<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1997
REGISTRATION NO. 333-17783
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
U.S. RENTALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7353 94-3061974
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATON) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1581 CUMMINS DRIVE, SUITE 155
MODESTO, CALIFORNIA 95358
(209) 544-9000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
JOHN S. MCKINNEY
1581 CUMMINS DRIVE, SUITE 155
MODESTO, CALIFORNIA 95358
(209) 544-9000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
KENT V. GRAHAM, ESQ. BRYANT B. EDWARDS, ESQ.
O'MELVENY & MYERS LLP LATHAM & WATKINS
1999 AVENUE OF THE STARS, SUITE 700 633 WEST FIFTH STREET, SUITE 4000
LOS ANGELES, CALIFORNIA 90067 LOS ANGELES, CALIFORNIA 90071
(310) 246-6820 (213) 485-1234
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER SHARE PRICE(1) FEE
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<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share......... 11,500,000 Shares $21.00 $241,500,000 $73,182(2)
</TABLE>
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(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 under the Securities Act of 1933, as amended.
(2) Of this amount, $62,728 was paid with original filing and $10,454 is being
paid with this amendment.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) IF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains a Prospectus relating to a public
offering in the United States and Canada (the "U.S. Offering") of an aggregate
of 8,000,000 shares of Common Stock, par value $.01 per share (the "Common
Stock"), of U.S. Rentals, Inc. (9,500,000 shares if the U.S. Underwriters'
over-allotment option is exercised in full), together with separate Prospectus
pages relating to a concurrent offering outside the United States and Canada
of an aggregate of 2,000,000 shares of Common Stock (the "International
Offering"). The complete Prospectus for the U.S. Offering follows immediately.
After such Prospectus are the following alternate pages for the International
Offering: a front cover page, a "Certain United States Federal Tax
Consequences to Non-United States Holders of Common Stock" section and a back
cover page. All other pages of the Prospectus for the U.S. Offering are to be
used for both the U.S. Offering and the International Offering.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, DATED JANUARY 28, 1997
, 1997
10,000,000 SHARES
[LOGO OF U.S. RENTALS]
COMMON STOCK
All of the 10,000,000 shares of common stock, $.01 par value per share (the
"Common Stock"), offered hereby are being sold by U.S. Rentals, Inc. Of the
10,000,000 shares of Common Stock offered by the Company, 8,000,000 shares are
being offered for sale in the United States and Canada by the U.S. Underwriters
(the "U.S. Offering") and 2,000,000 shares are being offered for sale outside
the United States and Canada in a concurrent offering by the International
Managers (the "International Offering" and, together with the U.S. Offering,
the "Offerings"), subject to transfers between the U.S. Underwriters and the
International Managers. See "Underwriting."
Prior to the Offerings, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price will be
between $19.00 and $21.00 per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price.
The Common Stock has been approved for listing on the New York Stock Exchange
upon notice of issuance under the symbol "USR."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
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<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS (1) COMPANY (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................................ $ $ $
Total (3)................................ $ $ $
- --------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the several U.S. Underwriters and
International Managers against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $1,350,000.
(3) The Company has granted to the U.S. Underwriters a 30-day option to
purchase up to 1,500,000 additional shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to the Public, Underwriting Discounts and Commissions and Proceeds to
the Company will be $ , $ and $ , respectively. See "Underwriting."
The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, subject to various prior conditions, including their right to
reject any order in whole or in part. It is expected that delivery of share
certificates will be made in New York, New York, on or about , 1997.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
<PAGE>
Map of United States with dots indicating the locations of the Profit
Centers. The dots are located primarily in the Western and Southwestern
states. Below the map on the left side of the page is a picture of a delivery
truck transporting rental equipment. On the far right side of the page there
are two columns that list the location of each Profit Center.
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
A picture in the middle of the page has numerous workers standing with various
pieces of rental equipment. A picture of an overview of a Profit Center is below
the center picture.
Pictures on the left side of the first fold out page are, from top to bottom: a
crane truck at a construction site; an overview of a Profit Center; an excavator
working by a water inlet; and a construction worker using a tamper.
Pictures on the right side on the second fold out page are, from top to bottom:
a bulldozer at a work site; a Bobcat at a work site; a motor grader at a work
site; and an overview of a Profit Center.
The background of the fold out page is a ghosted picture of a motor grader.
<PAGE>
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the more
detailed information, including "Risk Factors" and the Combined Financial
Statements and notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, the information in this Prospectus (i) gives effect to the
Offering Related Transactions described below, (ii) assumes no exercise of the
over-allotment option granted to the U.S. Underwriters as described in
"Underwriting" and (iii) assumes an initial public offering price of $20.00 per
share of Common Stock of the Company, the midpoint of the offering price range
set forth on the cover of this Prospectus. Unless otherwise indicated, all
references to the "Company" and "U.S. Rentals" refer to U.S. Rentals, Inc. and
its predecessor (the "Predecessor"). See "Offering Related Transactions."
THE COMPANY
U.S. Rentals is the second largest equipment rental company in the United
States based on 1995 rental revenues. The Company currently operates 80
equipment rental yards ("Profit Centers") in 11 states and in 1996 generated an
average of approximately 95,000 rental contracts per month from a diverse base
of customers including commercial and residential construction, industrial and
homeowner customers. Management estimates that more than 200,000 customers did
business with the Company in 1996. U.S. Rentals owns more than 60,000 pieces of
rental equipment, comprised of approximately 600 equipment types, including
aerial work platforms, forklifts, paving and concrete equipment, compaction
equipment, air compressors, hand tools and plumbing, landscaping and gardening
equipment. Management believes that the Company's fleet, which had a weighted
average age of approximately 28 months and an original equipment cost of
approximately $367.7 million at December 31, 1996, is one of the most
comprehensive and well-maintained equipment rental fleets in the industry. U.S.
Rentals also sells new equipment manufactured by nationally known companies,
used equipment from its rental fleet and rental-related merchandise, parts and
supplies.
The Company's strategic objective is to continue to grow profitably in both
existing and new markets by acquiring rental yards, opening start-up rental
yards and expanding its equipment fleet. U.S. Rentals routinely evaluates
attractive markets for expansion where a leading position can be created by
acquiring an existing business or opening a new rental yard. The Company has
grown internally through the expansion of its equipment fleet at existing
locations and through the integration of 28 start-up and acquired equipment
rental yards since January 1992. As a result of the Company's strategy, total
revenues increased to $305.8 million in 1996 from $120.2 million in 1992, a
compound annual growth rate of 26.3%. During the same period, operating income
before non-rental depreciation increased to $49.7 million from $11.7 million, a
compound annual growth rate of 43.6%. U.S. Rentals has been profitable in every
year since 1984.
U.S. Rentals attributes its leadership position in the equipment rental
industry primarily to its innovative operating philosophy, which is based upon
a decentralized management structure, a unique profit sharing program available
to all levels of employees, a strong emphasis on personalized customer service
and maintenance of one of the most comprehensive and modern rental fleets of
brand name equipment in the industry. The Company's bottoms-up management
structure allows each Profit Center manager to tailor the equipment fleet to
the local market, make equipment fleet purchases and sales and pricing and
staffing decisions. Corporate headquarters coordinates equipment purchases and
supports Profit Center managers by providing capital, accounting, internal
audit, risk management and other services to each Profit Center. The Company's
unique incentive-based profit sharing program does not limit employee
compensation. This program motivates Profit Center managers to act as
entrepreneurs, to purchase only equipment that can be profitably deployed, to
sell rental equipment from the fleet as maintenance costs increase or as rental
demand for such equipment decreases and to minimize operating expenses. In
1996, managers of profitable locations earned an average of approximately 92%
of their base salaries in profit sharing compensation. Management believes that
its innovative operating and compensation philosophy significantly contributed
to same Profit Center revenue growth of 20.0% and 17.1% in 1995 and 1996,
respectively.
3
<PAGE>
INDUSTRY
The equipment rental industry serves a wide variety of commercial and
residential construction, industrial and homeowner customers. Equipment
available for rent ranges from small hand tools costing less than $100 to large
earth-moving equipment costing over $200,000. According to a survey conducted
for 1995 and published in 1996 by the Associated Equipment Distributors
("AED"), an industry trade association, the United States equipment rental
industry has grown from approximately $610 million in annual revenues in 1982
to an estimated $15 billion in annual revenues in 1995, a compound annual
growth rate of approximately 28%. Management believes that this growth
reflects, in part, increased outsourcing trends by commercial and industrial
construction customers that increasingly seek to reduce their capital invested
in equipment and to reduce the costs associated with maintaining and servicing
such equipment. While equipment users traditionally have rented equipment for
specific purposes, such as supplementing capacity during peak periods and in
connection with special projects, the convenience and cost-saving factors of
utilizing rental equipment have encouraged customers to look to suppliers such
as the Company as ongoing, comprehensive sources of equipment. Management
believes that demand for rental equipment by the commercial and industrial
segments will continue to increase as these customers continue to outsource
non-core operations. A survey conducted by The CIT Group for 1995 and published
in 1996 showed that commercial construction contractors intended to increase
the percentage of equipment they rent without a purchase option to an estimated
8% of their total equipment requirements in 1996, from an estimated 5% in 1995.
The equipment rental industry is highly fragmented and primarily consists of
a large number of relatively small, independent businesses serving discrete
local markets and a small number of multi-yard regional and multi-regional
operators. According to a May 1996 article published by Rental Equipment
Register, an industry trade magazine, the 100 largest rental equipment
companies, based on 1995 rental revenue, represented less than 20% of total
industry rental revenue estimated at $15 billion. Management believes that an
estimated 85% of the approximately 20,000 equipment rental operators in the
United States have fewer than five locations and, therefore, believes the
equipment rental industry offers substantial consolidation opportunities for
large, well-capitalized rental companies such as U.S. Rentals. Relative to
smaller competitors, multi-regional operators such as the Company benefit from
several competitive advantages, including access to capital, the ability to
offer a broad range of modern equipment, purchasing power with equipment
suppliers, sophisticated management information systems, national brand
identity and the ability to service national accounts. In addition, management
believes multi-regional operators such as the Company are less sensitive to
local economic downturns.
BUSINESS STRATEGY
U.S. Rentals' strategic objective is to continue its profitable growth in
both existing and new markets by acquiring rental yards, opening start-up
rental yards and expanding its equipment fleet. U.S. Rentals routinely
evaluates attractive markets for expansion where a leading position can be
created by acquiring an existing business or opening a new rental yard.
Primarily due to its entrepreneurial, decentralized organizational structure
that focuses on bottoms-up management and an innovative profit-driven
compensation program, the Company has been profitable each of the past 12
years. Specifically, U.S. Rentals' business strategy centers upon the following
factors:
Profitable Expansion. The Company strives to operate the most profitable
equipment rental yards in each of its markets. Management believes U.S. Rentals
is well positioned to be a leader in the consolidation of the highly fragmented
equipment rental industry. Management believes that there are numerous
attractive acquisition opportunities available and that the Company's
reputation, stability, access to capital, sophisticated management information
systems and operating expertise provide competitive advantages in making
acquisitions. These strengths allow U.S. Rentals to (i) quickly integrate
acquired companies into its information systems and operating structure,
(ii) realize synergies in the form of reduced overhead and lower costs through
greater purchasing power and (iii) significantly enhance revenue by supplying
acquired yards with additional equipment to optimize the mix of rental
equipment and modernize the fleet. In addition, the Company will open new
rental yards when a suitable business is not available for acquisition on
favorable terms. Pursuant to this strategy, U.S.
4
<PAGE>
Rentals has acquired 15 rental yards and has opened 13 start-up rental yards
since January 1, 1992. The Company routinely analyzes potential acquisitions of
rental yards but is not currently a party to any material acquisition
agreement.
Market Leadership. Management believes that U.S. Rentals has a leading market
position in most of the markets in which its Profit Centers have been open for
more than one year. The Company has been able to create this leadership
position by capitalizing on its substantial competitive advantages, which
include offering personalized customer service, flexible rental terms, seven-
days-a-week operating hours and a diverse and modern equipment rental fleet
specifically tailored to the needs of local customers. Further, U.S. Rentals'
historical strength has been in small and medium-sized markets that the Company
believes are not well served by its competition.
Extensive Customer Base. In 1996 U.S. Rentals generated an average of
approximately 95,000 customer contracts per month from a diverse customer base.
Management estimates that more than 200,000 customers did business with the
Company in 1996. Historically, U.S. Rentals has served a large number of small
and medium-sized customers, which the Company believes are not well served by
its competition. The Company is also increasing its emphasis on multi-regional
and national customers through its national accounts program. In addition to
the Company's strong brand name recognition, comprehensive and modern equipment
rental fleet, well-located rental yards and competitive pricing, management
believes that the Company's customers value the convenience of U.S. Rentals
Profit Centers' seven-days-a-week operating hours and flexible rental terms.
Further, U.S. Rentals offers its customers "one-stop shopping" through the sale
of rental-related merchandise, parts and supplies, sales of new and used
equipment and maintenance and delivery services.
Innovative, Decentralized Operating Philosophy. U.S. Rentals' decentralized
operating philosophy encourages entrepreneurial behavior at each Profit Center
and rewards managers and employees through a profit-driven incentive
compensation program. Profit Center managers are given the necessary freedom
and flexibility to operate their respective equipment rental yards to maximize
profits. Each Profit Center manager is responsible for every aspect of a yard's
operation, including establishing rental rates, selecting equipment and
determining employee compensation. Managers and employees of profitable
locations are rewarded by the Company's profit sharing program that is based on
each location's operating income in excess of a pre-determined return on its
net assets. In 1996, managers of profitable locations earned an average of
approximately 92% of their base salaries in profit sharing compensation.
Strong Internal Controls. U.S. Rentals balances its decentralized
organizational structure and entrepreneurial operating philosophy with
extensive systems and procedures to monitor and track the performance of each
Profit Center. The Company's proprietary management information systems,
including the Company's point-of-sale ("POS") system, allow management and
Profit Center managers to review all aspects of each Profit Center's business
and assist management in closely monitoring and quickly reacting to
opportunities to increase profits at each Profit Center. These systems are used
to open customer accounts, generate rental contracts, track equipment usage,
report customer credit histories, compile accounts receivable aging reports and
monitor monthly profitability. Seven internal auditors monitor and ensure
adherence to the Company's well-established, disciplined and documented
policies and procedures. In addition, six independent division credit offices
review and approve all credit applications submitted to the Profit Centers.
Management believes that the Company's strong internal controls and proprietary
management information systems lower overall costs and increase profitability
for the Company.
Attracting, Motivating and Retaining the Best People in the Industry. Through
its decentralized, entrepreneurial approach and innovative profit sharing
program, the Company believes it has generally been able to attract, motivate
and retain the most successful, experienced group of employees in the industry.
Management believes U.S. Rentals' successful employees are more highly
compensated than those of its competitors because of the Company's unique
profit sharing program. As a result, the Company has had voluntary turnover of
only two Profit Center managers during the past five years. In addition, U.S.
Rentals' senior operating management, which has an average of 21 years of
rental industry experience, is among the most experienced in the
5
<PAGE>
industry. William F. Berry, the Company's 44-year old President and Chief
Executive Officer, has over 30 years of experience in the equipment rental
business and has worked in numerous operational and managerial capacities in
the Company during his career.
The Company was incorporated in Delaware in November 1987 but has not had
operations prior to the Offerings. See "Offering Related Transactions." The
Company's principal executive offices are located at 1581 Cummins Drive, Suite
155, Modesto, California 95358, and its telephone number is (209) 544-9000.
THE OFFERINGS
Common Stock offered hereby:
<TABLE>
<S> <C>
U.S. Offering .................. 8,000,000 shares
International Offering ......... 2,000,000 shares
-----------------
Total......................... 10,000,000 shares
=================
Common Stock to be outstanding after
the Offerings.................... 30,748,975 shares(a)
Use of proceeds .................. The estimated net proceeds to the Company of
$186.2 million from the Offerings will be used
to repay substantially all outstanding
indebtedness of the Company, pay related
prepayment penalties and for working capital and
general corporate purposes, including possible
future acquisitions. See "Use of Proceeds."
New York Stock Exchange symbol.... USR
</TABLE>
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(a) Excludes 4,600,000 shares reserved for future issuance under the Company's
1997 Performance Award Plan (the "1997 Plan"). See "Management--Employment
Agreements" and "--1997 Performance Award Plan."
6
<PAGE>
SUMMARY FINANCIAL DATA
The following summary historical and pro forma financial data should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Combined Financial Statements and
notes thereto and the Unaudited Pro Forma Combined Financial Statements and
notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
PRO FORMA
AS ADJUSTED(A)
1992 1993 1994 1995 1996 1996
-------- -------- -------- -------- -------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues.......... $120,172 $143,582 $187,758 $242,847 $305,837 $305,837
Gross profit............ 27,213 36,129 55,151 74,975 85,616 85,616
Operating income........ 8,638 12,686 23,786 38,022 (b) 42,154 (b) 43,678
Other income (expense),
net.................... 782 (31) (242) (1,620) (665)(c) 62
Interest income
(expense), net......... 1,219 1,236 (1,060) (5,310) (8,031) (13)
Income before income
taxes.................. 10,639 13,891 22,484 31,092 33,458 43,727
Income taxes............ 529 405 499 468 374 17,598
Net income.............. 10,110 13,486 21,985 30,624 33,084
Pro forma net income(d). 6,318 8,181 13,263 18,312 20,002 26,129
Pro forma net income per
share.................. 0.85
BALANCE SHEET DATA (END
OF PERIOD):
Rental equipment, net... $ 49,326 $ 65,606 $112,563 $152,848 $205,982 $205,982
Total assets............ 102,085 125,390 187,525 245,184 324,448 296,895
Total debt.............. 31,392 48,419 84,751 105,696 186,710 500
Total stockholder's
equity................. 51,739 48,608 57,951 83,077 80,730 233,834
SELECTED OPERATING DATA:
Gross equipment capital
expenditures........... $ 24,279 $ 42,892 $ 83,157 $ 88,861 $119,348 $119,348
Rental equipment
depreciation........... 20,231 24,300 33,754 43,885 56,105 56,105
Non-rental depreciation. 3,060 3,294 4,092 5,513 7,528 7,528
Profit Centers (end of
period)................ 57 57 65 71 80 80
Same Profit Center
revenue growth(e)...... 2.6% 16.0% 23.5% 20.0% 17.1% 17.1%
</TABLE>
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(a) Gives effect to (i) the Offering Related Transactions, (ii) the sale of
10,000,000 shares of Common Stock in the Offerings (assuming no exercise of
the U.S. Underwriters' over-allotment option) at an assumed initial public
offering price of $20.00 per share, (iii) a reduction in interest expense
as a result of reductions in indebtedness upon application of a portion of
the net proceeds to the Company from the Offerings, (iv) change from S
corporation income tax expense to C corporation income tax expense and
recording of the related deferred tax liabilities and (v) termination of
deferred incentive compensation agreements with certain employees. See
"Offering Related Transactions," "Use of Proceeds," "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Combined Financial Statements and notes thereto and the
Unaudited Pro Forma Combined Financial Statements and notes thereto
included elsewhere in this Prospectus.
(b) Operating income for the years ended December 31, 1995 and 1996 includes
$645,000 and $1,524,000 of non-recurring compensation expense related to
the Predecessor's deferred incentive compensation agreements that were
terminated in January 1997. See "Certain Transactions--Offering Related
Agreements."
(c) Includes $1,300,000 of non-recurring expense from non-operating assets of
the Predecessor not transferred to the Company as part of the Offering
Related Transactions.
(d) The pro forma net income reflects the estimated pro forma effect of income
taxes as if the Predecessor had been taxed as a C corporation for all
periods presented. See "Offering Related Transactions."
(e) Same Profit Center revenue growth is calculated based on the change in
total revenues of all Profit Centers open as of the beginning of the
preceding fiscal year.
7
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of Common Stock.
ECONOMIC CONDITIONS; GEOGRAPHICAL CONCENTRATION
The Company believes that the equipment rental industry is sensitive to
economic and competitive conditions, including national, regional and local
changes in construction and industrial activity. Most of U.S. Rentals'
revenues are derived from customers in industries that are cyclical in nature
and subject to changes in general economic conditions. The Company's operating
results may be adversely affected by events or conditions in a particular
region, such as regional economic slowdowns, adverse weather and other
factors. Although the Company operates in 11 states, the Company derived
approximately 59.5% and 18.0% of its total revenues from its California and
Texas locations, respectively, in 1996. Thus, a significant economic downturn
in California or Texas may have a material adverse effect on the Company's
operating results. In addition, the Company's operating results may be
adversely affected by increases in interest rates that may lead to a decline
in economic activity. There can be no assurance that changes in economic
conditions will not have a material adverse effect on the Company's results of
operations and financial condition.
COMPETITION
The equipment rental industry is highly fragmented and very competitive. The
Company's competitors include national and multi-regional companies, regional
competitors that operate in a small number of states, small, independent
businesses with a small number of local rental locations and equipment vendors
and dealers that both sell and rent equipment directly to customers. Certain
of the Company's competitors may have greater financial resources, are more
geographically diverse and have greater name recognition than the Company.
There can be no assurance that the Company will not encounter increased
competition from existing competitors or new market entrants. There can be no
assurance that manufacturers of the equipment that the Company rents will not
commence or increase their efforts to rent or sell such equipment directly to
the Company's customers. In addition, to the extent existing or future
competitors seek to gain or retain market share by reducing prices, the
Company might be required to lower its prices, thereby affecting operating
results. Existing or future competitors also may seek to compete with the
Company for acquisition candidates, which could have the effect of increasing
the price for acquisitions or reducing the number of suitable acquisition
candidates. In addition, such competitors may also compete with the Company
for start-up locations, thereby limiting the number of attractive locations
for expansion. See "Business--Competition."
