9.17 Senior Debt........................................................................................ -27- SECTION 10 COVENANTS.......................................................................................... -27- 10.1 Reports, Certificates and Other Information......................................................... -27- 10.1.1 Audit Report............................................................................. -27- 10.1.2 Quarterly Reports........................................................................ -27- 10.1.3 Compliance Certificates.................................................................. -28- 10.1.4 Reports to SEC and to Shareholders....................................................... -28- 10.1.5 Notice of Default, Litigation and ERISA Matters.......................................... -28- 10.1.6 Subsidiaries............................................................................. -29- 10.1.7 Management Reports....................................................................... -29- 10.1.8 Projections.............................................................................. -29- 10.1.9. Other Information........................................................................ -29- 10.2 Books, Records and Inspections..................................................................... -29- 10.3 Insurance.......................................................................................... -30- 10.4 Compliance with Laws, Payment of Taxes and Liabilities............................................. -3O- 10.5 Maintenance of Existence, etc...................................................................... -30- 10.6 Financial Covenants................................................................................ -30- 10.6.1 Minimum Net Worth......................................................................... -30- 10.6.2 Maximum Leverage.......................................................................... -30- 10.6.3 Minimum Interest Coverage Ratio........................................................... -30- 10.6.4 Funded Debt to Cash Flow Ratio............................................................ -31- 10.6.5 Senior Debt to Tangible Assets............................................................ -31-
-ii- 10.6.6 Senior Debt to Cash Flow Ratio............................................................ -31- 10.7 Limitations on Debt............................................................................... -31- 10.8 Liens............................................................................................. -32- 10.9 Asset Sales....................................................................................... -33- 10.10 Restricted Payments............................................................................... -33- 10.11 Mergers, Consolidations, Amalgamations, Sales..................................................... -34- 10.12 Modification of Certain Documents................................................................. -34- 10.13 Use of Proceeds................................................................................... -34- 10.14 Further Assurances................................................................................ -35- 10.15 Transactions with Affiliates...................................................................... -35- 10.16 Employee Benefit Plans............................................................................ -35- 10.17 Environmental Laws................................................................................ -35- 10.18 Unconditional Purchase Obligations................................................................ -35- 10.19 Inconsistent Agreements........................................................................... -36- 10.20 Business Activities............................................................................... -36- 10.21 Advances and Other Investments.................................................................... -36- 10.22 Location of Assets................................................................................ -37- 10.23 Activities of Parent.............................................................................. -37- SECTION 11 CONDITIONS OF LENDING.............................................................................. -37- 11.1 Notes............................................................................................. -38- 11.2 Resolutions....................................................................................... -38- 11.3 Consents, etc..................................................................................... -38- 11.4 Incumbency and Signature Certificates............................................................. -38- 11.5 U.S. Guaranty..................................................................................... -38- 11.6 U.S. Security Agreement........................................................................... -38- 11.7 Pledge Agreements................................................................................. -38- 11.8 Opinions of Counsel for the Company............................................................... -39- 11.9 Intercreditor Agreement........................................................................... -39- 11.10.................................................................................................... -39- 11.11 Confirmatory Certificate.......................................................................... -39- 11.12 Other............................................................................................. -39- SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT................................................................. -39- 12.1 Events of Default................................................................................... -39- 12.1.1 Non-Payment of the Loans, etc............................................................. -39- 12.1.2 Non-Payment of Other Debt................................................................. -39- 12.1.3 Other Material Obligations................................................................ -39- 12.1.4 Bankruptcy, Insolvency, etc............................................................... -40- 12.1.5 Non-Compliance with Provisions of This Agreement.......................................... -40- 12.1.6 Warranties................................................................................ -40- 12.1.7 Pension Plans............................................................................. -40- 12.1.8 Judgments................................................................................. -40-
-iii- 12.1.9 Invalidity of U.S. Guaranty, etc.......................................................... -41- 11.1.O Invalidity of Collateral Documents, etc................................................... -41- 12.1.11 Change in Control........................................................................ -41- 12.1.12 Invalidity of Parent Guaranty, etc....................................................... -41- 12.2 Effect of Event of Default.......................................................................... -42- SECTION 13 THE AGENT.......................................................................................... -42- 13.1 Appointment and Authorization...................................................................... -42- 13.2 Delegation of Duties............................................................................... -42- 13.3 Liability of Agent................................................................................. -42- 13.4 Reliance by Agents................................................................................. -43- 13.5 Notice of Default.................................................................................. -43- 13.6 Credit Decision.................................................................................... -43- 13.7 Indemnification.................................................................................... -44- 13.8 Agent in Individual Capacity....................................................................... -45- 13.9 Successor Agent; Assignment of Agency.............................................................. -45- 13.10 Withholding Tax.................................................................................... -45- SECTION 14 GENERAL............................................................................................ -47- 14.1 Waiver; Amendments................................................................................. -47- 14.2 Confirmations...................................................................................... -48- 14.3 Notices............................................................................................ -48- 14.4 Computations....................................................................................... -48- 14.5 Regulation U....................................................................................... -49- 14.6 Costs, Expenses and Taxes.......................................................................... -49- 14.7 Judgment........................................................................................... -49- 14.8 Captions........................................................................................... -50- 14.9 Assignments; Participations........................................................................ -50- 14.9.1 Assignments............................................................................... -50- 14.9.2 Participations............................................................................ -51- 14.10 Governing Law.................................................................................... -52- 14.11 Counterparts..................................................................................... -52- 14.12 Successors and Assigns........................................................................... -52- 14.13 Indemnification by the Company................................................................... -52- 14.14 Forum Selection and Consent to Jurisdiction...................................................... -53- 14.15 Waiver of Jury Trial............................................................................. -53- 14.16 Authorization of Certain Documents............................................................... -54-
-iv- SCHEDULE 1.1(A) Lenders and Initial Percentages SCHEDULE 1.1(B) 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 14.3 Addresses for Notices EXHIBIT A Form of Note (Section 3.1) EXHIBIT B Form of Compliance Certificate (Section 10. 1.4) EXHIBIT C Form of Restated U.S. Guaranty (Section 1) EXHIBIT D Form of Restated U.S. Security Agreement (Section 1) EXHIBIT E Form of Restated 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) EXHIBIT I Form of Intercreditor Agreement (Section 11.1.9) EXHIBIT J Form of Exemption Certificate (Section 13.10) -v- TERM LOAN AGREEMENT ------------------- This TERM LOAN AGREEMENT dated as of July 10, 1998 (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 "Lenders"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (in its ------- individual capacity, "BofA"), as Agent. ---- WHEREAS, the Lenders have agreed to extend term loans to the Company in an aggregate amount equal to U.S.$250,000,000; NOW, THEREFORE, in consideration of the mutual agreements contained herein, 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 Lender means any Lender that has given notice to the Company --------------- (which has not been rescinded) of (i) any obligation of the Company to pay any amount pursuant to Section 7.5 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 Lenders hereunder ----- and any successor thereto in such capacity. Agent-Related Persons means the Agent and any successor thereto in --------------------- such capacity hereunder, together with their respective Affiliates (including the Arranger) and the officers, directors, employees, agents and attorneys-in- fact of such Persons and Affiliates. Agreement - see the Preamble. --------- -------- Arranger means BancAmerica Robertson Stephens, a Delaware corporation. -------- Assignment Agreement - see Section 14.9.1. -------------------- -------------- Base Rate means at any time the greater of (a) the Federal Funds Rate --------- plus 0.5% and (b) the Reference Rate. -1- Base Rate Tranche means any Tranche which bears interest at or by ----------------- reference to the Base Rate. 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 Tranche, on which dealings are carried on in the applicable offshore U.S. Dollar interbank market. Canadian Subsidiary means any Subsidiary of the Company which is ------------------- organized under the federal or provincial laws of Canada and which carries on its business primarily in Canada. 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" under and as defined in the Credit Agreement or a Lender or its holding company for such a "Bank" or a Lender (any such Person a "Permitted Bank")) rated at least A-1 by Standard & Poor's Ratings Group or P-1 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 any Permitted Bank or 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 U.S.$500,000,000, (d) any repurchase agreement entered into with any Permitted 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 Permitted Bank (or other commercial banking institution) thereunder and (e) investments in short-term asset management accounts offered by any Permitted Bank for the purpose of investing in loans to any corporation (other than Parent or an Affiliate of Parent), state or municipality, in each case organized under the laws of any state of the United States or of the District of Columbia. Cash Flow means, as of the last day of any Fiscal Quarter, --------- Consolidated Net Income for the period of four Fiscal Quarters ending on such day plus, to the extent deducted in determining such Consolidated Net Income, ---- Interest Expense, income tax expense, depreciation and -2- amortization for such period, all calculated on a pro forma basis in accordance --- ----- with Article 11 of Regulation S-X of the SEC. Closing Date means the date the Loans are made hereunder. ------------ Code means the Internal Revenue Code of 1986. ---- Collateral Agent means BofA in its capacity as Collateral Agent under ---------------- the Intercreditor Agreement and any successor thereto in such capacity. Collateral Documents means the Company Pledge Agreement, each -------------------- Subsidiary Pledge Agreement, the U.S. Security Agreement, and any other agreement pursuant to which the Company or any Subsidiary grants a Lien on collateral to the Collateral Agent. Company - see the Preamble. ------- -------- Company Pledge Agreement means the Restated Company Pledge Agreement ------------------------ dated as of July 10, 1998 between the Company and the Collateral Agent substantially in the form of Exhibit E. --------- Computation Period means each of the following periods: (i) the period ------------------ of two Fiscal Quarters ended June 30, 1998; (ii) the period of three Fiscal Quarters ending September 30, 1998; and (iii) 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 Parent and its ----------------------- Subsidiaries for any period, the net income (or loss) of Parent 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); -3- (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 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 Parent, are treated as a single employer under Section 414 of the Code or Section 4001 of ERISA. Credit Agreement means the Third Amended and Restated Credit Agreement ---------------- dated as of May 12, 1998 among the Company, UR Canada, various financial institutions, Bank of America Canada, as Canadian Agent, and BofA, as U.S. Agent. 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, (f) net liabilities of such Person under all Hedging Obligations and (g) all Suretyship Liabilities of such Person. Dollar Equivalent means, at any time, (a) as to any amount denominated ----------------- in U.S. Dollars, the amount thereof at such time, and (b) as to any amount denominated in any other currency, the equivalent amount in U.S. Dollars as determined by the Agent at such time on the basis of the Spot Rate for the purchase of U.S. Dollars with such currency. 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. -4- Environmental Laws means all federal, state, provincial 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. ----- Eurodollar Tranche means any Tranche which bears interest at a rate ------------------ determined by reference to the Eurodollar Rate. Eurodollar Office means, with respect to any Lender, the office or ----------------- offices of such Lender which shall be making or maintaining a Eurodollar Tranche of such Lender hereunder or such office or offices through which the Agent determines the Eurodollar Rate. A Eurodollar Office of any Lender may be, at the option of such Lender, either a domestic or foreign office. Eurodollar Rate means, with respect to any Eurodollar Tranche for any --------------- Interest Period, the rate of interest per annum (rounded upward, if necessary, to the next 1/16th of 1%) determined by the Agent as follows: Eurodollar Rate = IBOR _______________________________________ 1.00 - Eurodollar Reserve Percentage where, Eurodollar Reserve Percentage means, for any day for any ----------------------------- Interest Period, a percentage (expressed as a decimal, rounded upward, if necessary, to an integral multiple of 1/100th of 1%) in effect on such day under regulations issued from time to time by the FRB for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities"); and IBOR means the rate per annum determined by the Agent to be ---- the arithmetic mean of the rates of interest per annum notified to the Agent by each Reference Lender as the rate of interest at which deposits in U.S. Dollars in immediately available funds are offered by the Eurodollar Office of such Reference Lender two Business Days prior to the beginning of such Interest Period to 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 such Reference Lender for such Interest Period. -5- Event of Default means any of the events described in Section 12.1. ---------------- ------------ Federal Funds Rate means, for any day, the rate set forth in the ------------------ weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Bank of New York (including any such successor publication, "H.15(519)") on the preceding Business Day opposite the caption "Federal Funds (Effective)"; or, if for any relevant day such rate is not so published on any such preceding Business Day, the rate for such day will be the arithmetic mean as determined by the Agent of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Agent. Fiscal Ouarter means a fiscal quarter of a Fiscal Year. -------------- Fiscal Year means the fiscal year of Parent 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. Fixed Rate Margin - see Schedule I.I(B). ----------------- --------------- Floating Rate Margin - see Schedule I.I(B). -------------------- --------------- Foreign Subsidiary means each Subsidiary of the Company which is ------------------ organized under the laws of any jurisdiction other than, and which is conducting the majority of its business outside of, the United States or any state thereof. FRB means the Board of Governors of the Federal Reserve System, and --- any governmental authority succeeding to any of its principal functions. Funded Debt means all Debt of Parent and its Subsidiaries, excluding ----------- (i) contingent obligations in respect of undrawn letters of credit and Suretyship Liabilities (except to the extent constituting contingent obligations or Suretyship Liabilities in respect of Funded Debt of a Person other than Parent or any Subsidiary), (ii) Hedging Obligations, (iii) Debt of the Company to Subsidiaries and Debt of Subsidiaries to the Company or to other Subsidiaries and (iv) Debt (including guaranties thereof) in respect of the QuIPS Debentures and the QuIPS Preferred Securities. Funded Debt to Cash Flow Ratio means, as of the last day of any Fiscal ------------------------------ Quarter, the ratio of (i) Funded Debt as of such day to (ii) Cash Flow as of such day. 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 -6- 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 means a group of Tranches of the same Type and, in the case of ----- Eurodollar Tranches, which have the same Interest Period. 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 Parent 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 Parent 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 Lenders have determined in good faith that such provision is material. Intercreditor Agreement - see Section 11.9. ------------------------ ------------ Interest Coverage Ratio means the ratio of (a) Consolidated Net Income ----------------------- before deducting Interest Expense, income tax expense and Rentals for any Computation Period to (b) Interest Expense plus Rentals for such Computation ---- Period. Interest Expense means for any period the consolidated interest ---------------- expense of Parent and its Subsidiaries for such period (including, without duplication, interest paid on the QuIPS Debentures distributions on (but not redemptions of the QuIPS Preferred Securities, imputed interest on Capital Leases and any interest which is capitalized but excluding amortization of deferred financing costs). Interest Period means, as to any Eurodollar Tranche, the period --------------- commencing on the date such Tranche is borrowed or continued as, or converted into, a Eurodollar Tranche and ending on the date one, two, three or six months thereafter as selected by the Company pursuant to Section 2.2 or 2.3, as the ------- --- --- case may be; provided that: -------- -7- (i) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the following Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; (ii) any Interest Period that begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period shall end on the last Business Day of the calendar month at the end of such Interest Period; and (iii) the Company may not select any Interest Period which would extend beyond any date on which an installment of the Notes is scheduled to be paid pursuant to Section 3 if, after giving --------- effect to such selection, the aggregate principal amount of all Eurodollar Tranches having Interest Periods ending after such date would exceed the aggregate principal amount of the Notes scheduled to be outstanding after payment of such installment. 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 Parent or any of its Subsidiaries), (b) any Suretyship Liability of such Person, (c) any ownership or similar interest held by such Person in any other Person and (d) deposits and the like relating to prospective acquisitions of businesses (excluding deposits placed in escrow pursuant to bona fide arrangements that provide for the return of such deposits to the Company or the applicable Subsidiary in the event that the related transaction is not consummated for any reason by a date certain). Lender - see the Preamble. ------ -------- 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, hypothecation or other security interest of any kind, whether arising by contract, as a matter of law, by judicial process or otherwise. Loan - see.Section 2.1. ---- ----------- Loan Documents means this Agreement, the Notes, the U.S. Guaranty, the -------------- Collateral Documents and, after the Restructuring, the Parent Guaranty. Loan Party means the Company, each Subsidiary of the Company which is ---------- a party to any Loan Document and, after the Restructuring, Parent. -8- Margin Stock means any "margin stock" as defined in Regulation U of ------------ the FRB. 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 Parent 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 Parent, the Company or any Subsidiary of the Company 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 Parent or any member of the Controlled Group may have any liability. Net Worth means the sum of (a) Parent's consolidated stockholders' --------- equity (including preferred stock accounts) plus (b) to the extent, if any, not included in such stockholders' equity, the outstanding amount of the QUIPS Preferred Securities. Note - see Section 3. ---- --------- Parent means (a) prior to the Restructuring, the Company, and (b) ------ thereafter, the holding company of which the Company becomes a direct wholly- owned Subsidiary as a result of the Restructuring. Parent Guaranty - see Section 10.14. --------------- ------------- 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 Parent 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 Lender, the percentage specified ---------- opposite such Lender's name on Schedule 1.1 (A), reduced (or increased) by ---------------- 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. -9- QuIPS Debentures means convertible subordinated debentures issued by ---------------- Parent to a QUIPS Trust relating to QuIPS Preferred Securities substantially on the terms set forth in the QuIPS Term Sheet. QuIPS Preferred Securities means convertible trust originated --------------------------- preferred securities issued by a QuIPS Trust substantially on the terms set forth in the QuIPS Term Sheet. QuIPS Term Sheet means the Indicative Term Sheet for the proposed ---------------- quarterly income preferred securities to be issued by the QuIPS Trust delivered to the Lenders on July 2, 1998. QuIPS Trust means a special purpose Delaware business trust ----------- established by Parent, of which Parent holds all the common securities, which is to issue QuIPS Preferred Securities, and which is to lend to Parent (such loan to be evidenced by QuIPS Debentures) the net proceeds of issuance and sale of such QuIPS Preferred Securities. Reference Lenders means BofA and any other Lender designated by the ----------------- Company and the Agent (which shall promptly notify each Lender of such designation) as a "Reference Lender". 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 San Francisco, California, as its "reference rate." (The "reference rate" is a rate set by BofA based upon various factors, including BofA's costs and desired return, general economic conditions and other factors, and is used as a reference point for 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. Related Fund means, with respect to any Lender which is a fund that ------------ invests in bank loans, any other fund that invests in bank loans and is managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor. Rentals means the aggregate fixed amounts payable by Parent or any ------- Subsidiary under any lease of (or other agreement conveying the right to use) any real or personal property by Parent 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. Required Lenders means Lenders having Percentages aggregating 51% or ---------------- more. Restructuring means a transaction effected to create a holding company ------------- of the Company, pursuant to which the Company becomes a direct wholly-owned Subsidiary of such holding company, and as a result of which the holders of capital stock of such holding company are, upon consummation of such transaction, substantially the same as the holders of the common stock of the Company immediately prior to such transaction. -10- SEC means the Securities and Exchange Commission. --- 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 --------- Lenders, 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); 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 Parent and its Subsidiaries other ----------- than Subordinated Debt. Senior Subordinated Indenture means the Indenture dated as of May 22, ----------------------------- 1998 among the Company, various Subsidiaries of the Company and State Street Bank and Trust Company, as Trustee. Spot Rate for a currency means the rate quoted by BofA as the spot --------- rate for the purchase by BofA of such currency with another currency in accordance with its customary procedures at approximately 10:00 a.m. (Chicago time) on the date on which the foreign exchange computation is made. Subordinated Debt means (i) the $200,000,000 of unsecured senior ----------------- subordinated notes issued pursuant to the Senior Subordinated Indenture and the unsecured subordinated guaranties thereof provided for in the Senior Subordinated Indenture, (ii) Seller Subordinated Debt and (iii) 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 August 31, 2005 and (z) has subordination terms and covenants approved by the Required Lenders, the approval of which shall not be unreasonably withheld. Subsidiary means, with respect to any Person, a corporation, limited ---------- liability company, partnership or other entity of which such Person and/or its other Subsidiaries own, directly or indirectly, more than 50% of the voting stock, membership interests or similar equity interests. Unless the context otherwise requires, each reference to Subsidiaries herein shall be a reference to Subsidiaries of Parent. Subsidiary Pledge Agreement means each pledge agreement substantially --------------------------- in the form of Exhibit F (or such other form as is acceptable to the Collateral --------- Agent) issued by any Subsidiary, whether pursuant to Section 11.7 or Section 10. ------------ ----------- 14. - -- -11- Suretyship Liability means, with respect to any Person, any liability -------------------- of such Person with respect to any agreement, undertaking or arrangement by which such 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 in respect of any Suretyship Liability shall (subject to any limitation set forth therein) be deemed to be the principal amount of the debt, obligation or other liability supported thereby. Tangible Assets means at any time all assets of Parent 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. Tranche refers to a portion of a Loan bearing interest at a particular ------- interest rate and, in the case of a portion bearing interest based on the Eurodollar Rate, having a particular Interest Period. Type of Tranche refers to the interest rate basis for a Tranche, The --------------- "Types" of Tranches are Base Rate Tranches and Eurodollar Tranches. 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. UR Canada means United Rentals of Canada, Inc., an Ontario --------- corporation. U.S. Dollar and the sign "U.S.$" mean lawful money of the United ----------- ----- States of America. U.S. Guaranty means the Restated Guaranty dated as of July 10, 1998 ------------- executed by various Subsidiaries of the Company substantially in the form of Exhibit C. - --------- USR Merger Agreement means the Agreement and Plan of Merger among ---------------------- U.S. Rentals, Inc., the Company and LTR Acquisition Corporation dated as of June 15, 1998, as the same may be amended pursuant to its terms. U.S. Security Agreement means the Restated Security Agreement dated as ----------------------- of July 10, 1998 among the Company, various Subsidiaries of the Company and the Collateral Agent substantially in the form of Exhibit D. --------- U.S. Subsidiary means any Subsidiary of the Company other than a --------------- Foreign Subsidiary. -12- Welfare Plan means a "welfare plan", as such term is defined in ------------ Section 3(l) 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 Lenders and the other parties thereto and are the products of all parties. Accordingly, they shall not be construed against the Agent or the Lenders merely because of the Agent's or Lenders' involvement in their preparation. SECTION 2 COMMITMENT TO LEND; TRANCHES OF LOANS. 2.1 Term Loans. On and subject to the terms and conditions of this ---------- Agreement, each of the Lenders, severally and for itself alone, agrees to make a term loan to the Company (each such term loan, a "Loan") on the Closing Date in ---- such Lender's Percentage of U.S.$250,000,000. Each Loan may be divided into Tranches from time to time, provided that (i) not more than eight different -------- Groups of Eurodollar Tranches shall be outstanding at any one time and (ii) the aggregate principal amount of each Group of Eurodollar Tranches shall at all times (including after giving effect to any conversion or continuation) be at least U.S.$500,000. -13- 2.2 Borrowing Procedure. The Company shall give written notice to the ------------------- Agent of the proposed borrowing of the Loans not later than (a) if all of the Loans initially are to bear interest at the Base Rate, 10:00 A.M., Chicago time, on the proposed date of borrowing, and (b) otherwise, 9:00 A.M., Chicago time, two Business Days prior to the proposed date of borrowing. Such notice shall be effective upon receipt by the Agent and shall specify the date (which shall be a Business Day) of borrowing and, if applicable, the amount of and the initial Interest Period for each Group of Eurodollar Tranches. Promptly upon receipt of such notice, the Agent shall advise each Lender thereof Not later than 1:00 p.m., Chicago time, on the date of the proposed borrowing, each Lender shall provide the Agent at the office specified by the Agent with immediately available funds in the amount of such Lender's Loan and, subject to the satisfaction of the conditions precedent set forth in Section 11, the Agent ---------- shall pay over the proceeds of the Loans to the Company on such date. 2.3 Conversion and Continuation Procedures. (a) Subject to Section 2.2, -------------------------------------- ----------- the Company may, upon irrevocable written notice to the Agent in accordance with clause (b) below: - ---------- (i) elect, as of any Business Day, to convert any Group of Tranches (or any part thereof in an aggregate amount not less than U.S.$500,000) into Tranches of the other Type; or (ii) elect, as of the last day of the applicable Interest Period, to continue any Group of Eurodollar Tranches having Interest Periods expiring on such day (or any part thereof in an aggregate amount not less than U.S. $500,000) for a new Interest Period. (b) The Company shall give written or telephonic (followed immediately by written confirmation thereof) notice to the Agent of each proposed conversion or continuation not later than (i) in the case of conversion into Base Rate Tranches, 10:00 A.M., Chicago time, on the proposed date of such conversion; and (ii) in the case of conversion into or continuation of Eurodollar Tranches, 9:00 A.M., Chicago time, at least two Business Days prior to the proposed date of such conversion or continuation, specifying in each case: (1) the proposed date of conversion or continuation; (2) the aggregate amount of the Tranches to be converted or continued; (3) the Type of Tranches resulting from the proposed conversion or continuation; and (4) in the case of conversion into, or continuation of, Eurodollar Tranches, the duration of the requested Interest Period therefor. -14- (c) If upon the expiration of any Interest Period applicable to any Eurodollar Tranche, the Company has failed to select timely a new Interest Period to be applicable to such Eurodollar Tranche, the Company shall be deemed to have elected to convert such Eurodollar Tranche into a Base Rate Tranche effective on the last day of such Interest Period. (d) The Agent will promptly notify each Lender of its receipt of a notice of conversion or continuation pursuant to this Section 2.3 ----------- or, if no timely notice is provided by the Company, of the details of any automatic conversion. (e) Unless the Required Lenders otherwise consent, during the existence of an Event of Default or Unmatured Event of Default, the Company may not elect to have any portion of a Loan converted into or continued as a Eurodollar Tranche. 2.4 Pro Rata Treatment. Except as otherwise expressly provided ------------------ herein, the borrowing and all conversions, continuations and repayments shall be effected so that after giving effect thereto each Lender will have a pro rata share (according to its Percentage) of all Types and Groups of Tranches. 2.5 Committments Several. The failure of any Lender to make its Loan -------------------- shall not relieve any other Lender of any obligation to make its Loan, but no Lender shall be responsible for the failure of any other Lender to make the Loan to be made by such other Lender. SECTION 3 NOTES EVIDENCING LOANS. Each Lender's Loan 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 Lender in 24 quarterly installments beginning on September 30, 1999 and continuing through June 30, 2005. Each of the first 23 installments shall be in an amount equal to such Lender's Percentage of U.S. $625,000; and the final installment shall be in an amount equal to such Lender's Percentage of U.S. $235,625,000. SECTION 4 INTEREST. 4.1 Interest Rates. The Company promises to pay interest on the -------------- unpaid principal amount of each Tranche of each Loan, as follows: (a) at all times while such Tranche is a Base Rate Tranche, at a rate per annum equal to the sum of the Base Rate from time to time in effect plus the Floating Rate Margin from time to time in effect; and -15- (b) at all times while such Tranche is a Eurodollar Tranche, at a rate per annum equal to the sum of the Eurodollar Rate applicable to each Interest Period for such Tranche plus the Fixed Rate Margin from time to time in effect; provided, however, that at any time an Event of Default -------- ------- exists, the interest rate applicable to each Tranche shall be increased by 2%. 4.2 Interest Payment Dates. Accrued interest on each Base Rate Tranche ---------------------- shall be payable in arrears on the last day of each calendar month and at maturity. Accrued interest on each Eurodollar Tranche shall be payable on the last day of each Interest Period for such Tranche (and, in the case of a Eurodollar Tranche 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 Tranches shall be payable on demand. 4.3 Setting and Notice of Certain 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 the Lenders. 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 Lender, deliver to the Company or such Lender a statement showing the computations used by the Agent in determining any applicable Eurodollar Rate. 4.4 Computation of Interest. ----------------------- (a) All computations of interest on Base Rate Tranches when the Base Rate is determined by the Reference Rate shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more interest being paid than if computed on the basis of a 365-day year). Interest shall accrue during each period during which interest is computed from the first day thereof to the last day thereof. (b) If for any reason whatsoever a Reference Lender ceases to be a Lender hereunder, such Reference Lender shall thereupon cease to be a Reference Lender, and the Eurodollar Rate shall be determined on the basis of the rates as notified by the remaining Reference Lender(s). (c) Each of the Reference Lenders shall use its best efforts to furnish quotations of rates to the Agent as contemplated hereby. If any Reference Lender fails to supply such rates to the Agent upon its request, the Eurodollar Rate shall be determined on the basis of the quotations of the remaining Reference Lender(s). -16- (d) Anything herein to the contrary notwithstanding, the obligations of the Company to any Lender hereunder shall be subject to the limitation that payments of interest shall not be required for any period for which interest is computed hereunder to the extent (but only to the extent) that contracting for or receiving such payment by such Lender would be contrary to the provisions of any law applicable to such Lender limiting the highest rate of interest that may be lawfully contracted for, charged or received by such Lender, and in such event the Company shall pay such Lender interest at the highest rate permitted by applicable law. (e) The applicable interest rate for each Base Rate Tranche shall change simultaneously with each change in the Base Rate. SECTION 5 FEES. 5.1 Closing Fees. On the Closing Date, the Company shall pay to the ------------ Agent for the account of each Lender a closing fee in an amount equal to 0.10% of such Lender's Percentage of U.S. $250,000,000. 5.2 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, the Arranger and the Agent. SECTION 6 PREPAYMENTS. The Company may from time to time prepay the Loans, in whole or in part, without penalty. The Company shall give the Agent (which shall promptly advise each Lender) notice of any prepayment not later than 10:00 A.M., Chicago time, on the day of such prepayment, specifying the Tranches to be prepaid and the date and amount of prepayment. Each partial prepayment of Loans shall be in a principal amount of at least U.S.$500,000. Any prepayment of a Eurodollar Tranche on a day other than the last day of an Interest Period therefor shall be subject to Section 8.4. All prepayments shall be applied pro rata to the then- ----------- remaining installments of the Notes. SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES. 7.1 Making of Payments. (a) All payments of principal of or interest ------------------ on the Notes 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 -17- to do so, provided that the Agent's failure to so charge any such account shall -------- in no way affect the obligation of the Company to make any such payment. The Agent shall promptly remit to each Lender its share of all such payments received in collected funds by the Agent for the account of such Lender. (b) All payments under Section 8.1 shall be made by the Company ----------- directly to the Lender entitled thereto. (c) Unless the Agent receives notice from the Company prior to the date on which any payment is due to the Lenders that the Company will not make such payment in full as and when required, the Agent may assume that the Company has made such payment in full to the Agent on such date in immediately available funds and the Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Company has not made such payment in full to the Agent, each Lender shall repay to the Agent on demand the amount distributed to such Lender, together with interest thereon at the Federal Funds Rate for each day from the date such amount is distributed to such Lender until the date repaid. 7.2 Due Date Extension. If any payment of principal or interest with ------------------ respect to any of the Loans 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 Tranche, 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. 7.3 Setoff. The Company agrees that the Agent and each Lender 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 or any Lender 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 and each Lender may apply to the payment of such payment or other amount (or, in the case of clause ------ (b), to any obligations of the Company hereunder, whether or not then due) any - --- and all balances, credits, deposits, accounts or moneys of the Company then or thereafter with the Agent or such Lender. 7.4 Proration of Payments. If any Lender 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 in excess of its pro rata share of payments and other recoveries obtained by all Lenders on account of principal of and interest on the applicable Notes then held by them, such Lender shall purchase from the other Lenders such participation in the applicable Notes held by them as shall be necessary to cause such purchasing Lender 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 -18- recovered from such purchasing Lender, the purchase shall be rescinded and the purchase price restored to the extent of such recovery (but without interest). 7.5 Taxes. (a) 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 Lender'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 (including any additional amount or amounts to be paid under this Section 7.5) is required in respect of ----------- any Taxes pursuant to any applicable law, rule or regulation, then the Company will: (i) pay directly to the relevant authority the full amount required to be so withheld or deducted; (ii) promptly forward to the Agent an official receipt or other documentation satisfactory to the Agent evidencing such payment to such authority, and (iii) pay to the Agent for the account of the Lenders such additional amount or amounts as is necessary to ensure that the net amount actually received by each Lender will equal the full amount such Lender would have received had no such withholding or deduction been required. Moreover, if any Taxes are directly asserted against the Agent or any Lender with respect to any payment received by the Agent or such Lender hereunder, the Agent or such Lender 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. (b) 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 applicable Lender, the required receipts or other required documentary evidence, the Company shall indemnify such Lender for any incremental Taxes, interest or penalties that may become payable by any such Lender as a result of any such failure. For purposes of this Section 7.5, a distribution hereunder by the Agent ----------- to or for the account of any Lender shall be deemed a payment by the Company. (c) Upon the request from time to time of the Company or the Agent, each Lender 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 -19- 1001 or such other forms or documents, appropriately completed, as may be applicable to establish the extent, if any, to which a payment by the Company to such Lender is exempt from withholding or deduction of Taxes. (e) The obligations of the Company under this Section 7.5 (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 and any termination of this Agreement. SECTION 8 INCREASED COSTS; SPECIAL PROVISIONS FOR EURODOLLAR TRANCHES. 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 Lender (or any Eurodollar Office of such Lender) 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 Lender (or any Eurodollar Office of such Lender) to any tax, duty or other charge with respect to its Eurodollar Tranches, its Note or its obligation to maintain Eurodollar Tranches, or shall change the basis of taxation of payments to any Lender of the principal of or interest on its Eurodollar Tranches or any other amounts due under this Agreement in respect of its Eurodollar Tranches or its obligation to maintain Eurodollar Tranches (except for changes in the rate of tax on the overall net income of such Lender or its Eurodollar Office imposed by the jurisdiction in which such Lender'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 FRB, but excluding any reserve included in the determination of interest rates pursuant to Section 4), --------- special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by any Lender (or any Eurodollar Office of such Lender); or (C) shall impose on any Lender (or its Eurodollar Office) any other condition affecting its Eurodollar Tranches, its Note or its obligation to maintain Eurodollar Tranches; and the result of any of the foregoing is to increase the cost to (or, in the case of Regulation D of the FRB, to impose a cost on) such Lender (or any Eurodollar Office of such Lender) of making, maintaining or participating in any Eurodollar Tranche, or to reduce the amount of any sum -20- received or receivable by such Lender (or its Eurodollar Office) under this Agreement or under its Note with respect thereto, then within 10 days after demand by such Lender (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 Lender such additional amount as will compensate such Lender for such increased cost or such reduction. (b) If any Lender 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 Lender or any Person controlling such Lender 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 Lender's or such controlling Person's capital as a consequence of such Lender's obligations hereunder to a level below that which such Lender or such controlling Person could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or such controlling Person's policies with respect to capital adequacy) by an amount deemed by such Lender or such controlling Person to be material, then from time to time, within 10 days after demand by such Lender (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 Lender such additional amount or amounts as will compensate such Lender 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) none of the Reference Lenders are being offered deposits in Dollars (in the applicable amounts) 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 Eurodollar Rate; or (b) Lenders having an aggregate Percentage of 30% or more advise the Agent that the Eurodollar Rate, as determined by the Agent, will not adequately and fairly reflect the cost to such Lenders of maintaining or funding their Eurodollar Tranches for such Interest Period (taking into account any amount to which such Lenders may be entitled under Section 8.1) or that the maintaining or funding of ----------- Eurodollar Tranches has become impracticable as a result of an event occurring after the date of this Agreement which in the opinion of such Lenders materially affects such Tranches; -21- then the Agent shall promptly notify the Company and the Lenders thereof and, so - ---- long as such circumstances shall continue, (i) no Lender shall be under any obligation to convert into Eurodollar Tranches and (ii) on the last day of the current Interest Period for each Eurodollar Tranche, such Tranche shall, unless then repaid in full, automatically convert to a Base Rate Tranche. 8.3 Changes in Law Rendering Eurodollar Lending Unlawful. If 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 Lender cause a substantial question as to whether it is) unlawful for any Lender to make, maintain or fund any Eurodollar Tranche, then such Lender shall promptly notify the Company and the Agent and, so long as such circumstances shall continue, (a) such Lender shall have no obligation to make or convert into Eurodollar Tranches (but shall make or maintain Base Rate Tranches concurrently with the making of or conversion into Eurodollar Tranches by the Lenders which are not so affected, in each case in an amount equal to such Lender's pro rata share of all Eurodollar Tranches 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 Tranche of such Lender (or, in any event, on such earlier date as may be required by the relevant law, regulation or interpretation), such Eurodollar Tranche shall, unless then repaid in full, automatically convert to a Base Rate Tranche. Each Base Rate Tranche maintained by a Lender which, but for the circumstances described in the foregoing sentence, would be a Eurodollar Tranche (an "Affected Tranche") shall remain outstanding for the same period as ---------------- the Group of Eurodollar Tranches of which such Affected Tranche would be a part absent such circumstances. 8.4 Funding Losses. The Company hereby agrees that upon demand by any -------------- Lender (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 Lender against any net loss or expense which such Lender 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 Lender to fund or maintain any Eurodollar Tranche), as reasonably determined by such Lender, as a result of (a) any payment, prepayment or conversion of any Eurodollar Tranche of such Lender on a date other than the last day of an Interest Period for such Tranche (including any conversion pursuant to Section 8.3) or (b) any failure of the Company to borrow, convert ----------- into, continue or prepay any Eurodollar Tranche 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. 8.5 Right of Lenders to Fund through Other Offices. Each Lender may, if ---------------------------------------------- it so elects, fulfill its commitment as to any Eurodollar Tranche by causing a foreign branch or affiliate of such Lender to maintain or fund such Tranche, provided that in such event for the purposes of this Agreement such Tranche - -------- shall be deemed to have been maintained and funded by such Lender and -22- the obligation of the Company to repay such Lender's Loan shall nevertheless be to such Lender 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 Lenders as to Manner of Funding. Notwithstanding any --------------------------------------------- provision of this Agreement to the contrary, each Lender shall be entitled to fund and maintain its funding of all or any part of its Loan 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 Lender had actually funded and maintained each Eurodollar Tranche during each Interest Period for such Tranche through the purchase of deposits having a maturity corresponding to such Interest Period and bearing an interest rate equal to the IBOR (as defined in the definition of Eurodollar Rate) for such Interest Period. 8.7 Mitigation of Circumstances; Replacement of Affected Lender. ----------------------------------------------------------- (a) Each Lender 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 Lender's good faith judgment, otherwise disadvantageous to such Lender) to mitigate or avoid, (i) any obligation of the Company to pay any amount pursuant to Section 7.5 or ----------- 8.1 or (ii) the occurrence of any circumstances of the nature described in - --- Section 8.2 or 8.3, and, if any Lender has given notice of any event described - ----------- --- in clause (i) or (ii) above and thereafter such event ceases to exist, such --------- -- Lender shall promptly so notify the Company and the Agent. Without limiting the foregoing, each Lender 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 Lender's sole judgment, be otherwise disadvantageous to such Lender. (b) At any time any Lender is an Affected Lender, the Company may replace such Affected Lender 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 Lender shall assign pursuant to an Assignment Agreement, and without recourse or warranty, its Loan, its Note 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 Loan so assigned, all accrued and unpaid interest thereon, any amounts payable under Section 8.4 as a result of such Lender ----------- receiving payment of any Eurodollar Tranche prior to the end of an Interest Period therefor and all other obligations owed to such Affected Lender hereunder). 8.8 Conclusiveness of Statements; Survival of Provisions. ---------------------------------------------------- Determinations and statements of any Lender pursuant to Section 8.1, 8.2, 8.3 or ----------- --- --- 8.4 shall be conclusive absent demonstrable error. Lenders may use reasonable - --- averaging and attribution methods in determining -23- compensation under Sections 8.1 and 8.4, and the provisions of such Sections ------------ --- shall survive repayment of the Loans, cancellation of the Notes and any termination of this Agreement. SECTION 9 WARRANTIES. To induce the Agent and the Lenders to enter into this Agreement and to induce the Lenders to make the Loans hereunder, Parent warrants to the Agent and the Lenders 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 of Parent and each Subsidiary is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization; and each of the Company, Parent 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 borrowing hereunder, the execution and delivery by each other Loan Party of each Loan Document to which it is a party and the performance by the Company and each other Loan Party of its obligations under each Loan Document to which it is a party are within the corporate powers of the Company and each other Loan Party, have been duly authorized by all necessary corporate action (including any necessary shareholder action) on the part of the Company and each other Loan Party, 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 judgment of any court or other government agency which is binding on the Company, any other Loan Party or any other Subsidiary, (b) contravene or conflict with, or result in a breach of, any provision of the Certificate or Articles of Incorporation, By-Laws or other organizational documents of the Company, any other Loan Party or any other Subsidiary or of any agreement, indenture, instrument or other document which is binding on the Company, any other Loan Party or any other Subsidiary or (c) result in, or require, the creation or imposition of any Lien on any property of the Company, any other Loan Party 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 other Loan Party is a party is, or upon the execution and delivery thereof by such Loan Party will be, the legal, valid and binding obligation of such Loan Party, enforceable against such Loan Party in accordance with its terms. -24- 9.4 Information. All information heretofore or contemporaneously ----------- herewith furnished in writing by Parent or any Subsidiary to any Lender 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 Parent or any Subsidiary to any Lender 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 Lenders that any projections and forecasts provided by Parent or any Subsidiary are based on good faith estimates and assumptions believed by Parent or such Subsidiary 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. -------------------------- (a) The audited consolidated financial statements of the Company and its Subsidiaries at December 31, 1997 and the unaudited consolidated financial statements of the Company and its Subsidiaries at March 31, 1998, copies of each of which have been delivered to each Lender, have been prepared in accordance with generally accepted accounting principles (subject, in the case of the unaudited statements, to the absence of footnotes and to normal year-end adjustments) and present fairly the consolidated financial condition of the Company and its Subsidiaries taken as a whole as at such dates and the results of their operations for the periods then ended. (b) Since December 31, 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 Parent's knowledge, threatened against Parent 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 Parent nor any Subsidiary has any material contingent liabilities not listed in Schedule 9.6(a) or 9.6 (b). --------------- ------- (b) Schedule 9.6(b) sets out descriptions of all arrangements existing --------------- on the Closing 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 Parent and each Subsidiary owns good and marketable title to all of - --- its properties and assets, real and -25- 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, (i) no steps have been taken to terminate any Pension Plan and (ii) no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA. No condition exists or event or transaction has occurred with respect to any Pension Plan which could result in the incurrence by Parent of any material liability, fine or penalty. Parent 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 Parent 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 Parent 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, or 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 Parent 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. (c) All contributions required under applicable law have been made in respect of all pension plans of UR Canada and each of its Subsidiaries and each such pension plan is fully funded on an ongoing and termination basis. 9.10 Investment Company Act. Neither Parent 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. -26- 9.11 Public Utility Holding Company Act. Neither Parent 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 purchasing or carrying Margin Stock or extending credit for the purpose of purchasing or carrying Margin Stock. 9.13 Taxes. Each of Parent 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 Closing Date (or, in the case of any Person ------------- which becomes a Loan Party after the Closing Date, on the date such Person becomes a Loan Party), (a) each of the Company's and each other Loan Party's assets will exceed its liabilities and (b) each of the Company and each other Loan Party 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. Parent 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 Parent 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. Parent 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 Parent 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, Parent reasonably believes that the "Year 2000 Problem" will not have a Material Adverse Effect. 9.17 Senior Debt. The obligations of the Company hereunder constitute ----------- "Senior Indebtedness" as such term is defined in the Senior Subordinated Indenture. SECTION 10 COVENANTS. -27- Until all obligations of the Company hereunder or in connection herewith are paid in full, Parent agrees that, unless at any time the Required Lenders shall otherwise expressly consent in writing, it will: 10.1 Reports, Certificates and Other Information. Furnish to the Agent ------------------------------------------- and each Lender: 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 Parent and its Subsidiaries for such Fiscal Year, including therein a consolidated balance sheet of Parent and its Subsidiaries as of the end of such Fiscal Year and consolidated statements of earnings and cash flow of Parent and its Subsidiaries for such Fiscal Year certified without qualification by Ernst & Young or other independent auditors of recognized standing selected by Parent and reasonably acceptable to the Required Lenders, 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 Parent and its Subsidiaries as of the end of such Fiscal Year and consolidating statements of earnings for Parent and its Subsidiaries for such Fiscal Year, certified by the Chief Financial Officer or the Vice President, Finance of Parent; and (c) commencing with the Fiscal Year ending December 31, 1998, a copy of an annual agreed-upon procedures report on the equipment fleet of the Company and its Subsidiaries for such Fiscal Year as performed by the Company's independent auditors. 10.1.2 Quarterly Reports. Promptly when available and in any event ----------------- within 45 days after the end of each Fiscal Quarter (except the last Fiscal Quarter) of each Fiscal Year, consolidated and consolidating balance sheets of Parent 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 Parent. 10.1.3 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) 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 Parent, 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; and (b) an updated organizational chart listing all Subsidiaries and the locations of their businesses. -28- 10.1.4 Reports to SEC and to Shareholders. Promptly upon the filing or ---------------------------------- sending thereof, copies of all regular, periodic or special reports of Parent or any Subsidiary filed with the SEC (excluding exhibits thereto, provided that Parent shall promptly deliver any such exhibit to the Agent or any Lender upon request therefor); copies of all registration statements of Parent 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 Parent or any Subsidiary. 10.1.5 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 Parent or the Subsidiary affected thereby with respect thereto: (a) the occurrence of an Event of Default or an Unmatured Event of Default; (b) any litigation, arbitration or governmental investigation or proceeding not previously disclosed by Parent to the Lenders which has been instituted or, to the knowledge of Parent, is threatened against Parent 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 Parent 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 Parent 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 (without replacement) or material change in any insurance maintained by Parent or any Subsidiary; -29- (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 Lenders' rights with respect to any such collateral, are subject. 10.1.6 Subsidiaries. Promptly upon any change in the list of its ------------ Subsidiaries, a written report of such change. 10.1.7 Management Reports. Promptly upon the request of the Agent or ------------------- any Lender, copies of all detailed financial and management reports submitted to Parent by independent auditors in connection with each annual or interim audit made by such auditors of the books of Parent. 10.1.8 Projections. As soon as practicable and in any event within 60 ----------- days after the commencement of each Fiscal Year, financial projections for Parent and its Subsidiaries for such Fiscal Year prepared in a manner consistent with those projections delivered by the Company to the Lenders prior to the Closing Date or otherwise in a manner satisfactory to the Agent. 10.1.9 Other Information. From time to time such other information ----------------- concerning Parent and its Subsidiaries as any Lender 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 Lender or the Agent or any representative thereof to inspect the properties and operations of Parent 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 Lender 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 Parent hereby authorizes such independent auditors to discuss such financial matters with any Lender or the Agent or any representative thereof whether or not any representative of Parent or any Subsidiary is present), and to examine (and, at the expense of Parent 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 Lender, furnish to the Agent or such Lender a certificate setting forth -30- in reasonable detail the nature and extent of all insurance maintained by Parent 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 Parent or any Subsidiary to pay any such tax or charge so long as it shall contest the validity thereof in good faith by appropriate proceedings and shall set aside on its books adequate reserves with respect thereto in accordance with GAAP. 10.5 Maintenance of Existence, etc. Maintain and preserve, and ----------------------------- (subject to Section 10.11) cause each Subsidiary to maintain and preserve, (a) ------------- its existence and good standing in the jurisdiction of its incorporation and (b) its qualification and good standing as a foreign corporation in each jurisdiction where the nature of its business makes such qualification necessary (except in those instances in which the failure to be qualified or in good standing does not have a Material Adverse Effect). 10.6 Financial Covenants. ------------------- 10.6.1 Minimum Net Worth. Not permit its Net Worth at the end of any ----------------- month to be less than the sum of (a) U.S.$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 (including the QuIPS Preferred - ---- Securities) issued by Parent or any of its Subsidiaries (on a consolidated basis) after October 1, 1997. 10.6.2 Maximum Leverage. Not permit the ratio of (i) Funded Debt to ---------------- (ii) Funded Debt plus Net Worth to exceed 0.65 to 1.0 at any time. ---- 10.6.3 Minimum Interest Coverage Ratio. Not permit the Interest ------------------------------- Coverage Ratio for any Computation Period to be less than the applicable ratio set forth below: -31- COMPUTATION INTEREST PERIOD ENDING: COVERAGE RATIO ------------- -------------- 6/30/98 through 12/31/98 1.50 to 1.0 3/31/99 through 12/31/99 1.75 to 1.0 3/31/2000 and thereafter 2.00 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 4.5 to 1.0. 10.6.5 Senior Debt to Tangible Assets. Not permit the ratio of (i) ------------------------------ Senior Debt to (ii) Tangible Assets to exceed 1.0 to 1.0 at any time. 10.6.6. Senior Debt to Cash Flow Ratio. Not permit the ratio of (i) ------------------------------ Senior Debt to (ii) Cash Flow as of the last day of any Fiscal Quarter to exceed 3.0 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 hereunder, under the other Loan Documents, under the Credit Agreement and under the other "Loan Documents" as defined in the Credit Agreement; (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 a Dollar Equivalent amount equal to U.S.$10,000,000; (c) Debt of the Company or any Subsidiary 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 a Dollar Equivalent amount equal to U.S.$30,000,000; (d) Debt of Subsidiaries owed to the Company; provided that the aggregate amount of all such Debt of Foreign Subsidiaries owed to the Company shall not (i) at any time prior -32- to January 1, 1999, exceed 15% of the consolidated assets of the Company and its Subsidiaries and (ii) at any time on or after January 1, 1999, exceed 10% of the consolidated assets of the Company and its Subsidiaries; (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 a Dollar Equivalent amount of U.S.$15,000,000; (g) other Debt of the Company or any Subsidiary, not of a type described in clause (c), outstanding on the date hereof and listed in ---------- Schedule 10.7(g); ---------------- (h) Contingent Payments, provided that the Company shall not, and -------- shall not permit any Subsidiary to, incur any obligation to make Contingent Payments the maximum possible amount of which exceeds a Dollar Equivalent amount of U.S.$25,000,000 in the aggregate for all Contingent Payments at any time outstanding; and (i) the QuIPS Debentures, the QuIPS Preferred Securities and a guaranty of the QuIPS Preferred Securities by Parent (provided that such guaranty is subordinated to the obligations of Parent under the Parent Guaranty), provided that (v) the net proceeds received by Parent -------- pursuant thereto are promptly invested in the Company, (w) the interest rate on the QuIPS Debentures is not more than 8% per annum, (x) neither the aggregate principal amount of the QuIPS Debentures nor the liquidation preference of the QuIPS Preferred Securities shall at any time exceed $400,000,000, (y) no Event of Default or Unmatured Event of Default shall exist at the time of issuance thereof or will result from such issuance and (z) prior to the issuance thereof, Parent shall have delivered to the Agent a certificate demonstrating that, after giving effect to such issuance, Parent will be in pro forma compliance with the covenants set forth in Section 10.6. ------------ For purposes of clause (h) above, 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: -33- (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 a Dollar Equivalent amount of U.S.$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 Collateral Agent arising under the Loan Documents and Liens securing Debt permitted by clause (a) of Section ---------- ------- 10.7. ---- 10.9 Asset Sales. Not make, or permit any Subsidiary to make, any sale ----------- or other disposition of assets which would require the Company to make, or offer to make, or give any notice of, any prepayment of Subordinated Debt (other than Seller Subordinated Debt). 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, (e) make any payment of principal of or interest on, or acquire, redeem or otherwise retire, or make any other distribution in respect of, any of the QuIPS Debentures or the QuIPS Preferred -34- Securities or (f) set aside funds for any of the foregoing; provided that (i) -------- any Subsidiary of the Company may declare and pay dividends to the Company or to any other wholly-owned Subsidiary of the Company, (ii) after the Restructuring, the Company may declare and pay dividends to Parent to the extent necessary to enable Parent to pay its taxes, accounting, legal and corporate overhead expenses (including all SEC and stock exchange fees and expenses), the payables described in Section 10.23 and the Investments in the QuIPS Trust described in ------------- Section 10.23; (iii) the QuIPS Trust may make a distribution of Parent's common - ------------- stock pursuant to the terms of the QuIPS Preferred Securities or the QuIPS Debentures; (iv) so long as no Event of Default or Unmatured Event of Default exists or would result therefrom, (A) Parent may make payments on the QuIPS Debentures and permit the QuIPS Trust to make corresponding distributions on the QuIPS Preferred Securities in accordance with the terms set forth in the QuIPS Term Sheet and (B) the Company may declare and pay dividends to Parent in the amount necessary for Parent to make such payments; and (v) 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 a Dollar Equivalent amount of U.S. $12,000,000, Parent 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, Amalgamations, Sales. Not, and not ---------------------------------------------- permit any Subsidiary to, be a party to any merger, consolidation or amalgamation, 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, amalgamation, sale, transfer, conveyance, lease or assignment of or by any wholly-owned Subsidiary of the Company into the Company or into, with or to any other wholly-owned Subsidiary of the Company; (b) any such purchase or other acquisition by the Company or any wholly-owned Subsidiary of the Company of the assets or stock of any wholly-owned Subsidiary of the Company; (c) any such purchase or other acquisition (including pursuant to a merger) by the Company or any wholly-owned Subsidiary of the Company 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; and (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 (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 Parent and its Subsidiaries as of the last day of the preceding Fiscal Year. -35- 10.12 Modification of Documents. Not permit the Certificate or ------------------------- Articles of Incorporation, By-Laws or other organizational documents of Parent or any Subsidiary, or the Senior Subordinated Indenture or any other document evidencing or setting forth the terms applicable to any Subordinated Debt, to be amended or modified in any way which might reasonably be expected to materially adversely affect the interests of the Lenders. 10.13 Use of Proceeds. Use the proceeds of the Loans solely to finance --------------- the Company's working capital, for acquisitions permitted by Section 10.11, for ------------- capital expenditures and for other general corporate purposes (including repayment of existing Debt); 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 Lenders 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 U.S. Subsidiaries (including, promptly upon the acquisition or creation thereof, any U.S. Subsidiary acquired or created after the date hereof) by execution of a counterpart of the U.S. Guaranty (provided that the QuIPS Trust shall have no obligation to execute the U.S. Guaranty), and (ii) the obligations of each U.S. Subsidiary (other than the QuIPS Trust) under the U.S. Guaranty are secured by substantially all of the assets (other than real property) of such U.S. Subsidiary. In addition, (a) upon the occurrence of any Event of Default or Unmatured Event of Default and the request of Lenders having Percentages aggregating 80% or more, the Company will cause each Canadian Subsidiary to guaranty all of the obligations of the Company hereunder and to take all actions necessary so that the obligations of such Canadian Subsidiary under such guaranty are secured by substantially all of the assets (other than real property) of such Canadian Subsidiary (it being understood that, at the request of the Company at any time thereafter when no Event of Default or Unmatured Event of Default exists, such guaranties and collateral security shall be released); and (b) on the date of the Restructuring, Parent shall issue an unconditional guaranty of all obligations of the Company hereunder (such guaranty, the "Parent Guaranty"), which guaranty shall contain an undertaking by --------------- Parent to comply with and perform the covenants set forth in this Section 10. ---------- 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. -36- 10.16 Employee Benefit Plans. Maintain, and cause each Subsidiary to ---------------------- maintain, each Pension Plan and each Canadian 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. 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 the performance by Parent or any Subsidiary of any of its obligations hereunder or under any other Loan Document or (b) would prohibit the Company or any Subsidiary of the Company from granting to the Collateral Agent, for the benefit of the Lenders, 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 Closing Date in wholly-owned Subsidiaries of the Company identified in Schedule 9.8, ------------ (b) equity Investments in Subsidiaries of the Company acquired after the Closing 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 of the Company or by any of the Subsidiaries of the Company in the Company, by way of intercompany loans, advances or guaranties, all to the extent permitted by Section 10.7; ------------ (e) Suretyship Liabilities permitted by Section 10.7; ------------ -37- (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) a Dollar Equivalent amount of U.S.$100,000 in the aggregate to any single individual or (ii) a Dollar Equivalent amount of U.S.