RISKS RELATING TO GROWTH
A principal component of the Company's strategy is to continue to grow
profitably in both existing and new markets by acquiring rental yards, opening
start-up rental yards and expanding its equipment fleet. The Company's future
growth will be dependent upon a number of factors including the Company's
ability to identify acceptable acquisition candidates and suitable start-up
locations, consummate acquisitions and obtain sites for start-up locations on
favorable terms, successfully integrate acquired businesses and start-up
locations with the Company's existing operations, expand its customer base at
existing and acquired locations and obtain financing to support expansion.
Historically, the Company's acquired businesses and start-up locations
generally have not been profitable until after their first year of operations
and there can be no assurance that future acquired businesses and start-up
locations will become profitable within their first several years of
operations, if at all, or achieve the results anticipated by the Company.
There can be no assurance that the Company will successfully expand or that
any expansion will result in profitability. The failure to identify, evaluate
and integrate acquired businesses and start-up locations effectively could
adversely affect the Company's operating results, possibly causing adverse
effects on the market price of the Common Stock. In addition, the results
achieved to date by the Company may not be indicative of its prospects or its
ability to penetrate new markets, many of which may have different competitive
conditions and demographic characteristics than the Company's current markets.
Further, the Company's emphasis on long-term business strategy may result in
reduced profitability in the short-term, and there can be no assurance that
its long-term strategy will result in increased profitability.
8
<PAGE>
As a result of acquisitions and the opening of start-up locations, the
Company will experience growth in the number of its employees, the scope of
its operating and financial systems and the geographic area of its operations.
This growth will increase the operating complexity of the Company and the
level of responsibility for both existing and new management personnel. To
manage this expected growth, the Company intends to invest further in its
operating and financial systems and to continue to expand, train and manage
its employee base. There can be no assurance that the Company will be able to
attract and retain qualified management and employees, that the Company's
current operating and financial systems and controls will be adequate as the
Company grows, or that any steps taken to attract and retain such employees
and to improve such systems and controls will be sufficient. See "Business--
Business Strategy."
DEPENDENCE ON KEY PERSONNEL
The Company's future performance and development will depend to a great
extent on the efforts and abilities of certain members of senior management,
particularly William F. Berry, President and Chief Executive Officer, and John
S. McKinney, Vice President--Finance and Chief Financial Officer. The loss of
service of one or more members of senior management could have a material
adverse effect on the Company's business. The Company uses several methods to
retain key employees, including employment agreements with Messrs. Berry and
McKinney. However, the Company does not maintain key man insurance for any of
its employees. The Company's ongoing success also will depend on its
continuing ability to attract, train and retain skilled personnel in all areas
of its business. See "Management."
CONTROL BY PRINCIPAL STOCKHOLDER
Upon consummation of the Offerings, Richard D. Colburn (the "Principal
Stockholder") will beneficially own approximately 67.5% of the outstanding
Common Stock (64.3% if the U.S. Underwriters' over-allotment option is
exercised in full), and will have the same percentage of the overall voting
power of the Company. Accordingly, he will be able to elect all of the
directors and exercise significant control over the business, policies and
affairs of the Company. Similarly, he will be in a position to prevent a
takeover of the Company by one or more third parties, or sell or otherwise
transfer his stock to a third party, which could deprive the Company's
stockholders of a control premium that might otherwise be realized by them in
connection with an acquisition of the Company. See "Principal Stockholders."
QUARTERLY FLUCTUATIONS AND SEASONALITY
The Company's revenues and operating results historically have fluctuated
from quarter to quarter, and the Company expects them to continue to do so in
the future. These fluctuations have been and will be caused by a number of
factors, including seasonal rental patterns of the Company's customers
(principally due to the effect of weather on construction activities), general
economic conditions in the Company's markets, the timing of acquisitions and
the development of start-up locations and related costs, the effectiveness of
integrating acquired businesses and start-up locations, and the timing of
capital expenditures for new rental equipment. The Company incurs substantial
costs in establishing or integrating newly acquired or start-up locations, and
the profitability of a new location is generally lower in the first year of
operations than in subsequent years of operations. These factors, among
others, make it likely that in some future quarters the Company's results of
operations may be below the expectations of securities analysts and investors,
which could have a material adverse effect on the market price of the Common
Stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Quarterly Results."
In addition, the Company will incur non-recurring charges of approximately
$29.0 million during the first quarter of 1997 as a result of the termination
of the Predecessor's deferred incentive compensation agreements prior to the
Offerings, the establishment of a deferred tax liability and the associated
charges resulting from the termination of the Predecessor's election to be
treated as an S corporation for tax purposes and for an expense related to
prepayment penalties on indebtedness to be repaid with proceeds from the
Offerings. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Quarterly Results," "Certain Transactions--Offering
Related Agreements" and Note 9 of notes to Combined Financial Statements.
9
<PAGE>
GOVERNMENTAL AND ENVIRONMENTAL REGULATION
The Company's operations are subject to various federal, state and local
laws and regulations governing, among other things, worker safety, air
emissions, water discharge and the generation, handling, storage,
transportation, treatment and disposal of hazardous substances and wastes.
Under such laws, an owner or lessee of real estate may be liable for the costs
of removal or remediation of certain hazardous or toxic substances located on,
in, or emanating from, such property, as well as related costs of
investigation and property damage and substantial penalties for violations of
such laws. Such laws often impose such liability without regard to whether the
owner or lessee knew of, or was responsible for, the presence of such
hazardous or toxic substances. There can be no assurance that the Company's
locations have been operated in compliance with environmental laws and
regulations or that future uses or conditions will not result in the
imposition of environmental liability upon the Company or expose the Company
to liability to third parties even if the Company has been indemnified by
third parties against such liabilities. There also can be no assurance that
environmental contamination does not currently exist at any of the Company's
locations from prior activities at such locations or from neighboring
properties. The Company dispenses petroleum products from above-ground storage
tanks at a majority of its Profit Centers. The remainder of its Profit Centers
dispense petroleum products from underground storage tanks. The Company
maintains an environmental compliance program that includes the implementation
of required technical and operational activities designed to minimize the
potential for leaks and spills. There can be no assurance, however, that these
tank systems have been or will at all times remain free from leaks or that the
use of these tanks has not or will not result in spills or other releases. The
Company incurs ongoing expenses associated with the removal of older
underground storage tanks and the performance of appropriate remediation at
certain of its locations. The actual cost of remediating environmental
conditions may be different from that anticipated by the Company due to the
difficulty in estimating such cost and due to potential changes in the status
of legislation and state reimbursement programs. Phase I environmental
assessments on a number of recently acquired facilities indicated the
possibility of releases of hazardous materials at those facilities, but the
Company has not determined whether releases actually have occurred or whether
remediation will be required. In addition, the Company believes that hazardous
substances currently requiring remediation are present at seven of its
facilities. The Company has applied or is applying for governmental
determinations that remediation has been completed at four of such locations
and is undertaking or anticipates undertaking remediation at the three other
facilities. No assurance can be given that such governmental determinations
will be issued without first requiring additional remediation or monitoring.
Management believes that the Company is also responsible (pursuant to the
terms of certain of its leases) for any required remediation of seven double-
walled underground storage tanks. The Company also uses other hazardous
materials in the ordinary course of its business. In addition, the Company
generates and disposes of hazardous waste such as used motor oil, radiator
fluid and solvents, and may be liable under various federal, state and local
laws for environmental contamination at facilities where its waste is or has
been disposed. See "Business--Governmental and Environmental Regulation."
DEPENDENCE ON ADDITIONAL CAPITAL TO FINANCE GROWTH
Expansion of the Company through acquisitions, development of start-up
locations and growth at existing locations will require significant capital
expenditures. To remain competitive, the Company must provide its customers
with relatively new, high-quality, well-maintained equipment and rental
facilities, requiring continual capital expenditures. The Company historically
has financed capital expenditures, acquisitions and start-up locations
primarily through internally generated cash flow, bank borrowings and proceeds
from privately placed notes (the "Senior Notes"). To implement its strategy
and meet its capital needs, the Company will incur indebtedness and may issue
additional equity securities (which could result in dilution to the purchasers
of Common Stock offered hereby). Such additional indebtedness will increase
the Company's leverage, may make the Company more vulnerable to economic
downturns and may limit its ability to withstand competitive pressures. There
can be no assurance that additional capital, if and when required, will be
available on terms acceptable to the Company, or at all. Failure by the
Company to obtain sufficient additional capital in the future could have a
material adverse effect on the Company's results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
10
<PAGE>
LIABILITY AND INSURANCE
The Company's business exposes it to claims for personal injury or death
resulting from the use of equipment rented or sold by the Company, from
injuries caused in motor vehicle accidents in which Company delivery and
service personnel are involved, as well as workers' compensation claims and
other employment-related claims by the Company's employees. The Company
carries substantial coverage for product liability, general and automobile
liability and employment-related claims from various national insurance
carriers. Such coverage ranges from $3 million to $50 million per occurrence.
However, claims under $3 million and certain types of claims such as claims
for punitive damages or for damages arising from intentional misconduct, which
are often alleged in third party lawsuits, are generally not covered by the
Company's insurance. There can be no assurance that existing or future claims
will not exceed the level of the Company's insurance, that the Company will
have sufficient capital available to pay any uninsured claims, or that its
insurance will continue to be available on economically reasonable terms, if
at all. See "Business--Legal Proceedings."
ANTI-TAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation (the "Certificate of
Incorporation") and its Amended and Restated Bylaws (the "Bylaws") include
provisions that could delay, defer or prevent a takeover attempt that may be
in the best interest of stockholders. These provisions include the ability of
the Board of Directors to issue up to 10,000,000 shares of preferred stock
(the "Preferred Stock") without any further stockholder approval, a provision
under which only the Board of Directors may call meetings of stockholders, and
certain advance notice procedures for nominating candidates for election to
the Board of Directors. Issuance of Preferred Stock could also discourage bids
for the Common Stock at a premium as well as create a depressive effect on the
market price of the Common Stock. In addition, under certain conditions,
Section 203 of the Delaware General Corporation Law (the "DGCL") would
prohibit the Company from engaging in a "business combination" with an
"interested stockholder" (in general, a stockholder owning 15% or more of the
Company's outstanding voting stock) for a period of three years unless the
business combination is approved in a prescribed manner. See "Description of
Capital Stock."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offerings, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will
develop as a result of the Offerings or, if a trading market does develop,
that it will be sustained or that the shares of Common Stock could be resold
at or above the initial public offering price. The initial public offering
price of the Common Stock offered hereby will be determined through
negotiations between the Company and the representatives of the Underwriters
and may not be indicative of the price at which the Common Stock will actually
trade after the Offerings. After completion of the Offerings, the market price
of the Common Stock could be subject to significant variation due to
fluctuations in the Company's operating results, changes in earnings estimates
by securities analysts, the degree of success the Company achieves in
implementing its business strategy, changes in business or regulatory
conditions affecting the Company, its customers or its competitors, and other
factors. In addition, the stock market may experience volatility that affects
the market prices of companies in ways unrelated to the operating performance
of such companies, and such volatility may adversely affect the market price
of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Upon consummation of the Offerings, the Company will have outstanding an
aggregate of 30,748,975 shares of Common Stock (32,248,975 shares if the U.S.
Underwriters' over-allotment option is exercised in full). Future sales of
substantial amounts of Common Stock by the Principal Stockholder after the
Offerings, or the perception that such sales could occur, could adversely
affect the market price of the Common Stock. No prediction can be made as to
the effect, if any, that future sales of shares, or the availability of shares
for future sale, will have on the market price of the Common Stock. In
addition, the Company has the authority to issue additional shares of Common
Stock and shares of one or more series of Preferred Stock. The Company also
11
<PAGE>
intends to register 4,600,000 shares of Common Stock reserved for issuance
under the 1997 Plan as soon as practicable following the consummation of the
Offerings. The issuance of such shares could result in the dilution of the
voting power of the shares of Common Stock purchased in the Offerings and
could have a dilutive effect on earnings per share. The Company currently has
no plans to designate and/or issue any shares of Preferred Stock.
The Company, the Predecessor and the Principal Stockholder, subject to
certain exceptions described in "Underwriting," have agreed not to directly or
indirectly offer, sell, contract to sell or otherwise dispose of or transfer
any capital stock of the Company, or any security convertible into, or
exercisable or exchangeable for, such capital stock, or in any other manner
transfer all or a portion of the economic consequences associated with the
ownership of such capital stock, or to cause a registration statement covering
any shares of capital stock to be filed, for a period of 180 days after the
date of this Prospectus, without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ"). The Predecessor is entitled
to certain rights to register its shares of Common Stock under the Securities
Act of 1933, as amended (the "Securities Act"), for resale, at the expense of
the Company. The Predecessor may also sell shares under Rule 144 of the
Securities Act. See "Management--1997 Performance Award Plan," "Certain
Transactions--Registration Rights," "Description of Capital Stock," "Principal
Stockholders," "Shares Eligible for Future Sale" and "Underwriting."
SUBSTANTIAL AND IMMEDIATE DILUTION
The initial public offering price is substantially higher than the pro forma
net tangible book value per share of Common Stock. Investors purchasing shares
of Common Stock in the Offerings will be subject to immediate dilution of
$12.45 per share in net tangible book value. See "Dilution."
ABSENCE OF DIVIDENDS
The Company does not anticipate declaring or paying any cash dividends on
the Common Stock following the Offerings. Future dividend policy will depend
on the Company's earnings, capital requirements, financial condition and other
factors considered relevant by the Board of Directors. The Company's existing
credit facility (the "Credit Facility") restricts, and the Company expects
that its new credit facility (the "New Credit Facility") will restrict, the
payment of cash dividends on the Common Stock. See "Dividend Policy" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements that can be identified
by the use of forward-looking terminology such as "may," "will," "should,"
"expect," "anticipate," "estimate" or "continue" or the negative thereof or
other variations thereon or comparable terminology. The matters set forth
under "Risk Factors" constitute cautionary statements identifying important
factors with respect to such forward-looking statements, including certain
risks and uncertainties, that could cause actual results to differ materially
from those in such forward-looking statements.
12
<PAGE>
OFFERING RELATED TRANSACTIONS
The Principal Stockholder has owned all of the outstanding stock of the
Predecessor, USR Holdings, Inc. (formerly named U.S. Rentals, Inc.), a
California corporation, since 1984 and has been its majority shareholder since
1975. The Predecessor has been in the equipment rental business since 1969.
Prior to the consummation of the Offerings, the Predecessor will transfer
substantially all of its operating assets and associated liabilities to the
Company in exchange for 20,748,975 shares of Common Stock of the Company,
representing all of the outstanding capital stock of the Company prior to the
Offerings. The Predecessor will retain only non-operating assets and
liabilities, including approximately $25.7 million of notes receivable from
related parties and approximately $23.9 million of notes payable to related
parties. These transactions (collectively, the "Offering Related
Transactions") are reflected in the pro forma financial information contained
in this Prospectus, and all references to the Company or U.S. Rentals reflect
these transactions, unless otherwise indicated. See "Certain Transactions--
Offering Related Agreements."
In 1985, the Predecessor elected to be treated as an S corporation under the
Internal Revenue Code and comparable provisions of certain state tax laws and
since then has paid no federal income tax. Accordingly, federal and California
taxes were paid by the Principal Stockholder and the provision for income
taxes in all historical periods in the Combined Financial Statements reflects
certain state taxes. Upon consummation of the Offering Related Transactions,
all operating assets and liabilities will be transferred to the Company, a
C corporation under the Internal Revenue Code. Income generated by the Company
will be subject to federal income taxes and applicable state income taxes, as
reflected in the unaudited pro forma financial information included herein.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 10,000,000 shares of
Common Stock offered hereby, after deducting the estimated underwriting
discounts and commissions and offering expenses payable by the Company, are
estimated to be $186.2 million ($214.3 million if the U.S. Underwriters' over-
allotment option is exercised in full), assuming an initial public offering
price of $20.00 per share (the midpoint of the offering range set forth on the
cover page of this Prospectus). The Company intends to use approximately
$182.3 million of the net proceeds from the Offerings to repay substantially
all of its outstanding indebtedness, including the indebtedness under the
Credit Facility and other indebtedness transferred from the Predecessor in the
Offering Related Transactions, approximately $2.0 million to pay related
prepayment penalties and approximately $1.9 million for working capital and
general corporate purposes, including possible future acquisitions. None of
the proceeds will be used to repay any indebtedness retained by the
Predecessor. See Note 5 of notes to Combined Financial Statements for interest
rates and maturity of indebtedness being repaid.
DIVIDEND POLICY
The Predecessor has paid dividends on its Common Stock to the Principal
Stockholder from time to time, including, but not limited to, cash dividends
to cover taxes payable by the Principal Stockholder due to the Predecessor's
election to be treated as an S corporation. Such dividends totaled
approximately $5.5 million and $35.4 million in 1995 and 1996, respectively.
Future dividend policy will depend on the Company's earnings, capital
requirements, financial condition and other factors considered relevant by the
Company's Board of Directors. The Company intends to retain future earnings to
finance its operations and growth and does not anticipate paying any cash
dividends on the Common Stock in the foreseeable future. The Credit Facility
restricts, and the Company expects that its New Credit Facility will restrict,
the payment of cash dividends on the Common Stock. See "Risk Factors--Absence
of Dividends" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
13
<PAGE>
DILUTION
As of December 31, 1996, the Company had a pro forma net tangible book value
of $47.5 million, or $2.29 per share of Common Stock. Pro forma net tangible
book value per share is determined by dividing the pro forma net tangible book
value of the Company (total tangible assets less total liabilities), giving
effect to the Offering Related Transactions on such date, by the number of
shares of Common Stock outstanding as of such date. After giving effect to the
Offering Related Transactions and the sale by the Company of the shares of
Common Stock offered hereby at an assumed initial public offering price of
$20.00 per share (and after deducting estimated underwriting discounts and
commissions and offering expenses payable by the Company) and the application
of the net proceeds therefrom, the Company's pro forma net tangible book value
as of December 31, 1996 would have been $232.2 million or $7.55 per share of
Common Stock. This represents an immediate increase in pro forma net tangible
book value of $5.26 per share to the Principal Stockholder and an immediate
dilution of $12.45 per share to new investors purchasing shares in the
Offerings. The following table illustrates this per share dilution to new
investors:
<TABLE>
<S> <C> <C>
Initial public offering price per share........................ $20.00
------
Pro forma net tangible book value per share before the
Offerings..................................................... $2.29
-----
Increase in pro forma net tangible book value per share
attributable to new investors................................. 5.26
-----
Pro forma net tangible book value per share after giving effect
to the Offerings.............................................. 7.55
------
Pro forma net tangible book value dilution per share to new
investors..................................................... $12.45
======
</TABLE>
The following table sets forth, as of December 31, 1996 on a pro forma
basis, the number of shares purchased from the Company, the total
consideration paid and the average price per share paid by the Principal
Stockholder (through the Predecessor) and new investors purchasing shares of
Common Stock from the Company in the Offerings.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Principal Stockholder... 20,748,975 67.5% $ 56,731,000 22.1% $ 2.73
New investors........... 10,000,000 32.5% 200,000,000 77.9% 20.00
---------- ----- ------------ -----
Total................. 30,748,975 100.0% $256,731,000 100.0%
========== ===== ============ =====
</TABLE>
The foregoing table excludes 4,600,000 shares reserved for future issuance
under the 1997 Plan. See "Management--Employment Agreements" and "--1997
Performance Award Plan."
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996 on (i) a historical basis, (ii) a pro forma basis to give
effect to the Offering Related Transactions and taxation as a C corporation
and (iii) a pro forma as adjusted basis to give effect to the sale by the
Company of shares of Common Stock in the Offerings and the application of the
estimated net proceeds therefrom. The capitalization of the Company should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Use of Proceeds," the Combined
Financial Statements and notes thereto and the Unaudited Pro Forma Financial
Statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
--------------------------------
PRO FORMA
ACTUAL(A) PRO FORMA AS ADJUSTED
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents..................... $ 2,906 $ 2,906 $ 4,772
======== ======== ========
Debt:
Senior Notes................................ $ 90,000 $ 90,000 $ --
Credit Facility............................. 69,300 89,300 -- (b)
Other debt.................................. 27,410 3,467 500
-------- -------- --------
Total debt................................ 186,710 182,767 500
-------- -------- --------
Stockholder's equity:
Common stock of the Predecessor............. 699 -- --
Preferred stock of the Company, par value
$.01 per share;
10,000,000 shares authorized, none issued
or outstanding ............................ -- -- --
Common stock of the Company, par value $.01
per share; 100,000,000 shares authorized;
20,748,975 and 30,748,975 shares issued and
outstanding pro forma and pro forma as
adjusted(c)................................ -- 207 307
Additional paid-in capital.................. 13,186 56,524 242,574
Retained earnings........................... 66,845 (7,030) (9,047)
-------- -------- --------
Total stockholder's equity................ 80,730 49,701 233,834
-------- -------- --------
Total capitalization.......................... $267,440 $232,468 $234,334
======== ======== ========
</TABLE>
- ---------------------
(a) Reflects the Predecessor's capitalization on a historical basis.
(b) In conjunction with the Offerings, the Company has obtained a commitment
letter with its existing lenders for the New Credit Facility which will
provide availability of $300.0 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
(c) Excludes 4,600,000 shares reserved for future issuance under the 1997
Plan. See "Management--Employment Agreements" and""--1997 Performance
Award Plan."