$300,000 in the aggregate for all such individuals; (h) Investments by Parent in the Company; (i) other Investments by Parent permitted by Section 10.23; and ------------- (j) 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; (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; and (z) the aggregate principal amount of Investments by the Company in Foreign Subsidiaries pursuant to clauses (b), (c), (d), (e), and (f) plus, without duplication, the ------- --- --- --- --- --- aggregate amount of all "Canadian Loans" under and as defined in the Credit Agreement shall not (i) at any time prior to January 1, 1999, exceed 15% of the consolidated assets of Parent and its Subsidiaries and (ii) at any time on or after January 1, 1999, exceed 10% of the consolidated assets of Parent and its Subsidiaries. 10.22 Location of Assets. Not permit (a) at any time prior to January ------------------ 1, 1999, more than 15% of the consolidated assets of Parent and its Subsidiaries to be owned by Foreign Subsidiaries and (b) at any time on or after January 1, 1999, more than 10% of the consolidated assets of Parent and its Subsidiaries to be owned by Foreign Subsidiaries. 10.23 Activities of Parent. Not, at any time after the occurrence of -------------------- the Restructuring, engage in any business other than ownership of the Company and the QuIPS Trust and activities reasonably related thereto (including the incurrence of Debt permitted by Section 10.7 and the incurrence of unsecured ------------ trade obligations in respect of goods to be delivered and services to be performed for the benefit of, and unsecured lease obligations incurred for the benefit of, Subsidiaries). Without limiting the foregoing, Parent will not (a) incur any Debt other than the QuIPS Debentures, the QuIPS Preferred Securities and the Parent Guaranty, (b) make any Investments other than (i) Investments in the Company and (ii) Investments in the QuIPS Trust in an amount not exceeding U.S. $12,000,000, (c) grant any Liens on any of its assets or (d) permit any amendment to or modification of the QuIPS Debentures, the QuIPS Preferred Securities or the Indenture for the QuIPS Debentures which, in any such case, is adverse to the interests of the -38- Lenders. Notwithstanding the foregoing, Parent may become a party to the USR Merger Agreement. SECTION 11 CONDITIONS OF LENDING. The obligation of the Lenders to make the Loans is subject to the conditions precedent that (a) the representations and warranties of the Company and its Subsidiaries set forth in this Agreement and the other Loan Documents shall be true and correct in all material respects with the same effect as if then made; (b) no Event of Default or Unmatured Event of Default shall have then occurred and be continuing; and (c) the Agent shall have received (i) all amounts which are then due and payable pursuant to Section 5 and (to the extent --------- billed) Section 14.6 and (ii) all of the following, each duly executed and dated ------------ the Closing 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 Lender: 11.1 Notes. The Notes. ----- 11.2 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 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 which is to execute and deliver any document pursuant to Section 11.5, 11.6 or 11.7 authorizing or ratifying the execution, ------------ ---- ---- delivery and performance by such Subsidiary of each Loan Document to which such Subsidiary is a party. 11.3 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 U.S. Subsidiary of the documents referred to in this Section 11. ---------- 11.4 Incumbency and Signature Certificates. A certificate of the ------------------------------------- Secretary or an Assistant Secretary of the Company and each Subsidiary which is to execute and deliver any document pursuant to Section 11.5, 11.6 or 11.7 ------------ ---- ---- 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 Lender may conclusively rely on each such certificate until formally advised by a like certificate of any changes therein). 11.5 U.S. Guaranty. The U.S. Guaranty executed by each U.S. Subsidiary ------------- as of the Closing Date. -39- 11.6 U.S. Security Agreement. The U.S. Security Agreement executed by ----------------------- the Company and each U.S. Subsidiary as of the Closing Date, together with evidence, satisfactory to the Agent, that all filings necessary to perfect the Liens on any collateral granted by the Company and each such U.S. Subsidiary under the U.S. Security Agreement have been duly made and are in full force and effect. 11.7 Pledge Agreements. The Company Pledge Agreement executed by the ----------------- Company, together with all collateral and other items required to be delivered in connection therewith; and a pledge agreement, substantially in the form of Exhibit F, issued by each U.S. Subsidiary (if any) as of the Closing Date that - --------- has one or more U.S. Subsidiaries, in each case together with all collateral and other items required to be delivered in connection therewith. 11.8 Opinions of Counsel for the Company. The opinions of (a) Well, ----------------------------------- Gotshal & Manges LLP, special counsel to the Company, and (b) Oscar D. Folger, counsel to the Company. 11.9 Intercreditor Agreement. A counterpart of an intercreditor agreement ----------------------- substantially in the form of Exhibit I (the "Intercreditor Agreement"). --------- ----------------------- 11.10 First Amendment to Credit Agreement. The First Amendment to the ----------------------------------- Credit Agreement in form and substance satisfactory to the Agent, executed by the Required Banks (as defined in the Credit Agreement). 11.11 Confirmatory Certificate. A certificate of a duly-authorized ------------------------ officer of the Company as to the matters set forth in clauses (a) and (b) of the ----------- --- first paragraph of this Section 11. ---------- 11.12 Other. Such other documents as the Agent or any Lender may ----- reasonably request. SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT. 12.1 Events of Default. Each of the following shall constitute an Event ----------------- of Default: 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 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 Parent or any Subsidiary (excluding Holdbacks) in an aggregate amount (for all such Debt so affected) exceeding a Dollar Equivalent amount of U.S. $5,000,000 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 -40- 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 a Dollar Equivalent amount of U.S. $ 10,000,000, 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, Parent or any Subsidiary with respect to any material purchase or lease of goods or services where such default, singly or in the aggregate with other such defaults might reasonably be expected to have a Material Adverse Effect (except only to the extent that the existence of any such default is being contested by Parent 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. Parent 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 Parent or any Subsidiary applies for, consents to, or acquiesces in the appointment of a trustee, receiver or other custodian for Parent 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 Parent 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 any Subsidiary of the Company), is commenced in respect of Parent or any Subsidiary, and if such case or proceeding is not commenced by Parent or such Subsidiary, it is consented to or acquiesced in by Parent or such Subsidiary, or remains for 60 days undismissed; or Parent 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 ------------------------------------------------ Parent 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 Parent or 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, or any Lender. 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 Parent or the Company to the Agent or any -41- Lender 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 Parent or any ------------- other Person to terminate a Pension Plan if as a result of such termination Parent 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 U.S.$5,000,000; (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 Parent and the Controlled Group have incurred on the date of such withdrawal) exceeds U.S.$5,000,000. 12.1.8 Judgments. Final judgments which exceed an aggregate Dollar --------- Equivalent amount of U.S.$5,000,000 shall be rendered against Parent 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 Guaranties, etc. The U.S. Guaranty shall cease ----------------------------- to be in full force and effect with respect to any applicable Subsidiary, any applicable Subsidiary shall fail (subject to any applicable grace period) to comply with or to perform any applicable provision of the U.S. Guaranty, or any applicable Subsidiary (or any Person by, through or on behalf of such Subsidiary) shall contest in any manner the validity, binding nature or enforceability of U.S. Guaranty with respect to such Subsidiary. 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 applicable Subsidiary, the Company or any applicable Subsidiary 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 Subsidiary (or any Person by, through or on behalf of the Company or such Subsidiary) 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 Closing 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 Parent; (b) during any 24-month period, individuals who at the beginning of such period constituted Parent's Board of Directors (together with any new directors whose election by Parent's Board of Directors or whose nomination for election by Parent'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 -42- to constitute a majority of the Board of Directors of Parent; (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 ---------------- Parent 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 Lenders (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 Lenders); (d) - ---------------- any "Change of Control" shall occur under, and as defined in, the Senior Subordinated Indenture; or (e) at any time after the date of the Restructuring, the Company shall cease to be a direct, wholly-owned Subsidiary of Parent. 12.1.12 Invalidity of Parent Guaranty, etc. The Parent Guaranty shall ---------------------------------- cease to be in full force and effect at any time after the Restructuring, Parent shall fail (subject to any applicable grace period) to comply with or to perform any provision of the Parent Guaranty, or Parent (or any Person by, through or on behalf of Parent) shall contest in any manner the validity, binding nature or enforceability of the Parent Guaranty. 12.2 Effect of Event of Default. If any Event of Default described in -------------------------- Section 12.1.4 shall occur, the Notes and all other obligations hereunder shall - -------------- become immediately due and payable all without presentment, demand, protest or notice of any kind; and, if any other Event of Default shall occur and be continuing, the Agent (upon written request of the Required Lenders) shall declare all Notes and all other obligations hereunder to be due and payable, whereupon the Notes and all other obligations hereunder shall become immediately due and payable, 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 other event described in Section 12.1.1 or Section 12.1.4 may be waived by the written concurrence of all - -------------- -------------- of the Lenders, 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 Lenders. SECTION 13 THE AGENT. 13.1 Appointment and Authorization. Each Lender 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 Lender, 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. -43- 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 Lenders for any recital, statement, representation or warranty made by the Company or any Subsidiary or Affiliate of the Company, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of the Company or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent- Related Person shall be under any obligation to any Lender 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 Agents. 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 Lenders (or, if required, all Lenders) as it deems appropriate and, if it so requests, confirmation from the Lenders 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 Lenders (or, if required, all Lenders) and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders. 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 or fees required to be paid to the Agent for the account of the Lenders, unless the Agent shall have received written notice from a Lender or the -44- 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." If the Agent receives such a notice, the Agent will promptly notify the Lenders of its receipt thereof. 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 Lenders (or, if required, all Lenders) 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 Lenders. 13.6 Credit Decision. Each Lender 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 or any Subsidiary or Affiliate of the Company, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender. Each Lender 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 or any Subsidiary or Affiliate of the Company, 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 Lender 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 Lenders by the Agent, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial or other condition or creditworthiness of the Company or any Subsidiary or Affiliate 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 Lenders 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 -------- ------- Lender shall be liable for any payment to any Agent-Related Person of any portion of the Indemnified Liabilities resulting from such Person's gross negligence or willful misconduct. Without limitation of the foregoing (but subject to the proviso to the foregoing sentence), each Lender 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 -45- 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 Lender) be imposed on, incurred by or asserted against any Agent-Related Person in any way relating to or arising out of this Agreement or any document contemplated by or referred to herein, or the transactions contemplated hereby, or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to any investigation, litigation or proceeding (including (a) any case, action or proceeding before any court or other governmental authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors; undertaken under U.S. federal, state or foreign law, including the Bankruptcy Code, and including any appellate proceeding) related to or arising out of this Agreement or any other Loan Document, whether or not any Agent-Related Person, any Lender 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, and without notice to or consent of the Lenders. The Lenders 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 Affiliate) and acknowledge that BofA and its Affiliates shall be under no obligation to provide such information to them. With respect to its Loans (if any), BofA and its Affiliates shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though BofA were not the Agent, and the term "Lender" includes BofA and its Affiliates, to the extent applicable, in their individual capacities. -46- 13.9 Successor Agent, Assignment of Agency. The Agent may, and at the ------------------------------------- request of the Required Lenders shall, resign as Agent upon 30 days' notice to the Lenders. If the Agent resigns under this Agreement, the Required Lenders 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 Lenders a successor Agent for the Lenders. 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 Lenders and the Company, a successor agent from among the Lenders. 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 the Agent under this Agreement. If no successor agent has accepted appointment as the 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 Lenders shall perform all of the duties of the Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. 13.10 Withholding Tax. --------------- (a) If any Lender is a "foreign corporation, partnership or trust" within the meaning of the Code and such Lender claims exemption from, or a reduction of, U.S. withholding tax under Section 1441 or 1442 of the Code, such Lender agrees to deliver to the Agent: (i) if such Lender 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 Lender 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 Lender, 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 Lender and in each succeeding taxable year of such Lender during which interest may be paid under this Agreement, and IRS Form W-9, (iii) if such Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either IRS Form 1001 or 4224, (A) a certificate substantially in the form of Exhibit J and (B) two properly completed --------- -47- and signed copies of IRS Form W-8 certifying that such Lender is entitled to an exemption from United States withholding tax with respect to payments of interest to be made under this Agreement; and (iv) 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. Any such Lender 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 Lender claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form 1001 and such Lender sells, assigns, grants a participation in, or otherwise transfers all or part of the obligations of the Company to such Lender, such Lender 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 Lender's IRS Form 1001 as no longer valid. (c) If any Lender 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 Lender hereunder, such Lender agrees to undertake sole responsibility for complying with the withholding tax requirements imposed by Sections 1441 and 1442 of the Code. (d) If any Lender is entitled to a reduction in the applicable withholding tax, the Agent may withhold from any interest payment to such Lender an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other documentation required by subsection (a) of this Section are not -------------- delivered to the Agent, then the Agent may withhold from any interest payment to such Lender not providing such forms or other documentation an amount equivalent to the applicable withholding tax. (e) If the IRS or any other governmental authority of the United States or any other jurisdiction asserts a claim that the Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because such Lender failed to notify the Agent of a change in circumstances which rendered an exemption from, or reduction of, withholding tax ineffective), such Lender 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 any amount payable to the Agent under this Section, together with all costs and expenses (including reasonable fees of -48- attorneys for the Agent (including the allocable costs of internal legal services and all disbursements of internal counsel)). The obligations of the Lenders 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. (f) If any Lender claims exemption from, or reduction of, withholding tax under the Code by providing IRS Form W-8 and a certificate in the form of Exhibit J and such Lender sells, assigns, --------- grants a participation in, or otherwise transfers all or part of the obligations of the Company to such Lender, such Lender agrees to notify the Agent and the Company of the percentage amount in which it is no longer the beneficial owner of obligations of the Company to such Lender. To the extent of such percentage amount, the Agent and the Company will treat such Lender's IRS Form W-8 and certificate in the form of Exhibit J as no longer valid. --------- SECTION 14 GENERAL. 14.1 Waiver, Amendments. No delay on the part of the Agent or any ------------------ Lender 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 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 Lenders 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 Lenders, 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 Lender without the consent of such Lender. No amendment, modification, waiver or consent shall (i) extend the date for payment of any principal of or interest on the Loans or any fees payable hereunder, (ii) reduce the principal amount of any Loan, the rate of interest thereon or any fees payable hereunder, (iii) release the U.S. Guaranty (other than with respect to a Person which ceases to be a Subsidiary as a result of a transaction permitted hereunder) or the Parent Guaranty or all or substantially all of the collateral granted under the Collateral Documents or (iv) reduce the aggregate Percentage required to effect an amendment, modification, waiver or consent without, in each case, the consent of all Lenders. No provision of Section 13 or ---------- any other provision of this Agreement affecting the Agent in its capacity as such shall be amended, modified or waived without the written consent of the Agent. 14.2 Confirmations. The Company and each Lender 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 Loan then outstanding under the applicable Note. -49- 14.3 Notices. Except as otherwise provided in Section 2.3, all notices ------- ----------- hereunder shall be in writing (including facsimile transmission) and shall be sent to the applicable party at its address shown on Schedule 14.3 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 2.3, 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 other Lender 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 Parent notifies -------- the Agent that Parent wishes to amend any covenant 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 Parent that the Required Lenders wish to amend Section 10 for such purpose), then Parent'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 Parent and the Required Lenders. 14.5 Regulation U. Each Lender 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 amendment, supplement or waiver to any Loan Document), 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 Lender 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 Lenders 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 -50- 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 Parent's auditors in connection with any reasonable exercise by the Agent and the Lenders 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 Judgment. If, for the purposes of obtaining judgment in any -------- court, it is necessary to convert a sum due hereunder or under any other Loan Document in one currency into another currency, the rate of exchange used shall be that at which in accordance with normal banking procedures the Agent could purchase the first currency with such other currency on the Business Day preceding that on which final judgment is given. The obligation of the Company in respect of any such sum due from it to the Agent or any Lender hereunder or under any other Loan Document shall, notwithstanding any judgment in a currency (the "Judgment Currency") other than that in which such sum is denominated in ----------------- accordance with the applicable provisions of this Agreement (the "Agreement --------- Currency"), be discharged only to the extent that on the Business Day following - -------- receipt by the Agent or such Lender of any sum adjudged to be so due in the Judgment Currency, the Agent or such Lender may in accordance with normal banking procedures purchase the Agreement Currency with the Judgment Currency. If the amount of the Agreement Currency so purchased is less than the sum originally due to the Agent or such Lender in the Agreement Currency, the Company agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Agent or such Lender against such loss. If the amount of the Agreement Currency so purchased is greater than the sum originally due to the Agent or such Lender in such currency, the Agent or such Lender agrees to return the amount of any excess to the Company (or to any other Person who may be entitled thereto under applicable law). 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 Lender 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 Related Funds (provided that no written consent of the Company or the Agent shall be required -------- in connection with any assignment and delegation by a Lender to a Related Fund), 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 Lender's Loan in a minimum aggregate amount equal to the lesser of (i) the amount of the assigning Lender's Loan and (ii) U.S. $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 7.5 or Section 8 to the Assignee than the ----------- --------- Company is then obligated to pay to the assigning Lender under such Sections (and if any assignment is made in violation of the foregoing, the Company will not be required to pay the -51- incremental amounts); and (b) the Company and the Agent shall be entitled to continue to deal solely and directly with such Lender 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 Lender 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 Lender and the Assignee, (y) the assigning Lender and the Assignee shall have executed and delivered to the Company and the Agent an assignment agreement substantially in the form of Exhibit H (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 Lender or the Assignee shall have paid the Agent a processing fee of U.S. $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 Lender hereunder, and (y) the assigning Lender, 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 amount of the Assignee's Loan and, if the assigning Lender continues to have a Loan hereunder, a replacement Note in the amount of the assigning Lender's Loan. Each such Note shall be dated the effective date of such assignment. The assigning Lender shall mark the predecessor Note "exchanged" and deliver such Note to the Company. Any attempted assignment and delegation not made in accordance with this Section 14.9.1 shall be null and void. -------------- The Company designates the Agent as its agent for maintaining a book entry record of ownership identifying the Lenders, their respective addresses and the amount of the respective Loans and Notes which they own. The foregoing provisions are intended to comply with the registration requirements in Treasury Regulation Section 5f. 103-1 so that the Loans and Notes are considered to be in "registered form" pursuant to such regulation. Notwithstanding the foregoing provisions of this Section 14.9.1 or any -------------- other provision of this Agreement, any Lender may at any time assign all or any portion of its Loan and its Note to a -52- Federal Reserve Bank (but no such assignment shall release any Lender from any of its obligations hereunder). 14.9.2 Participations. Any Lender may at any time sell to one or more -------------- commercial banks or other Persons participating interests in such Lender's Loan, the Note held by such Lender or any other interest of such Lender hereunder (any Person purchasing any such participating interest being called a "Participant"). ----------- In the event of a sale by a Lender of a participating interest to a Participant, (x) such Lender 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 Lender in connection with such Lender's rights and obligations hereunder and (z) all amounts payable by the Company shall be determined as if such Lender had not sold such participation and shall be paid directly to such Lender. No Participant shall have any direct or indirect voting rights hereunder except with respect to any of the events described in the fourth sentence of Section 14.1. Each Lender agrees to incorporate the ------------ requirements of the preceding sentence into each participation agreement which such Lender 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 and any Note to the same extent as if the amount of its participating interest were owing directly to it as a Lender 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 Lenders, and the Lenders agree to share with each Participant, as provided in Section 7.4. The Company ----------- also agrees that each Participant shall be entitled to the benefits of Section ------- 7.5 and Section 8 as if it were a Lender (provided that no Participant shall - --- --------- receive any greater compensation pursuant to Section 7.5 or Section 8 than would ----------- --------- have been paid to the participating Lender if no participation had been sold). Each Lender which sells a participation will maintain a book entry record of ownership identifying the Participant and the amount of such participation owned by such Participant. Such book entry record of ownership shall be maintained by the Lender as agent for the Company and the Agent. This provision is intended to comply with the registration requirements in Treasury Regulation Section 5f. 103-1 so that the Loans and Notes are considered to be in "registered form" pursuant to such regulation. 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 and the Lenders expressed herein or in any other Loan Document shall be in addition to and not in limitation of those provided by applicable law. -53- 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. 14.12 Successors and Assigns. This Agreement shall be binding upon ---------------------- the Company, the Lenders and the Agent and their respective successors and assigns, and shall inure to the benefit of the Company, the Lenders and the Agent and the successors and assigns of the Lenders and the Agent. The Company may not assign its rights or obligations hereunder without the prior written consent of all Lenders. 14.13 Indemnification by the Company. ------------------------------ (a) In consideration of the execution and delivery of this Agreement by the Agent and the Lenders and the agreement to make the Loans hereunder, the Company hereby agrees to indemnify and exonerate the Agent, each Lender and each of the officers, directors, investment advisors, trustees, employees, Affiliates and agents of the Agent and each Lender (each a "Lender Party") against, and ------------ hold each Lender 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 Lender Parties or any of them as a result of, or arising out of, or relating to (i) any tender offer, merger, amalgamation 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 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 Lender Parties, except for any such Indemnified Liabilities arising on account of any such Lender 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 Lender 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. -54- 14.14 Forum Selection and Consent to Jurisdiction. ANY LITIGATION ------------------------------------------- BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING -------- ------- ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS AND OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF ILLINOIS. THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE COMPANY HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE COMPANY HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 14.15 Waiver of Jury Trial. THE COMPANY, THE AGENT AND EACH LENDER -------------------- 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. 14.16 Authorization of Certain Documents. Each Lender hereby ---------------------------------- authorizes (i) the Agent to execute and deliver the Intercreditor Agreement and (ii) the Collateral Agent to execute and -55- deliver the Intercreditor Agreement. Without limiting the foregoing, the Lenders irrevocably authorize the Collateral Agent, at its option and in its discretion, to release any Lien granted to or held by the Collateral Agent under any Collateral Document (i) upon payment in full of all Loans and all other obligations of the Company hereunder; (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 Lenders. Upon request by the Collateral Agent at any time, the Lenders will confirm in writing the Collateral Agent's authority to release particular types or items of collateral pursuant to this Section 14.16. ------------- -56- Delivered at Chicago, Illinois, as of the day and year first above written. UNITED RENTALS, INC. By ________________________________ Chief Financial Officer BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By_________________________________ Title______________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By_________________________________ Title______________________________ ALLSTATE INSURANCE COMPANY By_________________________________ Title______________________________ By_________________________________ Title______________________________ S-1 ALLSTATE LIFE INSURANCE COMPANY By_________________________________ Title______________________________ By_________________________________ Title______________________________ BANKBOSTON, N,A. By_________________________________ Title______________________________ THE BANK OF NEW YORK By_________________________________ Title______________________________ THE BANK OF NOVA SCOTIA By_________________________________ Title______________________________ COMERICA BANK By_________________________________ Title______________________________ S-2 CREDIT LYONNAIS NEW YORK BRANCH By___________________________________________ Title________________________________________ CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC. As: Attorney-in-Fact and on behalf of First Allmerica Financial Life Insurance Company as Portfolio Manager By___________________________________________ Title________________________________________ CYPRESSTREE INVESTMENT FUND, LLC By: CypressTree Investment Management Company, Inc., its Managing Member By___________________________________________ Title________________________________________ KZH-CYPRESSTREE-1 CORPORATION By___________________________________________ Title________________________________________ CYPRESSTREE BOSTON PARTNERS By___________________________________________ Title________________________________________ S-3 DEUTSCHE BANK AG, New York Branch and/or Cayman Islands Branch By______________________________________ Title___________________________________ THE FIRST NATIONAL BANK OF MARYLAND By______________________________________ Title___________________________________ KZH-CNC CORPORATION By______________________________________ Title___________________________________ KZH-ING-2 CORPORATION By______________________________________ Title___________________________________ MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By______________________________________ Title___________________________________ S-4 METROPOLITAN LIFE INSURANCE COMPANY By______________________________________ Title___________________________________ MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST By______________________________________ Title___________________________________ THE TRAVELERS INSURANCE COMPANY By______________________________________ Title___________________________________ S-5 SCHEDULE 1.1(A)
Amount of Lender Loan Percentage - ------ --------- ---------- Bank of America National Trust and U.S.$72,500,000.00 29.000000000% Savings Association Allstate Insurance Company U.S. $5,000,000.00 2.000000000% Allstate Life Insurance Company U.S.$10,000,000.00 4.000000000% BankBoston, N.A. U.S.$10,000,000.00 4.000000000% The Bank of New York U.S.$10,000,000.00 4.000000000% The Bank of Nova Scotia U.S.$10,000,000.00 4.000000000% Comerica Bank U.S.$10,000,000.00 4.000000000% Credit Lyonnais New York Branch U.S.$12,500,000.00 5.000000000% First Allmerica Financial Life Insurance Company U.S. $2,000,000.00 0.800000000% CypressTree Investment Fund, LLC U.S. $2,000,000.00 0.800000000% KZH-CypressTree-I Corporation U.S.$11,000,000.00 4.400000000% CypressTree Boston Partners U.S. $5,000,000.00 2.000000000% Deutsche Bank AG New York Branch U.S.$10,000,000.00 4.000000000% The First National Bank of Maryland U.S. $3,000,000.00 1.200000000% KZH-CNC Corporation U.S. $5,000,000.00 2.000000000% KZH-ING-2 Corporation U.S.$10,000,000.00 4.000000000% Merrill Lynch Senior Floating Rate Fund, Inc. U.S.$10,000,000.00 4.000000000% Metropolitan Life Insurance Company U.S.$15,000,000,00 6.000000000% Morgan Stanley Dean Witter Prime Income Trust U.S.$15,000,000.00 6.000000000% The Travelers Insurance Company U.S.$22,000,000.00 8.800000000% ------------------- ------------- TOTALS U.S.$250,000,000.00 100%
SCHEDULE 1.1(B) PRICING SCHEDULE The Floating Rate Margin and the Fixed Rate Margin, respectively, shall be determined in accordance with the table below and the other provisions of this Schedule 1.1(B). ---------------
================================================================================ LEVEL I LEVEL II LEVEL III - -------------------------------------------------------------------------------- Fixed Rate Margin 2.375% 2.125% 1.875% - -------------------------------------------------------------------------------- Floating Rate Margin 0.50% O.25% 0% ================================================================================
Level I applies when the Funded Debt to Cash Flow Ratio is equal to or ------- greater than 4.0 to 1.0. Level II applies when the Funded Debt to Cash Flow Ratio is equal to or -------- greater than 3.50 to 1.0 but less than 4.0 to 1.0. Level III applies when the Funded Debt to Cash Flow Ratio is less than --------- 3.50 to 1.0. As of the Closing Date, the applicable Level shall be Level III. 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 Parent 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 10.1.3 by the 45th day (or, if -------------- applicable, the 90th day) after any Fiscal Quarter, Level I shall apply until such financial statements are delivered. -2- SCHEDULE 12.1.11 KEY EXECUTIVES Name Current Office(s) - ---- ----------------- Bradley S. Jacobs Chairman, Chief Executive Officer and Director John N. Milne Vice Chairman, Secretary, Director and Chief Acquisition Officer Michael J. Nolan Chief Financial Officer Robert P. Miner Vice President, Finance SCHEDULE 14.3 ADDRESSES FOR NOTICES UNITED RENTALS, INC. - -------------------- Four Greenwich Office Park Greenwich, Connecticut 06830 Attention: Chief Financial Officer Telephone: 203/622-3131 Facsimile: 203/622-6080 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent - --------------------------------- Agency Management Services 231 South LaSalle Street Chicago, Illinois 60697 Attention: Jay McKeown Telephone: 312/828-7299 Facsimile: 312/974-9102 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION - ------------------------------ 231 South LaSalle Street Chicago, Illinois 60697 Attention: Robert Rospierski Telephone: 312/828-8363 Facsimile: 312/828-1974 ALLSTATE INSURANCE COMPANY - -------------------------- 3075 Sanders Road, STE G3A Northbrook, Illinois 60062-7127 Attention: Bob Bodett Telephone: 847/402-3866 Facsimile: 847/402-3092 ALLSTATE LIFE INSURANCE COMPANY - ------------------------------- 3075 Sanders Road, STE G3A Northbrook, Illinois 60062-7127 Attention: Bob Bodett Telephone: 847/402-3866 Facsimile: 847/402-3092 BANKBOSTON, N.A. - ---------------- 100 Federal Street MC-01-08-02 Boston, MA 02110 Attention: Arthur Oberheim Telephone: 617/434-1956 Facsimile: 617/434-2160 THE BANK OF NEW YORK - -------------------- 10 Mason Street, 3rd Floor Greenwich, CT 06830 Attention: Patrick J. Kelly Telephone: 203/863-2679 Facsimile: 203/863-2610 THE BANK OF NOVA SCOTIA - ----------------------- 1 Liberty Plaza, 26th Floor New York, New York 10006 Attention: Kevin McCarthy Telephone: 212/225-5074 Facsimile: 212/225-5090 COMERICA BANK - ------------- One Detroit Center 6th Floor 500 Woodward Avenue Detroit, MI 48226 Attention: Mark Koszyk Telephone: 313/222-7441 Facsimile: 313/222-3503 -2- CREDIT LYONNAIS NEW YORK BRANCH - ------------------------------- 1301 Avenue of the Americas 12th Floor New York, NY 10019 Attention: Thomas Randolph Telephone: 212/261-7431 Facsimile: 212/459-3179 FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY - ------------------------------------------------ c/o CypressTree Investment Management Company, Inc. 125 High Street, 14th Floor Boston, Massachuestts 02110 Attention: Peter Merrill Telephone: 617/946-0600 Facsimile: 617/946-5681 CYPRESSTREE INVESTMENT FUND, LLC - -------------------------------- 125 High Street Boston, Massachusetts 02110 Attention: Tim Barns Telephone: 617/946-0600 Facsimile: 617/946-5681 KZH-CYPRESSTREE-1 CORPORATION - ----------------------------- c/o The Chase Manhattan Bank 450 West 33rd Street - 15th Floor New York, New York 10001 Attention: Virginia Conway Telephone: 212/946-7575 Facsimile: 212/946-7776 -3- CYPRESSTREE BOSTON PARTNERS - --------------------------- c/o BankBoston, N.A. Commercial Loan Services 100 Federal Street Boston, Massachusetts 02110 Attention: Halise Shrago Telephone: __________________ Facsimile: __________________ DEUTSCHE BANK AG - ---------------- 31 West 52nd Street New York, NY 10019 Attention: Sue Pearson Telephone: 212/469-7140 Facsimile: 212/469-8212 THE FIRST NATIONAL BANK OF MARYLAND - ----------------------------------- 25 South Charles Street Mail Code 101-501 Baltimore, MD 21203 Attention: Tom McLoughlin Telephone: 410/244-4906 Facsimile: 410/244-4295 KZH-CNC CORPORATION - ------------------- c/o The Chase Manhattan Bank 450 West 33rd Street - 15th Floor New York, New York 10001 Attention: Virginia Conway Telephone: 212/946-7575 Facsimile: 212/946-7776 -4- EX-10.DD 8 AGREEMENT - U.R.ET AL AND STOCKLDRS-6-30-98 - -------------------------------------------------------------------------------- AGREEMENT among UNITED RENTALS, INC., UNITED RENTALS OF NEW JERSEY, INC., HR MERGER CORP., SMSV ACQUISITION CORP., EQUIPMENT SUPPLY COMPANY, INC., HIGH REACH CO., INC., SPACE MAKER SYSTEMS OF VA., INC. and THE STOCKHOLDERS OF RYLAN, INC., HIGH REACH CO., INC. and SPACE MAKER SYSTEMS OF VA., INC. Dated as of June 30, 1998 - -------------------------------------------------------------------------------- TABLE OF CONTENTS ----------------- ARTICLE I SALE AND PURCHASE; THE MERGERS........................... 2 ARTICLE II CONSIDERATION............................................ 5 ARTICLE III CLOSING; TERMINATION..................................... 15 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLERS............ 16 ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS......... 33 ARTICLE VI COVENANTS................................................ 35 ARTICLE VII CONDITIONS TO CLOSING.................................... 44 ARTICLE VIII INDEMNIFICATION; TAX MATTERS............................. 48 ARTICLE IX MISCELLANEOUS............................................ 59 AGREEMENT --------- AGREEMENT, dated as of June 30, 1998 (this "Agreement"), among United --------- Rentals, Inc., a Delaware corporation ("URI"), United Rentals of New Jersey, --- Inc., a Delaware corporation and a direct wholly-owned subsidiary of URI ("URNJ"), HR Merger Corp., a Delaware corporation and a direct wholly-owned ---- subsidiary of URI ("HRMC"), SMSV Acquisition Corp., a Delaware corporation and a ---- direct wholly-owned subsidiary of URI ("SMSVAC"), Equipment Supply Company, ------ Inc., a New Jersey corporation ("ESC"), High Reach Co., Inc., a Pennsylvania --- corporation ("High Reach"), Space Maker Systems of VA., Inc., a Virginia ---------- corporation ("SMSV"), and the stockholders of each of Rylan, Inc., a Delaware ---- corporation ("Rylan"), High Reach and SMSV, respectively, executing a signature ----- page hereto (collectively, the "Stockholders"). URI, URNJ, HRMC and SMSVAC are ------------ sometimes collectively referred to in this Agreement as the "Purchasers"; Rylan, ---------- High Reach, SMSV and their respective Subsidiaries (as defined herein) are sometimes collectively referred to in this Agreement as the "Stock Companies"; --------------- the Stock Companies and ESC are sometimes collectively referred to in this Agreement as the "Acquired Companies"; and ESC and the Stockholders are ------------------ sometimes collectively referred to in this Agreement as the "Sellers". ------- W I T N E S S E T H: ------------------- WHEREAS, the Acquired Companies are engaged in the equipment rental business; and WHEREAS, the Stockholders, collectively, own all of the issued and outstanding shares of capital stock of each of Rylan (the "Rylan Shares"), High ------------ Reach (the "High Reach Shares") and SMSV (the "SMSV Shares" and, collectively ----------------- ----------- with the Rylan Shares and the High Reach Shares, the "Shares") as set forth on ------ Exhibit A hereto; and - --------- WHEREAS, ESC desires to sell to URNJ, and URNJ desires to purchase from ESC, the Assets (as defined herein) of ESC, for the purchase price and upon the terms and conditions hereinafter set forth; and WHEREAS, the Stockholders desire to sell to URI, and URI desires to purchase from the Stockholders, all of the Rylan Shares, for the purchase price and upon the terms and conditions hereinafter set forth; and WHEREAS, the respective boards of directors and stockholders of each of High Reach and HRMC have adopted resolutions approving this Agreement, pursuant to which, upon the terms and conditions hereinafter set forth, HRMC shall be merged with and into High Reach, with High Reach as the surviving corporation of such merger (the "HR Merger"); and --------- WHEREAS, the respective boards of directors and stockholders of each of SMSV and SMSVAC have adopted resolutions approving this Agreement, pursuant to which, upon the terms and conditions hereinafter set forth, SMSVAC shall be merged with and into SMSV, with SMSV as the surviving corporation of such merger (the "SMSV ---- Merger" and, together with the HR Merger, the "Mergers"); 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; THE MERGERS 1.1 Sale and Purchase of Rylan Shares. At the Closing, 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 Rylan Shares. 1.2 Sale and Purchase of Assets. At the Closing, upon the terms and subject --------------------------- to the conditions contained herein, ESC shall sell, assign, transfer, convey and deliver to URNJ, free and clear of all Liens, and URNJ shall purchase from ESC, all of ESC'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 ------- B hereto (the "Bill of Sale") and by such other instruments of transfer and - - ------------ assignment as the Purchasers may from time to time reasonably request in order to evidence and more formally vest in URNJ, 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 ESC. 1.3 Assumed Obligations; Retained Liabilities. From and after, and ----------------------------------------- effective as of, the Closing, and subject to adjustment of the Assets Purchase Price (as defined in Section 2.1(a)) pursuant to Section 2.2 below, URNJ shall assume, perform and discharge the obligations and liabilities, other than the Retained Liabilities, of ESC (whether accrued or unaccrued, fixed or contingent, liquidated or unliquidated, known or unknown, asserted or otherwise) including any such obligations or liabilities arising out of the operation of ESC's Business prior to the Closing and all obligations of ESC under the Contracts of ESC included in the Assets (collectively, the "Assumed Obligations"), pursuant ------------------- to an Assumption Agreement substantially in the form of Exhibit C hereto (the --------- "Assumption Agreement"). Notwithstanding anything in this Agreement, ESC shall - --------------------- remain solely responsible and liable for the timely performance and discharge, as and when due, of all 2 Retained Liabilities, and the Purchasers shall have no, and hereby disclaim any, obligation, responsibility or liability for any Retained Liabilities. 1.4 The HR Merger. ------------- (a) Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the Pennsylvania Business Corporation Law (the "PBCL") and the General Corporation Law of the State of Delaware (the "DGCL"), ---- ---- HRMC shall be merged with and into High Reach at the HR Effective Time (as defined below). At the HR Effective Time, the separate existence of HRMC shall cease, and High Reach shall continue as the surviving corporation and as a direct wholly-owned subsidiary of URI (the "HR Surviving Corporation"). ------------------------ (b) High Reach and HRMC shall file with the Secretaries of State of the Commonwealth of Pennsylvania and the State of Delaware (the "HR Secretaries of ----------------- State") on the Closing Date appropriate certificates and articles of merger - ----- (collectively, the "HR Certificate") and other appropriate documents, executed -------------- in accordance with the relevant provisions of the PBCL and the DGCL, and make all other filings or recordings required under the PBCL and the DGCL in connection with the HR Merger. The HR Merger shall become effective upon the filing of the HR Certificate with the HR Secretaries of State, or at such later time as may be specified in the HR Certificate as the parties may agree (the "HR -- Effective Time"). - -------------- (c) The HR Merger shall have the effects set forth in the PBCL and the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the HR Effective Time, all the properties, rights, privileges, powers and franchises of High Reach and HRMC shall vest in the HR Surviving Corporation. (d) The certificate of incorporation and by-laws of High Reach in effect at the HR Effective Time shall be the certificate of incorporation and by-laws of the HR Surviving Corporation until respectively amended in accordance with their terms and applicable Law. (e) The directors and officers of HRMC at the HR Effective Time shall be the initial directors and officers of the HR Surviving Corporation, each to hold office in accordance with the certificate of incorporation and by-laws of the HR Surviving Corporation until their respective successors are duly elected or appointed and qualified. (f) As of the HR Effective Time, by virtue of the HR Merger and without any action on the part of any holder of High Reach Shares or any shares of capital stock of HRMC: 3 (i) each share of common stock of HRMC issued and outstanding immediately prior to the HR Effective Time shall be converted into and become one validly issued, fully paid and nonassessable share of common stock of the HR Surviving Corporation; and (ii) each High Reach Share issued and outstanding immediately prior to the HR Effective Time shall be converted into the right to receive its allocable portion of the HR Merger Consideration (as defined in, and adjusted pursuant to, Section 2.1(d) below), and all certificates representing High Reach Shares issued and outstanding immediately prior to the HR Effective Time shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate that theretofore represented any High Reach Shares shall cease to have any rights with respect thereto, except the right to receive such HR Merger Consideration upon surrender of such certificate in accordance with this Agreement. 1.5 The SMSV Merger. --------------- (a) Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the Virginia Stock Corporation Act (the "VCL") --- and the DGCL, SMSVAC shall be merged with and into SMSV at the SMSV Effective Time (as defined below). At the SMSV Effective Time, the separate existence of SMSVAC shall cease, and SMSV shall continue as the surviving corporation and as a direct wholly-owned subsidiary of URI (the "SMSV Surviving Corporation" and, -------------------------- together with the HR Surviving Corporation, the "Surviving Corporations"). ---------------------- (b) SMSV and SMSVAC shall file with the Secretaries of State of the States of Virginia and Delaware (the "SMSV Secretaries of State") on the Closing ------------------------- Date appropriate certificates and articles of merger (collectively, the "SMSV ---- Certificate") and other appropriate documents, executed in accordance with the - ----------- relevant provisions of the VCL and the DGCL, and make all other filings or recordings required under the VCL and the DGCL in connection with the SMSV Merger. The SMSV Merger shall become effective upon the filing of the SMSV Certificate with the SMSV Secretaries of State, or at such later time as may be specified in the SMSV Certificate as the parties may agree (the "SMSV Effective -------------- Time"). - ---- (c) The SMSV Merger shall have the effects set forth in the VCL and the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the SMSV Effective Time, all the properties, rights, privileges, powers and franchises of SMSV and SMSVAC shall vest in the SMSV Surviving Corporation. (d) The articles of incorporation and by-laws of SMSV in effect at the SMSV Effective Time shall be the articles of incorporation and by-laws of the SMSV 4 Surviving Corporation until respectively amended in accordance with their terms and applicable Law. (e) The directors and officers of SMSVAC at the SMSV Effective Time shall be the initial directors and officers of the SMSV Surviving Corporation, each to hold office in accordance with the certificate of incorporation and by- laws of the SMSV Surviving Corporation until their respective successors are duly elected or appointed and qualified. (f) As of the SMSV Effective Time, by virtue of the SMSV Merger and without any action on the part of any holder of SMSV Shares or any shares of capital stock of SMSVAC: (i) each share of common stock of SMSVAC issued and outstanding immediately prior to the SMSV Effective Time shall be converted into and become one validly issued, fully paid and nonassessable share of common stock of the SMSV Surviving Corporation; and (ii) each SMSV Share issued and outstanding immediately prior to the SMSV Effective Time shall be converted into the right to receive its allocable portion of the SMSV Merger Consideration (as defined in, and adjusted pursuant to, Section 2.1(c) below), and all certificates representing SMSV Shares issued and outstanding immediately prior to the SMSV Effective Time shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate that theretofore represented any SMSV Shares shall cease to have any rights with respect thereto, except the right to receive such SMSV Merger Consideration upon surrender of such certificate in accordance with this Agreement. ARTICLE II CONSIDERATION 2.1 Amount. ------ (a) Assets. The aggregate purchase price for the Assets shall be ------ $186,667,000 in cash (the "Assets Purchase Price"), which amount shall be (i) --------------------- decreased by the amount of ESC's Closing Date Debt pursuant to Section 2.2(a) and (ii) subject to further adjustment pursuant to the provisions of subsections (b), (c) and (d) of Section 2.2. At the Closing, $20,250,000 of the Assets Purchase Price (the "ESC Escrow") shall be deposited in escrow as described in ---------- Section 2.3 and the balance shall be paid to ESC. 5 (b) Rylan Shares. The aggregate purchase price for the Rylan Shares ------------ shall be $22,526,000 in cash (the "Rylan Purchase Price"), which amount shall be -------------------- (i) decreased by the amount of Rylan's Closing Date Debt pursuant to Section 2.2(a) and (ii) subject to further adjustment pursuant to the provisions of subsections (b), (c) and (d) of Section 2.2. At the Closing, $1,200,000 of the Rylan Purchase Price (collectively with the ESC Escrow, the "Cash Escrow") shall ----------- be deposited in escrow as described in Section 2.3 and the balance shall be paid to the Stockholders of Rylan. (c) SMSV Merger Consideration. The aggregate consideration into which ------------------------- the outstanding SMSV Shares shall be converted at the Closing shall consist of such number of shares of URI Common Stock (rounded up to the nearest whole share) obtained by dividing $3,600,000 by the Stock Value (the "SMSV Merger ----------- Consideration"), which number of shares shall, in accordance with Section 2.1(e) - ------------- below, be (i) decreased by the amount of SMSV's Closing Date Debt pursuant to Section 2.2(a) and (ii) subject to further adjustment pursuant to the provisions of subsections (b), (c) and (d) of Section 2.2. At the Closing, URI shall deposit with the Escrow Agent pursuant to Section 2.3 such number of shares of URI Common Stock (rounded up to the nearest whole share) constituting the SMSV Merger Consideration as equals $250,000 divided by the Stock Value (the "SMSV ---- Escrow") and the balance of the SMSV Merger Consideration shall be issued to the - ------ Stockholders of SMSV. (d) HR Merger Consideration. The aggregate consideration into which ----------------------- the outstanding High Reach shall be converted at the Closing shall consist of such number of shares of URI Common Stock (rounded up to the nearest whole share) obtained by dividing $5,102,000 by the Stock Value (the "HR Merger --------- Consideration"), which number of shares shall, in accordance with Section 2.1(e) - ------------- below, be (i) decreased by the amount of High Reach's Closing Date Debt pursuant to Section 2.2(a) and (ii) subject to further adjustment pursuant to the provisions of subsections (b), (c) and (d) of Section 2.2. At the Closing, URI shall deposit with the Escrow Agent pursuant to Section 2.3 such number of shares of URI Common Stock (rounded up to the nearest whole share) constituting the HR Merger Consideration as equals $300,000 divided by the Stock Value (collectively with the SMSV Escrow, the "Stock Escrow"; the Stock Escrow and the ------------ Cash Escrow being sometimes collectively referred to herein as the "Escrow") and ------ the balance of the HR Merger Consideration shall be issued to the Stockholders of High Reach. (e) Valuation of URI Common Stock. For purposes of any adjustments ----------------------------- pursuant to this Article II to the number of shares of URI Common Stock constituting the HR Merger Consideration or SMSV Merger Consideration, each share of URI Common Stock shall be deemed to have a value equal to the Stock Value. (f) Allocations. The allocation of the Assets Purchase Price among the ----------- Assets shall be as set forth on Exhibit D hereto. Subject to the requirements --------- of any applicable Tax law, all Tax Returns and reports filed by the Purchasers and the Sellers 6 shall be prepared consistently with such allocations. In the event of any purchase price adjustments are made hereunder, the parties hereto agree to adjust such allocations to reflect such purchase price adjustments and to file consistently any Tax Returns and reports required as a result of such purchase price adjustments. 2.2 Adjustments to the Purchase Price. The Assets Purchase Price, the Rylan --------------------------------- Purchase Price, the SMSV Merger Consideration and the HR Merger Consideration shall be respectively adjusted as follows: (a) Closing Date Debt. Attached as Schedule 2.2(a) is a list for each ----------------- of the Acquired Companies, as of the date hereof, of all indebtedness of such Acquired Company that would be Closing Date Debt on the Closing Date. The Sellers covenant and agree to deliver to the Purchasers not less than three Business Days prior to the Closing Date definitive schedules setting forth the respective Closing Date Debt of each of the Acquired Companies, under cover of a certificate executed by the Representative certifying that such schedules set forth a true, complete and accurate list of the respective and aggregate Closing Date Debt of the Acquired Companies (which certificate and schedules shall be a representation and warranty of ESC, LPC and DC to the Purchasers under and for purposes of this Agreement). Concurrently with the delivery of such schedules and certificate, the Representative shall also deliver to the Purchasers a list containing wire transfer instructions for creditors whose Closing Date Debt will be repaid by the Acquired Companies in connection with the Closing, and copies of pay-off letters or instructions from such creditors in form reasonably satisfactory to URI and its senior lenders. At the Closing, an amount equal to the Closing Date Debt of ESC, Rylan, SMSV and High Reach shall be subtracted from the Assets Purchase Price, the Rylan Purchase Price, the SMSV Merger Consideration and the HR Merger Consideration, respectively; provided that no such reduction shall be made to the extent of (x) interest on the Closing Date Debt accrued between July 1, 1998 and the Closing Date or (y) late payment penalties arising out of the Acquired Companies' failure to make payments on Closing Date Debt that became due between June 15, 1998 and the Closing Date. (b) Equipment Adjustment. -------------------- (i) ESC, LPC and DC hereby represent and warrant to the Purchasers that the Rental Asset Listings attached as Schedule 2.2(b) set forth, for each of the Acquired Companies, 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 such --------- Acquired Company as of January 1, 1998 (the "1/98 RALs"). ESC, LPC and DC --------- covenant and agree to deliver to the Purchasers, not less than three Business Days prior to the Closing Date, Rental Asset Listings for each of the Acquired Companies setting forth the asset description, make, model, original cost and net book value of all Equipment of such Acquired Company as of the Closing Date (the "Closing Date RALs"), which Closing Date RALs shall identify and ----------------- 7 reflect all purchases and sales of Equipment by each such Acquired Company since January 1, 1998. The 1/98 RALs and the Closing Date RALs shall be prepared consistently with, and reflect the treatment of the Acquired Companies' respective Equipment on, the Balance Sheets (as defined in Section 4.7). ESC, LPC and DC hereby represent and warrant to the Purchasers that the 1/98 RALs are, and the Closing Date RALs will upon delivery to the Purchasers as set forth above be, true, complete and correct. (ii) The Assets Purchase Price, the Rylan Purchase Price, the SMSV Merger Consideration and the HR Merger Consideration shall be respectively (A) reduced for each item of Equipment listed on the 1/98 RALs for ESC, Rylan, SMSV and High Reach, respectively, which, on and as of the Closing Date, is missing (or non-existing), not Rental Ready or has been sold, and (B) increased by the cost of each item of Equipment not listed on the 1/98 RALs for ESC, Rylan, SMSV and High Reach, respectively, that was purchased by such Acquired Company between January 1, 1998 and the Closing Date (it being understood that the Sellers shall have obtained the prior approval of URI for any such purchase or purchases that individually or in the aggregate exceeded $25,000) ("Equipment --------- Adjustments"). 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 the greater of (1) $1,000 per Item (as defined below) and (2) 7% of the original list price of such Item at the time of purchase; provided that the consideration -------- payable by the Purchasers pursuant to Section 2.1 above shall only be reduced on account of the non-Rental Readiness of Equipment to the extent that the aggregate required repairs for all such non-Rental Ready Equipment of the Acquired Companies would exceed $150,000 in the aggregate. Unless otherwise specifically agreed to by URI in writing, operating leases entered into by the Acquired Companies shall not cause an adjustment to the Assets Purchase Price, the Rylan Purchase Price, the SMSV Merger Consideration or the HR Merger Consideration pursuant to an Equipment Adjustment. The reduction in the Assets Purchase Price, the Rylan Purchase Price, the SMSV Merger Consideration and the HR Merger Consideration, as the case may be, described in clause (A) of the definition of "Equipment Adjustments" above shall be equal to (x) the aggregate fair market value (as determined by URI and the Representative) of all sold, missing or unavailable Equipment (the fair market value of all Equipment sold by the Acquired Companies in an arm's-length transaction to an independent third party shall be presumed to equal the gross purchase price payable to the Acquired Companies in respect thereof including any debt or other obligations of the Acquired Companies, the Sellers and their respective Affiliates forgiven or assumed in connection with such transaction) and (y) the lesser of (I) the repair cost and (II) the Replacement Cost (as hereinafter defined) for all non- Rental Ready Equipment. For purposes of the preceding sentence, the "Replacement Cost" of any Item of non-Rental Ready Equipment shall be the all - ----------------- included cost (including applicable freight and delivery charges) of a Rental Ready replacement of the same brand, make, model and age as the non-Rental Ready Item. For purposes of this Section, an "Item" of Equipment ---- 8 includes all components and accessories of each piece of Equipment that are commonly used together in the ordinary and intended manner of use of such Equipment. (iii) Estimated Equipment Adjustments shall be made on the Closing Date based on a comparison of the 1/98 RALs and the Closing Date RALs. Within 85 days following the Closing Date, URI shall complete a physical inventory of each item of Equipment on the Closing Date RALs, including by visiting renters' locations as necessary to inspect such Equipment, and the Assets Purchase Price, the Rylan Purchase Price, the SMSV Merger Consideration and the HR Merger Consideration shall be respectively further decreased or increased, as the case may be, if and as necessary, based on Equipment Adjustments for missing or non- existing Equipment as determined from URI's physical inventory ("Post-Closing ------------ Equipment Adjustments"). The Representative shall have the right to accompany - --------------------- URI's representatives in the taking of the physical inventory described in the preceding sentence. There shall be no Post-Closing Equipment Adjustments made on account of Equipment not being Rental Ready. URI shall notify the Representative in writing of URI's determination of the Post-Closing Equipment Adjustments within 90 days following the Closing Date. (iv) 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 seven days shall be resolved by an independent third party mutually acceptable to URI and the Representative or, if URI and the Representative cannot agree on the designation of such independent third party within three Business Days, by the Independent Firm, which independent third party shall set forth its determination in a written report delivered to URI and the Representative within 20 days of its retention and whose determination shall be final, binding and conclusive on the parties hereto, absent manifest error. (v) Payments resulting from Post-Closing Equipment Adjustments shall be made in accordance with Section 2.2(e) below. (c) Receivables Adjustment. ---------------------- (i) Receivables of the Stock Companies. ESC, LPC and DC hereby ---------------------------------- represent and warrant to the Purchasers that all of the accounts receivable of the Stock Companies, including all accounts receivable reflected on the Balance Sheets (the "Receivables"), have arisen and will arise from bona fide ----------- transactions in the ordinary course of business consistent with past practice, are and will be good and valid, and will be collectable by the Stock Companies and the Surviving Corporations at the aggregate recorded amounts thereof not later than 120 days after the Closing Date. To the extent any Receivables existing on the Closing Date remain outstanding following such 120 day period, the Purchasers shall be entitled to be paid, and the parties hereto shall give instructions to the Escrow Agent to pay, out of the Adjustments Escrow (as defined in 9 Section 2.3) an amount (on a dollar-for-dollar basis) equal to the Receivables remaining unpaid at such time (the "Receivables Adjustment"). Upon receipt of ---------------------- such payment in respect of unpaid Receivables, the Purchasers shall assign such unpaid Receivables to the Representative, for the account of the Stockholders of the Stock Company to which such Receivables relate. For a period of 120 days following the Closing Date, URI shall cause the Stock Companies and the Surviving Corporations to use reasonable commercial efforts, consistent with past practice, to collect the Receivables at no cost to the Sellers. Upon any assignment to the Representative of any uncollected Receivables pursuant to this Section 2.2(c)(i), URI shall cause the Stock Companies and the Surviving Corporations to continue to use reasonable commercial efforts to collect such Receivables on behalf of the Representative for a period to end not later than the first anniversary of the Closing Date, and in consideration therefor the Stock Companies and the Surviving Corporations shall be entitled to retain 20% of all amounts collected by them in respect of such Receivables. It is understood and agreed that in exercising "reasonable commercial efforts" to collect Receivables pursuant to this Section 2.2(c)(i), none of the Purchasers, the Stock Companies or the Surviving Corporations shall have any obligation to (A) incur any material expense (other than the reasonable time and effort of their employees to collect Receivables in the ordinary course of business consistent with past custom and practice), (B) threaten or commence any litigation or (C) prepare or file any proof of claim in any bankruptcy or similar proceeding in connection with the collection of such Receivables (provided that the Purchasers, the Stock Companies and the Surviving Corporations shall promptly send to the Representative copies of written notices received by any of them relating to the bankruptcy of any obligor of such Receivables in connection with their efforts to collect the same). (ii) ESC Receivables. Accounts receivable of ESC are not included in --------------- the Assets being purchased by URNJ hereunder. Upon receipt by (a) URNJ of any payments in respect of accounts receivable of ESC for periods prior to the Closing Date ("ESC Receivables") or (b) ESC of any payments in respect of --------------- accounts receivable of ESC's, URNJ's or any of the Stock Companies' businesses for periods on or following the Closing Date ("URI Receivables"), the receiving --------------- party shall promptly (and in any event within 14 days) remit such payment to the other party. ESC Receivables shall remain the property of ESC and URNJ shall act only in the capacity of agent for ESC in respect of the collection thereof, and URI Receivables shall remain the property of URNJ and ESC shall act only in the capacity of agent for URNJ in respect of the collection thereof. URNJ agrees that for a period of 120 days following the Closing Date, it will use reasonable commercial efforts to collect the ESC Receivables on behalf of ESC at no cost to the Sellers. Following the end of such 120 day period and until the first anniversary of the Closing Date, URNJ shall continue to use reasonable commercial efforts to collect such ESC Receivables and in consideration therefor URNJ shall be entitled to retain 20% of all amounts collected by it in respect of such ESC Receivables. Except in connection with remitting the proceeds of the collection of ESC Receivables and URI Receivables, as the case may be, and except as otherwise provided in this Section 2.2(c)(ii), no party shall 10 have any obligation to take any other or further action (including the commencement of any litigation or the preparation or filing of any proof of claim in any bankruptcy or similar proceeding) or to incur any expense (other than the reasonable time and effort of a party's employees to collect receivables in the ordinary course of business consistent with past custom and practice) in connection with the collection of such accounts receivable (provided that URNJ shall promptly send to the Representative copies of written notices received by URNJ relating to the bankruptcy of any obligor of ESC Receivables in connection with its efforts to collect the same). No party shall have any authority to settle, adjust, compromise, release or discharge any of the accounts receivable which are the property of the other party as set forth above without the prior approval of such other party. (iii) Application of Receivables. For purposes of this Section -------------------------- 2.2(c), unless otherwise specified by the customer (in any remittance or otherwise) collected receivables shall be applied against invoices on a "FIFO" basis. (d) Net Current Position Adjustment. ESC, LPC and DC hereby covenant ------------------------------- and agree to deliver to the Purchasers not less than three Business Days prior to the Closing Date schedules setting forth the Sellers' best good faith estimate (as set forth in an accompanying certificate executed by the Representative) of the consolidated Net Current Position (as hereinafter defined) of each of the Acquired Companies as of the Closing Date ("Projected --------- Net Current Position"), which schedules ESC, LPC and DC hereby represent and - -------------------- warrant to the Purchasers will be prepared on a basis consistent with the Balance Sheets, subject to the adjustments detailed on such schedules. The Assets Purchase Price, the Rylan Purchase Price, the SMSV Merger Consideration and the HR Merger Consideration paid at the Closing shall be increased by the amount shown as a positive balance on such schedules for ESC, Rylan, SMSV and High Reach, respectively, or decreased by the amount shown as a negative balance on such schedules for ESC, Rylan, SMSV and High Reach, respectively, as the case may be. Promptly following the Closing Date (but in any event no later than 90 days after the Closing Date), URI shall prepare and deliver to the Representative schedules showing the actual consolidated Net Current Position of the Acquired Companies at the Closing Date ("Closing Net Current Position"). If ---------------------------- the Representative agrees 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 Representative within seven days after the Representative's receipt of such schedules specifying any objections the Sellers may have (an "Objection Notice"), the ---------------- Representative and URI shall attempt to reconcile such items as are in dispute. If the Representative and URI are unable to reconcile all such items within five 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 Representative or, if the parties cannot agree on the designation of such independent third party within five Business Days, by the Independent Firm, which independent third party shall set forth its determination in a written report delivered 11 to URI and the Representative within 15 days of its retention and whose determination shall be final, binding and conclusive on the parties hereto, absent manifest error. If the Closing Net Current Position for ESC, Rylan, SMSV or High Reach is greater than the Projected Net Current Position for such Acquired Company, then the Purchasers shall pay to the Representative on behalf of the Sellers of such Acquired Company the amount of such excess in accordance with Section 2.2(e), and if the Closing Net Current Position for ESC, Rylan, SMSV or High Reach is less than the Projected Net Current Position for such Acquired Company, the Sellers shall pay the Purchasers the amount of such shortfall in accordance with Section 2.2(e) ("Net Current Position -------------------- Adjustments"). As used in this Agreement, the term "Net Current Position" means: -------------------- (i) with respect to any of the Stock Companies, the difference between the (A) aggregate current assets (including cash and cash equivalents), marketable securities, prepaid expenses and deposits, the fair market value of Inventory (as hereinafter defined) and, subject to the provisions of Section 2.2(c), accounts receivable (including earned but not yet billed accounts receivable), and (B) aggregate current liabilities (excluding the current portion of long-term debt) of such Person; and (ii) with respect to ESC, the difference between the (A) aggregate prepaid expenses and deposits and the fair market value of Inventory, and (B) aggregate current liabilities (excluding the current portion of long- term debt) of ESC to the extent such liabilities are Assumed Obligations. As used in this Section 2.2(d), the term "Inventory" means all inventories of equipment, parts, merchandise and supplies that (x) consist of new or remanufactured items, (y) are not part of the Acquired Companies' respective rental fleets and (z) are held by the Acquired Companies for resale to customers (or held for use in repairs and maintenance of equipment in the rental fleets of the Acquired Companies) in the ordinary course of the Business and are classified as such on the Acquired Companies' financial statements. (e) General. ------- (i) Not later than 120 days following the Closing Date (unless URI and the Representative otherwise agree in writing), URI shall deliver to the Representative a schedule setting forth (A) the net amount of the adjustments (upward or downward) to each of the Assets Purchase Price and the Rylan Purchase Price due to Post-Closing Equipment Adjustments and Net Current Position Adjustments, and identifying the parties responsible for payment in respect thereof pursuant to Sections 2.2(b) and 2.2(d); (B) the net