15
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for the years ended December 31, 1994,
1995 and 1996 and as of December 31, 1995 and 1996 have been derived from the
Combined Financial Statements of the Predecessor, which have been audited by
Price Waterhouse LLP, independent accountants, included elsewhere in this
Prospectus. The selected financial data for the years ended December 31, 1992
and 1993 and as of December 31, 1992, 1993 and 1994 have been derived from the
combined financial statements of the Predecessor, which have been audited but
are not contained herein. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Combined Financial Statements and notes thereto and the
Unaudited Pro Forma Combined Financial Statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
PRO FORMA
AS ADJUSTED(a)
1996
1992 1993 1994 1995 1996 (UNAUDITED)
-------- -------- -------- -------- -------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Rental revenue.......... $104,802 $127,752 $167,589 $214,849 $257,486 $257,486
Rental equipment sales.. 7,047 6,323 8,098 10,832 24,629 24,629
Merchandise and new
equipment sales........ 8,323 9,507 12,071 17,166 23,722 23,722
-------- -------- -------- -------- -------- --------
Total revenues.......... 120,172 143,582 187,758 242,847 305,837 305,837
-------- -------- -------- -------- -------- --------
COST OF REVENUES:
Rental equipment
expense................ 27,590 33,298 42,034 51,370 65,102 65,102
Rental equipment
depreciation........... 20,231 24,300 33,754 43,885 56,105 56,105
Cost of rental equipment
sales.................. 2,443 2,298 2,946 4,693 10,109 10,109
Cost of merchandise and
new equipment sales.... 4,695 5,948 7,428 11,418 17,423 17,423
Direct operating
expense................ 38,000 41,609 46,445 56,506 71,482 71,482
-------- -------- -------- -------- -------- --------
Total cost of revenues.. 92,959 107,453 132,607 167,872 220,221 220,221
-------- -------- -------- -------- -------- --------
Gross profit............ 27,213 36,129 55,151 74,975 85,616 85,616
Selling, general and
administrative expense. 15,515 20,149 27,273 31,440(b) 35,934 (b) 34,410
Non-rental depreciation. 3,060 3,294 4,092 5,513 7,528 7,528
-------- -------- -------- -------- -------- --------
Operating income........ 8,638 12,686 23,786 38,022 42,154 43,678
Other income (expense),
net.................... 782 (31) (242) (1,620) (665)(c) 62
Interest income
(expense), net......... 1,219 1,236 (1,060) (5,310) (8,031) (13)
-------- -------- -------- -------- -------- --------
Income before income
taxes.................. 10,639 13,891 22,484 31,092 33,458 43,727
Income taxes............ 529 405 499 468 374 17,598
-------- -------- -------- -------- -------- --------
Net income.............. $ 10,110 $ 13,486 $ 21,985 $ 30,624 $ 33,084
======== ======== ======== ======== ========
Pro forma net income(d). $ 6,318 $ 8,181 $ 13,263 $ 18,312 $ 20,002 $ 26,129
======== ======== ======== ======== ======== ========
Pro forma net income per
share.................. $ 0.85
========
Number of shares
outstanding............ 30,748,975
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
PRO FORMA
AS ADJUSTED(A)
1996
1992 1993 1994 1995 1996 (UNAUDITED)
-------- -------- -------- -------- -------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (END
OF PERIOD):
Rental equipment, net... $ 49,326 $ 65,606 $112,563 $152,848 $205,982 $205,982
Total assets............ 102,085 125,390 187,525 245,184 324,448 296,895
Total debt.............. 31,392 48,419 84,751 105,696 186,710 500
Total stockholder's
equity................. 51,739 49,608 57,951 83,077 80,730 233,834
SELECTED OPERATING DATA:
Gross equipment capital
expenditures........... $ 24,279 $ 42,892 $ 83,157 $ 88,861 $119,348 $119,348
Beginning Profit
Centers................ 52 57 57 65 71 71
Profit Centers added.... 5 -- 8 6 9 9
Ending Profit Centers... 57 57 65 71 80 80
Same Profit Center
revenue growth(e)...... 2.6% 16.0% 23.5% 20.0% 17.1% 17.1%
</TABLE>
- ------------------
(a) Gives effect to (i) the Offering Related Transactions, (ii) the sale of
10,000,000 shares of Common Stock in the Offerings (assuming no exercise
of the U.S. Underwriters' over-allotment option) at an assumed initial
public offering price of $20.00 per share, (iii) a reduction in interest
expense as a result of reductions in indebtedness upon application of a
portion of the net proceeds to the Company from the Offerings, (iv) change
from S corporation income tax expense to C corporation income tax expense
and recording of the related deferred tax liabilities and (v) termination
of deferred incentive compensation agreements with certain employees. See
"Offering Related Transactions," "Use of Proceeds," "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results
of Operations," the Combined Financial Statements and notes thereto and
the Unaudited Pro Forma Combined Financial Statements and notes thereto
included elsewhere in this Prospectus.
(b) Selling, general and administrative expense for the years ended December
31, 1995 and 1996 includes $645,000 and $1,524,000 of non-recurring
compensation expense related to the Predecessor's deferred incentive
compensation agreements that were terminated in January 1997. See "Certain
Transactions--Offering Related Agreements."
(c) Includes $1,300,000 of non-recurring expense from non-operating assets of
the Predecessor not transferred to the Company as part of the Offering
Related Transactions.
(d) The pro forma net income reflects the estimated pro forma effect of income
taxes as if the Predecessor had been taxed as a C corporation for all
periods presented.
(e) Same Profit Center revenue growth is calculated based on the change in
total revenues of all Profit Centers open as of the beginning of the
preceding fiscal year.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Combined
Financial Statements and notes thereto included elsewhere in this Prospectus.
GENERAL
U.S. Rentals attributes its profitability, long-term growth and market
leadership to its innovative operating philosophy, which is based upon a
decentralized management structure, a unique profit sharing program, a strong
emphasis on personalized customer service and maintenance of one of the most
comprehensive and modern rental fleets of brand name equipment in the
industry. From 1992 through 1996, the Company's total revenues grew at a
compound annual growth rate of 26.3%. In the same period, the Company's pro
forma net income grew to $20.0 million from $6.3 million, a compound annual
growth rate of 33.4%. U.S. Rentals has been profitable in every year since
1984.
The Company derives revenue from three sources: (i) rental of equipment,
(ii) sales of used rental equipment and (iii) sales of new equipment and
rental-related merchandise, parts and supplies. The Company's primary source
of revenue is the rental of equipment to commercial and residential
construction, industrial and homeowner customers. Growth in rental revenue is
dependent on several factors, including demand for rental equipment, the
amount of equipment available for rent, rental rates and general economic
conditions. The Company also generates revenues from the service and delivery
of equipment as well as income associated with a customer damage waiver
offered at the time of rental. The Company's revenues derived from the sale of
used equipment are affected by price, general economic conditions and U.S.
Rentals' fleet maintenance practices. Revenue from the sale of merchandise and
new equipment, including parts and convenience consumables sold at the
Company's rental locations, is affected by demand for new and rental
equipment.
The Company has historically financed its acquisitions, start-up locations
and capital expenditures primarily through internally generated cash flow,
borrowings under the Credit Facility and proceeds from the Senior Notes.
During the initial phase of an acquisition or start-up location, the Company
typically incurs expenses related to installing or converting information
systems, training employees and increased depreciation charges resulting from
upgrading or expanding the rental fleet. As a result, the Company's acquired
businesses and start-up locations generally have not been profitable until
after their first year of operations. The Company has accounted for all its
acquisitions since 1985 as asset purchases and records acquired rental
equipment at fair market value. Past acquisitions have not resulted in the
recognition of a significant amount of goodwill or other intangibles
(including covenants not to compete). The Company anticipates that as it
continues to implement its strategy, new locations will negatively impact the
Company's net income until such locations achieve profitability.
Cost of revenues consists primarily of rental equipment depreciation,
merchandise and equipment costs, wages and benefits, facility occupancy costs,
vehicle and other equipment costs and supplies. Of these costs, rental
equipment depreciation has increased over the past several years due to the
Company's substantial investment in new equipment of $83.2 million, $88.9
million and $119.3 million in years ended December 31, 1994, 1995 and 1996,
respectively. The Company records rental equipment expenditures at cost and
depreciates equipment using the straight-line method over an estimated useful
life of seven years, after giving effect to an estimated 10% salvage value.
Rental equipment acquired prior to January 1, 1996 is depreciated on a
straight-line basis over an estimated useful life of five years with no
estimated salvage value.
In 1985, the Predecessor elected to be treated as an S corporation under the
Internal Revenue Code and comparable provisions of certain state tax laws, and
since then has paid no federal income tax. Accordingly, federal and California
taxes were paid by the Principal Stockholder and the provisions for income
taxes represented income taxes payable to certain states. Upon the
consummation of the Offering Related Transactions,
18
<PAGE>
all operating assets and liabilities will be transferred to the Company, a C
corporation under the Internal Revenue Code. Income generated by the Company
will be subject to federal income taxes and applicable state income taxes
which will result in the recognition of a one-time deferred income tax
liability and corresponding expense of $7.0 million during the period in which
the Offering Related Transactions are consummated, currently expected to be
the first quarter of 1997. Because of the Company's expected change in tax
status, historical results of operations, including income tax expense, are
not, in all cases, comparable to or indicative of future financial results.
Pro forma net income reflects the estimated pro forma effect of income taxes
as if the Company had been taxed as a C corporation.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain statement
of operations data expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1992 1993 1994 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Rental revenue.......... 87.2% 89.0% 89.3% 88.5% 84.2%
Rental equipment sales.. 5.9 4.4 4.3 4.5 8.0
Merchandise and new
equipment sales........ 6.9 6.6 6.4 7.0 7.8
----- ----- ----- ----- -----
Total revenues............ 100.0 100.0 100.0 100.0 100.0
Cost of revenues(a)....... 77.4 74.8 70.6 69.1 72.0
----- ----- ----- ----- -----
Gross profit.............. 22.6 25.2 29.4 30.9 28.0
Selling, general and
administrative expense... 12.9 14.0 14.5 12.9 11.7
Non-rental
depreciation(b).......... 2.5 2.4 2.2 2.3 2.5
----- ----- ----- ----- -----
Operating income.......... 7.2 8.8 12.7 15.7 13.8
Other income (expense),
net...................... 0.7 (0.0) (0.1) (0.7) (0.2)
Interest income (expense),
net...................... 1.0 0.9 (0.6) (2.2) (2.7)
----- ----- ----- ----- -----
Income before income
taxes.................... 8.9 9.7 12.0 12.8 10.9
Income taxes(c)........... 0.4 0.3 0.3 0.2 0.1
----- ----- ----- ----- -----
Net income................ 8.5% 9.4% 11.7% 12.6% 10.8%
===== ===== ===== ===== =====
Pro forma net income(c)... 5.3% 5.7% 7.1% 7.5% 6.5%
===== ===== ===== ===== =====
</TABLE>
- ---------------------
(a) Includes rental equipment depreciation.
(b) Excludes rental equipment depreciation.
(c) The pro forma net income reflects the estimated pro forma effect of income
taxes as if the Predecessor had been taxed as a C corporation for all
periods presented.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues. Total revenues in 1996 increased 25.9% to $305.8 million from
$242.8 million in 1995. Rental revenue in 1996 increased 19.8% to $257.5
million or 84.2% of total revenues, as compared to rental revenue of $214.8
million or 88.5% of total revenues in 1995. Of the $42.6 million increase in
rental revenue in 1996,$33.6 million was due primarily to increased equipment
rental fleet at existing locations. The remaining increase of approximately
$9.0 million was primarily due to nine new locations which were added in 1996.
Rental equipment sales increased 127.4% to $24.6 million or 8.0% of total
revenues in 1996 from $10.8 million or 4.5% of total revenues in 1995 due to
increased customer demand and increased sales efforts. Merchandise and new
equipment sales increased 38.2% in 1996 to $23.7 million or 7.8% of total
revenues as compared to $17.2 million or 7.0% of total revenues in 1995,
primarily due to increased rental revenue and demand for new equipment.
19
<PAGE>
Gross Profit. Gross profit in 1996 increased 14.2% to $85.6 million from
$75.0 million in 1995 primarily due to increased rental revenue. Gross profit
decreased to 28.0% of total revenues in 1996 from 30.9% in 1995. This decrease
was due primarily to a 27.8% increase in rental equipment depreciation
resulting from the increase in rental fleet, offset in part by a change in
depreciation method for equipment purchases subsequent to January 1, 1996 (see
Note 1 to the Notes to Combined Financial Statements). In addition, rental
equipment expense increased 26.7% due to the impact of increased rental
volume. Gross profit was also impacted by an increase in direct operating
expenses in 1996 which increased 26.5% to $71.5 million as compared to
$56.5 million in 1995. The increase reflects staffing costs resulting from an
increased number of rental yards and higher maintenance costs necessary to
support the increased size of the rental fleet. Gross profit from sales of
merchandise and new equipment increased 9.6% in 1996 as compared to 1995 due
to the impact of increased rental volume on the sale of merchandise and an
increase in new equipment sales.
Selling, General and Administrative Expense. Selling, general and
administrative expense in 1996 increased 14.3% to $35.9 million or 11.7% of
total revenues compared to $31.4 million or 12.9% of total revenues in 1995.
The increase was primarily due to higher advertising, bad debt and liability
insurance expenses, the total of which were partially offset by lower profit
sharing expense in 1996 as compared to 1995. Selling, general and
administrative expense includes $1.5 million and $0.6 million in 1996 and
1995, respectively, of non-recurring compensation expense related to the
Predecessor's deferred incentive compensation agreements that were terminated
in January 1997.
Other Income (Expense). Other expense decreased 59.0% to $0.7 million in
1996 from $1.6 million in 1995 as a result of a reduction in the level of
charitable contributions made at the direction of the Principal Stockholder
offset in part by a non-recurring write-off of $1.3 million on a non-operating
investment. Substantially all other expense items for 1996 are not expected to
be incurred by the Company in the future as a result of the Offering Related
Transactions.
Interest Expense. Interest expense net of interest income increased 51.2% to
$8.0 million in 1996 from $5.3 million in 1995. The increase was primarily the
result of higher average borrowings under the Credit Facility and other debt
outstanding of $122.6 million in 1996 as compared to $72.5 million in 1995.
However, this increase was partially offset by a decrease in the average
interest rate to 6.1% in 1996 as compared to 7.2% in 1995.
Income Taxes. Under the Predecessor's election to be taxed as an S
corporation for federal and state purposes, income tax expense was
approximately 1.1% of pre-tax income in 1996 as compared to 1.5% of pre-tax
income in 1995. On a pro forma C corporation basis, the Predecessor's
effective tax rate would have been 40.2% in 1996 as compared to 41.1% in 1995.
Net Income. Net income increased 8.0% to $33.1 million in 1996 from $30.6
million in 1995. Pro forma for the Offering Related Transactions and as
adjusted for the Offerings, net income in 1996 was $21.1 million and $26.1
million, respectively.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues. Total revenues in 1995 increased 29.3% to $242.8 million from
$187.8 million in 1994. Rental revenue in 1995 increased 28.2% to $214.8
million or 88.5% of total revenues, as compared to rental revenue of $167.6
million or 89.3% of total revenues in 1994. Of the $47.2 million increase in
rental revenue in 1995, $43.0 million was due primarily to increased equipment
rental fleet at existing locations. The remaining increase of approximately
$4.2 million was primarily due to six new locations that were added in 1995.
In addition, a total of six new locations were opened during 1995, providing
$4.2 million in rental revenue. Rental equipment sales increased 33.8% to
$10.8 million or 4.5% of total revenues in 1995 from $8.1 million or 4.3% of
total revenues in 1994. Merchandise and new equipment sales increased 42.2% to
$17.2 million or 7.0% of total revenues in 1995 as compared to $12.1 million
or 6.4% of total revenues in 1994, due to the increase in rental revenue and
as a result of a new program to sell new equipment to the Company's existing
rental customer base.
20
<PAGE>
Gross Profit. Gross profit in 1995 increased 35.9% to $75.0 million from
$55.2 million in 1994 due primarily to increased rental revenue which was
partially offset by a 30.0% increase in rental equipment depreciation. The
increased depreciation resulted from a 42.1% increase in average equipment
available for rental. The impact of an increase in the number of employees to
staff the 14 new locations added in 1994 and 1995 and increased maintenance
costs necessary to support the increased size of the rental fleet resulted in
a 21.7% increase in 1995 direct operating expenses over the prior year. Gross
profit from sales of merchandise and new equipment increased in dollar
contribution by 23.8% in 1995 compared to 1994 but decreased to 2.4% of total
revenues in 1995 from 2.5% of total revenues in 1994, due to increased rental
volume. As a result of the above factors, gross profit as a percentage of
total revenues increased to 30.9% from 29.4% for 1994.
Selling, General and Administrative Expense. Selling, general and
administrative expense for 1995 increased 15.3% to $31.4 million or 12.9% of
total revenues compared to $27.3 million or 14.5% of total revenues for 1994.
The increase was due to a $1.7 million increase in profit sharing expense in
1995 and an increase in administrative costs associated with 14 locations
added in 1994 and 1995. Selling, general and administrative expense includes
$0.6 million of non-recurring compensation expense related to the
Predecessor's deferred incentive compensation agreements that were terminated
in January 1997.
Other Income (Expense), Net. Other expense increased to $1.6 million in 1995
from $0.2 million in 1994 primarily as a result of charitable contributions
made at the direction of the Principal Stockholder.
Interest Expense. Interest expense net of interest income increased to $5.3
million in 1995 from $1.1 million in 1994 primarily due to the issuance of a
$10.0 million note payable to the Principal Stockholder in the form of a
dividend at the end 1994 that bears interest at prime plus 5.0%. This note
payable will not be transferred by the Predecessor to the Company. See
"Offering Related Transactions." Interest expense also increased as a result
of higher average borrowings under the Credit Facility and other debt
outstanding of $72.5 million during 1995 as compared to $43.9 million in 1994
as well as an average interest rate change from 5.9% to 7.2%.
Income Taxes. Under the Predecessor's election to be taxed as an S
corporation for federal and state purposes, income tax expense was
approximately 1.5% of pre-tax income for 1995 as compared to 2.2% for 1994. On
a pro forma C corporation basis, the Predecessor's effective tax rate would
have been 41.1% for 1995 as compared to 41.0% for 1994.
Net Income. Net income increased 39.3% to $30.6 million in 1995 from $22.0
million in 1994. On a pro forma C corporation basis, net income increased
38.1% to $18.3 million from $13.3 million in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company has primarily used cash to purchase rental equipment, invest in
acquired and start-up rental yards and pay dividends to the Principal
Stockholder. The Company historically has financed its cash requirements
primarily through net cash provided by operating activities, borrowings under
the Credit Facility and the issuance of Senior Notes.
In 1996, the Company's operating activities provided net cash flow of $70.7
million as compared to $75.0 million in 1995. Cash flows generated by
operating activities before adjustments for changes in operating assets and
liabilities increased to $85.3 million in 1996 from $76.9 million in 1995.
This increase was attributable to an increase in net income and depreciation
expense due to a larger rental equipment fleet that supported growth in
revenues. However, the increase was more than offset by stable levels of
accounts payable (notwithstanding significantly higher levels of purchases of
rental equipment) attributable to shorter payment terms from suppliers in
exchange for pricing discounts to obtain lower rental equipment prices. Net
cash provided by operating activities was $75.0 million in 1995 as compared to
$65.4 million in 1994. The net increase was attributable primarily to
increased net income from higher revenues and an increase in depreciation,
partially offset by a smaller increase in accounts payable in 1995 as compared
to 1994. Net cash provided by operating activities excludes proceeds from the
sale of equipment, which were $24.6 million in 1996 as compared to $10.8
million in 1995.
21
<PAGE>
Net cash used in investing activities was $115.3 million in 1996 as compared
to $89.9 million in 1995. The principal causes for the variation in cash flow
between the periods were increased purchases of rental equipment and
investment in property and equipment, partially offset by increased sales of
rental equipment. Purchases of rental equipment in 1996 were $119.3 million as
compared to $88.9 million in 1995. Net cash used in investing activities
increased to $89.9 million in 1995 from $86.5 million in 1994, primarily as a
result of an increase in purchases of rental equipment.
Net cash provided by financing activities was $43.9 million in 1996 as
compared to $15.6 million in 1995. The principal cause for the variation
between periods was net borrowings of $39.6 million under the Credit Facility
in 1996 as compared to net payments of $28.2 million in 1995, partially offset
by decreases in issuances of Senior Notes and an increase of $29.9 million in
dividends paid to the Principal Stockholder in 1996 as compared to 1995. In
1995, cash flow provided by financing activities decreased to $15.6 million
from $22.1 million in 1994. The principal causes for the variation between the
periods were payments on the Credit Facility in 1995 of $28.2 million as
compared to net borrowings under the Credit Facility in 1994 of $35.7 million,
partially offset by proceeds from issuances of Senior Notes in 1995.
The Company intends to use a portion of the net proceeds from the Offerings
to repay all of the Senior Notes and borrowings under the Credit Facility. In
conjunction with the Offerings, the Company has obtained a commitment letter
with its existing lenders for the New Credit Facility which will provide
availability of up to $300.0 million. The Credit Facility contains, and the
New Credit Facility is expected to contain, covenants which restrict, among
other things, dividends and acquisitions exceeding certain thresholds without
prior written consent. The Company believes that cash flow from operations,
proceeds from the Offerings and availability under the New Credit Facility
will be sufficient to support its operations and liquidity requirements for at
least the next 12 months.