amount of all the adjustments (upward and downward) described in the foregoing clause (A) on an aggregate combined basis as between the Sellers, on the one hand, and 12 the Purchasers, on the other hand, and whether the Sellers or the Purchasers are responsible for such net amount (the "Net Cash Adjustment"); (C) the net amount ------------------- of the adjustments (upward or downward) to the SMSV Merger Consideration due to Post-Closing Equipment Adjustments and Net Current Position Adjustments, and whether the Purchasers or the Stockholders of SMSV are responsible for payment in respect thereof pursuant to Sections 2.2(b) and 2.2(d) (the "Net SMSV Merger --------------- Adjustment"); and (D) the net amount of the adjustments (upward or downward) to - ---------- the HR Merger Consideration due to Post-Closing Equipment Adjustments and Net Current Position Adjustments, and whether the Purchasers or the Stockholders of HR are responsible for payment in respect thereof pursuant to Sections 2.2(b) and 2.2(d) (the "Net HR Merger Adjustment"). ------------------------ (ii) If the Net Cash Adjustment is payable by the Sellers, then the relevant Sellers shall pay to URI, in cash, the amount of such Net Cash Adjustment and URI shall be entitled to be paid out of the Adjustments Escrow, and URI and the Representative shall give instructions to the Escrow Agent to pay to URI, an amount equal to such Net Cash Adjustment within 125 days following the Closing Date. If the Net Cash Adjustment is payable by the Purchasers, URI shall pay to the Representative on behalf of the Sellers entitled thereto the amount of such Net Cash Adjustment in cash within 125 days following the Closing Date. (iii) If the Net SMSV Merger Adjustment is payable by the Stockholders of SMSV, then such Stockholders shall pay to URI the amount of such Net SMSV Merger Adjustment (at such Stockholders' option either in cash or shares of URI Common Stock valued in accordance with Section 2.1(e)), and URI shall be entitled to be paid out of the Adjustments Escrow, and URI and the Representative shall give instructions to the Escrow Agent to pay to URI, an amount equal to such Net SMSV Merger Adjustment within 125 days following the Closing Date. If the Net SMSV Merger Adjustment is payable by the Purchasers, URI shall issue to the Stockholders of SMSV additional shares of URI Common Stock having a value (determined in accordance with Section 2.1(e)) equal the amount of such Net SMSV Merger Adjustment within 125 days following the Closing Date, which additional shares shall be subject to the terms and provisions of the URI Stock Agreement. (iv) If the Net HR Merger Adjustment is payable by the Stockholders of High Reach, then such Stockholders shall pay to URI the amount of such Net HR Merger Adjustment (at such Stockholders' option either in cash or shares of URI Common Stock valued in accordance with Section 2.1(e)), and URI shall be entitled to be paid out of the Adjustments Escrow, and URI and the Representative shall give instructions to the Escrow Agent to pay to URI, an amount equal to such Net HR Merger Adjustment within 125 days following the Closing Date. If the Net HR Merger Adjustment is payable by the Purchasers, URI shall issue to the Stockholders of High Reach additional shares of URI Common Stock having a value (determined in accordance with Section 2.1(e)) equal the amount of such Net HR Merger Adjustment within 125 days 13 following the Closing Date, which additional shares shall be subject to the terms and provisions of the URI Stock Agreement. (f) Fees. The fees and expenses of the independent firm selected ---- pursuant to paragraphs (b) and (d) of this Section 2.2 shall be paid one-half by URI and one half by LPC and DC. 2.3 Escrow. (a) At the Closing, (i) $9,450,000 of the Cash Escrow and all ------ of the shares of URI Common Stock constituting the Stock Escrow shall be deposited with Wilmington 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 "Adjustments Escrow"), and ----------- ------------------ (ii) the balance of the Cash Escrow shall be deposited with 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-2 hereto (the "Indemnity ----------- --------- Escrow"). All interest and dividends earned on the Adjustments Escrow and the - ------ Indemnity Escrow during the respective terms thereof shall be paid to the parties entitled, pursuant to the provisions hereof and thereof, to the principal amount of such Escrows on a pro rata basis in relation to such entitlements. (b) It is acknowledged and agreed that the adjustments made to the Assets Purchase Price, the Rylan Purchase Price, the SMSV Merger Consideration and the HR Merger Consideration on the Closing Date will be based on information prepared by the Sellers and delivered to URI. To the extent that the aggregate amount of the adjustments to the Assets Purchase Price, the Rylan Purchase Price, the SMSV Merger Consideration and the HR Merger Consideration pursuant to Section 2.2, as subsequently determined, exceed the Adjustments Escrow, then ESC (in respect of adjustments to the Assets Purchase Price), the Stockholders of Rylan (in respect of adjustments to the Rylan Purchase Price), the Stockholders of SMSV (in respect of adjustments to the SMSV Merger Consideration) and the Stockholders of High Reach (in respect of adjustments to the HR Merger Consideration), shall pay to URI any such deficiency by wire transfer of immediately available funds (except to the extent that such deficiency is owed in respect of the SMSV Merger Consideration or the HR Merger Consideration, in which case the Stockholders of SMSV or High Reach, as the case may be, shall have the option of delivering shares of URI Common Stock having value (determined in accordance with Section 2.1(e)) equal to such deficiency) not later than five Business Days after calculation of such deficiency, and if such respective Sellers do not so pay, ESC, LPC and DC, jointly and severally, shall pay URI the amount of all such unpaid deficiencies within two Business Days' of LPC's receipt of notice of such Sellers' failure to so pay. Notwithstanding anything in this Agreement, the Purchasers shall not be limited to the Adjustments Escrow as a sole remedy in the event that any adjustment pursuant to Section 2.2 exceeds the Adjustments Escrow. 14 ARTICLE III CLOSING; TERMINATION 3.1 Closing. Subject to the satisfaction of the conditions set forth in ------- Article VII hereof (or the waiver thereof by the party entitled to waive that condition), the closing of the Mergers and the sale and purchase of the Shares and the Assets provided for in Article I hereof (the "Closing") shall take ------- place, simultaneously, 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 (or at such other place as the parties may designate in writing) on July 9, 1998, or on such other date as URI and the Representative may designate in writing. The date on which the Closing is held is referred to in this Agreement as the "Closing Date". - ------------- 3.2 Termination of Agreement. This Agreement may be terminated prior to the ------------------------ Closing as follows: (a) At the election of URI or the Representative (on behalf of the Sellers, SMSV and High Reach) on or after July 9, 1998, if the Closing shall not have occurred (or, due to a breach by the other party that can not be cured by such date, is incapable of occurring) by the close of business on such date, provided that the terminating party or its Affiliates is not in default of -------- any of its obligations hereunder; (b) by mutual written consent of URI and the Representative (on behalf of the Sellers, SMSV and High Reach); or (c) by URI or the Representative (on behalf of the Sellers, SMSV and High Reach) if there shall be in effect a final nonappealable order of a Governmental Body of competent jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby. In the event of termination of this Agreement by URI or the Representative (on behalf of the Sellers, SMSV and High Reach), or both, pursuant to the provisions of this Section 3.2, written notice thereof shall forthwith be given to the other party or parties, and this Agreement shall terminate, and the Mergers and the purchase of the Shares and Assets hereunder shall be abandoned, without further action by the Purchasers, the Sellers, SMSV or High Reach. If this Agreement is terminated as provided herein each party shall redeliver all documents, work papers and other material of any other party relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the party furnishing the same. In the event that this Agreement is validly terminated as provided herein, then each of the parties shall be relieved of their duties and obligations arising under this Agreement after the date of such termination and such termination shall be without liability to the Purchasers, the Sellers, SMSV or High Reach; provided, however, that the obligations of the -------- ------- parties set forth in Section 9.4 hereof shall survive any such termination and shall be enforceable hereunder; and provided, further, that nothing in this -------- ------- Section 3.2 shall relieve any party of any liability for a breach of this Agreement. 15 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLERS (i) ESC, LPC and DC, jointly and severally, as to each of the Acquired Companies and each of the Sellers; (ii) each Stockholder of Rylan other than LPC and DC, severally but not jointly, as to Rylan and such Stockholder with respect to those representations and warranties set forth in Sections 4.2, 4.3, 4.6 and 4.26 and only as to such Stockholder with respect to the representations and warranties set forth in Sections 4.5 and 4.21; and (iii) each Stockholder of SMSV other than LPC and DC, severally but not jointly, as to SMSV and such Stockholder with respect to those representations and warranties set forth in Sections 4.2, 4.3, 4.6 and 4.26 and only as to such Stockholder with respect to the representations and warranties set forth in Sections 4.5 and 4.21; hereby represents and warrants to the Purchasers that: 4.1 Organization and Good Standing. Each of the Acquired Companies is a ------------------------------ corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation respectively set forth on Schedule 4.1 hereto and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now conducted. Each of the Acquired Companies is duly qualified and authorized to do business as a foreign corporation in each jurisdiction listed with respect thereto on Schedule 4.1, which listed jurisdictions are 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. Each Seller and Acquired Company has all -------------------------- requisite (corporate, trust or otherwise) power, authority and legal capacity to execute and deliver this Agreement and each other Seller Document to which such Seller or Acquired Company 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, trust or otherwise) on the part of the Sellers and the Acquired Companies. This Agreement has been, and each of the other Seller Documents will prior to the Closing have been, duly and validly executed and delivered by each Seller and Acquired Company party thereto and (assuming the due authorization, execution and delivery thereof by the other parties hereto and thereto) this Agreement constitutes, and each of the other Seller Documents when so executed and delivered will constitute, legal, valid and binding obligations of each Seller party thereto, enforceable against each such Seller in accordance with their respective terms, subject to applicable bankruptcy, 16 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). The board of directors and stockholders of High Reach have unanimously adopted this Agreement and voted in favor of the HR Merger. The board of directors and stockholders of SMSV have unanimously adopted this Agreement and voted in favor of the SMSV Merger. 4.3 Capitalization; No Subsidiaries. ------------------------------- (a) The authorized, issued and outstanding capital stock (including treasury stock) of each of Rylan, High Reach and SMSV is as set forth on Schedule 4.3(a) hereto. The Shares being acquired by the Purchasers hereunder constitute all of the outstanding shares of capital stock of Rylan, High Reach and SMSV, respectively. (b) All of the issued and outstanding shares of capital stock of the Acquired Companies 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. (c) None of the Acquired Companies owns or has any Subsidiaries or otherwise owns any stock, limited liability company membership, partnership or other equity interest in any Person, or any options, warrants or rights to acquire, or securities convertible into or exchangeable for, any such interests in any Person. (d) There is no (i) existing option, warrant, call, right, commitment or other agreement of any character to which any Stockholder or Acquired Company is a party requiring, and there are no securities of any Acquired Company outstanding, which upon conversion or exchange would require, the issuance, sale or transfer of any additional shares of capital stock or other equity securities of any of the Acquired Companies 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 any of the Acquired Companies; (ii) existing commitment or agreement to which any Acquired Company is a party requiring it to purchase any securities of, or otherwise advance funds to, any other Person; (iii) voting trust or other agreement with respect to any shares of capital stock of any of the Acquired Companies or any agreements relating to the issuance, sale, redemption, transfer or other disposition of the capital stock of any of the Acquired Companies. 4.4 Corporate Records. The Representative has delivered to URI true, ----------------- correct and complete copies of the certificate/articles of incorporation of each of the Acquired Companies, certified by the Secretary of State of their respective jurisdictions of incorporation, and the by-laws of each of the Acquired Companies, each certified by their 17 respective corporate secretaries. The minute books of the Stock Companies made available to URI contain complete and 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 each of the Stock Companies. The stock certificate books and stock transfer ledgers of the Stock Companies delivered to URI are true, correct and complete. All stock transfer taxes levied or payable with respect to all transfers of shares of the Stock Companies prior to the date hereof have been paid and appropriate transfer tax stamps affixed. 4.5 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/articles of incorporation, by-laws or comparable organizational documents of any of the Acquired Companies or the declaration of trust or other governing documents of any Stockholder; (b) except as set forth on Schedule 4.5 hereto, 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 Stockholder or any of the Acquired Companies is a party or by which any of them or any of their respective properties or assets is bound; (c) violate any Law or Order of any Governmental Body by which any Stockholder or any of the Acquired Companies is bound; or (d) result in the creation of any Lien upon the properties or assets of any Stockholder or any of the Acquired Companies. Except as set forth on Schedule 4.5 hereto, and except for any required filings under the HSR Act and the filing of the SMSV Certificate and the HR Certificate, 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 Stockholder or any of the Acquired Companies (pursuant to any Law, Permit, Material Contract (as defined in Section 4.14) 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 (including the transfer of the Assets (including all Material Contracts and Permits of ESC) to URNJ). 4.6 Ownership and Transfer of Shares. Schedule 4.3(a) hereto 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 Exhibit A 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 the Purchasers as provided in this Agreement, and such delivery will convey to the Purchasers good and marketable title to the Shares, free and clear of any and all Liens. 18 4.7 Financial Statements. The Sellers have delivered to URI copies of -------------------- (a)(i) the audited combined balance sheets of ESC, Rylan and High Reach and the balance sheets of SMSV, in each case, as at December 31, 1996 and 1997, and the related audited combined statements of income and stockholders' equity of ESC, Rylan and High Reach and the statements of income and stockholders' equity of SMSV, in each case, for each of the three years in the three-year period ended December 31, 1997 and (ii) supplementally, in connection with the above- mentioned audited financial statements, combining balance sheets of the Acquired Companies as at December 31, 1996 and 1997 and the related combining statements of income and cash flows of the Acquired Companies for each of the three years in the three-year period ended December 31, 1997, and (b) the internally- prepared and unaudited combined and combining balance sheets of the Acquired Companies as at March 31, 1998, as modified and updated by the attachments thereto (the "Attachments"), and the related internally-prepared and unaudited combined and combining statement of income of the Acquired Companies for the three-month period then ended (or such longer period with respect to the items covered by the Attachments as set forth therein) (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 the Acquired Companies, 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 the Acquired Companies as at the dates and for the periods indicated. For the purposes hereof, the balance sheets of the Acquired Companies as at March 31, 1998, as modified and updated by the Attachments, are collectively referred to as the "Balance Sheets." -------------- 4.8 No Undisclosed Liabilities. Except as set forth on Schedule 4.8, none -------------------------- of the Acquired Companies 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 March 31, 1998. 4.9 Absence of Certain Developments. Except as expressly contemplated by ------------------------------- this Agreement or as set forth on Schedule 4.9, since March 31, 1998: (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; 19 (ii) there has not been any damage, destruction or loss with respect to the property and assets of the Acquired Companies having a replacement cost of more than $25,000 for any single loss or $50,000 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 the Acquired Companies or any repurchase, redemption or other acquisition of capital stock or other securities of, or other ownership interest in, the Acquired Companies; (iv) there has not been any award, announcement or payment of bonuses to employees of the Acquired Companies, except to the extent accrued on the Balance Sheets; none of the Acquired Companies 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 adopted 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 the Acquired Companies); (v) there has not been any change by the Acquired Companies in accounting or Tax reporting principles, methods or policies; (vi) none of the Acquired Companies has entered into any transaction or Contract or conducted its business other than in the ordinary course consistent with past practice; (vii) none of the Acquired Companies has failed to promptly pay and discharge current liabilities except where disputed in good faith by appropriate proceedings; (viii) none of the Acquired Companies has made any loans, advances or capital contributions to, investments in, or guaranteed any obligations of, any Person or paid any fees or expenses to any Stockholder or any Affiliate of the Acquired Companies, in each case, except in the ordinary course consistent with past practice; (ix) none of the Acquired Companies 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 20 sold, assigned, transferred, conveyed, leased or otherwise disposed of in the ordinary course of business consistent with past practice; (x) none of the Acquired Companies has canceled or compromised any debt or claim or amended, canceled, terminated, relinquished, waived or released any Contract or right except in the ordinary course of business consistent with past practice and which, in the aggregate, would not cause a Material Adverse Change; (xi) the Acquired Companies have not made or committed to make any capital expenditures or capital additions or betterments in excess of $25,000 individually or $50,000 in the aggregate; (xii) none of the Acquired Companies has instituted or settled any material Legal Proceeding; and (xiii) none of the Stockholders or the Acquired Companies has agreed to do anything set forth in this Section 4.9. 4.10 Taxes. (a)(i) ESC properly and timely elected under Section 1362 of ----- the Code to be treated as an "S" corporation for federal income tax purposes effective for its taxable year which began on January 1, 1987, and ESC will continue to be treated as an "S" corporation for federal income tax purposes for all periods up to and including the day before the Closing Date. ESC properly and timely elected to be treated, or alternatively in light of ESC's being treated as an "S" corporation for federal income tax purposes, ESC has automatically been treated, as an "S" corporation in each of the states identified on schedule 4.10(a)(i) effective in each state for the taxable year indicated on schedule 4.10(a)(i), and unless otherwise noted on Schedule 4.10(a)(i), ESC will continue to be treated as an "S" corporation in those states for all taxable periods up to and including the day before the Closing Date. ESC files Tax Returns in the State of New York, but it did not make an "S" corporation election in that state. ESC also files Tax Returns with the State of Michigan and the District of Columbia, but those jurisdictions do not recognize "S" corporation treatment. ESC is not treated as an "S" corporation for local tax purposes in any jurisdiction. (ii) SMSV properly and timely elected under Section 1362 of the Code to be treated as an "S" corporation for federal income tax purposes effective for its taxable year which began on January 1, 1998, and SMSV will continue to be treated as an "S" corporation for federal income tax purposes for all periods up to and including the day before the Closing Date. SMSV properly and timely elected to be treated as an "S" corporation in Virginia effective for its taxable year which began on January 1, 1998, and SMSV will continue to be treated as an "S" corporation in Virginia for all taxable periods up to and including the day before the Closing Date. SMSV is not treated as an "S" corporation for local tax purposes in any jurisdiction. 21 (iii) Rylan properly and timely elected under Section 1362 of the Code to be treated as an "S" corporation for federal income tax purposes effective for its taxable year which began on January 1, 1998 and ended on April 6, 1998. Rylan properly and timely elected to be treated, or alternatively in light of Rylan's being treated as an "S" corporation for federal income tax purposes, Rylan was automatically treated, as an "S" corporation in each of the states identified on schedule 4.10(a)(iii) effective in each state indicated on schedule 4.10(a)(iii) for the taxable year which began on January 1, 1998 and ended on April 6, 1998. Rylan is not treated as an "S" corporation for local tax purposes in any jurisdiction. (iv) High Reach has elected under Section 1362 of the Code and, except as set forth on schedule 4.10(a)(iv), under each analogous or similar provision of state law and each jurisdiction where High Reach is required to file income tax returns, to be treated as an "S" corporation for its taxable period beginning on October 1, 1997 under the provisions of Rev. Proc. 97-40. High Reach has received conflicting advice from the Internal Revenue Service, in the forms of letters as set forth on schedule 4.10(a)(iv) and a telephone conversation, as to when such election will be effective. (b) Except as set forth on Schedule 4.10(b), (i) all Tax Returns required to be filed by or on behalf of the Acquired Companies on or prior to the Closing Date 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 the Acquired Companies with respect to the periods covered by such Tax Returns have been fully and timely paid, and adequate reserves or accruals for Taxes arising on or before March 31, 1998 have been set forth on the Balance Sheets. (c) Each of the Acquired Companies has complied in all material respects with all applicable Laws, rules and regulations relating to the payment and withholding of Taxes and has duly and timely withheld from employee salaries, wages and other compensation and has paid over to the appropriate taxing authorities all amounts required to be so withheld and paid over for all periods under all applicable Laws. (d) URI has received complete copies of (i) all federal, state, local and foreign income or franchise Tax Returns of the Acquired Companies relating to the last three taxable periods of the Acquired Companies 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 the Acquired Companies, their respective income, assets or operations. All income and franchise Tax Returns filed by or on behalf of the Acquired Companies for the taxable years ended on the respective dates set forth on Schedule 4.10(d) have been examined by the relevant taxing authority. 22 (e) Schedule 4.10(e)(1) lists all material types of Taxes paid and material types of Tax Returns filed by or on behalf of the Acquired Companies for the taxable periods indicated thereon. Except as set forth on Schedule 4.10(e)(2), no claim has been made by a taxing authority in a jurisdiction where the Acquired Companies does not file Tax Returns such that it is or may be subject to taxation by that jurisdiction. (f) Except as set forth on Schedule 4.10(f), all deficiencies asserted or assessments made as a result of any examinations by the IRS or any other taxing authority of the Tax Returns of or covering or including the Acquired Companies have been fully paid, and there are no other audits or investigations by any taxing authority in progress, nor has any Stockholder or any of the Acquired Companies 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 the Acquired Companies is subject to any private letter ruling of the IRS or comparable rulings of other taxing authorities. (g) Except as set forth on Schedule 4.10(g), none of the Stockholders, the Acquired Companies or any other Person on behalf of the Acquired Companies has (i) agreed to or is required to make any adjustments pursuant to Section 481(a) of the Code or any similar provision of state, local or foreign Law by reason of a change in accounting method initiated by the Acquired Companies 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 the Acquired Companies, (ii) executed or entered into a closing agreement pursuant to Section 7121 of the Code or any predecessor provision thereof or any similar provision of state, local or foreign Law with respect to the Acquired Companies, (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. (h) No property owned by the Acquired Companies 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. (i) There are no Liens as a result of any unpaid Taxes upon any of the assets of the Acquired Companies. 23 (j) No Seller is a foreign person within the meaning of Section 1445 of the Code. (k) None of the Acquired Companies are parties to any tax sharing or similar Contract or arrangement (whether or not written). (l) There is no Contract, plan or arrangement involving the Acquired Companies and covering any Person that, individually or collectively, could give rise to the payment of any amount that would not be deductible by the Purchasers, the Acquired Companies or their Affiliates by reason of Section 280G of the Code. (m) Except as set forth on Schedule 4.10(m), none of the Acquired Companies has any elections in effect for federal income tax purposes under Sections 108, 168, 338, 441, 463, 472, 1017, 1033 or 4977 of the Code. (n) Except as set forth on Schedule 4.10(n), none of the Acquired Companies has ever been a member of any consolidated, combined or affiliated group of corporations for any Tax purposes. (o) It is understood that the Sellers are making no representations or warranties (and providing no indemnification) under this Agreement with respect to Excluded Taxes. 4.11 Real Property. (a) The Acquired Companies own no real property or ------------- interests in real property. Schedule 4.11(a) sets forth a complete list of all real property and interests in real property leased by the Acquired Companies 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 the Acquired Companies and which are necessary for the continued operation of the businesses of the Acquired Companies as such businesses are currently conducted. Except as otherwise set forth on Schedule 4.11(a), the Acquired Companies have valid and enforceable leasehold interests under each of the Real Property Leases and none of the Stockholders nor the Acquired Companies has received any notice of any default or event that with notice or lapse of time, or both, would constitute a default by the Acquired Companies under any of the Real Property Leases. All of the Company Property, buildings, fixtures and improvements thereon owned or leased by the Acquired Companies 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 the Acquired Companies 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. 24 (b) The Acquired Companies have all certificates of occupancy and Permits of any Governmental Body necessary for the current use and operation of each Company Property, and the Acquired Companies have fully complied with all material conditions of the Permits applicable to them, except for such certificates or Permits the failure of which to possess, individually or in the aggregate, has not caused and would not cause a Material Adverse Change. 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 the Acquired Companies 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 4.11(d), none of the Acquired Companies 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. 4.12 Tangible Property; Assets. (a) Schedule 2.2(b) sets forth a list, as ------------------------- of June 30, 1998, of all Equipment owned or leased by the Acquired Companies for lease or rent to their respective customers. Schedule 4.12(a) sets forth a list, as of the dates indicated thereon, of all items of tangible property (other than Equipment set forth on Schedule 2.2(b)) owned or leased by the Acquired Companies having an original cost in excess of $10,000 ("Other ----- Assets"), and since the respective dates indicated on Schedule 4.12(a) there has not been any material change with respect to such Other Assets. (b) Except as set forth in Schedule 4.12(b), the Acquired Companies have good and marketable title to all Equipment and Other Assets owned by them (except as sold or disposed of subsequent to the date indicated in Section 4.12(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 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. The Assets and the Other Assets are sufficient for the conduct of the Business of ESC as presently conducted. 4.13 Intangible Property. Schedule 4.13 contains a complete and correct ------------------- list of each patent, trademark, trade name, service mark and copyright owned or used by the Acquired Companies 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 4.13, each of the foregoing is owned by the party shown 25 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 against any of the Acquired Companies or, to the Stockholders' knowledge, against any other Person, and neither the Stockholders nor the Acquired Companies 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. 4.14 Material Contracts. Schedule 4.14 sets forth all of the following ------------------ Contracts to which the Acquired Companies is a party or by which it is bound (collectively, the "Material Contracts"): (i) Contracts with any stockholder, ------------------ director, officer or manager of any of the Acquired Companies 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 the Acquired Companies; (iii) Contracts for the sale of any assets (other than in the ordinary course of business), or for the grant to any Person of any preferential rights to purchase any of its assets or requiring any Person to purchase or sell all or a fixed portion of its requirements or output from or to another Person; (iv) Contracts containing covenants of the Acquired Companies not to compete in any line of business or in any geographical area or covenants of any other Person not to compete with the Acquired Companies in any line of business or in any geographical area; (v) Contracts relating to the acquisition by the Acquired Companies of any operating business or the capital stock or a significant amount of assets (other than purchases of inventory in the ordinary course of business) of any other Person; (vi) Contracts relating to the borrowing of money or the issuance of guarantees pursuant to which any of the Acquired Companies or Surviving Corporations will have any liability or have any of their assets subject to a Lien following the Closing; (vii) Contracts under which any of the Acquired Companies acts as a distributor, dealer, franchisor, licensee or authorized service Person (and noting with an asterisk any such Contract whereby any Acquired Company is obligated to indemnify a product manufacturer in respect of product liability claims arising from the resale or use of the products subject to such Contract); 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 four 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 4.14: (x) all of the Material Contracts are in full force and effect and are the legal, valid and binding obligation of the Acquired Companies 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; (y) none of the Acquired Companies 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 Stockholders, is any other party to any Material Contract in default thereunder in any 26 material respect; and (z) none of the Stockholders nor the Acquired Companies has received notice that any party to a Material Contract intends to terminate or not renew the same at its next renewal date. 4.15 Employee Benefits. (a) Schedule 4.15(a) sets forth a complete and ----------------- correct list of (i) all "employee benefit plans", as defined in Section 3(3) of ERISA, and any other benefit plans or employee benefit arrangements or programs (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 the Acquired Companies or as to which any of the Acquired Companies 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 the Acquired Companies or any trade or business (whether or not incorporated) which are under control, or which are treated as a single employer, with the Acquired Companies under Section 414(b), (c), (m) or (o) of the Code ("ERISA Affiliate") or to which the Acquired Companies or any --------------- ERISA Affiliate contributed or is obligated to contribute thereunder ("Pension ------- Plans"). Schedule 4.15(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 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) As of the Closing Date, none of the Acquired Companies 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 (except for any withdrawal liability arising solely as a result of the Closing hereunder). (c) Each of the Employee Benefit Plans and Pension Plans intended to qualify under Section 401 of the Code ("Qualified Plans") so qualify and the --------------- trusts maintained thereto are exempt from federal income taxation under Section 501 of the Code and, except as disclosed on Schedule 4.15(c), nothing has occurred with respect to 27 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 subject to Title IV of ERISA using the actuarial assumptions that would be used by 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 the Acquired Companies or the plan administrator or any fiduciary of the Employee Benefit Plans or Pension Plans with respect to the operation of such plans (other than routine, uncontested benefit claims), and, to the Sellers' knowledge, there are no facts or circumstances 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 Employee Benefit Plans or 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 Employee Benefit Plans and Pension Plans has been maintained, in all material respects, in accordance with its terms and all provisions of applicable Law. All amendments and actions required to bring each of the Employee Benefit Plans and Pension Plans into conformity in all material respects with all of the applicable provisions of ERISA and other applicable Laws have been made or taken except to the extent that such amendments or actions are not required by law to be made or taken until a date after the Closing Date and are disclosed on Schedule 4.15(g). (h) Except as otherwise set forth on Schedule 4.15(h), neither the Acquired Companies 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. 28 (i) Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (A) result in any payment becoming due to any employee of the Acquired Companies; (B) increase any benefits otherwise payable under any Employee Benefit Plan or Pension Plan; or (C) result in the acceleration of the time of payment or vesting of any such benefits. (j) No stock or other security issued by the Acquired Companies forms or has formed a material part of the assets of any Employee Benefit Plan or Pension Plan. (k) Notwithstanding anything to the contrary herein, the representations set forth in the last sentence of paragraph (a) and in paragraphs (d), (e), (f), (g), (h) and (i) of this Section 4.15 shall not apply to Multiemployer Plans. All contributions to Multiemployer Plans required by Law, or by the terms of any collective bargaining agreement or Multiemployer Plan, to be made by any Acquired Company prior to the Closing Date have been timely made to any funds or trusts established thereunder or in connection therewith. 4.16 Labor; Personnel. (a) Schedule 4.16(a) sets forth a complete list, as ---------------- of the date hereof, of all officers, directors and employees (by type or classification) of the Acquired Companies 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. All employment agreements to which the Acquired Companies are party are terminable by the Acquired Companies at will. (b) Except as set forth on Schedule 4.16(b), (i) none of the Acquired Companies 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; (ii) no labor organization or group of employees of the Acquired Companies 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; and (iii) there is no organizing activity involving the Acquired Companies pending or, to the best knowledge of any Sellers, threatened by any labor organization or group of employees of the Acquired Companies. (c) Except as set forth on Schedule 4.16(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 the Acquired Companies. There are no unfair labor practice charges, 29 grievances or complaints pending or, to the best knowledge of any Seller, threatened by or on behalf of any employee or group of employees of the Acquired Companies. 4.17 Litigation. Except as set forth in Schedule 4.17, (a) there is no ---------- Legal Proceeding or Order pending before any Governmental Body or, to the knowledge of the Sellers, threatened against the Acquired Companies (or to the knowledge of the Sellers, pending or threatened against any of the stockholders, officers, directors or key employees of any of the Acquired Companies with respect to their business activities on behalf of the Acquired Companies), or to which the Acquired Companies is otherwise a party or to which any of their respective properties or operations is subject, in each case, which if adversely determined, could result in a liability in excess of $25,000 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, and (b) none of the Acquired Companies is engaged in any legal action to recover monies due it or for damages sustained by it. All matters listed on the "accident reports" included in Schedule 4.17, whether litigation has been instituted or not, (i) have been reported to the Acquired Companies insurance carriers for coverage and such carriers have not indicated that they may reserve or deny coverage in respect thereof and (b) the matters identified as File #'s ESC0131 and ESC0004 on Schedule 4.17 are covered by in effect insurance coverage in favor of the Acquired Companies subject to deductibles not in excess of $5,000 per claim. 4.18 Compliance with Laws; Permits. ----------------------------- (a) Except as set forth on Schedule 4.18(a) or as would not, individually or in the aggregate, reasonably be expected to cause a Material Adverse Change, (i) the Acquired Companies are in compliance 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, and (ii) there has been no assertion by any party, and none of the Sellers nor the Acquired Companies has received any notice, of any violation of any Laws. (b) Schedule 4.18(b) sets forth a full and complete list of all Permits owned by, issued to, or otherwise benefitting the Acquired Companies 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 the Acquired Companies 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. 4.19 Environmental Matters. The Sellers have provided to URI all --------------------- environmentally related audits, studies, reports, analyses, and results of investigations that 30 have been performed with respect to the currently or previously owned, leased or operated properties of the Acquired Companies. Except as set forth on Schedule 4.19 hereto: (a) the operations of the Acquired Companies are in compliance in all material respects with all applicable Environmental Laws and all Permits issued pursuant to Environmental Laws or otherwise; (b) the Acquired Companies have obtained all material Permits required under all applicable Environmental Laws necessary to operate their respective businesses; (c) none of the Acquired Companies is the subject of any outstanding written Order or Contract with any Governmental Body or other Person respecting (i) Environmental Laws, (ii) Remedial Action or (iii) any Release or threatened Release of a Hazardous Material; (d) none of the Acquired Companies 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 the Acquired Companies has any material current contingent liability in connection with any Release of any Hazardous Materials into the indoor or outdoor environment (whether on-site or off-site); (f) there are no investigations by any Governmental Body or third-party of the businesses, operations, or currently or previously owned, operated or leased property of the Acquired Companies pending or, to the Sellers' knowledge, threatened which could lead to the imposition of any liability on any Seller or any Acquired Company pursuant to Environmental Law; (g) there is not located at any of the Seller Affiliate Property or, to the Sellers' knowledge, any other Company Property, any (i) USTs, (ii) asbestos- containing material or (iii) equipment containing polychlorinated biphenyls; and (h) as to each UST located at a Company Property, to the Sellers' knowledge, Schedule 4.19(h) sets forth (1) the location of the UST, information and material, including any available drawings and photographs, showing the location, and whether any of the Acquired Companies currently owns or leases the property on which the UST is located (and if such Person does not currently own or lease such property, the dates on which it did and the current owner or lessee of such property); (2) the date of installation and specific use or uses of the UST; (3) a copy of each notice to or from a Governmental Body relating to the UST; (4) other material records with regard to the UST, including repair records, financial assurance compliance records and records of ownership; and (5) to the extent not otherwise set forth pursuant to the above, a summary 31 description of instances, past or present, in which, to the Sellers' 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 spills, including spills in connection with delivery of materials to the UST, Releases from the UST and soil contamination. 4.20 Insurance. Schedule 4.20 sets forth (i) a complete and accurate list --------- of all policies of insurance of any kind or nature covering the Acquired Companies or any of their respective employees, properties or assets, including policies of life, disability, fire, theft, workers compensation, employee fidelity and other casualty and liability insurance; and (ii) as to each such policy, the name of the insurer, the type of risks insured, the deductible and limits of coverage and the annual premium therefor. All such policies are in full force and effect and, to the Sellers' knowledge, none of the Acquired Companies is in default of any provision thereof. 4.21 Related Party Transactions. Except as set forth on Schedule 4.21, no -------------------------- Stockholder nor any other Affiliate of the Acquired Companies has borrowed any moneys from, guarantees any obligations of or has any obligations guaranteed by, or has outstanding any indebtedness or other similar obligations to the Acquired Companies. Except as set forth in Schedule 4.21, no Stockholder nor any director, officer, member, manager, employee or Affiliate of the Acquired Companies (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 the Acquired Companies, (B) engaged in a business related to the business of the Acquired Companies, or (C) a participant in any transaction to which any of the Acquired Companies is a party or (ii) is a party to any Contract with any of the Acquired Companies. 4.22 Banks. Schedule 4.22 contains a complete and correct list of the names ----- and locations of all banks in which the Stock Companies have 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 4.22, no Person holds a power of attorney to act on behalf of the Stock Companies. 4.23 Certain Actions. None of the Acquired Companies nor any Person acting --------------- at the direction or on behalf of any Acquired Company has serviced, maintained, modified, altered or remodeled any product sold, rented or distributed by any Acquired Company prior to the Closing Date or any equipment being acquired by the Purchasers pursuant to this Agreement in a criminally negligent manner. 4.24 Investment Intention. Each Seller that will receive shares of URI -------------------- Common Stock pursuant to Article II hereof (a) is acquiring such shares for his, her or its (as the 32 case may be) 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; (c) understands that (i) none of such shares 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 the URI Stock Agreement, URI is under no obligation to register any of such securities under the Securities Act. 4.25 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 or on behalf of any Seller or any of the Acquired Companies 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. 4.26 Brokers; Finders. No Person has acted, directly or indirectly, as a ---------------- broker, finder or financial advisor for any Seller or the Acquired Companies 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 V REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS The Purchasers hereby represents and warrants to the Sellers that: 5.1 Organization and Good Standing. Each Purchaser is a corporation duly ------------------------------ organized, validly existing and in good standing under the laws of the State of Delaware. 5.2 Authorization of Agreement. Each Purchaser 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 the Purchasers of this Agreement and each other Purchaser Document have been duly authorized by all necessary corporate action on behalf of the Purchasers. This Agreement has been, and each other Purchaser Document to which the Purchasers are a party will prior to the Closing have been, duly executed and delivered by the Purchasers party thereto and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement constitutes, and each other Purchaser Document when so executed and delivered will constitute, legal, valid and binding obligations of the Purchasers party thereto, enforceable against the Purchasers in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' 33 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 the Purchasers of this Agreement and the other Purchase Documents to which they are party, nor the compliance by the Purchasers with any of the provisions hereof or thereof will (i) conflict with, or result in the breach of, any provision of the certificate of incorporation or by-laws of the Purchasers, (ii) conflict with, violate, result in the breach of, or constitute a default under any note, bond, mortgage, indenture, license, agreement or other obligation to which the Purchasers are a party or by which the Purchasers or any of their properties or assets are bound or (iii) violate any statute, rule, regulation, order or decree of any Governmental Body by which the Purchasers are 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, the filing of the SMSV Certificate and HR Certificate, filings with the Securities and Exchange Commission and applicable state securities authorities contemplated by the URI Stock Agreement and required filings with the New York Stock Exchange with respect to the issuance of URI Common Stock hereunder, no consent, waiver, approval, Order, Permit or authorization of, or declaration or filing with, or notification to, any Person or Governmental Body is required on the part of the Purchasers in connection with the execution and delivery of this Agreement or the other Purchaser Documents to which they are a party, consummation of the transactions contemplated hereby and thereby or compliance by the Purchasers with any of the provisions hereof or thereof. 5.4 Litigation. There are no Legal Proceedings pending or, to the best ---------- knowledge of the Purchasers, threatened that are reasonably likely to prohibit or restrain the ability of the Purchasers 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 ------------------- SMSV Merger Consideration and the HR Merger Consideration have been duly authorized 34 and, when issued against the consideration therefor as provided herein, will be fully paid for and non-assessable, and such issuance will not be in violation of any preemptive or similar rights of any Person. 5.7 Brokers; Finders. No Person has acted, directly or indirectly, as a ---------------- broker, finder or financial advisor for the Purchasers 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 (including environmental surveys and testing) of the properties, businesses, personnel and operations of the Acquired Companies and such examination of the books, records and financial condition of the Acquired Companies 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 the Acquired Companies to cooperate, fully therein. No investigation (including any environmental or site surveys or analyses) 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 the Acquired Companies, the Sellers shall cause the officers, employees, consultants, agents, accountants, attorneys and other representatives of the Acquired Companies to cooperate fully with such representatives in connection with such review and examination. 6.2 Conduct of the Business Pending the Closing. (a) Except as otherwise ------------------------------------------- expressly contemplated by this Agreement or with the prior written consent of URI, from the date hereof until the Closing the Sellers shall, and the Stockholders shall cause the Stock Companies to: (i) conduct their respective businesses only in the ordinary course consistent with past practice; (ii) use their best efforts to (A) preserve their respective present business operations, organization (including management and sales force) and goodwill and (B) preserve their respective present relationships with Persons having business dealings with them; (iii) maintain (A) all of their respective assets and properties in good working condition, ordinary wear and tear excepted, and (B) insurance upon all of their respective properties and assets in such amounts and of such kinds comparable to that in effect on the date of this Agreement; (iv) (A) maintain their respective books, 35 accounts and records in the ordinary course of business consistent with past practices, (B) continue to collect accounts receivable and pay accounts payable utilizing normal procedures and without discounting or accelerating payment of such accounts, and (C) comply with all contractual and other obligations applicable to their respective operations; and (v) comply in all material respects with applicable Laws (including Environmental Laws). (b) Except as otherwise expressly contemplated by this Agreement or with the prior written consent (or in the case of matters described in clauses (v) and (ix) below, prior express oral consent confirmed in writing within 24 hours) of URI, from the date hereof until the Closing the Sellers shall not, and the Stockholders shall cause the Stock Companies not to: (i) declare, set aside, make or pay any dividend or other distribution in respect of the capital stock of the Acquired Companies or repurchase, redeem or otherwise acquire any outstanding shares of the capital stock or other securities of, or other ownership interests in the Acquired Companies; (ii) transfer, issue, sell or dispose of any shares of capital stock or other securities of the Acquired Companies, or grant options, warrants, calls or other rights to purchase or otherwise acquire shares of the capital stock, other securities or other equity interests of the Acquired Companies; (iii) effect any recapitalization, reclassification, stock split or like change in the capitalization of the Acquired Companies; (iv) amend the certificate of incorporation or by-laws of any of the Acquired Companies; (v) (A) increase the annual level of compensation of any employee of the Acquired Companies, (B) grant any bonus, benefit or other direct or indirect compensation to any employee, director or consultant, (C) increase the coverage or benefits available under any, or adopt any new, severance pay, termination pay, vacation pay, salary continuation for disability, sick leave, deferred compensation, bonus or other incentive compensation, insurance, pension or other employee benefit plan or arrangement made to, for, or with any of the directors, officers, employees, agents or representatives of the Acquired Companies, or otherwise modify or amend or terminate any such plan or arrangement, or (D) enter into any employment, deferred compensation, severance, consulting, non-competition or similar agreement (or amend any such agreement) to which the Acquired Companies is a party; 36 (vi) except for trade payables or otherwise in the ordinary course of business consistent with past custom and practice, borrow monies or draw down on any line of credit or credit facility, or become the guarantor, surety, endorser or otherwise liable for any debt, obligation or liability (contingent or otherwise) of any other Person; (vii) sell, assign, transfer or otherwise dispose of any material assets or properties (other than sales of inventory for fair consideration in the ordinary course of business consistent with past practice), or subject to any Lien any of the assets (including the Assets) or properties (whether tangible or intangible) of, the Acquired Companies; (viii) cancel or compromise any debt or claim or waive or release any material right of the Acquired Companies; (ix) enter into any commitment for capital expenditures in excess of $25,000 individually or in the aggregate; (x) enter into, modify or terminate any labor or collective bargaining agreement or, through negotiation or otherwise, make any commitment or incur any liability to any labor organization; (xi) introduce any material change with respect to the operation of their respective businesses, including any material change in the types, nature, composition or quality of its products or services, or make any change in product specifications or prices or terms of distributions of such products; (xii) enter into, amend or modify any Material Contract or any other Contract or transaction which by reason of its size or otherwise is not in the ordinary course of business consistent with past practice; (xiii) enter into or agree to enter into any merger or consolidation with any other Person, or engage in any new business, or invest in, make a loan, advance or capital contribution to, or otherwise acquire the securities of, any other Person; and (xiv) agree to do anything prohibited by this Section 6.2 or anything which would make any of the representations and warranties of the Sellers in this Agreement or the Seller Documents untrue or incorrect in any material respect as of any time through and including the Closing Date. 6.3 No Solicitation. The Sellers will not, and will not cause or permit the --------------- Stock Companies or any of their respective directors, officers, employees, representatives or 37 agents (collectively, "Agents") to, directly or indirectly, (i) discuss, ------ negotiate, undertake, authorize, recommend, propose or enter into, any transaction involving a merger, consolidation, business combination, purchase or disposition of any capital stock or other equity interest in, or any material amount of the assets of, the Acquired Companies, other than the transactions contemplated by this Agreement (an "Acquisition Transaction"), (ii) facilitate, ----------------------- encourage, solicit, participate in or initiate discussions, negotiations or submissions of proposals or offers in respect of an Acquisition Transaction, (iii) furnish or cause to be furnished, to any Person, any information concerning the business, operations, properties or assets of the Acquired Companies in connection with an Acquisition Transaction, or (iv) otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any other Person to do or seek any of the foregoing. The Sellers will inform URI in writing immediately following the receipt by any Seller, any Acquired Company or any Agent of any proposal or inquiry in respect of any Acquisition Transaction. 6.4 Consents and Approvals. (a) The Sellers shall use their reasonable best ---------------------- efforts, and URI shall cooperate with the Sellers, to obtain at the earliest practicable date all consents and approvals required to consummate the transactions contemplated by this Agreement; provided, however, that neither the -------- ------- Sellers nor URI shall be obligated to pay any consideration therefor to any third party from whom consent or approval is requested, or to dispose of any assets, lines of business or equity interests in order to obtain the consent of the Federal Trade Commission or the United States Department of Justice to the transactions contemplated by this Agreement. Each of the parties hereto has caused its "ultimate parent entity" (as such term is defined under the HSR Act) to file an appropriate Notification and Report Form concerning the transactions contemplated herein. (b) The Sellers and Purchasers shall provide timely notices to all relevant Governmental Bodies of the proposed change of ownership of the Business, the Shares and the Assets, and shall file timely applications for the modification, transfer or reissuance, on or prior to the Closing Date, of all Permits required to operate the Business and use the Assets. (c) The Sellers shall use their reasonable best efforts to obtain and deliver to the Purchasers at or prior to the Closing such consents as are required, or are reasonably requested by the Purchasers as being desirable, to allow the assignment and transfer to the Purchasers and the Surviving Corporations of all of the Acquired Companies' right, title and interest in, to and under all Contracts of ESC included in the Assets and all Contracts of the Stock Companies. Without limiting the generality of the foregoing, ESC shall use its best efforts to secure all consents required for the assignment of all equipment dealer agreements to which ESC is a party to URNJ; to the extent such consents are not obtained within 90 days following the Closing Date, ESC shall promptly terminate all non-assignable dealer agreements to which it is a party. 38 6.5 Other Actions. Each of the Sellers and URI shall use its best efforts ------------- to (i) take all actions necessary or appropriate to consummate the transactions contemplated by this Agreement and (ii) cause the fulfillment at the earliest practicable date of all of the conditions to their respective obligations to consummate the transactions contemplated by this Agreement. 6.6 Publicity. None of the Sellers, the Purchasers or the Acquired --------- Companies 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 -------- ------- reasonable judgement and discretion, make such disclosure as URI deems is required by applicable Law or by the applicable rules of any stock exchange on which any securities of URI are listed. 6.7 Records. The Sellers and the Purchasers agree that each of them shall ------- preserve and keep the records held by them relating to the business of the Acquired Companies 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 as further provided in Section 8.6(d)(iv) hereof) 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 the Purchasers 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. 6.8 Use of Name. The Sellers hereby agree that upon the consummation of the ----------- transactions contemplated hereby, (a) the Purchasers shall have the exclusive rights to the use of the names "Equipment Supply", "Rylan", "High Reach", "Space Maker Systems" and derivations thereof, (b) the Sellers shall not, and shall not cause or permit any of their Affiliates to, use such names or any variation or simulation thereof in any business, and (c) ESC shall take such actions as may be necessary or appropriate to promptly (and in any event within two Business Days of the Closing) change its corporate name to a name that does not contain any of such names or the names of URI or any of its Subsidiaries. 6.9 ESC Employee Matters. Except to the extent required by collective -------------------- bargaining agreements covering employees of ESC that have been disclosed to URI pursuant to Section 4.16 hereof (true and complete copies of which shall have been delivered to URI prior to the date hereof): All of the employees of ESC who are actively employed by ESC in the Business as of the close of business on the Business Day immediately preceding the Closing Date shall be offered at-will employment (or just cause 39 termination employment if required by applicable collective bargaining agreements) with URNJ as of the Closing Date, and URNJ shall also offer employment to each employee of ESC who is listed on Schedule 4.16(a), is temporarily absent on the Business Day immediately preceding the Closing Date from active employment in the Business of ESC and has rights of re-employment, upon termination of such employee's temporary absence; each such offer of employment shall be at the same position and rate of salary as of the date hereof and set forth in Schedule 4.16(a) hereto, except in the case of any employee who upon returning after a period of absence either is not fully capable of performing the functions of his or her former position or is not entitled under the terms of such absence to the same position, which such position is not then available; each such employee of ESC who accepts URNJ's offer of employment shall be deemed to be a "Transferred Employee" on the day -------------------- they commence active employment with URNJ (not earlier than the Closing Date); and, subject to applicable Laws, URNJ shall have the right to dismiss any or all Transferred Employees at any time, with or without cause, and to change the terms and conditions of employment of any or all Transferred Employees. 6.10 Notification. Between the date of this Agreement and the Closing Date, ------------ each party hereto shall promptly notify the other parties hereto in writing (a) if such party becomes aware of any fact or condition that causes or would be reasonably likely to cause or constitute a Material Adverse Change or a breach of any of the representations and warranties of such party set forth herein and (b) of the occurrence of any breach of any covenant of such party in this Agreement or of the occurrence of any event that may make the satisfaction of the conditions to Closing set forth herein impossible or unlikely. 6.11 Post-Closing Insurance Coverage. (a) The parties agree to purchase and ------------------------------- maintain the following insurance policies (the "Policies"): -------- (i) "tail" insurance policies for general, automobile and products liability covering acts, omissions or occurrences (whether or not a claim in respect thereof had been asserted by or reported to any Person) of the Seller Parties (as defined below) that either occurred within the seven year period ending on the Closing Date (regardless of whether or not a claim in respect thereof was asserted prior to or after the Closing Date) or with respect to which a claim was asserted (prior to the expiration of the statute of limitations applicable thereto) against any Seller Party prior to the Closing Date, which tail insurance shall provide for an aggregate coverage limit of not less than $100,000,000, a per occurrence limit of not less than $10,000,000 and a deductible of not more than $5,000 per claim (the "Tail Policy"); and ----------- (ii) "discontinued business/completed operations" insurance policies for general and products liability in respect of products sold by the Seller Parties (or any Seller Party) at any time prior to the Closing Date covering claims in respect of events occurring after the Closing Date, which insurance shall provide for an 40 aggregate coverage limit of not less than $25,000,000, a per occurrence limit of not less than $25,000,000 and a deductible of not more than $5,000 per claim (the "Discontinued Operations Policy"). ------------------------------ As used in this Section 6.11, the term "Seller Parties" means -------------- collectively (i) the Acquired Companies and their respective predecessors and (ii) Affiliates of the Acquired Companies in connection with their activities relating to the Business; and the term "Seller Party" means any such Person. (b) LPC and URI shall each prepay one-half of the premium for the Tail Policy, and URI shall prepay the premium for the Discontinued Operations Policy, in full on or prior to the Closing Date. (c) Each of the Policies shall be endorsed as follows: (i) to name URI and all of URI's subsidiaries, and each of their respective directors, officers, employees and agents, and each of their respective heirs, successors and assigns (collectively, the "Purchaser Insured ----------------- Parties") as additional insureds under the Policies; - ------- (ii) to provide that coverage under the Discontinued Operations Policy is primary, and that each of the Policies shall provide coverage without right of contribution from any insurance that the Purchaser Insured Parties may now or hereafter carry (other than the underlying coverage to the Tail Policy); (iii) to provide a severability of interest clause protecting the Purchaser Insured Parties as though a separate policy had been issued to each, but without increasing the overall limit of liability or aggregate; (iv) to provide that if at any time LPC fails to maintain the Policies as stated in this Section 6.11, then the Purchaser Insured Parties shall have the right, but not the obligation, to pay the premiums for such insurance in order to maintain in effect the insurance coverage required hereunder for the benefit of the Purchaser Insured Parties; provided, that in the event that the -------- Purchaser Insured Parties pay such premiums as described above, LPC shall immediately reimburse the Purchaser Insured Parties therefor by wire transfer of immediately available funds and URI shall be entitled to be reimbursed from the Indemnity Escrow, and URI and the Representative shall instruct the Escrow Agent to reimburse URI, for all such payments; and (v) to provide that no cancellation of, or material change in, such insurance coverage shall be effective with respect to the Purchaser Insured Parties unless URI has expressly consented to the specific change or cancellation in a writing signed by an executive officer of URI. 41 (d) The Policies shall be effective and in full force on and as of the Closing Date and the term of coverage thereunder shall continue without interruption thereafter for a period of not less than (i) 30 years for the Tail Policy and (ii) 10 years for the Discontinued Operations Policy. (e) LPC shall deliver to URI a certificate of insurance issued to the Purchaser Insured Parties on the Closing Date evidencing the Policies. 6.12 Release of Guarantees. URI shall use its reasonable commercial efforts --------------------- to cause the guarantees by ESC and the individual Stockholders of certain obligations of the Stock Companies, and the guarantees of the individual Stockholders with respect to the Assumed Liabilities, to be released by the beneficiaries of such guarantees as soon as practicable following URI's receipt of the Representative's request that URI seek such releases as shall be specified by the Representative in such request. 6.13 Multiemployer Plan Liability. (a) To the extent reasonably necessary to ---------------------------- avoid the imposition of withdrawal liability on ESC, URNJ shall: (i) contribute to each Multiemployer Plan for substantially the same number of contribution base units for which ESC has an obligation to contribute prior to the Closing Date; and (ii) provide to each Multiemployer Plan, for a period of five plan years commencing with the first plan year beginning after the Closing Date, a bond to be obtained by URNJ issued by a corporate surety corporation, or a sum to be provided by URNJ held in escrow by a bank or similar financial institution, or an irrevocable letter of credit to be obtained by URNJ, equal to the greater of (A) the average annual contribution required to be made by ESC under the Multiemployer Plan for the three plan years preceding the plan year in which the Closing Date occurs or (B) the annual contribution that ESC was required to make under the Multiemployer Plan for the last plan year prior to the plan year in which the Closing Date occurs, or shall obtain a waiver of the requirements to provide any of the foregoing or shall comply with alternatives acceptable to the Multiemployer Plan, in order to ensure compliance with Section 4204 of ERISA. If at any time during the first five plan years beginning after the Closing Date, URNJ withdraws from, or fails to make a required contribution to, one of the Multiemployer Plans, the bond, escrow, or letter of credit obtained with respect to such Multiemployer Plan, if any, shall be paid to such Multiemployer Plan. (b) Notwithstanding any other provision hereof, URNJ's obligations under this Section 6.13 are limited to the extent necessary to comply with Section 4204 of ERISA. If URNJ effects a complete or partial withdrawal from a Multiemployer Plan during the first five plan years following the Closing Date and URNJ fails to make any withdrawal liability payment to the Multiemployer Plan when due, then ESC shall be secondarily liable to the Multiemployer Plan for any unpaid withdrawal liability to the extent that ESC would have incurred such liability following the Closing Date had URNJ not agreed to the provisions of this Section. ESC's obligations set forth in this paragraph shall continue 42 with respect to events that occurred prior to the last day of the five plan year period referred to in this Section 6.13 (regardless of when notice of such liability is received by either URNJ or ESC). URNJ and ESC shall promptly notify the other party of any demand for payment of withdrawal liability received by URNJ or ESC within five years from the Closing Date. URNJ and ESC agree to take all such further actions as may be necessary to satisfy the sale of assets exception requirements set forth in Section 4204 of ERISA. In the event ESC is required to post a bond on account of the foregoing provisions, URI shall reimburse ESC for the cost of such bond; provided that URI shall be -------- entitled to control all negotiations and proceedings with the relevant Multiemployer Plan and union relating thereto. 6.14 Removal of Underground Storage Tanks. ESC, LPC and DC hereby covenant ------------------------------------ and agree to remove, at their sole cost and expense, prior to October 15, 1998, the two USTs located on the Company Property in Burlington, New Jersey and the two USTs located on the Company Property in Newark, Delaware, in a manner that is commercially responsible and in compliance with all applicable Laws, Permits and Orders (the "Proper Manner"). In the event such Sellers shall not have ------------- removed such USTs by such date in the Proper Manner, the Purchasers shall be entitled to cause the removal of such USTs at such Sellers' expense, and such Sellers shall, jointly and severally, promptly reimburse the Purchasers for all costs and expenses (including the cost of any required Remedial Action) incurred by the Purchasers in connection with such removal and the Purchasers shall be entitled to be reimbursed out of the Indemnity Escrow (and the Sellers shall instruct the Escrow Agent to so reimburse the Purchasers) for all of such costs and expenses. 6.15 Assumption of 401(k) Plans. Effective as of the Closing Date, URNJ or -------------------------- one of the Stock Companies shall adopt and assume sponsorship (or continue sponsorship) of (i) the Cave Holdings 401(k) and Profit Sharing Plan and (ii) The Space Maker Group, Inc. 401(k) Plan and Trust (together, the "Seller 401(k) ------------- Plans"). URNJ shall take all actions within its authority to effectuate such - ----- assumption (or continuation of sponsorship by a Stock Company) of the Seller 401(k) Plans. The Sellers and the Acquired Companies shall take all actions within their authority to enable and assist URNJ (or one of the Stock Companies) in adopting and assuming the Seller 401(k) Plans (or in continuing sponsorship by a Stock Company), including obtaining resignations effective as of the Closing Date of any and all fiduciaries (including trustees, committee members and plan administrators) that are requested by URI. 6.16 Enforcement of ESC Contracts on Behalf of Purchasers. ESC, LPC and DC ---------------------------------------------------- agree not to file a certificate of dissolution with respect to ESC prior to January 1, 1999. From and after the Closing Date, ESC and LPC (including LPC in his capacity as the Person responsible for winding-up the affairs of ESC at such time as ESC may dissolve) shall use reasonable best efforts to enforce all Contracts of ESC (including non- 43 competition agreements in favor of ESC) on behalf and at the expense of, and as requested from time to time by, the Purchasers. 