The Company incurs capital expenditures for rental equipment, to satisfy the
equipment needs of current and new customers and to provide for the equipment
needs of new and acquired rental equipment yards. As of December 31, 1996, the
Company had open purchase commitments of $19.6 million for new equipment. Such
purchases will be financed through the sources of funds described above. The
Company has no minimum purchase commitments for equipment. Management has
budgeted $81.5 million of gross fleet capital expenditures (exclusive of
acquisitions) in 1997. These expenditures are anticipated to be partially
offset by expected proceeds from the sale of used equipment of approximately
$29.4 million. The Company also expects to spend approximately $10.0 million
in 1997 on non-rental equipment capital expenditures consisting of vehicles,
buildings, land and furniture and fixtures.
INFLATION AND GENERAL ECONOMIC CONDITIONS
Although the Company cannot accurately anticipate the effect of inflation on
its operations, the Company does not believe that inflation has had, or is
likely in the foreseeable future to have, a material effect on its results of
operations or financial condition. The Company's operating results may be
adversely affected by events or conditions in a particular region, such as
economic conditions, weather and other factors. In addition, the Company's
operating results may be adversely affected by increases in interest rates
that may lead to a decline in economic activity, while simultaneously
resulting in higher interest payments by the Company under the Credit
Facility. See "Risk Factors--Economic Conditions; Geographical Concentration"
and "--Seasonality and Quarterly Fluctuations."
22
<PAGE>
QUARTERLY RESULTS
The following table sets forth certain unaudited statement of operations
data for the quarters in the years ended December 31, 1995 and 1996. The
unaudited quarterly information has been prepared on the same basis as the
annual information and, in management's opinion, includes all adjustments
necessary to present fairly the information for the quarters presented.
<TABLE>
<CAPTION>
1995 QUARTERS ENDED 1996 QUARTERS ENDED
----------------------------------- -----------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- -------- ------- ------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues.......... $45,866 $58,144 $68,844 $69,993 $58,643 $71,172 $86,647 $89,375
Gross profit............ 10,904 18,448 22,731 22,892 14,262 18,292 25,244 27,818
Operating income........ 5,122 10,370 12,799 9,731 5,575 8,714 14,037 13,828
Other income (expense),
net.................... (145) (260) (18) (1,197) 134 74 134 (1,007)
Interest income (ex-
pense), net............ (1,216) (1,310) (1,392) (1,392) (1,475) (1,822) (2,419) (2,315)
Income before income
taxes.................. 3,761 8,800 11,389 7,142 4,234 6,966 11,752 10,506
Income tax expense...... 24 308 47 89 29 131 156 58
Net income.............. 3,737 8,492 11,342 7,053 4,205 6,835 11,596 10,448
Pro forma net income(a). 2,225 5,163 6,717 4,207 2,523 4,151 7,002 6,326
</TABLE>
- ---------------------
(a) Reflects the estimated pro forma effect of income taxes as if the
Predecessor had been taxed as a C corporation for all periods presented.
The Company's revenues and operating results historically have fluctuated
from quarter to quarter, and the Company expects that they will continue to do
so in the future. These fluctuations have been caused by a number of factors,
including seasonal rental patterns of the Company's customers (principally due
to the effect of weather on construction activity), general economic
conditions in the Company's markets, the timing of acquisitions and the
development of start-up locations and related costs, the effectiveness of
integrating acquired businesses and start-up locations and the timing of
capital expenditures for fleet expansion. The Company incurs substantial costs
in establishing or integrating newly acquired and start-up locations.
Historically, the Company's acquired businesses and start-up locations
generally have not been profitable until after their first year of operations.
The operating results for any historical quarter are not necessarily
indicative of results for any future period.
In addition, the Company will incur non-recurring charges of approximately
$29.0 million during the first quarter of 1997 as a result of the termination
of the Predecessor's deferred incentive compensation agreements prior to the
Offerings, the establishment of a deferred tax liability and the associated
charges resulting from the termination of the Predecessor's election to be
treated as an S corporation for tax purposes and for an expense related to
prepayment penalties on indebtedness to be repaid with proceeds from the
Offerings. See "Risk Factors--Quarterly Fluctuations and Seasonality,"
"Certain Transactions--Offering Related Agreements" and Note 9 of notes to
Combined Financial Statements.
23
<PAGE>
BUSINESS
GENERAL
U.S. Rentals is the second largest equipment rental company in the United
States based on 1995 rental revenues. The Company currently operates 80 Profit
Centers in 11 states and in 1996 generated an average of approximately 95,000
contracts per month from a diverse base of customers including commercial and
residential construction, industrial and homeowner customers. Management
estimates that more than 200,000 customers did business with the Company in
1996. U.S. Rentals owns more than 60,000 pieces of rental equipment, comprised
of approximately 600 equipment types, including aerial work platforms,
forklifts, paving and concrete equipment, compaction equipment, air
compressors, hand tools and plumbing, landscaping and gardening equipment.
Management believes that the Company's fleet, which had a weighted average age
of approximately 28 months and an original equipment cost of approximately
$367.7 million at December 31, 1996, is one of the most comprehensive and
well-maintained equipment rental fleets in the industry. U.S. Rentals also
sells new equipment manufactured by nationally known companies, used equipment
from its rental fleet, and rental-related merchandise, parts and supplies.
The Company's strategic objective is to continue to grow profitably in both
existing and new markets by acquiring rental yards, opening start-up rental
yards and expanding its equipment fleet. U.S. Rentals continually evaluates
attractive markets for expansion where a leading position can be created by
acquiring an existing business or opening a new rental yard. The Company has
grown internally through the expansion of its equipment fleet at existing
locations and through the integration of 28 start-up and acquired equipment
rental yards since January 1992. As a result of the Company's strategy, total
revenues increased to $305.8 million in 1996 from $120.2 million in 1992, a
compound annual growth rate of 26.3%. During the same period, operating income
before non-rental depreciation increased to $49.7 million from $11.7 million,
a compound annual growth rate of 43.6%. U.S. Rentals has been profitable in
every year since 1984.
U.S. Rentals attributes its leadership position in the equipment rental
industry primarily to its innovative operating philosophy, which is based upon
a decentralized management structure, a unique profit sharing program
available to all levels of employees, a strong emphasis on personalized
customer service, and maintenance of one of the most comprehensive and modern
rental fleets of brand name equipment in the industry. The Company's bottoms-
up management structure allows each Profit Center manager to tailor the
equipment fleet to the local market, make equipment fleet purchases and sales,
and pricing and staffing decisions. Corporate headquarters coordinates
equipment purchases and supports Profit Center managers by providing capital,
accounting, internal audit, risk management and other services to each Profit
Center. The Company's unique incentive-based profit sharing program does not
limit employee compensation. This program motivates Profit Center managers to
act as entrepreneurs, to purchase only equipment that can be profitably
deployed, to sell rental equipment from the fleet as maintenance costs
increase or as rental demand for such equipment decreases and to minimize
operating expenses. In 1996, managers of profitable locations earned an
average of approximately 92% of their base salaries in profit sharing
compensation. Management believes that its innovative operating and
compensation philosophy significantly contributed to same Profit Center
revenue growth of 20.0% and 17.1% in 1995 and 1996, respectively.
INDUSTRY
The equipment rental industry serves a wide variety of commercial and
residential construction, industrial and homeowner customers. Equipment
available for rent ranges from small hand tools costing less than $100 to
large earth-moving equipment costing over $200,000. According to a survey
conducted for 1995 and published in 1996 by AED, an industry trade
association, the United States equipment rental industry has grown from
approximately $610 million in annual revenues in 1982 to an estimated $15
billion in annual revenues in 1995, a compound annual growth rate of
approximately 28%. Management believes that this growth reflects, in part,
increased outsourcing trends by commercial and industrial construction
customers that increasingly seek to reduce their capital invested in
equipment, and to reduce the costs associated with maintaining and servicing
24
<PAGE>
such equipment. While equipment users traditionally have rented equipment for
specific purposes, such as supplementing capacity during peak periods and in
connection with special projects, the convenience and cost-saving factors of
utilizing rental equipment have encouraged customers to look to suppliers such
as the Company as ongoing, comprehensive sources of equipment. Management
believes that demand for rental equipment by the commercial and industrial
segments will continue to increase as these customers continue to outsource
non-core operations. A 1995 survey conducted by The CIT Group for 1995 and
published in 1996 showed that commercial construction contractors intended to
increase the percentage of equipment they rent without a purchase option to an
estimated 8% of their total equipment requirements in 1996, from an estimated
5% in 1995.
The equipment rental industry is highly fragmented and primarily consists of
a large number of relatively small, independent businesses serving discrete
local markets and a small number of multi-yard regional and multi-regional
operators. According to a May 1996 article published by Rental Equipment
Register, an industry trade magazine, the 100 largest rental equipment
companies, based on 1995 rental revenue, represented less than 20% of total
industry rental revenue estimated at $15 billion. Management believes that an
estimated 85% of the approximately 20,000 equipment rental operators in the
United States have fewer than five locations and, therefore, believes the
equipment rental industry offers substantial consolidation opportunities for
large, well-capitalized rental companies such as U.S. Rentals. Relative to
smaller competitors, multi-regional operators such as the Company benefit from
several competitive advantages, including access to capital, the ability to
offer a broad range of modern equipment, purchasing power with equipment
suppliers, sophisticated management information systems, national brand
identity and the ability to service national accounts. In addition, management
believes multi-regional operators such as the Company are less sensitive to
local economic downturns.
BUSINESS STRATEGY
U.S. Rentals' strategic objective is to continue its profitable growth by
acquiring rental yards, opening start-up rental yards in both existing and new
markets and expanding its equipment fleet. U.S. Rentals routinely evaluates
attractive markets for expansion where a leading position can be created by
acquiring an existing business or opening a new rental yard. Primarily due to
its entrepreneurial, decentralized organizational structure that focuses on
bottoms-up management and an innovative profit-driven compensation policy, the
Company has been profitable each of the past 12 years. Specifically, U.S.
Rentals' business strategy centers upon the following factors:
Profitable Expansion. The Company strives to operate the most profitable
equipment rental yards in each of its markets. Management believes U.S.
Rentals is well positioned to be a leader in the consolidation of the highly
fragmented equipment rental industry. Management believes that there are
numerous attractive acquisition opportunities available and that the Company's
reputation, stability, access to capital, sophisticated management information
systems and operating expertise provide competitive advantages in making
acquisitions. These strengths allow U.S. Rentals to (i) quickly integrate
acquired companies into its information systems and operating structure,
(ii) realize synergies in the form of reduced overhead and lower costs through
greater purchasing power and (iii) significantly enhance revenue by supplying
acquired yards with additional equipment to optimize the mix of rental
equipment and modernize the fleet. In addition, the Company will open new
rental yards when a suitable business is not available for acquisition on
favorable terms. Pursuant to this strategy, U.S. Rentals has acquired 15
rental yards and has opened 13 start-up rental yards since January 1, 1992.
The Company routinely analyzes potential acquisitions of rental yards but is
not currently a party to any material acquisition agreement. See "Risk
Factors--Risks Relating to Growth" and "--Dependence on Additional Capital to
Finance Growth."
Market Leadership. Management believes that U.S. Rentals has a leading
market position in most of the markets in which its Profit Centers have been
open for more than one year. The Company has been able to create this
leadership position by capitalizing on its substantial competitive advantages,
which include offering personalized customer service, flexible rental terms,
seven-days-a-week operating hours and a diverse and modern equipment rental
fleet specifically tailored to the needs of local customers. Further, U.S.
Rentals' historical strength has been in small and medium-sized markets that
the Company believes are not well served by its competition.
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Extensive Customer Base. In 1996 U.S. Rentals generated an average of
approximately 95,000 customer contracts per month from a diverse customer
base. Management estimates that more than 200,000 customers did business with
the Company in 1996. U.S. Rentals' historical strength has been with small and
medium-sized customers, which the Company believes are not well served by its
competition. The Company is also increasing its emphasis on multi-regional and
national customers through its national accounts program. In addition to the
Company's strong brand name recognition, comprehensive and modern equipment
rental fleet, well-located rental yards and competitive pricing, management
believes that the Company's customers value the convenience of U.S. Rentals
Profit Centers' seven-days-a-week operating hours and flexible rental terms.
Further, U.S. Rentals offers its customers "one-stop shopping" through the
sale of rental-related merchandise, parts and supplies, sales of new and used
equipment and maintenance and delivery services.
Innovative, Decentralized Operating Philosophy. U.S. Rentals' decentralized
operating philosophy encourages entrepreneurial behavior at each Profit Center
and rewards managers and employees through a profit-driven incentive
compensation program. Profit Center managers are given the necessary freedom
and flexibility to operate their respective equipment rental yards to maximize
profits. Each Profit Center manager is responsible for every aspect of a
yard's operation, including establishing rental rates, selecting equipment and
determining employee compensation. Managers and employees of profitable
locations are rewarded by the Company's profit sharing program that is based
on each location's operating income in excess of a pre-determined return on
its net assets. In 1996, managers of profitable locations earned an average of
approximately 92% of their base salaries in profit sharing compensation.
Strong Internal Controls. U.S. Rentals balances its decentralized
organizational structure and entrepreneurial operating philosophy with
extensive systems and procedures to monitor and track the performance of each
Profit Center. The Company's proprietary management information systems,
including the Company's POS system, allow management and Profit Center
managers to review all aspects of each Profit Center's business and assist
management in closely monitoring and quickly reacting to opportunities to
increase profits at each Profit Center. These systems are used to open
customer accounts, generate rental contracts, track equipment usage, report
customers' credit histories, compile accounts receivable aging reports, and
monitor monthly profitability. Seven internal auditors monitor and ensure
adherence to the Company's well-established, disciplined and documented
policies and procedures. In addition, six independent division credit offices
review and approve all credit applications submitted to the Profit Centers.
Management believes that the Company's strong internal controls and
proprietary management information systems result in lower overall costs and
increase profitability for the Company.
Attracting, Motivating and Retaining the Best People in the
Industry. Through its decentralized, entrepreneurial approach and innovative
profit sharing program, the Company believes it has generally been able to
attract, motivate and retain the most successful, experienced group of
employees in the industry. Management believes U.S. Rentals' successful
employees are more highly compensated than those of its competitors because of
the Company's unique profit sharing program. As a result, the Company has had
voluntary turnover of only two Profit Center managers during the past five
years. In addition, U.S. Rentals' senior operating management, which has an
average of 21 years of rental industry experience, is among the most
experienced in the industry. William F. Berry, the Company's 44-year-old
President and Chief Executive Officer, has over 30 years of experience in the
equipment rental business and has worked in numerous operational and
managerial capacities in the Company during his career. See "Risk Factors--
Risks Relating to Growth" and "--Dependence on Key Personnel."
CUSTOMERS
Management estimates that in 1996 U.S. Rentals had more than 200,000
customers, ranging from Fortune 100 companies to small contractors and
homeowners. During 1996, no one customer accounted for more than 1% of the
Company's total revenues, and the top 10 customers represented less than 4.5%
of total revenues. Customers look to U.S. Rentals as an ongoing, comprehensive
source of rental equipment because of the
26
<PAGE>
economic advantages and convenience of renting, as well as the high costs
associated with equipment ownership. The Company classifies its customer base
into the following categories: (i) commercial and residential construction,
including contractors; (ii) industrial, including manufacturers, petrochemical
facilities, chemical companies, paper mills, and public utilities; and (iii)
homeowners and others. In addition to maintaining its historically strong
relationships with small and medium-sized customers, the Company is increasing
its emphasis on larger national and multi-regional accounts. Management
estimates that in 1996, commercial and residential construction, industrial
and homeowner and other customers accounted for approximately 64%, 20% and
16%, respectively, of the Company's total revenues.
Commercial and Residential Construction. U.S. Rentals' commercial and
residential construction customers include national and regional contractors
and subcontractors involved in commercial and residential construction
projects such as residential developments, apartment buildings, schools,
hospitals, airports, roads, bridges and highways, chemical plants and other
manufacturing facilities. U.S. Rentals' commercial construction customers
range from Fortune 100 companies to local independent businesses. A survey
conducted by The CIT Group for 1995 and published in 1996 estimated that
contractors intended to increase the percentage of equipment they rent without
a purchase option to an estimated 8% of their total equipment requirements in
1996 from an estimated 5% in 1995. Management believes U.S. Rentals is one of
the largest suppliers of rental equipment to contractors in its markets and is
well positioned to benefit from any increased rental of equipment by
contractors and other commercial construction customers.
Industrial. The Company's industrial customers, many of which operate 24
hours per day, utilize U.S. Rentals to outsource equipment requirements to
reduce their capital investment and minimize the ongoing maintenance, repair
and storage costs associated with equipment ownership. Management believes
that, as the second largest equipment rental company in the United States
based on 1995 rental revenues, the Company is well-positioned to take
advantage of the increasing trend among customers to outsource equipment
needs. Generally, U.S. Rentals' industrial customers tend to rent for longer
periods of time than commercial and residential construction customers,
contractors or homeowners. While historically not a primary focus, the Company
believes its recently increased emphasis on national and multi-regional
accounts will enhance its ability to provide an ongoing, comprehensive supply
of equipment to industrial customers.
Homeowners and Others. U.S. Rentals rents landscaping, plumbing, remodeling
and home improvement tools to homeowners and other customers. The Company
believes these customers value the convenience of U.S. Rentals' seven-days-a-
week operating hours, pick up and delivery service and flexible rental terms.
Rentals to homeowners are often for periods as short as two hours and provide
higher gross margins relative to other customer segments. The Company believes
that its rental yards, which are generally highly visible and well-located,
its comprehensive and well-maintained rental fleet and the Company's brand
name recognition provide a significant competitive advantage in attracting the
homeowner segment of the market.
PRODUCTS AND SERVICES
Equipment rental represents U.S. Rentals' principal line of business. In
1996, equipment rental revenue together with rental-related revenue such as
repair services, delivery and damage waiver income accounted for approximately
84.2% of the Company's total revenues. U.S. Rentals also acts as a distributor
of new equipment on behalf of certain nationally known equipment
manufacturers. Revenues from the sale of parts, merchandise and new equipment
accounted for approximately 7.8% of U.S. Rentals' total revenues in 1996.
Approximately 8.0% of U.S. Rentals' 1996 total revenues was derived from the
sale of used rental equipment.
Rental Equipment. U.S. Rentals rents over 600 different types of equipment,
and management believes that the Company's rental fleet, which consists of
more than 60,000 pieces of equipment, is one of the most comprehensive and
well-maintained fleets in the equipment rental industry. The original
equipment cost of the Company's rental fleet was approximately $367.7 million
as of December 31, 1996.
Five categories of equipment represented approximately 78.9% of U.S.
Rentals' total rental equipment fleet (based on original equipment cost) as of
December 31, 1996: (i) earth-moving equipment (22.3%); (ii) aerial
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<PAGE>
work platforms (21.8%); (iii) forklifts (16.4%); (iv) trucks (11.8%); and (v)
compaction rollers (6.6%). The mix of rental equipment at each of U.S.
Rentals' 80 Profit Centers is tailored to meet the demands of the local
customer base.
U.S. Rentals seeks to maintain a modern, efficient rental fleet through
regular sales of used rental equipment and ongoing capital investment in new
rental equipment. As of December 31, 1996, the weighted average age of the
Company's rental equipment fleet was approximately 28 months. In addition,
management believes U.S. Rentals has one of the most advanced preventive
maintenance programs in the equipment rental industry. This program extends
the useful life of the Company's rental equipment, typically resulting in
higher resale prices. U.S. Rentals also generates revenues from maintenance
service for its customers that own equipment and from delivery charges,
particularly for larger pieces of equipment.
Sales of Used Equipment. U.S. Rentals routinely sells used rental equipment
to adjust the size and composition of its rental fleet to changing market
conditions and as part of its ongoing commitment to maintain a new, top
quality fleet. The Company achieves favorable sales prices for its used
equipment due to its strong preventive maintenance program and its practice of
selling used equipment before it becomes irreparable or obsolete. The
incentives created by the Company's profit sharing program motivate Profit
Center managers to optimize the timing of sales of used rental equipment by
taking into account maintenance costs, rental demand patterns and resale
prices. The Company sells used equipment to its existing rental customers, as
well as to domestic and international used equipment buyers.
Sales of Parts and Merchandise. U.S. Rentals also sells a wide range of
parts, supplies and merchandise, including diamond and regular saw blades,
drill bits, shovels, goggles, hard hats and other safety gear and coolers, as
a complement to its core equipment rental business. This sales activity allows
the Company to attract and retain customers by offering the convenience of
"one-stop shopping."
Sales of New Equipment. In addition to equipment rental, the Company is a
distributor for certain equipment manufacturers, including Upright and Genie
Industries (booms and high reach equipment), Sky Trak (rough terrain forklifts
and skid-steer loaders), LeRoi and Atlas-Copco (air compressors), and
Multiquip and Ingersoll Rand (earth compaction equipment and portable
generators). U.S. Rentals is also the exclusive distributor for certain
manufacturers in several of its markets. The Company believes that the volume
of its equipment purchases creates significant purchasing power with
suppliers, which leads to favorable prices and terms on equipment purchased
for its rental fleet and for sale as new equipment. The Company's ability to
sell new equipment offers flexibility to its customers while enhancing U.S.
Rentals' customer relations.
OPERATIONS
The Company's equipment rental yards occupy an average of approximately 2.2
acres and include: (i) a customer service center and showroom displaying
selected rental equipment, new equipment offered for sale and related
merchandise; (ii) an equipment service area; and (iii) storage facilities for
equipment requiring protection from inclement weather. Each Profit Center is
staffed by an average of approximately 20 full-time employees and two part-
time employees, including a manager, assistant manager, sales assistants, back
office clerks, truck drivers, mechanics and yard personnel. Each equipment
rental yard offers a broad range of equipment for rental, with the actual
equipment mix tailored to meet the anticipated needs of the customers in each
location. The rental yard employees' knowledge of the equipment enables them
to recommend the best equipment for a customer's particular application. The
Company's yards are open seven-days-a-week and provide customers with 24-hour
maintenance, repair and support services, including service at the customer's
job site. Each Profit Center manager is responsible for every aspect of the
yard's operation, including establishing rental rates, selecting equipment,
and determining employee compensation at such location. The Company's Profit
Center managers have an average of 16 years of rental experience in the
industry.