6.17 Termination of Liens. ESC, LPC and DC shall use their best efforts, at -------------------- their sole cost and expense, to cause appropriately completed and executed Uniform Commercial Code termination statements and releases to be duly filed with all relevant Governmental Bodies on are as soon as practicable following the Closing Date in order to evidence the full and unconditional release and termination as of the Closing Date of all Liens on any property or asset of the Acquired Companies or the Surviving Corporations (except for Permitted Exceptions and Liens permitted under this Agreement to remain on any such property or asset on and as of and following the Closing). If such Sellers fail to properly file all such termination statements and releases within 30 days of the Closing Date, then URI shall have the right to pursue the filing of the same at such Sellers' sole cost and expense, and such Sellers shall promptly reimburse URI for all costs and expenses (including reasonable attorneys' fees and expenses) incurred by URI in connection therewith and URI shall be entitled to be reimbursed from the Indemnity Escrow, and URI and the Representative shall instruct the Escrow Agent to reimburse URI, for all such costs and expenses. ARTICLE VII CONDITIONS TO CLOSING 7.1 Conditions Precedent to Obligations of the Purchasers. The obligation ----------------------------------------------------- of the Purchasers to consummate the transactions contemplated by this Agreement is subject to the fulfillment, on or prior to the Closing Date, of each of the following conditions (any or all of which may be waived by URI in whole or in part to the extent permitted by applicable Law): (a) all representations and warranties of the Sellers contained herein shall be true and correct as of the date hereof; and all representations and warranties of the Sellers contained herein that are qualified as to materiality shall be true and correct, and the representations and warranties of the Sellers contained herein not qualified as to materiality shall be true and correct in all material respects, at and as of the Closing Date with the same effect as though those representations and warranties had been made again at and as of that time; (b) the Sellers shall have performed and complied in all material respects with all obligations and covenants required by this Agreement to be performed or complied with by them on or prior to the Closing Date; (c) URI shall have been furnished with certificates (dated the Closing Date and in form and substance reasonably satisfactory to URI) from each Seller 44 certifying as to the fulfillment of the conditions specified in Sections 7.1(a) and 7.1(b) hereof; (d) 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 shall have been, or shall at the Closing be, validly delivered and transferred to URI, free and clear of any and all Liens; (e) URNJ shall have received the Bill of Sale, duly executed by ESC; (f) URI shall have received a copy of each of the Escrow Agreements, executed by the Sellers and the Escrow Agent; (g) URI shall have received executed copies of (i) each of the Leases with Affiliates of the Sellers (together with a written agreement of LPC in form and substance satisfactory to URI with respect to LPC's provision of credit support in connection with the matters set forth in Section 17(c) of the form of Lease), (ii) memoranda of lease in form suitable for recording with relevant Governmental Bodies, and (iii) the assignments of leases, landlord's consents to assignment and estoppel certificates with respect to the Company Properties as indicated on Schedule 7.1(g), in each case, in substantially the forms attached as Exhibit K hereto; --------- (h) URI shall have received copies of the Non-Competition Agreement in substantially the form of Exhibit F hereto (the "Non-Competition --------- --------------- Agreement"), executed by each Stockholder, ESC and each of the other parties named therein; (i) URI shall have received an executed copy of the Consulting Agreement in substantially the form of Exhibit G hereto between URNJ and --------- LPC (the "Consulting Agreement"); -------------------- (j) URI shall have received the opinion of Archer & Greiner, counsel to the Sellers, addressed to URI, in substantially the form of Exhibit H --------- hereto; (k) the applicable waiting period (and any extensions thereof) under the HSR Act with respect to the transactions contemplated hereby shall have expired or been terminated; (l) URI shall have obtained all consents and waivers referred to in Section 5.3 hereof with respect to the transactions contemplated by this Agreement and the other Purchaser Documents; (m) there shall not have been or occurred any Material Adverse Change; 45 (n) no Legal Proceedings shall have been instituted or threatened or claim or demand made against the Stockholders, the Purchasers or any of the Acquired Companies seeking to restrain or prohibit or to obtain substantial damages with respect to the consummation of the transactions contemplated hereby, and there shall not be in effect any Order by a Governmental Body of competent jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby; (o) each of the Sellers shall have provided URI with an affidavit of non-foreign status that complies with Section 1445 of the Code; (p) URI shall have received the written resignations of each director and officer of the Stock Companies; (q) URI shall have received releases, in the form of Exhibit I hereto, --------- executed by each Stockholder and each officer or director of the Acquired Companies; (r) URI shall have received a copy of the URI Stock Agreement executed by each Seller receiving shares of URI Common Stock hereunder; (s) URI shall have received evidence satisfactory to it that all Contracts between any of the Stock Companies and any of their Affiliates shall have been fully discharged, terminated as of the Closing without any further liability (contingent or otherwise) of the Purchasers, the Surviving Corporations or any of the Stock Companies thereunder; (t) URI shall have received certificates of good standing with respect to each of the Acquired Companies issued by the Secretary of State or comparable official of their respective jurisdictions of organization and for each jurisdiction in which they are qualified to do business as a foreign corporation; (u) the SMSV Certificate shall have been filed with the SMSV Secretaries of State; (v) the HR Certificate shall have been filed with the HR Secretaries of State; (w) URI shall have received a certificate of insurance evidencing the insurance coverage for the Purchaser Insured Parties as described in Section 6.11 of this Agreement; and 46 (x) URI shall have received such other documents as URI reasonably requested. 7.2 Conditions Precedent to Obligations of the Sellers. The obligations of -------------------------------------------------- the Sellers to consummate the transactions contemplated by this Agreement are subject to the fulfillment, prior to or on the Closing Date, of each of the following conditions (any or all of which may be waived by the Sellers in whole or in part to the extent permitted by applicable Law): (a) all representations and warranties of the Purchasers contained herein shall be true and correct as of the date hereof; and all representations and warranties of the Purchasers contained herein qualified as to materiality shall be true and correct, and all representations and warranties of the Purchasers contained herein not qualified as to materiality shall be true and correct in all material respects, at and as of the Closing Date with the same effect as though those representations and warranties had been made again at and as of that date; (b) the Purchasers shall have performed and complied in all material respects with all obligations and covenants required by this Agreement to be performed or complied with by the Purchasers on or prior to the Closing Date; (c) the Representative on behalf of the Sellers shall have been furnished with a certificate (dated the Closing Date and in form and substance reasonably satisfactory to the Sellers) executed by an executive officer of the Purchasers certifying as to the fulfillment of the conditions specified in Sections 7.2(a) and 7.2(b); (d) the applicable waiting period (and any extensions thereof) under the HSR Act with respect to the transactions contemplated hereby shall have expired or been terminated; (e) no Legal Proceedings shall have been instituted or threatened or claim or demand made against the Stockholders, any of the Acquired Companies or the Purchasers seeking to restrain or prohibit or to obtain substantial damages with respect to the consummation of the transactions contemplated hereby, and there shall not be in effect any Order by a Governmental Body of competent jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby; (f) there shall not have occurred any material adverse change in the business, results of operations or financial condition of URI and its Subsidiaries taken as a whole; 47 (g) the Purchasers shall have paid the Assets Purchase Price and the Rylan Purchase Price by wire transfer to the accounts designated in writing by the Representative, with the Cash Escrow being contemporaneously delivered to the Escrow Agent; (h) URI shall have issued and delivered stock certificates representing the SMSV Merger Consideration and the HR Merger Consideration and deposited the Stock Escrow with the Escrow Agent; (i) ESC shall have received the Assumption Agreement, executed by URNJ; (j) the Representative shall have received a copy of each of the Escrow Agreements, executed by URI and the Escrow Agent; (k) the Representative shall have received executed copies of each of the Leases to be entered into as of the Closing Date with Affiliates of LPC; (l) the Representative shall have received a copy of the Consulting Agreement executed by URNJ; (m) the Representative shall have received a copy of the URI Stock Agreement executed by URI; (n) the Representative shall have received a certificate of good standing with respect to URI issued by the Secretary of State of its jurisdiction of organization; and (o) the Representative shall have received the opinion of Weil, Gotshal & Manges LLP, counsel to URI, in substantially the form of Exhibit J --------- hereto. ARTICLE VIII INDEMNIFICATION; TAX MATTERS 8.1 Indemnification. (a) Subject to Sections 8.2, 8.3 and 8.6 hereof, (I) --------------- ESC, LPC and DC, jointly and severally, as to all Section 8.1 Items relating to any or all of the Acquired Companies and any or all of the Sellers, (II) each Stockholder of Rylan other than LPC and DC, severally but not jointly, and only as to the Equity Items relating to Rylan or such Stockholder, and (III) each Stockholder of SMSV other than LPC and DC, severally but not jointly, and only as to the Equity Items relating to SMSV or such Stockholder (the Persons described in clauses (I), (II) and (III), collectively, the "Seller Indemnifying ------------------- Parties"), each hereby agrees to indemnify and hold the Purchasers, the - ------- 48 Stock Companies, the Surviving Corporations and their respective Affiliates, directors, officers, employees, agents, successors and assigns (collectively, the "URI Indemnified Parties") harmless from and against any and all Losses ----------------------- based upon, attributable to or resulting from: (i) the failure of any representation or warranty of the Sellers set forth in this Agreement (other than any representation or warranty set forth in Section 4.10 hereof to the extent such representation or warranty relates exclusively to Excluded Taxes), or any representation or warranty contained in any certificate delivered by or on behalf of the Sellers pursuant to this Agreement (other than any such representation or warranty relating exclusively to Excluded Taxes), to be true and correct in all respects as of the date made and as of any date deemed made; (ii) the breach of any covenant or other agreement on the part of the Sellers under this Agreement; (iii) any liability under Title IV of ERISA with respect to any pension plan maintained or contributed to by any Affiliate of the Acquired Companies (other than another Acquired Company) or any other corporation, trade or business under common control or treated as a single employer with any of the Acquired Companies; (iv) any and all Retained Liabilities; (v) the Closing Date Debt to the extent such debt has not resulted in a reduction, pursuant to Section 2.2 of this Agreement, in the Assets Purchase Price, the Rylan Purchase Price, the SMSV Merger Consideration or the HR Merger Consideration, as the case may be; (vi) the operation of ESC or its business or assets after the Closing; (vii) the removal of USTs from the Company Property pursuant to Section 6.14 and any Remedial Action required in connection therewith; (viii) ESC's non-compliance with applicable "bulk sales" Laws; and (ix) termination of the leases for the Company Properties located in Raleigh, North Carolina and/or Hagerstown, Pennsylvania prior to their respective scheduled termination date as a result of the mortgagors of such property exercising their rights under the related mortgages in connection with the change of the lessee thereof from ESC to URNJ. 49 (b) Subject to Sections 8.2, 8.3 and 8.6 hereof, the Purchasers hereby, jointly and severally, agree to indemnify and hold ESC, the Stockholders and their respective Affiliates, directors, officers, trustees, beneficiaries, successors and assigns (collectively, the "Seller Indemnified Parties") harmless -------------------------- from and against any and all Losses based upon, attributable to or resulting from: (i) the failure of any representation or warranty of the Purchasers set forth in this Agreement, or any representation or warranty contained in any certificate delivered by or on behalf of the Purchasers pursuant to this Agreement, to be true and correct as of the date made; (ii) the breach of any covenant or other agreement on the part of the Purchasers under this Agreement; (iii) the Assumed Obligations; (iv) the operation of the business of URNJ, Rylan and the Surviving Corporations after the Closing; (v) the Closing Date Debt to the extent such debt has resulted in a reduction, pursuant to Section 2.2 of this Agreement, in the Assets Purchase Price, the Rylan Purchase Price, the SMSV Merger Consideration or the HR Merger Consideration, as the case may be; and (vi) liabilities (contingent or fixed, liquidated or unliquidated, accrued or unaccrued) of ESC or the individual Stockholders under their guarantees of certain obligations of the Stock Companies, and of the individual Stockholders under their personal guarantees with respect to the Assumed Liabilities, in each case, to the extent disclosed in writing to URI from time to time pursuant to Section 6.12 hereof. 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 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 (i) Section 4.2, paragraphs (a), (b) and (d) of Section 4.3, and Sections 4.6, 4.26, 5.2, 5.6 and 5.7, which shall survive indefinitely; (ii) Sections 4.10 (to the extent they relate to federal or state income Taxes), 4.15 and 4.19 (to the extent they relate to Seller Affiliate Property), which shall survive for periods coterminous with any applicable statutes of limitation; (iii) Section 4.19 to the extent they relate to Non-Seller Affiliate Property, which shall survive until the date of the seventh anniversary of 50 the Closing Date; (iv) Section 4.10 to the extent they relate to Local Taxes, which shall survive until the date of the second anniversary of the Closing Date; and (v) Sections 4.13, 4.14, 4.16, 4.20, 4.21, 4.22 and 4.24, which shall survive until the date of the eighteen-month anniversary of the Closing Date), shall terminate on the date of the third anniversary of the Closing Date; unless, in each case, prior to the relevant expiration date set forth in this Section 8.2 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 the Purchasers, or such actions are commenced. 8.3 Limitations on Indemnification. ------------------------------ (a) The Seller Indemnifying Parties shall not have any liability under Section 8.1(a)(i) hereof unless the aggregate amount of indemnifiable Losses to the indemnified parties finally determined to arise thereunder based upon, attributable to or resulting from the failure of any representation or warranty of any Seller to be true and correct exceeds $500,000 (the "Threshold Amount") ---------------- and, in such event, the Seller Indemnifying Parties shall be required to pay the entire amount of such Losses in excess of the Threshold Amount; 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, and 4.6, Section 4.10 (to the extent the failure of such representations and warranties relates to federal or state income Taxes), the first sentence of Section 4.12(b), and Section 4.26 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 Threshold Amount. (b) The Purchasers shall not have any liability under Section 8.1(b)(i) hereof unless the aggregate amount of indemnifiable Losses to the indemnified parties finally determined to arise thereunder based upon, attributable to or resulting from the failure of any representation or warranty to be true and correct, exceeds Threshold Amount and, in such event, the indemnifying party shall be required to pay the entire amount of such Losses in excess of the Threshold Amount; 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 5.2, 5.6 and 5.7 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 Threshold Amount. (c) The maximum amount of Losses for which each Stockholder of SMSV (other than LPC and DC) shall be liable under Section 8.1 of this Agreement shall not exceed $3,000,000 in the aggregate. The maximum amount of Losses for which each Stockholder of Rylan (other than LPC and DC) shall be liable under Section 8.1 of this Agreement shall not exceed that portion of the Rylan Purchase Price, as adjusted pursuant to Article II hereof, paid to such Stockholder. The maximum amount of Losses for which all of the Seller Indemnifying Parties shall be liable pursuant to Section 8.1(a)(i) of this 51 Agreement in respect of the failure of any representation or warranty relating exclusively to Local Taxes to be correct shall not exceed $2,000,000 less any ---- Losses attributable to Local Taxes that have been counted toward satisfying the Threshold Amount for the Seller Indemnifying Parties pursuant to paragraph (a) of this Section 8.3. The maximum amount of Losses for which all of the Seller Indemnifying Parties shall be liable pursuant to paragraph (a) of Section 8.1 of this Agreement (including the Losses described in the preceding sentences of this Section 8.3(c)) shall not exceed $65,000,000 in the aggregate. The maximum amount of Losses for which the Purchasers shall be liable pursuant to paragraph (b) of Section 8.1 of this Agreement shall not exceed $65,000,000 in the aggregate. It is understood that nothing in this Section 8.3(c) shall impose a limit on indemnification obligations pursuant to Section 8.6 (except to the extent otherwise expressly set forth therein). (d) The parties further agree in the event a Claim for which indemnification is provided under Section 8.1 appears to be an insured claim under the Polices (as defined in Section 6.11), the Purchasers and the Representative shall jointly present such Claim to the appropriate insurance carriers for defense and coverage and the parties shall cooperate in connection therewith and otherwise exercise the rights available under the Policies with respect to such Claim with a view toward maximizing the insurance recoveries in respect thereof; it being understood and agreed that (i) the presentment of such Claim to the other parties and such insurance carriers shall constitute notice of such Claim to the indemnifying party for purposes of Section 8.2 hereof, (ii) none of the URI Indemnified Parties shall under any circumstances be required to threaten or institute any legal proceedings against any such insurance carrier or any other Person for purposes of obtaining the purported benefits or coverage under any of the Policies before proceeding against the Sellers under this Article VIII and (iii) nothing in this Section shall be deemed to relieve the Sellers from any of their obligations (which are absolute) to indemnify and hold harmless the URI Indemnified Parties in accordance with this Article VIII in the event any such insurance carrier disputes or denies its obligation to defend against and insure any such Claim or portion thereof or otherwise fails to so defend or insure within a commercially reasonable period of time following its receipt of the parties' request for coverage in respect thereof. If the Sellers actually indemnify the URI Indemnified Parties for any such Claim pursuant to this Article VIII, the Sellers shall be subrogated to the rights of the URI Indemnified Parties under the Policies to the extent of the amounts so indemnified. The parties further agree that any Loss for which the Sellers or the Purchasers, as the case may be, shall be liable to indemnify under Section 8.1 shall be net of any insurance recoveries actually received by the indemnified party under the Policies in respect of such Loss. 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 52 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 (i) to control the defense of any claim seeking equitable relief and (ii) to take such Remedial Action as URI reasonably determines must be immediately implemented in order to mitigate any Losses which would otherwise arise as a result of failing to promptly take such Remedial Action, without adversely impacting any of its rights of indemnification hereunder. 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. 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 (which counsel shall be reasonably acceptable to the indemnifying party), a conflict exists or is probable to arise in connection with such matter between the indemnified party and the indemnifying party that would make such separate representation required under the code of professional responsibility and applicable ethical rules governing legal representation as in effect in the forum jurisdiction; 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 53 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 with respect thereto except to the extent that the indemnifying party can demonstrate that it incurred an actual loss or was otherwise actually and materially prejudiced as a result of such failure. 8.5 Escrow; Right of Set Off. During the term of the Indemnity Escrow, the ------------------------ URI Indemnified Parties shall be entitled to be paid out of the Indemnity Escrow, and URI and the Sellers shall instruct the Escrow Agent to pay to the URI Indemnified Parties, (i) all amounts to which the URI Indemnified Parties are entitled pursuant to this Article VIII and (ii) all adjustments to the Assets Purchase Price, the Rylan Purchase Price, the SMSV Merger Consideration and the HR Merger Consideration to which the Purchasers are entitled pursuant to Article II hereof that have not been paid from the Adjustments Escrow or by the Sellers at such times as such amounts shall have been paid to the Purchasers pursuant to Article II; and, upon termination of the Indemnity Escrow pursuant to its terms or in the event the amount of the Indemnity Escrow is insufficient to cover or otherwise not applied to satisfy all such amounts to which the URI Indemnified Parties are entitled this Agreement, the Sellers shall pay the URI Indemnified Parties the amount of such shortfall in accordance with the provisions of this Article VIII. In addition, the Purchasers may, but shall not be obligated to, set off against any and all payments due to the Sellers out of the Adjustments Escrow and the Indemnity Escrow, any amount to which any URI Indemnified Party is entitled hereunder. Such right of set off shall be separate and apart from any and all other rights and remedies that such Persons may have against the Sellers or their successors. Notwithstanding anything in this Agreement, the URI Indemnified Parties shall not be limited to the Escrow as a sole remedy in the event that their indemnifiable Losses exceed the Escrow. 8.6 Tax Indemnification and Related Matters. (a) ESC, LPC and DC, jointly --------------------------------------- and severally, as to all Taxes of any and all of the Acquired Companies, shall be responsible for and shall indemnify and hold harmless the URI Indemnified Parties 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 the Stock Companies in a consolidated, combined or unitary Tax Return but excluding (A) Excluded Taxes and (B) unpaid Taxes to the extent --------- accrued, reserved for and counted toward reducing the Net Current Position pursuant to Section 2.2(d)) and, with respect to all taxable periods of the Stock Companies 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 54 than, in each case, Taxes for which sufficient current accruals have been made on the Balance Sheets); and (ii) any and all Taxes (other than Excluded Taxes) resulting from any breach of the representations and warranties contained in Section 4.10 hereof; provided, however, that the Sellers shall only be required to indemnify the URI - -------- ------- Indemnified Parties in respect of Local Taxes to the extent such Local Taxes, when aggregated with all other Losses incurred by the URI Indemnified Parties for which the Sellers are responsible to indemnify pursuant to Section 8.1(a), exceed the Threshold Amount and do not exceed $65,000,000 in the aggregate; and provided further that the maximum amount for which the Sellers shall be liable - -------- ------- to the URI Indemnified Parties in respect of Local Taxes shall not exceed $2,000,000 less any Losses attributable to Local Taxes that have been counted toward satisfying the Threshold Amount for the Seller Indemnifying Parties pursuant to Section 8.3(a). (b) (i) For federal income tax purposes, URI and the Sellers agree that the taxable period of Rylan will close as of the close of business on the Closing Date. For all other Tax purposes, the Sellers will cause Rylan to the extent permitted by applicable Law, to close the taxable periods of Rylan on the Closing Date. In any case where applicable Law does not permit Rylan to close its taxable period on the Closing Date, then Taxes, if any, attributable to the taxable periods of Rylan beginning on or before and ending after the Closing Date shall be allocated (A) to the Stockholders for the period up to and including the Closing Date, and (B) to URI for the period subsequent to the Closing Date. For purposes of this Section 8.6(b)(i), 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. (ii) For federal income tax purposes, the Sellers and URI agree that the taxable period for which each of High Reach and SMSV is an "S" corporation will end as of the close of business on the day immediately preceding the Closing Date and that the taxable periods for which each of High Reach and SMSV is a "C" corporation will end as of the close of business on the Closing Date. For all other Tax purposes, the Sellers will cause each of High Reach and SMSV, to the extent permitted by applicable Law, to close the taxable periods of each of High Reach and SMSV on the day immediately preceding the Closing Date, and on the Closing Date, respectively. In any case where applicable Law does not permit either of High Reach or SMSV to close its taxable period on the day immediately preceding the Closing Date, or on the Closing Date, as the case may be, then Taxes, if any, attributable to the taxable periods of High Reach or SMSV beginning on or before and ending after the Closing Date shall be allocated (A) to the Stockholders for the period up to and including the Closing Date and (B) to URI for the period subsequent to 55 the Closing Date. For purposes of this Section 8.6(b)(ii), 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) The Purchasers shall be jointly and severally responsible for, and shall pay or cause to be paid, and shall indemnify and hold harmless the Stockholders from and against any and all Losses for or in respect of each of the following: (i) any and all Taxes of the Stock Companies (including any Taxes resulting from the inclusion of the Stock Companies in a consolidated, combined or unitary Tax Return) with respect to all taxable periods of the Stock Companies 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); and (ii) Taxes of the Stock Companies for which sufficient current accruals have been made on the Balance Sheets. (d) (i) The Representative on behalf of the Stockholders shall be responsible for filing all Tax Returns required to be filed by or on behalf of the Stock Companies and any of their operations and assets on or before the Closing Date (taking into account applicable extensions of time) and shall cause to be paid any Taxes shown to be due thereon. The Representative on behalf of the Stockholders shall prepare or cause to be prepared for the Stock Companies all Tax Returns required to be filed by or with respect to the Stock Companies which relate to taxable periods (or portions thereof) ending on or prior to the Closing Date ("Pre-Closing Date Tax Returns") and shall remit or cause to be ---------------------------- remitted any and all Taxes due with respect to such Pre-Closing Date Tax Returns. Such Tax Returns shall be prepared in a manner consistent with prior practice and in accordance with applicable law. The Representative on behalf of the Stockholders shall deliver all such Pre-Closing Date Tax Returns to URI not less than 15 Business Days prior to the due date therefor. URI shall review and comment upon such Tax Returns, and URI will thereafter sign and file the same. Except as otherwise provided herein, URI shall be responsible for preparing and filing or causing to be prepared and filed all Tax Returns required to be filed by or on behalf of the Stock Companies and any of their operations and/or assets after the Closing Date (taking into account applicable extensions of time) and shall, subject to Section 8.6(d)(ii) hereof, 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 the Stock Companies beginning on or before and ending on or after the 56 Closing Date, URI shall provide the Representative with a statement setting forth the amount of Tax shown on such Tax Return for which the Stockholders are responsible pursuant to Section 8.6(a) hereof or that are allocable to the Stockholders 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 the Statement prior to the filing of such Tax Return. The Stockholders and URI agree to consult and resolve in good faith any issue arising as a result of the review of the 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 Stockholders pursuant to this Section 8.6(d)(ii) shall be as determined by the Independent Firm. 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, LPC and DC 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 Stockholders pursuant to Section 8.6(a) hereof or allocable to the Stockholders pursuant to Section 8.6(b) hereof (as the case may be). No payment pursuant to this Section 8.6(d)(ii) shall excuse ESC, LPC or DC 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 Stockholders, exceed the amount of the Sellers' payment under this Section 8.6(d)(ii). (iii) The Stockholders may not file any amended Tax Returns or refund claims in respect of any taxable period of the Stock Companies ending on or prior to the Closing Date without the prior written consent of URI, such consent not to be unreasonably withheld; provided that if URI consents to the making of -------- such filings, URI will provide reasonable cooperation to the Stockholders in connection therewith. The Purchasers hereby acknowledge that the Sellers shall be entitled to any and all refunds in respect of federal and state income taxes for periods for which the Sellers are responsible under this Section 8.6 paid as a result of the filing of any such amended tax refunds or refund claims. 57 (iv) The Stockholders 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 Stockholders and URI shall make available to the other, as reasonably requested, all information, records or documents in their possession relating to Tax liabilities of the Stock Companies or Local Taxes or Excluded Taxes of ESC for all taxable periods of the Stock Companies and ESC, as the case may be, 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. (e) URI shall promptly notify the Representative in writing upon receipt by URI or any of the Stock Companies of notice of any Tax audits of or proposed assessments against any of the Stock Companies for taxable periods of the Stock Companies (i) ending on or prior to the Closing Date or (ii) beginning before the Closing Date and ending after the Closing Date; provided, however, that the -------- ------- failure of URI to give the Stockholders 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. The Representative on behalf of the Stockholders shall have the right to represent the Stock Companies' interests in any such Tax audit or administrative or court proceeding and to employ counsel of his choice at the Representative's expense; provided that URI and its counsel (which, if such -------- counsel be in addition to the Representative's counsel, shall be at URI's cost) shall be entitled to participate fully in such representation and provided -------- further that the Representative may not agree to a settlement or compromise of - ------- any such audit or proceeding without the prior consent of URI, which consent will not be unreasonably withheld. The Representative shall promptly notify URI in writing upon receipt by the Representative or any of the Sellers or ESC of notice of any Tax audits of or proposed assessments against ESC for any Local or Excluded Taxes. URI shall have the right to represent ESC's interest in any such Tax audit or administrative or court proceeding and to employ counsel of its choice at URI's expense. The parties agree that they will cooperate fully with each other and their respective counsel in the defense against or compromise of any claim in any audit or proceeding contemplated herein. (f) Any dispute as to any Tax matter covered hereby shall be resolved by the Independent Firm. The fees and expenses of the Independent Firm shall be borne one-half by URI and one-half by LPC and DC. (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, 58 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 the Purchasers ----------------------------------- agree to treat any indemnity payment made pursuant to this Article VIII as an adjustment to the Assets Purchase Price, the Rylan Purchase Price, the SMSV Merger Consideration and/or the HR Merger Consideration, as the case may be, 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 (including officers and managers of the Acquired Companies) 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): "Affiliate" means, with respect to any Person, any other Person --------- controlling, controlled by or under common control with such Person. "Assets" means all of ESC's right, title and interest in and to all ------ assets (other than Excluded Assets and ESC Current Assets), properties and rights of ESC of every kind and description, wherever located, whether tangible or intangible, including the following: (a) all equipment, vehicles, tools, spare parts, machinery, tooling, computers, furnishings, fixtures, furniture, office supplies or other equipment used or held for use or sale in the operation of ESC's business (in each case, including all accessories, supplies, operating manuals and other documentation with respect thereto) and all of ESC's rights to and interests in the leases of the equipment described in this clause (a) and all other fixed assets that are located at ESC's facilities or otherwise used in its business; 59 (b) all inventories of parts, supplies, fuels, chemicals, solvents, components, labels, stationary, forms, catalogs and marketing materials, invoices, packing materials and other goods and personal property used or held for sale in ESC's business; (c) all Contracts of ESC that do not relate exclusively to the Excluded Assets, and all rights of ESC under such Contracts, and all rights of ESC under any non-disclosure, confidentiality or non-competition Contracts relating to the Business; (d) all rights of ESC 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, ESC's business, or otherwise affecting ESC's equipment, assets or inventory (except to the extent the foregoing relate exclusively to the Excluded Assets); (e) all customer and vendor lists relating to ESC's business, all files or documents relating to customers and vendors of ESC's business, and all financial records, files, books or documents otherwise relating to the Assets and the Assumed Obligations, including computer programs, manuals, catalogs, sales, marketing and advertising materials, billing records, and sales, distribution and purchase correspondence; (f) all copyrights, patents, trademarks, service marks, trade names and other intellectual property rights of ESC (and all registrations thereof and applications therefor) and all of ESC's rights under all intellectual property license arrangements and all documentation relating thereto in whatever media it is embodied; (g) all computer software owned by ESC or used by ESC in connection with its business, and all documentation and specifications relating thereto; (h) all transferable Permits and licenses held or used by ESC in connection with its business; (i) all prepaid deposits, premiums, expenses or charges of ESC's business; (j) all claims, choses of action and rights relating to the Assets and the Assumed Obligations, and all rights to insurance coverage and all insurance proceeds, judgements or settlements with respect to ESC's business prior to the Closing, the Assets and the Assumed Obligations; 60 (k) all Real Property Leases of ESC; (l) all rights to the name "Equipment Supply Company" and all goodwill associated with ESC's business; (m) the current telephone numbers and telephone listings of ESC's business; and (n) all personnel records and files of ESC employees that become Transferred Employees pursuant to Section 6.9 hereof. "Balance Sheets" has the meaning ascribed to such term in Section 4.7. -------------- "Business" means the business in which the Acquired Companies were -------- engaged as of the Closing Date. "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. "Closing" and "Closing Date" have the respective meanings ascribed in ------- ------------ Section 3.1. "Closing Date Debt" means, with respect to each of the Stock Companies ----------------- and, to the extent any of the following items of debt or other obligations constitute an Assumed Obligation, with respect to ESC, the sum of: (i) the amount of the aggregate debt of such Person outstanding on the Closing Date to be repaid by the Purchasers at or immediately after the Closing, and all interest accrued thereon and all prepayment penalties incurred or to be incurred by the Purchasers in connection with the repayment of any such debt; (ii) the amount of the aggregate debt of such Person outstanding on the Closing Date which will remain outstanding obligations of the Purchasers, the Stock Companies or the Surviving Corporations after the Closing Date, including in each case all interest thereon accrued through and including the Closing Date; and (iii) the aggregate amount of the present value as of the Closing Date of all capitalized lease obligations (determined in accordance with GAAP) of such Person. For purposes of this definition, "debt" of a Person shall include all indebtedness for borrowed money (whether or not evidenced by bonds, debentures, notes or similar instruments); all obligations to pay the deferred (or contingent) purchase price of property or services; all obligations under letters of credit; all obligations under swap or hedging agreements or arrangements designed to protect against fluctuations in interest or currency exchange rates; and all such foregoing "debt" of another Person which such Person has guaranteed, which is secured by Lien on any assets of such Person or for which such Person is otherwise contingently liable. 