The Company operates all of its Profit Centers under the name USRentals(R),
other than two Profit Centers that are operated under the name Contractors
Equipment Rental and one Profit Center that is operated under the name U.S.
HiReach.
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<PAGE>
SALES, MARKETING AND ADVERTISING
U.S. Rentals strives to create a partnership with each customer in order to
satisfy all the customer's equipment needs. As a result of the Company's
innovative profit sharing program, employees are motivated to know the
customers in their markets and tailor the equipment fleet to local demand
patterns. Since U.S. Rentals believes that many customers choose to rent in
order to reduce their capital investment and maintenance costs and to maximize
flexibility, the Company offers flexible rental terms to its customers.
Customers may rent equipment by the hour, day, week or month, with the
periodic cost declining as the duration of the rental term increases. The
Company, through its six regional credit offices, offers credit to its
commercial and residential construction and industrial customers.
The Company markets its products and value-added services locally primarily
through its sales force of approximately 175 field-based salespersons and
approximately 846 store-based customer service representatives. The Company's
sales force is knowledgeable about all of U.S. Rentals' services and products,
including the rental of equipment, sales of new and used equipment, sales of
parts and merchandise, and U.S. Rentals' value-added services, including
equipment training, delivery and maintenance. The field-based sales force
calls regularly on contractors' offices and job sites and industrial
facilities, regularly assisting customers in planning for their equipment
requirements. U.S. Rentals also provides its sales force with extensive
training, including frequent in-house training by supplier representatives
about the operating features and maintenance requirements of new equipment.
The Company's sales force does not earn commissions on equipment rentals;
instead, they participate in the Company's profit sharing program along with
employees at all levels of the Company. Management believes that the Company's
sales personnel, through the Company's innovative profit sharing program, are
among the most highly compensated in the industry.
U.S. Rentals recently began a national accounts program that is dedicated to
marketing to customers with a multi-regional or national presence. The
national accounts program supplements the efforts of the Profit Centers, which
deal directly with management of the local facilities of multi-regional and
national firms. National account sales personnel call on the corporate
headquarters of U.S. Rentals' large commercial and residential construction
and industrial customers in order to expand existing business relationships to
include additional facilities and construction sites. The national accounts
program simplifies billing and pricing for large customers while allowing
their local representatives to continue to deal primarily with local Profit
Centers.
The Company promotes its services primarily in the telephone directories in
the markets it serves, as well as by direct mail, and advertising in
newspapers and on local television and radio. Each Profit Center manager
determines the frequency and type of advertising in the local market. Profit
Centers also host open houses, customer appreciation events and other special
promotional events. The Company also selectively advertises in national
industry publications and trade journals, and provides a toll-free telephone
number (1-800-US-RENTS) that automatically connects each caller to the
Company's closest equipment rental yard. In addition to its principal
marketing methods, the Company is launching an Internet web page
(www.usrentals.com) that is expected to describe the Company's locations,
product lines and used equipment available for sale.
PURCHASING AND SUPPLIERS
The Company's size and stature in the equipment rental industry, as well as
its strong and long-standing vendor relationships, enable it to purchase
equipment directly from manufacturers at what management believes are among
the best prices and terms in the industry. The Company employs a Director of
Vendor Relations to negotiate favorable terms with preferred vendors. However,
individual Profit Center managers operate independently in evaluating and
selecting additional fleet based on local demand. U.S. Rentals has developed
strong relationships with many leading equipment manufacturers, which has led
to exclusive distribution rights for certain lines of equipment in several of
its markets. Management believes that the favorable pricing, service, training
and information that U.S. Rentals receives from its suppliers represent a
significant competitive advantage for the Company. During 1996, the Company
purchased approximately $119.3 million of rental equipment, of which
approximately 58.8% was obtained from its top 10 suppliers. No single supplier
accounted for more than 12.8% of the Company's total purchases. U.S. Rentals
believes it could readily replace any of its existing suppliers if it were to
lose its ability to purchase equipment from such supplier.
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<PAGE>
INFORMATION SYSTEMS
U.S. Rentals' proprietary POS system was initially installed in the
Company's equipment rental yards in 1992 and is used for the day-to-day
management of its more than 60,000 pieces of rental equipment. The data
generated from each Profit Center's POS system is uploaded daily to the
Company's mainframe computer at its headquarters. The Company's proprietary
management information systems, including the Company's POS system, allow
management and Profit Center managers to review all aspects of each Profit
Center's business, including profitability, equipment utilization rates,
rental rates, number of contracts generated and collection of receivables.
Management at all levels uses these systems to generate rental contracts,
track equipment usage, report customer credit histories, compile accounts
receivables aging reports and monitor monthly profitability. Access to such
data significantly assists management in closely monitoring and quickly
reacting to the ongoing operations at each Profit Center. Additionally, the
statements generated by the Company's management information systems are
consistently reviewed by corporate, regional and divisional managers, as well
as by each Profit Center manager, to monitor profit sharing earnings and
detect areas for improvement at each location. This type of decentralized
processing, with centralized management information system reporting, provides
for timely and effective reporting of information for auditing and control
purposes. U.S. Rentals' data processing center, located at its headquarters in
Modesto, California, utilizes a Hewlett Packard mainframe computer for its
flexibility and capacity to accommodate the Company's future systems needs.
The Company's computer system is updated and maintained by a staff of three
systems development professionals, who also developed U.S. Rentals' customized
and proprietary management information systems software.
LOCATIONS AND PROPERTIES
The Company operates 80 Profit Centers in the following 11 states: Arizona
(2), Arkansas (3), California (46), Idaho (1), Kansas (1), Louisiana (3),
Nevada (4), New Mexico (2), Oklahoma (1), Texas (16) and Washington (1). U.S.
Rentals owns 27 of its Profit Centers and leases the other 53, as well as its
approximately 12,000 square foot headquarters space in Modesto, California.
The Company's leases have terms expiring from 1997 to 2001, with the majority
of its leases having multiple five-year renewal options. The Company also
maintains six credit offices, all of which are leased. The net book value of
owned facilities was approximately $17.6 million at December 31, 1996, and the
average annual lease expense on each leased facility was approximately $53,000
in 1996. Management believes that none of U.S. Rentals' leased facilities,
individually, is material to the Company's operations. In addition, as of
December 31, 1996 U.S. Rentals owned a fleet of approximately 774 non-rental
delivery, fleet service and sales personnel vehicles.
COMPETITION
The equipment rental industry is highly fragmented and competitive. Each
market in which U.S. Rentals operates is served by numerous competitors,
ranging from national and multi-regional companies such as Hertz Equipment
Rental Corporation, an affiliate of Ford Motor Company, to small, independent
businesses with a limited number of locations. Management believes that
participants in the equipment rental industry compete on the basis of customer
relationships, customer service, breadth and quality of product line and
price. In general, the Company believes that national and multi-regional
operators, especially larger operators such as U.S. Rentals, enjoy substantial
competitive advantages over small, independent rental businesses that cannot
afford to maintain the comprehensive rental equipment fleet and high level of
maintenance and service that U.S. Rentals offers. U.S. Rentals believes that
its commitment to personalized customer service, highly motivated and
experienced employees, decentralized management structure, proprietary
information systems and the breadth and the quality of its rental fleet enable
it to compete successfully. See "Risk Factors--Competition."
EMPLOYEES
As of December 31, 1996, U.S. Rentals had a total of 1,841 employees, of
which 309 were salaried and 1,532 were hourly personnel. U.S. Rentals' work
force is not unionized, and management believes that its relationship with
employees is excellent. The Company is committed to, and has realized
significant benefits
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from, its formal employee training programs. Management believes that this
investment in training and safety awareness programs for employees is a
competitive advantage that positions U.S. Rentals to be responsive to customer
needs.
MATERIAL PATENTS, LICENSES, FRANCHISES AND CONCESSIONS
The Company does not hold or depend upon any material patent, government
license, franchise or concession, except for the "USRentals(R)" service mark,
which is registered with the U.S. Patent and Trademark Office.
GOVERNMENTAL AND ENVIRONMENTAL REGULATION
The Company's operations are subject to a variety of federal, state and
local laws and regulations governing, among other things, worker safety, air
emissions, water discharge and the generation, handling, storage,
transportation, treatment and disposal of hazardous substances and wastes.
Under such laws, an owner or lessee of real estate may be liable for the costs
of removal or remediation of certain hazardous or toxic substances located on
or in, or emanating from, such property, as well as related costs of
investigation and property damage. Such laws often impose such liability
without regard to whether the owner or lessee knew of, or was responsible for,
the presence of such hazardous or toxic substances. The Company is often
indemnified against environmental liabilities as a purchaser or lessee of the
properties it acquires or leases. Since 1993, in connection with its
acquisitions and start-up locations that include the purchase of real
property, the Company usually obtains Phase I environmental assessment reports
prepared by independent environmental consultants for each piece of real
property it purchases. A Phase I environmental assessment consists of a site
visit, historical record review, interviews and report, with the purpose of
identifying potential environmental conditions associated with the subject
real estate. Phase I environmental assessments on a number of recently
acquired facilities indicated the possibility of releases of hazardous or
toxic substances at those facilities, but the Company has not determined
whether releases actually have occurred or whether remediation will be
required. Moreover, there can be no assurance that a Phase I environmental
assessment will disclose all environmental contamination located at that site.
The remaining owned and leased facilities were acquired without first
obtaining a Phase I environmental assessment. Environmental contamination has
been found at certain of those facilities, principally in connection with the
removal of underground storage tanks. No assurance can be given that
environmental contamination is not present at the other locations.
The Company dispenses petroleum products from above-ground storage tanks at
a majority of its Profit Centers. The remainder of its Profit Centers dispense
petroleum products from underground storage tanks. The Company maintains an
environmental compliance program that includes the implementation of required
technical and operational activities designed to minimize the potential for
leaks and spills, maintenance of records and the regular testing and
monitoring of tank systems for tightness. The Company also uses other
hazardous materials in the ordinary course of its business. In addition, the
Company generates and disposes of hazardous waste such as used motor oil,
radiator fluid and solvents, and may be liable under various federal, state
and local laws for environmental contamination at facilities where its waste
is or has been disposed. See "Risk Factors--Governmental and Environmental
Regulation." The Company incurs ongoing expenses associated with the removal
of older underground storage tanks and the performance of appropriate
remediation at certain of its locations. The Company believes that hazardous
substances currently requiring remediation are present at seven of its
facilities. The Company has applied or is applying for governmental
determinations that remediation has been completed at four locations and is
undertaking or anticipates undertaking remediation at the three other
facilities. Management believes that the Company is also responsible (pursuant
to the terms of certain of its leases) for any required remediation of seven
double-walled underground storage tanks. The Company has reserved
approximately $1.1 million for such remediation and removal of additional
underground storage tanks and associated potential liability. The Company does
not believe that costs associated with such remediation and potential
liability will have a material adverse effect on the Company's results of
operations or financial condition. See "Risk Factors--Governmental and
Environmental Regulation."
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LEGAL PROCEEDINGS
The Company is involved in numerous claims and potential claims that have
arisen in the ordinary course of the Company's business. Claims (including
litigation) for property damage, personal injury and death from users of its
equipment and the estates of such users, as well as employee claims relating
to workers' compensation and other employee-related issues, are inherent in
the nature of the Company's business. The Company cannot predict the ultimate
outcome of any of its current claims; however, due to the amount of the
Company's self-insurance reserves and the existence of insurance for claims
between $3 million and $50 million, management does not believe that any of
such claims, either alone or in the aggregate, will have a material adverse
effect on the Company's results of operations or financial condition. See
"Risk Factors--Liability and Insurance."
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the executive officers and directors of the
Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Richard D. Colburn 85 Chairman of the Board of Directors
William F. Berry 44 President, Chief Executive Officer and Director
John S. McKinney 42 Vice President--Finance, Chief Financial Officer and
Director
Bernard E. Lyons 62 Vice President, Secretary and Director
Grace M. Crickette 35 Vice President--Risk Management
William F. Locklin 44 Vice President and Region Manager
Steven E. Nadelman 34 Vice President and Region Manager
</TABLE>
Richard D. Colburn purchased the Company (under its previous name of Leasing
Enterprises, Inc.) on December 31, 1975 and has been Chairman of the Board of
Directors since that date. Mr. Colburn, a private investor, currently owns
100% of the Company.
William F. Berry has been an employee of the Company and one of its
predecessors since 1966, became the Company's President and Chief Executive
Officer in January 1987 and became a Director in 1996. In his more than 30
years with the Company and its predecessor, Mr. Berry has held numerous
operational and managerial positions, including Profit Center Manager,
Division Manager and Regional Vice President.
John S. McKinney has been the Vice President--Finance and Chief Financial
Officer of the Company since 1990 and became a Director in 1996. Mr. McKinney
joined the Company in 1988 as Controller, and held that position until being
promoted to his current positions. Prior to joining the Company, Mr. McKinney
served as the controller of an electrical wholesale company, held various
financial positions with Iomega Corporation and spent several years as a
certified public accountant with Arthur Andersen & Co.
Bernard E. Lyons has been a Director, Vice President, Secretary and the
General Counsel of the Company since 1976. Mr. Lyons is not an employee of the
Company. Mr. Lyons, a corporate lawyer, has represented numerous clients in
his more than 35 years of legal practice.
Grace M. Crickette has been the Company's Vice President--Risk Management
since March 1996. Ms. Crickette served as a Risk Management Director from 1994
until March 1996 and Risk Management Analyst from 1991 to 1994. Prior to
joining the Company, Ms. Crickette was a legal assistant for five years at a
Southern California law firm that specializes in insurance defense.
William F. Locklin has been a Vice President and Region Manager since
joining the Company in 1987. Mr. Locklin has more than 19 years of experience
in the equipment rental business. Prior to joining the Company, Mr. Locklin
held numerous management positions in the equipment rental industry over a
seven-year period with Hertz Equipment Rental Corporation.
Steven E. Nadelman has been a Vice President and Region Manager since 1993.
Mr. Nadelman joined the Company in 1991 and served as a Profit Center Manager
and a Division Manager before being promoted to his current position. Mr.
Nadelman has more than 17 years of experience in the equipment rental
business. Prior to joining the Company, Mr. Nadelman held numerous service,
sales and management positions in the equipment rental industry, including
several years with Hertz Equipment Rental Corporation.
The executive officers of the Company serve at the discretion of its Board
of Directors. Each director of the Company serves until such director's
successor is elected and qualified or until the director's death, retirement,
resignation or removal.
33
<PAGE>
The Company intends to appoint an independent director within three months
of the consummation of the Offerings and an additional independent director
within one year of the consummation of the Offerings.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. Following the Offerings, the Board of Directors intends to
establish an audit committee (the "Audit Committee"), to be comprised of at
least two independent directors, to make recommendations concerning the
engagement of independent public accountants, review with the independent
public accountants the plans and results of the audit engagement, approve
professional services provided by the independent public accountants, review
independence of the independent public accountants, consider the range of
audit and non-audit fees and review the adequacy of the Company's internal
accounting controls.
Compensation Committee. Following the Offerings, the Board of Directors
intends to establish a compensation committee (the "Compensation Committee"),
to be comprised of at least two independent directors, to determine
compensation of the Company's executive officers and to administer the 1997
Plan. The current executive officer salaries were set by the Board of
Directors prior to establishment of the Compensation Committee.
DIRECTOR COMPENSATION
Upon consummation of the Offerings, the Company does not expect to pay its
directors who are employees of the Company for their services as directors.
The Company expects to pay its directors who are not employees (including
Bernard E. Lyons but not the Principal Stockholder) reasonable cash
compensation consistent with compensation paid by other publicly held
companies, but the Company has not yet set the specific amount of such
director compensation. Prior to the Offerings, the Predecessor paid a $5,000
monthly retainer to its directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1996, the Company had no compensation committee or other committee of the
Board of Directors performing similar functions. Decisions concerning
compensation of executive officers were made by the Company's Board of
Directors. No officers or employees of the Company, other than William F.
Berry, John S. McKinney and Bernard E. Lyons, participated in deliberations
concerning such compensation matters.
34
<PAGE>
EXECUTIVE COMPENSATION
The following table shows the compensation paid by the Company to the Chief
Executive Officer and each of the Company's other four most highly compensated
executive officers (collectively, the "Named Executive Officers") with respect
to fiscal 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
-----------------
ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS(A) COMPENSATION
--------------------------- -------- -------- ------------
<S> <C> <C> <C>
William F. Berry
President and Chief Executive Officer...... $145,000 $400,000 $260,418(b)(c)
John S. McKinney
Vice President--Finance and Chief Financial
Officer.................................... 104,167 120,000 159,893(b)(c)
William F. Locklin
Vice President and Region Manager.......... 104,167 120,000 1,470(b)
Steven E. Nadelman
Vice President and Region Manager.......... 104,167 120,000 1,109(b)
Grace M. Crickette
Vice President--Risk Management............ 72,500 35,000 200(b)
</TABLE>
- ---------------------
(a) Estimates of amounts earned in 1996 pursuant to the Company's profit
sharing program that are expected to be paid in 1997.
(b) Includes matching amounts contributed by the Company pursuant to the
Company's 401(k) plan.
(c) Includes director and executive committee fees paid for 1996, as well as
deferred compensation earned in 1996. See "--Employment Agreements."
EMPLOYMENT AGREEMENTS
The Company will enter into seven-year employment agreements with each of
William F. Berry and John S. McKinney effective upon consummation of the
Offerings. Messrs. Berry and McKinney will have the option to extend their
respective agreements for up to three years. During the term of Mr. Berry's
employment agreement, his compensation will consist of a minimum annual base
salary of $150,000, participation in the Company's profit sharing program,
deferred compensation (as described below), and fringe benefits similar to
those of other senior executives of the Company. If Mr. Berry's employment is
terminated, he will also be subject to a two-year restriction on competition
with the Company. Under Mr. Berry's agreement, he will be entitled to receive
deferred compensation of $1,402,605 on the earliest of December 31, 2006,
death, disability, a Change in Control Event (as defined in 1997 Plan) or
termination without cause. If Mr. Berry voluntarily terminates his employment
with the Company or if his employment is terminated for cause, he will be
entitled to an amount equal to the vested portion of such deferred
compensation, initially equal to 10% and increasing 10% per year.
Mr. McKinney's employment agreement will be substantially identical to
Mr. Berry's except that Mr. McKinney's minimum annual base salary will be
$105,000 and his deferred compensation will be $701,302.
Upon consummation of the Offerings, Messrs. Berry and McKinney will be
issued options to purchase 2,254,925 and 1,127,462 shares, respectively, of
Common Stock under the 1997 Plan with an exercise price equal to the initial
public offering price. The options will vest in ten equal installments over a
9.5 year period commencing upon the first anniversary of the consummation of
the Offerings. See "--1997 Performance Award Plan."
35
<PAGE>
PROFIT SHARING PROGRAM
An integral part of the Company's operating philosophy is an innovative
profit sharing program applicable to all levels of employees. Profit sharing
is earned at each Profit Center based on each Profit Center's operating income
in excess of a pre-determined return on net assets at such location. Profit
sharing is accrued throughout the year and paid in cash in March of the
following year. The program does not limit the amount of profit sharing
compensation an employee may earn. For example, at the Company's top
performing Profit Center in 1996, the Profit Center manager earned
approximately 2.5 times his base salary in profit sharing. In 1996 managers of
profitable locations earned an average of approximately 92% of their base
salaries in profit sharing compensation.
Profit sharing is paid only to locations that are profitable, with
discretionary exceptions in some cases for start-up locations that generally
are not profitable until after their first year of operations. Unprofitable
locations generally must make up cumulative losses for the prior two years
before becoming eligible for profit sharing.
401(k) SAVINGS AND THRIFT PLAN
The Company has a defined contribution 401(k) plan that covers substantially
all full-time employees who have been employed by the Company for over one
year and have worked at least 1,000 hours. The 401(k) plan allows all
employees to defer amounts up to the statutory limit each year. The Company
has a discretionary matching program under which, in 1996, the Company matched
50% of employee contributions up to a maximum contribution by the Company of
$200 per employee.
1997 PERFORMANCE AWARD PLAN
The Company intends to establish the 1997 Plan to attract, reward and retain
talented and experienced officers, other key employees and certain other
eligible persons (collectively, "Eligible Persons") who may be granted awards
from time to time by the Company's Board of Directors or the Committee (as
defined below).
Awards under the 1997 Plan may be in the form of nonqualified stock options,
incentive stock options, stock appreciation rights ("SARs"), restricted stock,
performance shares, stock bonuses, or cash bonuses based on performance.
Awards may be granted singly or in combination with other awards. Any cash
bonuses would be paid based upon the extent to which performance goals set by
the Committee are met during the performance period. Awards under the 1997
Plan generally will be nontransferable by a holder (other than by will or the
laws of descent and distribution) and rights thereunder generally will be
exercisable, during the holder's lifetime, only by the holder, subject to such
exceptions as may be authorized by the Committee.
Administration; Change in Control. The 1997 Plan provides that it will be
administered by the Board of Directors or a committee appointed by the Board
of Directors (the "Committee"). The Board of Directors intends to appoint the
Company's Compensation Committee to serve as the Committee under the 1997
Plan. The Committee will have the authority to (i) designate recipients of
awards, (ii) determine or modify the provisions of awards, including vesting
provisions, terms of exercise of an award and expiration dates, (iii) approve
the form of award agreements, and (iv) construe and interpret the 1997 Plan.
The Committee will have the discretion to accelerate and extend the
exercisability or term and establish the events of termination or reversion of
outstanding awards.
Upon a Change in Control Event each option and SAR will become immediately
exercisable, restricted stock will immediately vest free of restrictions and
the number of shares, cash or other property covered by each performance share
award will be issued to the grantee of such award, unless the Committee
determines to the contrary. A "Change in Control Event" is defined generally
to include the acquisition of 50% or more of the outstanding voting securities
of the Company by any person other than the Predecessor, the Principal
Stockholder or one of his affiliates, successors, heirs or relatives, a
transfer of substantially all of the Company's assets, the dissolution or
liquidation of the Company, or a merger, consolidation or reorganization
whereby stockholders immediately prior to such event own less than 50% of the
outstanding voting securities of the surviving entity after such event.
36
<PAGE>
Plan Amendment; Termination and Term. The Company's Board of Directors will
have the authority to amend, suspend or discontinue the 1997 Plan at any time,
but no such action will affect any outstanding award in any manner adverse to
the participant without the consent of the participant. The 1997 Plan may be
amended by the Board of Directors without stockholder approval unless such
approval is required by applicable law.
The 1997 Plan will remain in existence as to all outstanding awards until
such awards are exercised or terminated. The maximum term of unvested or
unexercised options, SARs and other rights to acquire Common Stock under the
1997 Plan is 10 years after the initial date of award. No award can be made
after the tenth anniversary of the date on which the Board of Directors
approved the 1997 Plan.
Authorized Shares and Other Provisions. The maximum number of shares of
Common Stock that may be issued in respect of awards under the 1997 Plan is
4,600,000 shares. The number of shares of Common Stock subject to awards
granted to any individual in any calendar year is limited to 2,500,000. The
number and kind of shares available for grant and the shares subject to
outstanding awards will be adjusted to reflect the effect of a stock dividend,
stock split, recapitalization, merger, consolidation, reorganization,
combination or exchange of shares, extraordinary dividend or other
distribution or other similar transaction. If any award expires or is
cancelled or terminated without having been exercised or paid in full, or if
any Common Stock subject to a restricted stock award does not vest or is not
delivered, the unpurchased, unvested or undelivered shares will again be
available for award under the 1997 Plan. No incentive stock option may be
granted at a price that is less than fair market value of the Common Stock
(less than 110% of fair market value of the Common Stock on the date of grant
for certain participants) on the date of grant.
Automatic Annual Grants to Non-Employee Directors. Under the 1997 Plan, each
director who is not an employee (including Bernard E. Lyons but not the
Principal Stockholder) (each a "Non-Employee Director") will be granted stock
options to purchase 2,500 shares of Common Stock upon becoming a director at
an exercise price equal to the market price of the Common Stock on that date.
In addition, at the close of trading on the day of the annual stockholders
meeting in each calendar year beginning in 1998 and continuing for each
subsequent year during the term of the 1997 Plan, each person who is a Non-
Employee Director as of such date will be granted stock options to purchase
1,000 shares of Common Stock at an exercise price equal to the market price of
the Common Stock on that date. No Non-Employee Director may receive options to
purchase more than 10,000 shares of Common Stock under the 1997 Plan. All Non-
Employee Director stock options have a 10-year term and will vest in equal
annual installments over a five-year period commencing on the first
anniversary of the grant date. If a Non-Employee Director's services are
terminated for any reason other than the director's death, disability or
retirement, any portion of stock options held by such director that are
exercisable will remain exercisable for six months after such termination of
services or until the expiration of the term of such option, whichever occurs
first. If the Non-Employee Director dies, becomes disabled or retires, stock
options held by such director will become exercisable immediately and remain
exercisable for two years after the date of such termination of services.
Federal Tax Consequences. The current federal income tax consequences of
awards authorized under the 1997 Plan follow certain basic patterns.
Generally, awards under the 1997 Plan that are includable in income of the
recipient at the time of award or exercise (such as nonqualified stock
options, SARs, restricted stock and performance awards) are deductible by the
Company, and awards that are not required to be included in income of the
recipient at such times (such as incentive stock options) are not deductible
by the Company.
Grant of Options. On the day the Company and the Underwriters agree on the
initial public offering price of the Common Stock, the Board of Directors of
the Company intends to grant options relating to up to an aggregate of
3,877,387 shares of Common Stock to Eligible Persons including options to
purchase 2,254,925 and 1,127,462 shares of Common Stock that will be granted
to William F. Berry and John S. McKinney, respectively. The exercise price of
each option granted will be the initial public offering price per share of the
Common Stock offered hereby. Other than Messrs. Berry and McKinney's options
which will vest over a 9.5 year period in ten equal installments, such options
vest in equal annual installments over a period of five years.
37
<PAGE>
CERTAIN TRANSACTIONS
REGISTRATION RIGHTS AGREEMENT
The Predecessor and the Company have entered into a Registration Rights
Agreement under which the Predecessor (and certain permitted transferees) will
be entitled to certain rights with respect to the registration of its shares
of Common Stock under the Securities Act. Under this agreement, the
Predecessor will have the right to cause the Company to file a registration
statement on Form S-1 with respect to its Common Stock on two separate
occasions commencing six months after the date of the Offerings. Additionally,
if the Company proposes to register any of its securities under the Securities
Act, either for its own account or for the account of others, the Predecessor
is entitled, subject to certain limitations and exceptions, to notice of such
registration and is entitled to include shares of Common Stock therein. In
addition, at any time after the Company becomes eligible to file registration
statements on Form S-3 under the Securities Act, the Predecessor may require
from time to time that the Company file such a registration statement with
respect to its shares of Common Stock. All fees, costs and expenses of any
such registration (other than underwriting fees and commissions) will be borne
by the Company.
OFFERING RELATED AGREEMENTS
The Company and the Predecessor have entered into an asset contribution
agreement effective immediately prior to the consummation of the Offerings.
Under this agreement, the Predecessor will transfer substantially all of its
operating assets and associated liabilities to the Company in exchange for
20,748,975 shares of Common Stock of the Company, representing all of the
outstanding capital stock of the Company prior to the consummation of the
Offerings. The Predecessor will retain only non-operating assets and
liabilities, including approximately $25.7 million of notes receivable from
related parties and approximately $23.9 million of notes payable to related
parties. For a period of five years from the consummation of the Offerings,
the Predecessor has agreed to indemnify the Company and any of its directors,
officers, employees and agents against any losses incurred by any of them
arising from any of the assets and liabilities not transferred from the
Predecessor in the Offering Related Transactions. For the same period, or the
expiration of the applicable statute of limitations in the case of taxes and
environmental liabilities, the Company has agreed to indemnify the Predecessor
and its directors, officers, employees and agents against any losses incurred
by any of them arising from the operating business and any of the assets and
liabilities transferred to the Company in the Offering Related Transactions.
In addition, if any adjustment is made after the consummation of the Offerings
to the Predecessor's taxable income attributable to the Predecessor's business
for any period or any portion of any period ending on or prior to the
consummation of the Offerings that results in additional taxes being owed by
the Principal Stockholder, the Company will pay the Predecessor (for
distribution to the Principal Stockholder) an amount equal to such additional
taxes. The Predecessor will indemnify the Company against any liability for
taxes relating to any of the assets and liabilities not transferred as part of
the Offering Related Transactions.
In January 1997, the Predecessor entered into a Cancellation of Deferred
Compensation Agreement with each of William F. Berry and John S. McKinney.
Pursuant to such agreements, the Predecessor will pay Messrs. Berry and
McKinney $13,333,333 and $6,666,667, respectively, and the Predecessor's prior
deferred incentive compensation agreements will be terminated. Prior to the
Offerings, the Predecessor expects to draw down $20.0 million under the Credit
Facility to fund such payments. The Company will assume the liability for the
indebtedness under the Credit Facility pursuant to the Asset Contribution
Agreement. The cost of the cancellation will be expensed in the income
statement of the Company in the first quarter of 1997. See "Risk Factors--
Quarterly Fluctuations and Seasonality," "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Quarterly Results" and Note
9 of Notes to Combined Financial Statements.
NOTES PAYABLE AND RECEIVABLE
The Predecessor made a dividend in the form of a subordinated note in the
principal amount of $10.0 million in favor of the Principal Stockholder, in
each of 1993 and 1994. Such notes bear interest at prime plus 5.0%.
38
<PAGE>
The notes, which mature on December 31, 2013 and 2014, respectively, were
subsequently donated to a charitable organization. None of the obligations
under such notes will be transferred to the Company. See "Offering Related
Transactions."
Certain notes have also been issued from time to time in favor of affiliates
of the Principal Stockholder. None of the Predecessor's obligations under such
notes will be transferred to the Company. See "Offering Related Transactions"
and Note 5 to Notes to Combined Financial Statements.
In 1984, the Predecessor received notes in connection with transactions with
an affiliate of the Principal Stockholder. Interest on these notes is due
quarterly at the rate of 13.5%. Annual principal payments of $100,000 are due
through December 31, 2013 and the remaining unpaid principal balance is due on
December 31, 2014. The notes provide for positive or negative annual
adjustments of principal based on the change in the Consumer Price Index,
limited to certain percentages of the issuer's cumulative net income from
December 31, 1984. Principal adjustments of such notes receivable reflected in
other income totalled $572,514 in 1996. None of the notes will be transferred
by the Predecessor to the Company. See "Offering Related Transactions."
The Predecessor received two notes in connection with transactions with an
immediate family member of the Principal Stockholder on May 1, 1995 and August
6, 1996, respectively. The first note, with an outstanding principal balance
as of December 31, 1995 of approximately $840,000, was repaid in full in 1996.
The second note, issued for $300,000 in August 1996, bears interest at the
Predecessor's borrowing rate from Bank of America NT&SA. Principal payments of
$3,000 plus all accrued interest are due monthly until July 31, 1998, at which
time all amounts outstanding under the note will be due. The second note will
not be transferred by the Predecessor to the Company. See "Offering Related
Transactions."
REAL PROPERTY
The Predecessor leases two pieces of property from each of Mr. Berry, the
Company's President and Chief Executive Officer, and a member of his immediate
family. The total annual lease payments for 1996 to Mr. Berry and to such
family member were $65,000 and $88,000, respectively. Further, Mr. Berry
purchased one of the aforementioned properties from the Predecessor in March
1996 for $640,000, a price the Predecessor believed to be the fair market
value. The Predecessor leases two pieces of property from an immediate family
member of the Principal Stockholder. The total annual lease payments made to
such family member in 1996 were $79,000. The Company believes that these
leases are on commercially fair and reasonable terms. All six leases will be
transferred by the Predecessor to the Company prior to consummation of the
Offerings.
MISCELLANEOUS
The Predecessor paid legal fees of $81,000 to an affiliate of the Principal
Stockholder as reimbursement to such affiliate for legal services rendered in
1996 for the Predecessor by Bernard E. Lyons, a Director and officer of the
Company.
Prior to the consummation of the Offerings, the Predecessor had a $2.5
million revolving credit arrangement (which provided for interest at a bank
reference rate plus 0.5%) with USR Leasing Company ("USRL"), an entity owned
by the Principal Stockholder. The Predecessor leased non-rental vehicles from
USRL under operating leases and agreed with USRL's lender to guarantee up to
$7.0 million of USRL's indebtedness. Lease charges from USRL amounted to
approximately $3.2 million for 1996. Prior to the consummation of the
Offerings, the Principal Stockholder will contribute all of the stock of USRL
to the Predecessor and the Predecessor will contribute such stock to the
Company as part of the Offering Related Transactions. USRL's accounts have
been combined with those of the Predecessor in the Combined Financial
Statements. See Note 1 to Notes to Combined Financial Statements.
The Predecessor has made various investments in unrelated businesses through
entities controlled by the Principal Stockholder. Such investments will not be
transferred by the Predecessor to the Company.
FUTURE TRANSACTIONS
The Company has implemented a policy requiring that any material transaction
with an affiliated party is subject to approval by a majority of the directors
not interested in such transaction, who must determine that the terms of any
such transaction are no less favorable to the Company than those that could be
obtained from an unaffiliated third party.
39
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock after giving effect to the Offering Related
Transactions and as adjusted to reflect the Offerings by (i) the Principal
Stockholder, (ii) each of the Company's directors and executive officers, and
(iii) all directors and executive officers as a group. Except as otherwise
indicated, the persons named in the table have sole voting and investment
power with respect to all shares beneficially owned.
<TABLE>
<CAPTION>
OWNERSHIP AFTER
OFFERINGS
---------------------
NUMBER OF
NAME AND ADDRESS OF BENEFICIAL OWNER (1) SHARES PERCENTAGE
---------------------------------------- ---------- ----------
<S> <C> <C>
Richard D. Colburn (2)................................ 20,748,975 67.5%
William F. Berry...................................... -- *
John S. McKinney...................................... -- *
Bernard E. Lyons...................................... -- *
Grace M. Crickette.................................... -- *
William F. Locklin.................................... -- *
Steven E. Nadelman.................................... -- *
---------- ----
All directors and executive officers as a group (7
persons)............................................. 20,748,975 67.5
========== ====
</TABLE>
- ---------------------
*Less than one percent.
(1) The business address of each of the persons listed in the table (other
than Bernard E. Lyons) is 1581 Cummins Drive, Suite 155, Modesto,
California 95358. Mr. Lyons' address is 1516 Pontius Avenue, Los Angeles,
California 90025.
(2) The Principal Stockholder owns 100% of the Predecessor, which was the sole
stockholder of the Company prior to the Offerings. See "Offering Related
Transactions."
40
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, par value $.01 per share, and 10,000,000 shares of Preferred
Stock, which can be issued in one or more series. Immediately following the
completion of the Offerings, an aggregate of 30,748,975 shares of Common Stock
will be issued and outstanding (assuming no exercise of the U.S. Underwriters'
over-allotment option) and no shares of Preferred Stock will be issued or
outstanding.
The following description of the Company's capital stock is a summary of the
material terms of such stock. It does not purport to be complete and is
subject in all respects to applicable Delaware law and to the provisions of
the Company's Certificate of Incorporation and Bylaws, copies of which have
been filed as exhibits to the Registration Statement of which this Prospectus
is a part.
COMMON STOCK
The Board of Directors of the Company in its sole discretion may issue
shares of Common Stock from the authorized and unissued shares of Common
Stock. Holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders, including the election of
directors. The Company's Certificate of Incorporation does not provide for
cumulative voting in the election of directors.
Holders of Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. The Company does not anticipate paying any cash dividends
in the foreseeable future. See "Risk Factors--Absence of Dividends" and
"Dividend Policy." In the event of liquidation, dissolution or winding up of
the Company, holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities and after satisfaction of the
liquidation preference of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, conversion or redemption rights
and are not subject to further assessments by the Company. Upon consummation
of the Offerings, all of the then outstanding shares of Common Stock will be
validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Company's Board of Directors is authorized to issue from time to time,
without stockholder authorization, in one or more designated series, any or
all of the authorized but unissued shares of Preferred Stock with such
dividend, redemption, conversion and exchange provisions as may be provided
for the particular series. Any series of Preferred Stock may possess voting,
dividend, liquidation and redemption rights superior to those of the Common
Stock. The rights of holders of Common Stock will be subject to and may be
adversely affected by the rights of the holders of any Preferred Stock that
may be issued in the future. Issuance of a new series of Preferred Stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could make it more difficult for a third party
to acquire, or discourage a third party from acquiring, the outstanding voting
stock of the Company, and make removal of the present Board of Directors more
difficult. The Company has no present plans to issue any shares of Preferred
Stock. See "Risk Factors--Anti-takeover Provisions."
CERTAIN PROVISIONS OF DELAWARE LAW
The Company is a Delaware corporation and is subject to Section 203 of the
DGCL. In general, Section 203 prevents an "interested stockholder" (defined
generally as a person owning 15% or more of a corporation's outstanding voting
stock) from engaging in a "business combination" (as defined therein) with a
Delaware corporation for three years following the date such person became an
interested stockholder unless (i) before such person became an interested
stockholder, the board of directors of the corporation approved the
transaction in which the interested stockholder became an interested
stockholder or approved the business combination,
41
<PAGE>
(ii) upon consummation of the transaction that resulted in the interested
stockholder becoming an interested stockholder, the interested stockholder
owns at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding shares owned by persons who are both
officers and directors of the corporation and shares held by certain employee
stock ownership plans) or (iii) following the transaction in which such person
became an interested stockholder, the business combination is approved by the
board of directors of the corporation and authorized at a meeting of
stockholders by the affirmative vote of the holders of at least two-thirds of
the outstanding voting stock of the corporation not owned by the interested
stockholder.
LIMITATION OF LIABILITY AND INDEMNIFICATION AGREEMENTS
The Company's Certificate of Incorporation provides that to the fullest
extent permitted by the DGCL, a director of the Company shall not be liable to
the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director. Under the DGCL, liability of a director may not be limited
(i) for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases and
(iv) for any transaction from which the director derives an improper personal
benefit. The effect of the provisions of the Company's Certificate of
Incorporation is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of the fiduciary duty of care
as a director (including breaches resulting from negligent or grossly
negligent behavior), except in the situations described in clauses (i) through
(iv) above. This provision does not limit or eliminate the rights of the
Company or any stockholder to seek nonmonetary relief such as an injunction or
rescission in the event of a breach of a director's duty of care. In addition,
the Company's Certificate of Incorporation provides that the Company shall
indemnify its directors, officers, employees and agents against losses
incurred by any such person by reason of the fact that such person was acting
in such capacity.
The Company has entered into agreements with each of the directors and
officers of the Company pursuant to which the Company has agreed to indemnify
such director or officer from claims, liabilities, damages, expenses, losses,
costs, penalties or amounts paid in settlement incurred by such director or
officer in or arising out of his capacity as a director, officer, employee
and/or agent of the Company or any other corporation of which such person is a
director or officer at the request of the Company to the maximum extent
provided by applicable law. In addition, such director or officer is entitled
to an advance of expenses to the maximum extent authorized or permitted by
law.
CERTAIN ANTI-TAKEOVER EFFECTS
The provisions of the Certificate of Incorporation and the Bylaws of the
Company summarized above may be deemed to have anti-takeover effects and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider to be in such stockholder's best interest, including those
attempts that might result in a premium over the market price for the shares
held by stockholders. See "Risk Factors--Anti-takeover Provisions."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer and Trust Company.
LISTING
There is no public trading market for the Common Stock. The Common Stock has
been approved for listing on the New York Stock Exchange ("NYSE") upon notice
of issuance under the symbol "USR."
42
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Offerings, the Company will have outstanding
30,748,975 shares of Common Stock (assuming no exercise of the U.S.
Underwriters' over-allotment option). All of the shares of Common Stock sold
in the Offerings will be freely tradeable under the Securities Act, unless
purchased by "affiliates" of the Company as that term is defined under the
Securities Act. Upon the expiration of lock-up agreements between the Company,
the Predecessor, the Principal Stockholder and the Underwriters, which will
occur 180 days after the date of this Prospectus (the "Effective Date"), all
of the 20,748,975 shares of Common Stock owned by the Principal Stockholder
through the Predecessor (the "Restricted Shares") will become eligible for
sale, subject to compliance with Rule 144 of the Securities Act as described
below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for
at least two years, will be entitled to sell in any three-month period a
number of shares that does not exceed the greater of: (i) 1% of the number of
shares of Common Stock then outstanding (approximately 307,490 shares
immediately after the Offerings) or (ii) the average weekly trading volume of
the Company's Common Stock on the NYSE during the four calendar weeks
immediately preceding the date on which the notice of sale is filed with the
Securities and Exchange Commission. Sales pursuant to Rule 144 are subject to
certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the 90 days immediately preceding the sale and who
has beneficially owned Restricted Shares for at least three years is entitled
to sell such shares pursuant to Rule 144(k) without regard to the limitations
and requirements described above. If a proposed amendment to Rule 144 is
adopted, the two- and three-year holding period requirements described above
will be reduced to one and two years, respectively.
The Predecessor and the Principal Stockholder have agreed with the
Underwriters that until 180 days after the Effective Date not to directly or
indirectly, offer, sell, contract to sell, grant any option to purchase or
otherwise dispose of any Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, or in any manner transfer all or
a portion of the economic consequences associated with the ownership of the
Common Stock, or cause a registration statement covering any shares of Common
Stock to be filed, without the prior written consent of DLJ, subject to
certain limited exceptions. The Company has also agreed not to directly or
indirectly, offer, sell, contract to sell, grant any option to purchase or
otherwise dispose of any Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or, in any manner, transfer all
or a portion of the economic consequences associated with the ownership of the
Common Stock or cause a registration statement covering any shares of Common
Stock to be filed, for a period of 180 days after the Effective Date, without
the prior written consent of DLJ, subject to certain limited exceptions
including grants of options pursuant to, and issuance of shares of Common
Stock upon exercise of options under, the 1997 Plan. The lock-up agreements
may be released at any time as to all or any portion of the shares subject to
such agreements at the sole discretion of DLJ. See "Risk Factors--Shares
Eligible for Future Sale; Registration Rights."
43
<PAGE>
UNDERWRITING
Subject to certain terms and conditions contained in an underwriting
agreement (the "Underwriting Agreement"), the U.S. Underwriters named below
(the "U.S. Underwriters") for whom DLJ, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Salomon Brothers Inc are acting as representatives (the "U.S.
Representatives"), and the international managers named below (the
"International Managers"), for whom DLJ, Merrill Lynch International and
Salomon Brothers International Limited are acting as representatives (the
"International Representatives" and together with the U.S. Representatives,
the "Representatives") have severally agreed to purchase from the Company the
number of shares of Common Stock set forth opposite their names below.