61 "Code" means the Internal Revenue Code of 1986, as amended. ---- "Company Property" has the meaning ascribed to such term in Section ---------------- 4.11. "Consulting Agreement" has the meaning ascribed to such term in Section -------------------- 7.1. "Contract" means any contract, agreement, indenture, note, bond, loan, -------- instrument, lease, commitment or other arrangement. "DC" means Dawn Cave, an individual. -- "Escrow Agreements" means the escrow agreements in the forms of Exhibits ----------------- E-1 and E-2 hereto relating to the Adjustments Escrow and the Indemnity Escrow, respectively. "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). --------- "Equity Items" means the representations and warranties set forth in ------------ Sections 4.2, 4.3, 4.6 and 4.26 of this Agreement in respect of which indemnification may be sought under Section 8.1 of this Agreement. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended. "ESC Current Assets" means all cash and cash equivalents, marketable ------------------ securities and accounts receivable of ESC. "Excluded Assets" means the items set forth on Schedule 9.1. --------------- 62 "Excluded Taxes" means Taxes other than (i) federal and state income -------------- Taxes and (ii) Local Taxes. "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, commission, 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 the Acquired Companies 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" means Deloitte & Touche LLP. ---------------- "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 the Sellers and their ------ Affiliates, and the assignments of rights to real property leases with third- parties (and related landlord's consents to assignment and landlord estoppel certificates), in the forms attached as Exhibit K hereto, in each case, to be --------- entered into on the Closing Date relating each of the Company Properties. "Legal Proceeding" means any judicial, administrative or arbitral ---------------- actions, suits, proceedings (public or private), claims, investigations, governmental proceedings or litigation. "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. "Local Taxes" means, with respect to any jurisdiction, all Taxes (other ----------- than federal and state income Taxes) imposed by such jurisdiction which an Acquired Company 63 has collected or paid in such jurisdiction, or with respect to which it has filed a Tax Return in such jurisdiction or made an accrual on its financial statements, or with respect to which it has otherwise been notified of its obligation to collect or pay Tax or file a Tax Return in such jurisdiction. "LPC" means Lowell P. Cave (a/k/a John Cave), an individual. --- "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. "Material Adverse Change" means any material adverse change in the ----------------------- business, assets (including the Assets), properties, results of operations, liabilities, condition (financial or otherwise) or prospects of the Acquired Companies taken as a whole, or any material adverse change with respect to the ability of the Sellers to consummate the transactions contemplated by this Agreement on the terms set forth herein. "Non-Competition Agreement" has the meaning ascribed to such term in ------------------------- Section 7.1. "Non-Seller Affiliate Property" means Company Property owned by a Person ----------------------------- that is not an Affiliate of any Seller or any Acquired Company. "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 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 64 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, ------ partnership, 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 Agreements, the Consulting Agreement, the URI Stock Agreement and the Leases. "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 (i) any and all obligations and liabilities -------------------- of ESC arising out of the operation of ESC's or its Affiliates' businesses following the Closing and (ii) any and all of the following obligations and liabilities (whether known or unknown, contingent or fixed, liquidated or unliquidated, accrued or unaccrued, asserted or otherwise) of or relating to ESC or otherwise arising out of or accruing from ESC's properties or the operation of ESC's business, whether prior to, on or following the Closing Date: (a) obligations and liabilities for or in respect of Taxes (other than (i) Local Taxes, which Local Tax liabilities shall be assumed by URNJ subject to the Sellers' obligation to indemnify the URI Indemnified Parties in respect thereof in accordance with Article VIII hereof, and (ii) Excluded Taxes); (b) obligations and liabilities relating to the ESC Current Assets and/or the Excluded Assets (including all obligations and liabilities under Contracts relating exclusively to the ESC Current Assets and/or the Excluded Assets); 65 (c) obligations and liabilities in respect of violations or alleged violations of any criminal Laws or relating from the failure to comply with any Order relating thereto; (d) obligations and liabilities in respect of legal, accounting and other professionals' fees incurred connection with the transactions contemplated by this Agreement; (e) obligations and liabilities under this Agreement (including Articles II, VI, VIII and IX hereof); (f) obligations and liabilities to or in respect of ESC's stockholders or other Affiliates (other than the Stock Companies); and (g) notwithstanding any limitation pursuant to clause (i) of paragraph (a) of this definition, all obligations and liabilities for or in respect of Taxes payable to The County of Henrico, Virginia as disclosed on Schedule 4.10. "Section 8.1 Items" means all representations, warranties, covenants, ----------------- agreements, liabilities, facts, events, occurrences, acts or omissions in respect of which indemnification may be sought under Section 8.1 of this Agreement. "Securities Act" means the Securities Act of 1933, as amended. -------------- "Seller Affiliate Property" means Company Property owned by a Seller or ------------------------- an Affiliate of a Seller or Acquired Company. "Seller Documents" shall mean, collectively, this Agreement, the Bill of ---------------- Sale, the Escrow Agreements, the Consulting Agreement, the Non-Competition Agreement, the URI Stock Agreement and the Leases. "Stock Value" shall have the meaning set forth in Section 4(c) of the ----------- Adjustments Escrow Agreement attached as Exhibit E-1. "Subsidiary" of any Person means any corporation or other entity ---------- (including partnerships, limited liability companies, trusts and other business associations) of which at least a majority of the voting power represented by the outstanding capital stock or other voting securities or interests having voting power under ordinary circumstances to elect directors or similar members of the governing body of such corporation or entity shall at the time be held or controlled, directly or indirectly, by such Person. "Taxes" means (i) all federal, state, local or foreign taxes, charges, ----- fees, imposts, levies or other assessments, including, without limitation, all net income, gross 66 receipts, capital, sales, use, ad valorem, value added, transfer, franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation, property and estimated taxes, customs duties, fees, assessments and charges of any kind whatsoever, (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. "UST" means an underground storage tank. --- "URI Common Stock" means the common stock, par value $.01 per share, of ---------------- URI. "URI Stock Agreement" means that certain Common Stock Agreement to be ------------------- dated as of the Closing Date and substantially in the form of Exhibit L hereto --------- between URI and each Seller receiving shares of URI Common Stock pursuant to this Agreement. 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 ESC 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 ESC, LPC and DC have, pursuant to Section 8.1 hereof, agreed to indemnify the URI Indemnified Parties and hold them 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 URI shall reimburse -------- ESC for (a) up to $100,000 of out-of-pocket expenses reasonably incurred by ESC in respect of recording fees for the transfer of titled assets of ESC to URNJ pursuant to this Agreement and (b) lease payments under capital and operating leases in respect of the period from July 1, 1998 to the Closing Date. 9.5 [Intentionally Omitted]. 67 9.6 Further Assurances. The Sellers and the Purchasers 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 parties 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 JERSEY. 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): If to any Seller or the Representative, to: Mr. Lowell P. Cave c/o Flying W 68 60 Fostertown Road Medford, New Jersey 08054 Facsimile: (609) 267-5610 With a copy (which shall not constitute notice) to: Archer & Greiner One Centennial Square P.O. Box 3000 Haddonfield, New Jersey 08033-0968 Attn: Terence J. Fox, Esq. Facsimile: (609) 795-0574 If to any of the Purchasers, to: United Rentals, Inc. Four Greenwich Office Park Greenwich, Connecticut 06830 Attn: Mr. John N. Milne Facsimile: (203) 622-6080 With copies (which shall not constitute notice) to: Oscar D. Folger, Esq. 521 Fifth Avenue New York, New York 10175 Facsimile: (212) 697-9570 -and- Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Attn: Stephen E. Jacobs/Stephen M. Besen 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 69 assignment of this Agreement or of any rights or obligations hereunder may be made by either the Sellers, High Reach or the Purchasers (by operation of Law or otherwise) without the prior written consent of the other parties hereto and any attempted assignment without the required consents shall be void; provided, -------- however, that the Purchasers 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 any such permitted assignment, the references in this Agreement to the Purchasers shall also apply to any such assignee unless the context otherwise requires, but no such assignment will relieve the Purchasers of their obligations hereunder in the event such assignee fails to satisfy such obligations in accordance with the terms of this Agreement. 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 the Acquired Companies), other than the parties hereto and the Persons described in Sections 6.11 and 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. LPC is hereby designated as the representative ----------------------- (the "Representative") to act for and represent the Sellers (other than the -------------- Lowell P. Cave Charitable Remainder Unitrust and the Dawn Cave Charitable Remainder Unitrust, which shall be represented by the trustees thereof), SMSV and High Reach with respect to all matters arising out of Article II and Article VIII hereof, all matters relating to the Escrow Agreements, 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 such Person hereby unconditionally and irrevocably appoints the Representative as such Person's agent, proxy and attorney-in-fact, with full power of substitution, for all purposes set forth in this Agreement, including the full power and authority on such Person's behalf to (i) consummate the transactions contemplated by this Agreement, (ii) disburse any funds received hereunder to the Sellers, (iii) execute and deliver on behalf of each such Person any amendment or waiver under this Agreement or the Escrow Agreements and to agree to any resolution of all purchase price adjustments and Claims hereunder and thereunder, and (iv) do each and every act and exercise any and all rights which such Person or Persons are permitted or required to do or exercise under this Agreement and the other agreements, documents and certificates executed in connection herewith; provided that such appointment and -------- authority to act with respect to SMSV and High Reach shall terminate as of the Closing. [signature pages follow] 70 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. UNITED RENTALS, INC. By: /s/ John N. Milne ----------------------------- Name: John N. Milne Title: Vice Chairman and Chief Acquisition Officer UNITED RENTALS OF NEW JERSEY, INC. By: /s/ John N. Milne ---------------------------- Name: John N. Milne Title: President HR MERGER CORP. By: /s/ John N. Milne ------------------------------ Name: John N. Milne Title: President SMSV ACQUISITION CORP. By: /s/ John N. Milne -------------------------------- Name: John N. Milne Title: President EQUIPMENT SUPPLY COMPANY, INC. By: /s/ John N. Milne --------------------------------- Name: Lowell P. Cave Title: President 71 HIGH REACH CO., INC. By: /s/ Lowell P. Cave ---------------------------------- Name: Lowell P. Cave Title: President SPACE MAKER SYSTEMS OF VA., INC. By: /s/ Lowell P. Cave ----------------------------------- Name: Lowell P. Cave Title: Treasurer THE STOCKHOLDERS: /s/ Lowell P. Cave --------------------------------------- Lowell P. Cave /s/ Dawn Cave --------------------------------------- Dawn Cave /s/ Aaron P. Cave --------------------------------------- Aaron P. Cave /s/ Heather R. Cave --------------------------------------- Heather R. Cave LOWELL P. CAVE CHARITABLE REMAINDER UNITRUST By: /s/ Joseph Newack ------------------------------------- Name: Joseph Newack Title: Trustee 72 By: /s/ Joseph Newack ------------------------------------- Name: Joseph Newack Title: Trustee DAWN CAVE CHARITABLE REMAINDER UNITRUST By: /s/ Joseph Newack ------------------------------------- Name: Joseph Newack Title: Trustee By: /s/ Joan Newack ------------------------------------- Name: Joan Newack Title: Trustee 73 EX-12 9 STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO EXHIBIT 12 UNITED RENTALS, INC. STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
PRO FORMA THREE MONTHS PERIOD FROM AUGUST 14, ENDED 1997 (INCEPTION) THROUGH THREE MONTHS ENDED MARCH 31, DECEMBER 31, 1997 MARCH 31, 1998 1998 ------------------------ ------------------ ---------- Earnings: Income before provision for income taxes................ $ 54,138 $4,468,138 $4,468,138 Interest expense...... 454,072 1,172,718 2,418,169 Amortization of debt issuance cost........ 38,332 64,548 64,548 Interest portion of rent expense(1)...... 174,917 884,316 884,316 -------- ---------- ---------- Earnings as $721,459 $6,589,720 $7,835,171 adjusted........... ======== ========== ========== Fixed charges: Interest expense...... $454,072 $1,172,718 $2,418,169 Amortization of debt issuance cost........ 38,332 64,548 64,548 Interest portion of rent expense(1)...... 174,917 884,316 884,316 -------- ---------- ---------- Fixed charges....... $667,321 $2,121,582 $3,367,033 ======== ========== ========== Ratio of earnings to fixed charges.......... 1.1x 3.1x 2.3x
- -------- (1) The interest portion of rent expense is estimated to be one-third of rent expense. EX-25.(A) 10 FORM T-1 STMT. OF ELIG. UNDER THE TRUST IND. ACT EXHIBIT 25(A) SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM T-1 ______ STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNED TO ACT AS TRUSTEE Check if an Application to Determine Eligibility of a Trustee Pursuant to Section 305(b)(2)___ STATE STREET BANK AND TRUST COMPANY (Exact name of trustee as specified in its charter) Massachusetts 04-1867445 (Jurisdiction of incorporation or (I.R.S. Employer organization if not a U.S. national bank) Identification No.) 225 Franklin Street, Boston, Massachusetts 02110 (Address of principal executive offices) (Zip Code) John R. Towers, Esq. Executive Vice President and General Counsel 225 Franklin Street, Boston, Massachusetts 02110 (617) 654-3253 (Name, address and telephone number of agent for Service) _____________ UNITED RENTALS, INC. (Exact name of obligor as specified in its charter) DELAWARE 06-1493538 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) FOUR GREENWICH OFFICE PARK 3/rd/ FLOOR GREENWICH, CONNECTICUT 06830 (Address of principal executive offices) (Zip Code) _____________ 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008 (Title of indenture securities) GENERAL Item 1. General Information. Furnish the following information as to the trustee: (a) Name and address of each examining or supervisory authority to which it is subject. Department of Banking and Insurance of The Commonwealth of Massachusetts, 100 Cambridge Street, Boston, Massachusetts. Board of Governors of the Federal Reserve System, Washington, D.C., Federal Deposit Insurance Corporation, Washington, D.C. (b) Whether it is authorized to exercise corporate trust powers. Trustee is authorized to exercise corporate trust powers. Item 2. Affiliations with Obligor. If the Obligor is an affiliate of the trustee, describe each such affiliation. The obligor is not an affiliate of the trustee or of its parent, State Street Boston Corporation. (See note on page 2.) Item 3. through Item 15. Not applicable. Item 16. List of Exhibits. List below all exhibits filed as part of this statement of eligibility. 1. A copy of the articles of association of the trustee as now in effect. A copy of the Articles of Association of the trustee, as now in effect, is on file with the Securities and Exchange Commission as Exhibit 1 to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein by reference thereto. 2. A copy of the certificate of authority of the trustee to commence business, if not contained in the articles of association. A copy of a Statement from the Commissioner of Banks of Massachusetts that no certificate of authority for the trustee to commence business was necessary or issued is on file with the Securities and Exchange Commission as Exhibit 2 to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No. 22- 17940) and is incorporated herein by reference thereto. 3. A copy of the authorization of the trustee to exercise corporate trust powers, if such authorization is not contained in the documents specified in paragraph (1) or (2), above. A copy of the authorization of the trustee to exercise corporate trust powers is on file with the Securities and Exchange Commission as Exhibit 3 to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein by reference thereto. 4. A copy of the existing by-laws of the trustee, or instruments corresponding thereto. A copy of the by-laws of the trustee, as now in effect is on file with the Securities and Exchange Commission as Exhibit 4 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Eastern Edison Company (File No. 33-37823) and is incorporated herein by reference thereto. 1 5. A copy of each indenture referred to in Item 4. if the obligor is in default. Not applicable. 6. The consents of United States institutional trustees required by Section 321(b) of the Act. The consent of the trustee required by Section 321(b) of the Act is annexed hereto as Exhibit 6 and made a part hereof. 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority is annexed hereto as Exhibit 7 and made a part hereof. NOTES In answering any item of this Statement of Eligibility which relates to matters peculiarly within the knowledge of the obligor or any underwriter for the obligor, the trustee has relied upon information furnished to it by the obligor and the underwriters, and the trustee disclaims responsibility for the accuracy or completeness of such information. The answer furnished to Item 2. of this statement will be amended, if necessary, to reflect any facts which differ from those stated and which would have been required to be stated if known at the date hereof. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, State Street Bank and Trust Company, a corporation organized and existing under the laws of The Commonwealth of Massachusetts, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Boston and The Commonwealth of Massachusetts, on the 21st day of May, 1998. STATE STREET BANK AND TRUST COMPANY By: /s/ Laurel Melody-Casasanta -------------------------------- Laurel Melody-Casasanta Assistant Vice President 2 EXHIBIT 6 CONSENT OF THE TRUSTEE Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of 1939, as amended, in connection with the proposed issuance by United Rentals, Inc. of its 9 1/2% Senior Subordinated Notes due 2008, we hereby consent that reports of examination by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. STATE STREET BANK AND TRUST COMPANY By: /s/ Laurel Melody-Casasanta ------------------------------ Laurel Melody-Casasanta Assistant Vice President Dated: May 21, 1998 3 EXHIBIT 7 Consolidated Report of Condition of State Street Bank and Trust Company, Massachusetts and foreign and domestic subsidiaries, a state banking institution organized and operating under the banking laws of this commonwealth and a member of the Federal Reserve System, at the close of business March 31, 1997, -------------- published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act and in accordance with a call made by the Commissioner of Banks under General Laws, Chapter 172, Section 22(a).
ASSETS Thousands of Dollars Cash and balances due from depository institutions: Noninterest-bearing-balances and currency and coin..................... 1,665,142 Interest-bearing balances.............................................. 8,193,292 Securities....................................................................... 10,238,113 Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and its Edge subsidiary.................................... 5,853,144 Loans and lease financing receivables: Loans and leases, net of unearned income............................... 4,936,454 Allowance for loan and lease losses.................................... 70,307 Allocated transfer risk reserve........................................ 0 Loans and leases, net of unearned income and allowances................ 4,886,147 Assets held in trading accounts.................................................. 957,478 Premises and fixed assets........................................................ 380,117 Other real estate owned.......................................................... 884 Investments in unconsolidated subsidiaries....................................... 25,835 Customers' liability to this bank on acceptances outstanding..................... 45,548 Intangible assets................................................................ 158,080 Other assets..................................................................... 1,066,957 ---------- 33,450,737 ========== LIABILITIES Deposits: In domestic offices.................................................... 8,270,845 Noninterest- bearing....................................... 6,318,360 Interest-bearing........................................... 1,952,485 In foreign offices and Edge subsidiary................................. 12,760,086 Noninterest- bearing....................................... 53,052 Interest-bearing........................................... 12,707,034 Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge Subsidiary.................................... 8,216,641 Demand notes issued to the U.S. Treasury and Trading Liabilities................. 926,821 Other borrowed money............................................................. 671,164 Subordinated notes and debentures................................................ 0 Bank's liability on acceptances executed and outstanding......................... 46,137 Other liabilities................................................................ 745,529 Total liabilities................................................................ 31,637,223 ---------- EQUITY CAPITAL Perpetual preferred stock and related surplus.................................... 0 Common stock..................................................................... 29,931 Surplus.......................................................................... 360,717 Undivided profits and capital reserves/Net unrealized holding gains (losses)..... 1,426,881 Cumulative foreign currency translation adjustments.............................. (4,015) Total equity capital............................................................. 1,813,514 ---------- Total liabilities and equity capital............................................. 33,450,737 ==========
4 I, Rex S. Schuette, Senior Vice President and Comptroller of the above named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Rex S. Schuette We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. David A. Spina Marshall N. Carter Charles F. Kaye 5 EX-99.A 11 FORM OF LETTER OF TRNSMITTAL LETTER OF TRANSMITTAL OFFER TO EXCHANGE 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B FOR ANY AND ALL OUTSTANDING 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A OF UNITED RENTALS, INC. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [ ], 1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). To: State Street Bank and Trust Company (the "Exchange Agent") By Mail: By Facsimile Transmission: By Overnight or Hand Delivery: (registered or certified recommended) (617) 664-5232 State Street Bank and Trust Company State Street Bank and Attention: Kellie Mullen Corporate Trust Department Trust Company Corporate Confirm by Telephone: Two International Place Trust Department (617) 664-5587 Boston, MA 02110-0078 P.O. Box 778 Fourth Floor Boston, MA 02102-0078 Attention: Kellie Mullen Attention: Kellie Mullen
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF THIS INSTRUMENT VIA A FACSIMILE NUMBER OTHER THAN THE FACSIMILE NUMBER LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. Capitalized terms used but not defined herein shall have the same meaning given them in the Prospectus (as defined below). The undersigned has provided the information below in order to indicate the Original Notes, if any, that the undersigned wishes to tender pursuant to the Exchange Offer (as defined below). ______________________________________ ______________________________________ ______________________________________ NAME AND ADDRESS OF BOOK-ENTRY HOLDER ______________________________________ DTC ACCOUNT NUMBER OF BOOK ENTRY HOLDER ______________________________________ TRANSACTION CODE NUMBER ______________________________________ AGGREGATE PRINCIPAL AMOUNT OF ORIGINAL NOTES TENDERED Ladies and Gentlemen: The undersigned acknowledges receipt of the Prospectus dated [ ], 1998 (the "Prospectus") of United Rentals, Inc., a Delaware corporation (the "Company"), and this Letter of Transmittal (the "Letter of Transmittal"), which together constitute the Company's offer (the "Exchange Offer") to exchange its 9 1/2% Senior Subordinated Notes Due 2008, Series B (the "Exchange Notes"), the issuance of which has been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement of which the Prospectus is a part, for a like principal amount of its outstanding 9 1/2% Senior Subordinated Notes Due 2008, Series A (the "Original Notes"), upon the terms and subject to the conditions set forth in the Prospectus. Capitalized terms used but not defined herein have the respective meanings given to them in the Prospectus. Subject to the terms and conditions of the Exchange Offer, the undersigned hereby tenders to the Company the principal amount of Original Notes indicated above. Subject to, and effective upon, the acceptance for exchange of the principal amount of Original Notes tendered in accordance with this Letter of Transmittal, the undersigned sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to the Original Notes tendered hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent its agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as the agent of the Company) with respect to the tendered Original Notes, with full power of substitution, to: (i) deliver Original Notes and all accompanying evidence of transfer and authenticity to or upon the order of the Company upon receipt by the Exchange Agent, as the undersigned's agent, of the Exchange Notes to which the undersigned is entitled upon the acceptance by the Company of the Original Notes tendered under the Exchange Offer; and (ii) receive all benefits and otherwise exercise all rights of beneficial ownership of such Original Notes, all in accordance with the terms of the Exchange Offer. The power of attorney granted in this paragraph shall be deemed to be irrevocable and coupled with an interest. The undersigned hereby represents and warrants that it has full power and authority to tender, exchange, assign and transfer the Original Notes tendered hereby and that the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim, when the same are acquired by the Company. The undersigned will, upon request, execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the exchange, assignment and transfer of the Original Notes tendered. The undersigned hereby represents and warrants that (i) it is not an affiliate of the Company, (ii) if the undersigned is a broker-dealer, none of the Original Notes being tendered hereby were purchased by it directly from the Company, (iii) any Exchange Notes that it acquires in the Exchange Offer will be acquired by it in the ordinary course of its business and (iv) it has no arrangement with any person to participate in the distribution of the Exchange Notes; provided, however, that if the undersigned is a broker-dealer and is tendering hereby Original Notes that were acquired by it for its own account as a result of market-making activities or other trading activities, the undersigned represents and warrants, in lieu of the representation set forth in clause (iv) immediately above, that it has no arrangement or understanding with the Company, or any affiliate of the Company, to participate in the distribution of the Exchange Notes. In addition, if the undersigned is not the beneficial owner of any of the Original Notes being tendered hereby, the undersigned confirms that the beneficial owner of such Original Notes has made the representations and warranties provided for in the preceding sentence. The undersigned understands that any broker-dealer (a "Participating Broker- Dealer") that, pursuant to the Exchange Offer, receives Exchange Notes in exchange for Original Notes that were acquired by it for its own account as a result of market-making activities or other trading activities, will be required to deliver a prospectus meeting the requirements of the Securities Act in connection with any resales by it of any such Exchange Notes. If the undersigned is a Participating Broker-Dealer, the undersigned acknowledges that it will comply with such prospectus delivery requirement in connection with any resale of Exchange Notes. In addition, if the undersigned is not the beneficial owner of any of the Original Notes being tendered hereby, the undersigned confirms that the beneficial owner of such Original Notes has made the acknowledgment provided for in the preceding sentence. 2 By making the acknowledgment provided for in this paragraph, a Participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The undersigned understands that tenders of Original Notes pursuant to the procedures described under "The Exchange Offer--Procedures for Tendering" in the Prospectus and in the instruction attached hereto will, upon the Company's acceptance for exchange of such tendered Original Notes, constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer. The undersigned recognizes that, under certain circumstances set forth in the Prospectus, the Company may not be required to accept for exchange any of the Original Notes tendered hereby. All authority conferred or agreed to be conferred by this Letter of Transmittal shall survive the death, incapacity or dissolution of the undersigned, and every obligation of the undersigned under this Letter of Transmittal shall be binding upon the undersigned's heirs, legal representatives, successors, assigns, executors and administrators. Please sign below X ________________________________________________________ Date: ____________ (SIGNATURE(S) OF BOOK ENTRY HOLDER OF ORIGINAL NOTES) Area Code and Telephone Number: _______________________________________________ Taxpayer Identification or Social Security Number: ____________________________ (The above lines must be signed by the Book-Entry Holder of Original Notes exactly as the name of such Book-Entry Holder appears on the records of DTC) If signature is by a trustee, executor, administrator, guardian, attorney- in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, then such person must (i) set forth his or her full name and title below, and (ii) unless waived by the Company, submit evidence satisfactory to the Company of such person's authority so to act. Name(s): ______________________________________________________________________ (PLEASE TYPE OR PRINT) Capacity (Full Title): ________________________________________________________ Address: ______________________________________________________________________ ________________________________________________________________________ (INCLUDE ZIP CODE) 3 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND ORIGINAL NOTES. The term "Book Entry Holder" with respect to any Original Notes means the participant in the DTC system that is listed as the holder of such notes in the records maintained by DTC. Only a Book-Entry Holder of Original Notes may tender such Original Notes pursuant to the Exchange Offer. Tenders of Original Notes will be accepted only in integral multiples of $1,000. To tender any Original Notes pursuant to the Exchange Offer, the Book-Entry Holder of such Original Notes must make book-entry delivery of such Original Notes by causing DTC to transfer such Original Notes to the account of the Exchange Agent at DTC in accordance with DTC's Automated Tender Offer Program ("ATOP") prior to 5:00 p.m., New York City time, on the Expiration Date. In addition, either (i) DTC must deliver an Agent's Message (as defined below) prior to 5:00 p.m., New York City time, on the Expiration Date, indicating that DTC has received from such Book-Entry Holder an express acknowledgment that such Book-Entry Holder has received and agrees to be bound by the terms of the Letter of Transmittal or (ii) such Book-Entry Holder must complete, sign and date the Letter of Transmittal or a facsimile thereof, in accordance with the instructions contained herein and deliver such Letter of Transmittal, or such facsimile, to the Exchange Agent at the address set forth above prior to 5:00 p.m., New York City time, on the Expiration Date. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. The term "Agent's Message" means a message transmitted by DTC to, and received by, the Exchange Agent and forming part of the book-entry confirmation relating to a book-entry transfer of Original Notes through ATOP, which states that DTC has received an express acknowledgment from the DTC Participant that is tendering the Original Notes which are the subject of such book entry confirmation, that such DTC Participant has received and agrees to be bound by the terms of the Letter of Transmittal. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL SHOULD BE SENT TO THE COMPANY. All questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered Original Notes and withdrawal of tendered Original Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Original Notes not properly tendered or any Original Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any irregularities or conditions of tender as to particular Original Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Original Notes must be cured within such time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Original Notes, nor shall any of them incur any liability for failure to give such notification. Tenders of Original Notes will not be deemed to have been made until such irregularities have been cured or waived. Any Original Notes received by the Exchange Agent that are not properly tendered or the tender of which is otherwise rejected by the Company and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the Book-Entry Holder that tendered such Original Notes (by crediting an account maintained at DTC designated by such Book-Entry Holder) as soon as practicable following the Expiration Date. 2. WITHDRAWALS. Tenders of Original Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To withdraw a tender of Original Notes pursuant to the Exchange Offer, the Book-Entry Holder that tendered such Original Notes must, prior to 5:00 p.m., New York City time, on the 4 Expiration Date, either (i) withdraw such tender in accordance with the appropriate procedures of the ATOP system or (ii) deliver to the Exchange Agent a written or facsimile transmission notice of withdrawal at the address set forth herein. Any such notice of withdrawal must contain the name and number of the Book-Entry Holder, the amount of Original Notes to which such withdrawal relates, the account at DTC to be credited with the withdrawn Original Notes and the signature of the Book-Entry Holder. All questions as to the validity, form and eligibility (including time of receipt) of such withdrawal notices will be determined by the Company, whose determination will be final and binding on all parties. Any Original Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer, and no Exchange Notes will be issued with respect thereto unless the Original Notes so withdrawn are validly retendered. Any Original Notes which have been tendered but which are withdrawn will be returned by the Exchange Agent to the Book-Entry Holder that tendered such Original Notes (by crediting an account maintained at DTC designated by such Book-Entry Holder) as soon as practicable after withdrawal. Properly withdrawn Original Notes may be retendered at any time prior to the Expiration Date by following the procedures described in paragraph 1 above. 3. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable to the exchange of Original Notes pursuant to the Exchange Offer. If, however, Exchange Notes or Original Notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be registered or issued in the name of, any person other than the Book-Entry Holder of the Original Notes tendered, or if a transfer tax is imposed for any reason other than the exchange of Original Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the Book-Entry Holder or any other persons) will be payable by the tendering Holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering Holder. 4. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance and requests for additional copies of the Prospectus or this Letter of Transmittal may be directed to the Exchange Agent at the address specified in the Prospectus. 5 -----END PRIVACY-ENHANCED MESSAGE-----