<TABLE>
<S> <C>
NUMBER OF
U.S. UNDERWRITERS SHARES
----------
Donaldson, Lufkin & Jenrette Securities Corporation...............
Merrill Lynch, Pierce, Fenner & Smith Incorporated................
Salomon Brothers Inc..............................................
----------
U.S. Offering subtotal.......................................... 8,000,000
INTERNATIONAL MANAGERS
Donaldson, Lufkin & Jenrette Securities Corporation...............
Merrill Lynch International.......................................
Salomon Brothers International Limited............................
----------
International Offering subtotal................................. 2,000,000
----------
Total......................................................... 10,000,000
==========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to the approval of
certain legal matters by counsel and to certain other conditions. If any of
the shares of Common Stock are purchased by the Underwriters pursuant to the
Underwriting Agreement, all such shares of Common Stock (other than the shares
of Common Stock covered by the over-allotment option described below) must be
so purchased. The offering price and underwriting discounts and commissions
per share for the U.S. Offering and the International Offering are identical.
Prior to the Offerings, there has been no established trading market for the
Common Stock. The initial price to the public for the Common Stock offered
hereby will be determined by negotiation between the Company and the
Representatives. The factors to be considered in determining the initial price
to the public include the history of and the prospects for the industry in
which the Company competes, the ability of the Company's management, the past
and present operations of the Company, the historical results of operations of
the Company, the prospects for future earnings of the Company, the general
condition of the securities markets at the time of the Offerings and the
recent market prices of securities of generally comparable companies.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect thereof.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public initially at the
price to the public set forth on the cover page of this Prospectus and to
certain dealers (who may include the Underwriters) at such price less a
concession not to exceed $ per share. The Underwriters may allow, and
such dealers may reallow, discounts not in excess of $ per share to any
other Underwriter and certain other dealers.
44
<PAGE>
The Company has granted to the U.S. Underwriters an option to purchase up to
an aggregate of 1,500,000 additional shares of Common Stock at the initial
public offering price less underwriting discounts and commissions solely to
cover over-allotments. Such option may be exercised in whole or in part from
time to time during the 30-day period after the date of this Prospectus. To
the extent that the U.S. Underwriters exercise such option, each of the U.S.
Underwriters will be committed, subject to certain conditions, to purchase a
number of option shares proportionate to such U.S. Underwriter's initial
commitment as indicated in the preceding table.
The Company, the Predecessor and the Principal Stockholder have agreed not
to directly or indirectly offer, sell, contract to sell or otherwise dispose
of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, or in any manner transfer all or
a portion of the economic consequences associated with the ownership of such
Common Stock, or to cause a registration statement covering any shares of
Common Stock to be filed, for 180 days after the date of this Prospectus
without the prior written consent of DLJ, subject to certain limited
exceptions, and provided that the Company may grant options pursuant to, and
issue shares of Common Stock upon the exercise of options under, the 1997
Plan. See "Shares Eligible for Future Sale."
Pursuant to an Agreement Between U.S. Underwriters and International
Managers, each U.S. Underwriter has represented and agreed that, with respect
to the shares included in the U.S. Offering and with certain exceptions, (a)
it is not purchasing any Common Stock for the account of anyone other than a
U.S. or Canadian Person (as defined below) and (b) it has not offered or sold,
and will not offer or sell, directly or indirectly, any Common Stock or
distribute this Prospectus outside of the U.S. or Canada or to anyone other
than a U.S. or Canadian Person. Pursuant to the Agreement Between U.S.
Underwriters and International Managers, each International Manager has
represented and agreed that, with respect to the shares included in the
International Offering and with certain exceptions, (a) it is not purchasing
any Common Stock for the account of any U.S. or Canadian Person and (b) it has
not offered or sold, and will not offer or sell, directly or indirectly, any
Common Stock or distribute this Prospectus within the U.S. or Canada or to any
U.S. or Canadian Person. The foregoing limitations do not apply to
stabilization transactions and to certain other transactions among the
International Managers and the U.S. Underwriters. As used herein, "U.S. or
Canadian Person" means any national or resident of the U.S. or Canada or any
corporation, pension, profit-sharing or other trust or other entity organized
under the laws of the U.S. or Canada or of any political subdivision thereof
(other than a branch located outside the U.S. or Canada of any U.S. or
Canadian Person) and includes any U.S. or Canadian branch of a person who is
not otherwise a U.S. or Canadian Person, and "U.S." means the United States of
America, its territories, its possessions and all areas subject to its
jurisdiction.
Pursuant to the Agreement Between U.S. Underwriters and International
Managers, sales may be made between the U.S. Underwriters and the
International Managers of any number of shares of Common Stock to be purchased
pursuant to the Underwriting Agreement as may be mutually agreed. The per
share price and currency of settlement of any shares so sold shall be the
public offering price set forth on the cover page of this Prospectus, in U.S.
dollars, less an amount not greater than the per share amount of the
concession to the dealers set forth above.
Pursuant to the Agreement Between U.S. Underwriters and International
Managers, each U.S. Underwriter has represented that it has not offered or
sold, and has agreed not to offer or sell, any Common Stock, directly or
indirectly in Canada in contravention of the securities laws of Canada or any
province or territory thereof and has represented that any offer of Common
Stock in Canada will be made only pursuant to an exemption from the
requirement to file a prospectus in the province or territory of Canada in
which such offer is made. Each U.S. Underwriter has further agreed to send to
any dealer who purchases from it any Common Stock a notice stating in
substance that, by purchasing such Common Stock, such dealer represents and
agrees that it has not offered or sold, and will not offer or sell, directly
or indirectly, any of such Common Stock in Canada in contravention of the
securities laws of Canada or any province or territory thereof and that any
offer of Common Stock in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of
Canada in which such offer is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Common Stock a notice to the
foregoing effect.
45
<PAGE>
Pursuant to the Agreement Between U.S. Underwriters and International
Managers, each International Manager has represented that (i) it has not
offered or sold and during the period of six months from the date of this
Prospectus will not offer or sell any shares of Common Stock to persons in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances
which do not constitute an offer to the public in the United Kingdom for the
purposes of the Public Offers of Securities Regulations 1995 (the
"Regulations"); (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 of Great Britain and the
Regulations with respect to anything done by it in relation to the Common
Stock in, from or otherwise involving the United Kingdom; and (iii) it has
only issued or passed on and will only issue or pass on in the United Kingdom
any document received by it in connection with the issue of the Common Stock
to a person who is of a kind described in Article 8 of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) (No. 2) Order 1995 of Great
Britain or is a person to whom such document may otherwise lawfully be issued
or passed on.
The Representatives have informed the Company that they do not expect to
make sales to accounts over which they exercise discretionary authority in
excess of 5% of the number of shares of Common Stock offered hereby.
Up to an aggregate of 500,000 shares of Common Stock, or approximately 5% of
the shares offered hereby, have been reserved for sale at the public offering
price to certain employees of the Company and other persons designated by the
Company. The maximum investment of any such person may be limited by the
Company in its sole discretion. The number of shares of Common Stock available
for sale to the general public will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered by the Underwriters to the general public on the same basis as the
other shares offered hereby. This program will be administered by DLJ.
The Common Stock has been approved for listing on the NYSE upon notice of
issuance. In order to meet the requirements for listing on the NYSE, the
Underwriters have undertaken to sell lots of 100 or more shares of Common
Stock to a minimum of 2,000 beneficial holders.
LEGAL MATTERS
The validity of the shares of the Common Stock offered hereby will be passed
upon for the Company by O'Melveny & Myers LLP, Los Angeles, California.
Certain legal matters will be passed upon for the Underwriters by Latham &
Watkins, Los Angeles, California.
EXPERTS
The financial statements of U.S. Rentals, Inc., the Predecessor, as of
December 31, 1995 and 1996 and for each of the three years in the period ended
December 31, 1996 and of U.S. Rentals, Inc., the Company, as of December 31,
1996 included in this Prospectus have been so included in reliance on the
reports of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
46
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement"), of which this Prospectus forms a part, covering the Common Stock
to be sold pursuant to the Offerings. As permitted by the rules and
regulations of the Commission, this Prospectus omits certain information,
exhibits and undertakings contained in the Registration Statement. Such
additional information, exhibits and undertakings can be inspected at and
obtained from the Commission at prescribed rates at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 and at certain regional offices of the
Commission located at Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 13th Floor, 7 World Trade Center, New
York, New York, 10048. The Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. In addition, the Common Stock has been approved for listing on the
NYSE upon notice of issuance, and reports and other information concerning the
Company may be inspected at the offices of such exchange. For additional
information with respect to the Company, the Common Stock and related matters
and documents, reference is made to the Registration Statement. Statements
contained herein concerning any such document are not necessarily complete
and, in each instance, reference is made to the copy of such document filed as
an exhibit to the Registration Statement. Each such statement is qualified in
its entirety by such reference.
The Company will issue annual reports and unaudited quarterly reports to its
stockholders for the first three quarters of each fiscal year. Annual reports
will include audited consolidated financial statements prepared in accordance
with accounting principles generally accepted in the United States and a
report of its independent public accountants with respect to the examination
of such financial statements. In addition, the Company will issue such other
interim reports as it deems appropriate.
47
<PAGE>
U.S. RENTALS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
U.S. RENTALS, INC. (PREDECESSOR):
Report of Independent Accountants...................................... F-2
Combined Balance Sheets................................................ F-3
Combined Statements of Operations...................................... F-4
Combined Statements of Stockholder's Equity............................ F-5
Combined Statements of Cash Flows...................................... F-6
Notes to Combined Financial Statements................................. F-7
U.S. RENTALS, INC.:
Report of Independent Accountants...................................... F-14
Balance Sheet.......................................................... F-15
Note to Balance Sheet.................................................. F-16
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS:
Pro Forma Combined Balance Sheets...................................... F-17
Pro Forma Combined Statements of Operations............................ F-18
Notes to Pro Forma Combined Financial Statements....................... F-19
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
U.S. Rentals, Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of stockholder's equity and of cash flows
present fairly, in all material respects, the financial position of U.S.
Rentals, Inc. at December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of management of
U.S. Rentals, Inc.; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Sacramento, California
January 27, 1997
F-2
<PAGE>
U.S. RENTALS, INC. (PREDECESSOR)
COMBINED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, (NOTE 1)
----------------- DECEMBER 31,
1995 1996 1996
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash............................................ $ 3,479 $ 2,906 $ 2,906
Accounts receivable, net........................ 28,581 35,653 35,653
Notes receivable from affiliate................. 24,891 25,365 --
Notes receivable, other......................... 1,350 563 218
Inventories..................................... 3,938 5,841 5,841
Rental equipment, net........................... 152,848 205,982 205,982
Property and equipment, net..................... 26,370 42,345 42,345
Deferred offering costs......................... -- -- 561
Prepaid expenses and other assets............... 3,727 5,793 2,084
-------- -------- --------
Total assets.................................... $245,184 $324,448 $295,590
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and other liabilities.......... $ 56,411 $ 57,008 $ 56,092
Notes payable to related parties................ 23,884 23,943 --
Notes payable, other............................ 81,812 162,767 182,767
Deferred taxes.................................. -- -- 7,030
-------- -------- --------
Total liabilities............................... 162,107 243,718 245,889
-------- -------- --------
Commitments and contingencies (Note 7)
Stockholder's equity:
Common stock, at stated value; 2,500 shares
authorized, 900 shares issued and outstanding. 699 699 207
Paid-in capital................................ 13,186 13,186 56,524
Retained earnings.............................. 69,192 66,845 (7,030)
-------- -------- --------
Total stockholder's equity...................... 83,077 80,730 49,701
-------- -------- --------
Total liabilities and stockholder's equity...... $245,184 $324,448 $295,590
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
U.S. RENTALS, INC. (PREDECESSOR)
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Rental revenue................................... $167,589 $214,849 $257,486
Rental equipment sales........................... 8,098 10,832 24,629
Merchandise and new equipment sales.............. 12,071 17,166 23,722
-------- -------- --------
Total revenues.................................. 187,758 242,847 305,837
-------- -------- --------
Cost of revenues:
Rental equipment expense......................... 42,034 51,370 65,102
Rental equipment depreciation.................... 33,754 43,885 56,105
Cost of rental equipment sales................... 2,946 4,693 10,109
Cost of merchandise and new equipment sales...... 7,428 11,418 17,423
Direct operating expense......................... 46,445 56,506 71,482
-------- -------- --------
Total cost of revenues.......................... 132,607 167,872 220,221
-------- -------- --------
Gross profit.................................... 55,151 74,975 85,616
Selling, general and administrative expense....... 27,273 31,440 35,934
Non-rental depreciation........................... 4,092 5,513 7,528
-------- -------- --------
Operating income................................ 23,786 38,022 42,154
Other expense, net................................ (242) (1,620) (665)
Interest income from affiliate.................... 3,324 3,343 3,420
Interest income, other ........................... 182 223 26
Interest expense, related parties................. (2,899) (4,078) (3,078)
Interest expense, other........................... (1,667) (4,798) (8,399)
-------- -------- --------
Income before income taxes...................... 22,484 31,092 33,458
Income tax expense................................ 499 468 374
-------- -------- --------
Net income...................................... $ 21,985 $ 30,624 $ 33,084
======== ======== ========
Unaudited pro forma data (Note 6):
Historical income before income taxes............ $ 22,484 $ 31,092 $ 33,458
Provision for income taxes....................... 9,221 12,780 13,456
-------- -------- --------
Pro forma net income............................ $ 13,263 $ 18,312 $ 20,002
======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
U.S. RENTALS, INC. (PREDECESSOR)
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------- PAID-IN RETAINED STOCKHOLDER'S
SHARES STATED VALUE CAPITAL EARNINGS EQUITY
------ ------------ ------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1993...................... 900 $699 $13,186 $ 35,723 $ 49,608
Net income................. 21,985 21,985
Dividends.................. (13,642) (13,642)
--- ---- ------- -------- --------
Balance at December 31,
1994...................... 900 699 13,186 44,066 57,951
Net income................. 30,624 30,624
Dividends.................. (5,498) (5,498)
--- ---- ------- -------- --------
Balance at December 31,
1995...................... 900 699 13,186 69,192 83,077
Net income................. 33,084 33,084
Dividends.................. (35,431) (35,431)
--- ---- ------- -------- --------
Balance at December 31,
1996...................... 900 $699 $13,186 $ 66,845 $ 80,730
=== ==== ======= ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
U.S. RENTALS, INC. (PREDECESSOR)
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Operating activities:
Net income........................................ $21,985 $30,624 $ 33,084
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation..................................... 37,846 49,398 63,633
Gain on sale of equipment........................ (5,322) (6,342) (14,955)
Principal adjustment on notes receivable......... (243) (220) (572)
Provision for doubtful accounts.................. 2,807 3,441 4,075
Changes in operating assets and liabilities:
Accounts receivable.............................. (8,633) (10,526) (11,147)
Inventories...................................... (514) (1,413) (1,903)
Prepaid expenses and other assets................ 17 (1,515) (2,066)
Accounts payable and other liabilities........... 17,462 11,588 597
------- ------- --------
Net cash provided by operating activities.......... 65,405 75,035 70,746
------- ------- --------
Investing activities:
Purchases of rental equipment..................... (83,157) (88,861) (119,348)
Proceeds from sale of rental equipment............ 8,098 10,832 24,629
Purchases of property and equipment, net.......... (10,514) (10,764) (23,068)
Funding of notes receivable, net.................. (922) (1,061) 2,537
------- ------- --------
Net cash used in investing activities.............. (86,495) (89,854) (115,250)
------- ------- --------
Financing activities:
Proceeds from (payments on) line of credit, net... 35,697 (28,200) 39,553
Proceeds from senior notes........................ -- 50,000 40,000
Payments on other obligations..................... (9,975) (718) (191)
Dividends paid.................................... (3,642) (5,498) (35,431)
------- ------- --------
Net cash provided by financing activities.......... 22,080 15,584 43,931
------- ------- --------
Net increase (decrease) in cash.................... 990 765 (573)
Cash at beginning of period........................ 1,724 2,714 3,479
------- ------- --------
Cash at end of period.............................. $ 2,714 $ 3,479 $ 2,906
======= ======= ========
Supplemental non-cash flow information:
Dividends declared to stockholder in the form of
notes payable (subsequently assigned to The
Colburn School of Performing Arts)............... $10,000 -- --
Note payable issued as partial payment for
property purchased............................... 1,000 -- --
Note payable issued as partial payment for assets
acquired in conjunction with a business
acquisition...................................... 500 -- --
</TABLE>
See accompanying notes.
F-6
<PAGE>
U.S. RENTALS, INC. (PREDECESSOR)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
U.S. Rentals, Inc. (the "Predecessor") is a California corporation primarily
involved in the short-term rental of general purpose construction equipment,
and to a lesser extent, selling complementary parts, merchandise, new and used
equipment to commercial and residential construction, industrial and homeowner
customers. At December 31, 1996, the Predecessor operated 80 equipment rental
yards located in 11 states across the western and southern regions of the
United States.
Planned Offering
In connection with the planned initial public offering (the "Offerings"),
the Predecessor intends to transfer all of its operating assets and associated
liabilities to U.S. Rentals, Inc. ("U.S. Rentals"), a Delaware corporation, in
exchange for all of the outstanding shares of common stock of U.S. Rentals. In
addition, prior to the consummation of the Offerings, the Predecessor's
stockholder will contribute all of the stock of USR Leasing Company ("USRL")
(a special purpose entity owned by the Predecessor's stockholder) to the
Predecessor. In connection with the Offerings, the Predecessor will contribute
the stock of USRL to U.S. Rentals.
Related Party Transactions
As disclosed in these financial statements, the Predecessor has participated
in certain transactions with related parties during the current and previous
years. In the opinion of management, all transactions with related parties
have been conducted on terms which are fair and equitable; however, the
transactions are not necessarily on the same terms as those which would have
been made between wholly unrelated parties.
Combination
The combined financial statements include the accounts of the Predecessor
and USRL, a special purpose entity under common control. All intercompany
accounts and transactions are eliminated in combination.
Financial Statement Presentation
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Pro Forma Amounts
The pro forma amounts presented on the combined balance sheets reflect the
transfer of all of the operating assets and associated liabilities to U.S.
Rentals as discussed above and the recognition of a deferred tax liability of
$7,030,000 related to federal and state income taxes as if the Predecessor had
been taxed as a C corporation rather than an S corporation since inception. A
pro forma provision for income taxes has been presented on the combined
statement of operations as if the Predecessor had been taxed as a C
corporation rather than an S corporation for all periods presented.
F-7
<PAGE>
U.S. RENTALS, INC. (PREDECESSOR)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Rental Revenue
Rental revenue is recognized upon the earliest occurrence of either the
return of the equipment or the end of one month's rental term.
Rental Equipment
Rental equipment is recorded at cost. Depreciation for rental equipment
acquired prior to January 1, 1996 is computed using the straight-line method
over an estimated five-year useful life with no salvage value. Rental
equipment acquired subsequent to January 1, 1996 is depreciated using the
straight-line method over an estimated seven-year useful life, after giving
effect to an estimated salvage value of 10%. Included in purchases of rental
equipment are the costs of minor equipment which are fully depreciated in the
month of acquisition. Accumulated depreciation on rental equipment was
$136,573,000 and $161,765,000 at December 31, 1995 and 1996, respectively.
Ordinary maintenance and repair costs are charged to operations as incurred.
When rental equipment is disposed of, the related cost and accumulated
depreciation are removed from the respective accounts. Proceeds from the
disposal and the related net book value of the equipment are recognized in the
period of disposal and reported as revenue from rental equipment sales and
cost of rental equipment sales in the statement of operations.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
The estimated useful lives for property and equipment range from 10 to 39
years for buildings, 1 to 8 years for vehicles, delivery and yard equipment,
and 5 to 10 years for fixtures and leasehold improvements.
Ordinary maintenance and repairs costs are charged to operations as
incurred. When property and equipment is disposed of, the related cost and
accumulated depreciation are removed from the respective accounts, and any
gains or losses are included in results of operations.
Adoption of New Accounting Pronouncement
On January 1, 1996, the Predecessor adopted Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-
Lived Assets and Long-Lived Assets to be Disposed of, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the assets' carrying amounts exceed
the undiscounted cash flows estimated to be generated by those assets. SFAS
No. 121 also requires impairment losses to be recorded when the carrying
amount of long-lived assets that are expected to be disposed of, exceed their
fair values, net of disposal costs. Adoption of SFAS No. 121 did not have a
material impact on the Predecessor's financial position at January 1, 1996 or
results of operations for the year ended December 31, 1996.
Inventories
The Predecessor's inventories primarily consist of items such as hand tools
and accessories held for resale. Inventories are stated at the lower of cost,
determined by the first-in, first-out method, or market.
Self-Insurance
The Predecessor is self-insured for general liability, workers' compensation
and group medical claims up to specified per claim and aggregate amounts.
Self-insurance costs are accrued based upon the aggregate liability for
reported claims incurred and an estimated liability for claims incurred but
not reported. These liabilities are not discounted.
F-8
<PAGE>
U.S. RENTALS, INC. (PREDECESSOR)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Earnings Per Share
Historical earnings per share data have not been presented due to the
planned change in capital structure as previously described.
Fair Value of Financial Instruments
The carrying amounts reported in the combined balance sheets for trade
accounts receivable and accounts payable and other liabilities approximate
fair value due to the immediate to short-term maturity of these financial
instruments. The fair value of notes receivable and notes payable is
determined using current interest rates for similar instruments as of December
31, 1996 and approximates the carrying value of these notes due to the fact
that the underlying instruments include provisions to adjust note balances and
interest rates to approximate fair market value.
Concentration of Credit Risk
Financial instruments that potentially subject the Predecessor to
significant concentrations of credit risk consist primarily of trade accounts
receivable from construction and industrial customers. Concentrations of
credit risk with respect to trade accounts receivable are limited due to the
large number of customers and the Predecessor's geographic dispersion. The
Predecessor performs credit evaluations of its customers' financial condition
and generally does not require collateral on accounts receivable. The
Predecessor maintains an allowance for doubtful accounts on its receivables
based upon expected collectibility. Allowance for doubtful accounts was
$6,166,000 and $6,991,000 at December 31, 1995 and 1996, respectively.
Advertising Costs
The Predecessor advertises primarily through trade journals and the media.
Advertising costs are expensed as incurred.
Income Taxes
The Predecessor has elected S corporation status under the U.S. Internal
Revenue Code. Pursuant to this election (and similar elections in California
and certain other states), the Predecessor's income, deductions, and credits
are reported on the income tax return of the Predecessor's stockholder for
federal purposes and, accordingly, no provision for federal income taxes has
been made.
California assesses a corporate level income tax on S corporations and
certain states in which the Predecessor does business do not recognize S
corporation status. Therefore, the Predecessor remains subject to, and has
made provision for, taxes in those states.
Because of certain transactions discussed above under "Planned Offering",
historical results of operations, including income taxes, is not, in all
cases, indicative of future results. The unaudited pro forma income tax
provision is computed using the asset and liability method under which
deferred tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between tax bases and financial
reporting bases of assets and liabilities.
F-9
<PAGE>
U.S. RENTALS, INC. (PREDECESSOR)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
2. NOTES RECEIVABLE FROM AFFILIATE
Interest on notes receivable from affiliate is due quarterly at the rate of
13.5%. Annual principal payments of $100,000 are due through December 31, 2013
and the remaining unpaid principal balance is due on December 31, 2014. The
Predecessor earned interest income from the affiliate of $3,324,000,
$3,343,000, and $3,420,000 for each of the three years in the period ended
December 31, 1996, respectively. The notes provide for positive or negative
annual adjustments of principal based on the change in the Consumer Price
Index, limited to certain percentages of the affiliated entity's cumulative
net income from December 31, 1984. The accompanying financial statements
include principal adjustments in notes receivable and other income in the
amounts of $243,000, $220,000, and $572,000 for each of the three years in the
period ended December 31, 1996, respectively.
3. PROPERTY AND EQUIPMENT
Property and equipment, net, consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------- -------
<S> <C> <C>
Land....................................................... $ 8,233 $14,099
Buildings.................................................. 9,736 12,806
Vehicles and delivery equipment............................ 20,111 28,000
Yard equipment............................................. 2,660 3,000
Furniture and fixtures..................................... 3,826 4,626
Leaseholds................................................. 5,672 8,942
------- -------
50,238 71,473
Less accumulated depreciation.............................. (23,868) (29,128)
------- -------
$26,370 $42,345
======= =======
</TABLE>
4. ACCOUNTS PAYABLE AND OTHER LIABILITIES
Accounts payable and other liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
------- -------
<S> <C> <C>
Trade payables and other accruals........................... $37,189 $34,264
Profit sharing accrual...................................... 8,945 8,742
Self-insurance reserve...................................... 10,277 14,002
------- -------
$56,411 $57,008
======= =======
</TABLE>
F-10
<PAGE>
U.S. RENTALS, INC. (PREDECESSOR)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
5. NOTES PAYABLE
Notes payable consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
-------- --------
<S> <C> <C>
Notes payable to related parties:
Subordinated note payable to The Colburn School of
Performing Arts, interest payable quarterly at prime
rate plus 5%, due in 2013 and 2014 (13.25% at December
31, 1996).............................................. $ 20,000 $ 20,000
Demand notes payable to related parties, interest at
various rates tied to the Predecessor's average bank
borrowing rate. Interest rates ranged from 8.45% to
10.25% at December 31, 1996............................ 3,884 3,943
-------- --------
23,884 23,943
-------- --------
Notes payable, other:
Senior notes payable to various parties, interest
payable semi-annually ranging from 6.82% to 7.76%, due
1999 to 2002........................................... 50,000 90,000
Revolving line of credit, interest payable monthly at
reference rate plus .125% (8.25% at December 31, 1996). 3,900 26,300
Revolving line of credit, interest payable monthly at
money market rate (ranging from 6.13% to 6.19% at
December 31, 1996)..................................... 23,000 43,000
Notes payable to a bank, interest and principal payable
monthly at rates ranging from 5.74% to 9.51%, due 1997. 4,162 2,967
Notes payable related to the purchase of certain
businesses, imputed interest averaging 7%, due through
1999................................................... 750 500
-------- --------
81,812 162,767
-------- --------
$105,696 $186,710
======== ========
</TABLE>
The Predecessor's agreement with the bank provides for a secured line of
credit of $110,000,000 maturing no later than October 31, 1997. The bank and
senior note agreements include restrictions as to limitations upon certain
ratios of liabilities to net worth and upon the minimum net worth of the
Predecessor. The Predecessor is in compliance with covenants in all
agreements. Substantially all rental equipment, property and equipment, and
notes and accounts receivable of the Predecessor are pledged as collateral for
the bank line of credit, senior notes, and notes related to purchases of
certain businesses. The Predecessor pays a commitment fee of 0.125% on the
unused portion of the outstanding line of credit balance less outstanding
letters of credit calculated quarterly based on the average daily balance.
The Predecessor incurred interest expense of $2,899,000, $4,078,000, and
$3,078,000 on borrowings from related parties for each of the three years in
the period ended December 31, 1996, respectively.
Cash paid for interest was $4,535,000, $7,545,000, and $11,185,000 for each
of the three years in the period ended December 31, 1996, respectively.
F-11
<PAGE>
U.S. RENTALS, INC. (PREDECESSOR)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Maturities of debt are as follows at December 31, 1996 (in thousands):
<TABLE>
<S> <C>
1997........................................................... $ 76,510
1998........................................................... 100
1999........................................................... 10,100
2000........................................................... 10,000
2001........................................................... 30,000
Thereafter..................................................... 60,000
--------
$186,710
========
</TABLE>
6. INCOME TAXES
The income tax provision is comprised of current state income tax expense of
$499,000, $468,000, and $374,000 for each of the three years in the period
ended December 31, 1996, respectively. Deferred taxes for such periods have
been immaterial.
Cash payments of state income taxes made by the Predecessor were $353,000,
$597,000, and $353,000 for each of the three years in the period ended
December 31, 1996, respectively.
The unaudited pro forma provision for income taxes included in the
accompanying combined statements of operations shows the results as if the
Predecessor had always been subject to income taxes as a C corporation.
The unaudited pro forma provision for income taxes differs from the amount
of income tax determined by applying the U.S. statutory federal income tax
rate of 35% to income before income taxes as a result of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Federal income taxes................................. 35.0% 35.0% 35.0%
State income taxes, net of federal benefit........... 5.3% 5.3% 4.9%
Other................................................ 0.7% 0.8% 0.3%
------- ------- -------
41.0% 41.1% 40.2%
======= ======= =======
</TABLE>
Deferred income tax assets and liabilities are computed based on temporary
differences between the financial statement and income tax bases of assets and
liabilities using the enacted marginal income tax rate in effect for the year
in which the differences are expected to reverse. Deferred income tax expenses
or credits are based on the changes in the deferred income tax assets or
liabilities from period to period.
Pro forma deferred taxes are provided for the temporary differences between
the financial reporting bases and the tax bases of the Predecessor's assets
and liabilities. Pro forma deferred tax assets (liabilities) are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
(UNAUDITED)
<S> <C>
Self-insurance reserves.................................... $ 5,983
Compensation related accruals.............................. 1,783
Allowances for doubtful accounts........................... 2,663
State income taxes......................................... 523
Others, net................................................ 972
-------
11,924
Depreciation............................................... (18,954)
-------
$(7,030)
=======
</TABLE>
F-12
<PAGE>
U.S. RENTALS, INC. (PREDECESSOR)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Predecessor leases certain facilities under operating leases which
contain renewal options and provide for periodic cost of living adjustments.
Rental expense was $3,160,000, $3,365,000, and $3,681,000 for each of the
three years in the period ended December 31, 1996, respectively.
Future minimum rental commitments as of December 31, 1996 under
noncancelable operating leases are (in thousands):
<TABLE>
<S> <C>
1997............................................................ $ 3,743
1998............................................................ 2,893
1999............................................................ 2,510
2000............................................................ 1,730
2001............................................................ 1,051
Thereafter...................................................... 2,802
-------
$14,729
=======
</TABLE>
Legal Matters
The Predecessor is party to legal proceedings and potential claims arising
in the ordinary course of its business. In the opinion of management, the
Predecessor has adequate legal defense, reserves or insurance coverage with
respect to these matters so that the ultimate resolution will not have a
material adverse effect on the Predecessor's financial position, results of
operations or cash flows. The Predecessor has accrued $7,730,000 and
$12,011,000 at December 31, 1995 and 1996, respectively, to cover the
uninsured portion of possible costs arising from these pending claims and
other potential unasserted claims.
Environmental Matters
The Predecessor and its operations are subject to various laws and related
regulations governing environmental matters. Under such laws, an owner or
lessee of real estate may be liable for the costs of removal or remediation of
certain hazardous or toxic substances located on or in, or emanating from,
such property, as well as investigation of property damage. The Predecessor
incurs ongoing expenses associated with the removal of underground storage
tanks and the performance of appropriate remediation at certain of its
locations. The Predecessor believes that such removal and remediation will not
have a material adverse effect on the Predecessor's financial position,
results of operations or cash flows.
8. EMPLOYEE BENEFIT PLANS
The Predecessor sponsors a defined contribution 401(k) retirement plan (the
Plan) which is subject to the provisions of ERISA. Under the plan, which was
implemented in 1994, the Predecessor matches a minimum of 50% of the
participants' contributions up to a specified amount as determined by the
Board of Directors. Predecessor contributions to the plan were $533,000,
$246,000, and $122,000 for each of the three years in the period ended
December 31, 1996, respectively.
9. SUBSEQUENT EVENTS
In January 1997, the Predecessor declared and paid a cash dividend of
$2,000,000 to the Predecessor's stockholder.
Also in January 1997, the Predecessor entered into an agreement to cancel
deferred compensation agreements with certain executives. The cancellation is
contingent upon the transfer of operating assets and associated liabilities to
U.S. Rentals discussed in Note 1. Prior to the transfer, the Predecessor
expects to draw down $20,000,000 under its bank line of credit to fund the
cost of cancellation. U.S. Rentals will assume the liability for the
indebtedness under the bank line of credit as part of the transfer. The non-
recurring cost of the cancellation of $20,000,000 will be expensed in the
income statement of U.S. Rentals upon consummation of the transfer.
F-13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of U.S. Rentals, Inc.
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of U.S. Rentals, Inc., a Delaware
corporation, at December 31, 1996, in conformity with generally accepted
accounting principles. This financial statement is the responsibility of the
management of U.S. Rentals, Inc.; our responsibility is to express an opinion
on this financial statement based on our audit. We conducted our audit of this
statement in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statement is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Sacramento, California
January 27, 1997
F-14
<PAGE>
U.S. RENTALS, INC. (THE COMPANY)
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
ASSETS
Deferred offering costs............................................ $561
----
Total assets....................................................... $561
====
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and other liabilities............................. $561
----
Total liabilities.................................................. 561
----
Stockholder's equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized, no
shares issued or
outstanding..................................................... --
Common stock, $.01 par value; 100,000,000 shares authorized, no
shares issued or
outstanding..................................................... --
Paid-in capital.................................................... --
----
Total stockholder's equity......................................... --
----
Total liabilities and stockholder's equity......................... $561
====
</TABLE>
See accompanying notes.
F-15
<PAGE>
U.S. RENTALS, INC. (THE COMPANY)
NOTES TO BALANCE SHEET
DECEMBER 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
U.S. Rentals, Inc. (the "Company") is a Delaware corporation primarily
involved in the short-term rental of general purpose construction equipment,
and to a lesser extent, selling complementary parts, merchandise, new and used
equipment to commercial and residential construction companies, industrial
enterprises, homeowners and other customers.
The Company was incorporated in 1987 in anticipation of a reorganization of
certain entities under common control. The reorganization will be undertaken
in connection with the planned offerings of Common Stock.
The balance sheet should be read in conjunction with the historical Combined
Financial Statements of U.S. Rentals, Inc., a California corporation (the
"Predecessor"), included elsewhere in this Prospectus.
Financial Statement Presentation
The preparation of the balance sheet in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the balance sheet. Actual
results could differ from those estimates.
Income Taxes
Income taxes are computed using the asset and liability method under which
deferred tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between tax bases and financial
reporting bases of assets and liabilities.
Stock-Based Compensation
The Company has adopted Statement of Financial Accounting Standards No. 123
("SFAS No. 123"), Accounting for Stock-Based Compensation effective January 1,
1996. The Company will measure compensation expense for its stock-based
employee compensation plans using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and will provide pro forma disclosures of net income and net income
per share as if the fair value-based method prescribed by SFAS No. 123 had
been applied in measuring compensation expense.
2. DEFERRED OFFERING COSTS
The Company has incurred costs totaling $561,000, as of December 31, 1996,
in connection with the planned offerings. These costs have been reflected as
deferred offering costs in the accompanying balance sheet. If the planned
offerings are consummated, the costs will be deducted from the proceeds
received from the offerings. If the planned offerings are not consummated, the
costs will be charged to expense in the period in which a decision is made to
terminate the offerings. In such event, the costs would be paid by the
Predecessor.
F-16
<PAGE>
U.S. RENTALS, INC. (THE COMPANY)
UNAUDITED PRO FORMA COMBINED BALANCE SHEETS
DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
PRO FORMA OFFERING
ADJUSTMENTS PRO FORMA PRO FORMA RELATED
FOR THE OFFERING FOR THE ADJUSTMENTS TRANSACTIONS
THE THE RELATED OFFERING RELATED FOR THE AND THE
COMPANY PREDECESSOR TRANSACTIONS TRANSACTIONS OFFERINGS OFFERINGS
-------- ----------- ---------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash.................... $ -- $ 2,906 $ -- $ 2,906 $ 1,866 (h) $ 4,772
Accounts receivable,
net.................... -- 35,653 -- 35,653 -- 35,653
Notes receivable from
affiliate.............. -- 25,365 (25,365)(a) -- -- --
Notes receivables,
other.................. -- 563 (345)(a) 218 -- 218
Inventories............. -- 5,841 -- 5,841 -- 5,841
Rental equipment, net... -- 205,982 -- 205,982 -- 205,982
Property and equipment,
net.................... -- 42,345 -- 42,345 -- 42,345
Deferred offering costs. 561 -- -- 561 (561)(h) --
Prepaid expenses and
other assets........... -- 5,793 (3,709)(a) 2,084 -- 2,084
-------- -------- -------- -------- --------- --------
Total assets............ $ 561 $324,448 $(29,419) $295,590 $ 1,305 $296,895
======== ======== ======== ======== ========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and
other liabilities...... $ 561 $ 57,008 $ (1,477)(a) $ 56,092 $ (561)(h) $ 55,531
Notes payable to
affiliates............. -- 23,943 (23,943)(a) -- -- --
Notes payable, other.... -- 162,767 20,000 (b) 182,767 (182,267)(g) 500
Deferred tax liability.. -- -- 7,030 (c) 7,030 -- 7,030
-------- -------- -------- -------- --------- --------
Total liabilities....... 561 243,718 1,610 245,889 (182,828) 63,061
-------- -------- -------- -------- --------- --------
Stockholder's equity:
Common stock of
Predecessor........... -- 699 (699)(a) -- -- --
Preferred stock, par
value $.01 per share;
10,000,000 shares
authorized, no shares
outstanding........... -- -- -- -- -- --
Common stock, par value
$.01 per share;
100,000,000 shares
authorized, 30,748,795
shares issued and
outstanding Pro Forma
for the Offering
Related Transactions
and the Offerings..... -- -- 207 (e) 207 100 (h) 307
Paid-in capital........ -- 13,186 43,338 (e) 56,524 186,050 (h) 242,574
Retained earnings...... -- 66,845 (3,300)(a) (7,030) (2,017)(i) (9,047)
(20,000)(b) -- --
(7,030)(c) -- --
(43,545)(e) -- --
-------- -------- -------- -------- --------- --------
Total stockholder's
equity................. -- 80,730 (31,029) 49,701 184,133 233,834
-------- -------- -------- -------- --------- --------
Total liabilities and
stockholder's equity... $ 561 $324,448 $(29,419) $295,590 $ 1,305 $296,895
======== ======== ======== ======== ========= ========
</TABLE>
See accompanying notes.
F-17
<PAGE>
U.S. RENTALS, INC. (THE COMPANY)
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
PRO FORMA OFFERING
ADJUSTMENTS PRO FORMA PRO FORMA RELATED
FOR THE OFFERING FOR THE ADJUSTMENTS TRANSACTIONS
THE THE RELATED OFFERING RELATED FOR THE AND THE
COMPANY PREDECESSOR TRANSACTIONS TRANSACTIONS OFFERINGS OFFERINGS
------- ----------- ---------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Rental revenue......... $ -- $257,486 $ -- $257,486 $ -- $257,486
Rental equipment sales. -- 24,629 -- 24,629 -- 24,629
Merchandise and new
equipment sales....... -- 23,722 -- 23,722 -- 23,722
----- -------- -------- -------- ------ --------
Total revenues.......... -- 305,837 -- 305,837 -- 305,837
----- -------- -------- -------- ------ --------
Cost of revenues:
Rental equipment
expense............... -- 65,102 -- 65,102 -- 65,102
Rental equipment
depreciation.......... -- 56,105 -- 56,105 -- 56,105
Cost of rental
equipment sales....... -- 10,109 -- 10,109 -- 10,109
Cost of merchandise and
new equipment sales... -- 17,423 -- 17,423 -- 17,423
Direct operating
expense............... -- 71,482 -- 71,482 -- 71,482
----- -------- -------- -------- ------ --------
Total cost of revenues.. -- 220,221 -- 220,221 -- 220,221
----- -------- -------- -------- ------ --------
Gross profit............ -- 85,616 -- 85,616 -- 85,616
Selling, general and
administrative expense. -- 35,934 (1,524)(f) 34,410 -- 34,410
Non-rental depreciation. -- 7,528 -- 7,528 -- 7,528
----- -------- -------- -------- ------ --------
Operating income........ -- 42,154 1,524 43,678 -- 43,678
Other income (expense),
net.................... -- (665) 727 (d) 62 -- 62
Interest income from
affiliate.............. -- 3,420 (3,420)(d) -- -- --
Interest income, other.. -- 26 -- 26 -- 26
Interest expense,
related parties........ -- (3,078) 3,078 (d) -- -- --
Interest expense, other. -- (8,399) -- (8,399) 8,360 (k) (39)
----- -------- -------- -------- ------ --------
Income before income
taxes.................. -- 33,458 1,909 35,367 8,360 43,727
Income taxes............ -- 374 13,861 (j) 14,235 3,363 (k) 17,598
----- -------- -------- -------- ------ --------
Net income.............. $ -- $ 33,084 $(11,952) $ 21,132 $4,997 $ 26,129
===== ======== ======== ======== ====== ========
Net income per share.... $ 0.85
========
Weighted average common
shares outstanding..... 30,749
========
</TABLE>
See accompanying notes.
F-18
<PAGE>
U.S. RENTALS, INC. (THE COMPANY)
NOTES TO UNAUDITED PRO FORMA
COMBINED BALANCE SHEETS AND STATEMENTS OF OPERATIONS
1. BASIS OF PRESENTATION
Prior to the initial public offering (the "Offerings"), U.S. Rentals, Inc.,
a California corporation (the "Predecessor"), will transfer substantially all
of its operating assets and associated liabilities to U.S. Rentals, Inc. (the
"Company"), a Delaware corporation, in exchange for 20,748,975 shares of
common stock of the Company.
The unaudited pro forma financial data reflects the offering related
transactions described below and the Offerings as if such transactions had
been completed as of December 31, 1996 for pro forma combined balance sheet
data purposes and as of January 1, 1996 for pro forma combined statement of
operations data purposes. These data do not necessarily reflect the results of
operations or financial position of the Company that would have resulted had
such transactions actually been consummated as of such dates. Also, these data
are not necessarily indicative of the future results of operations or future
financial position of the Company.
2. PRO FORMA ADJUSTMENTS
Offering related transactions:
a) Reflects the planned transfer of substantially all operating assets and
associated liabilities of the Predecessor to the Company in exchange for
20,748,975 shares of common stock of the Company. Not reflected in this
adjustment is cash to be retained to pay dividends to the Principal
Stockholder for income taxes due to the Predecessor's election to be
treated as an S corporation. Such cash is expected to be generated from
the Predecessor's operations from January 1, 1997 through the effective
date of the Offerings.
b) Prior to the transfer as described in a) above, the Predecessor will
draw down $20 million under its bank line of credit, which will be used
to fund the cost to cancel deferred incentive compensation agreements
with certain executives of the Predecessor. The cost to cancel such
agreements will result in a non-recurring expense in the income
statement of the Company.
c) Reflects the recognition of a deferred tax liability relating to federal
and state income taxes as if the Company had been taxed as a C
corporation rather than as an S corporation since inception.
d) Reflects the pro forma effect on interest expense, interest income and
other income (expense), net from the planned transfer of all operating
assets and associated liabilities of the Predecessor to the Company.
e) Reflects the reclassification of retained earnings of the Predecessor to
paid-in capital of the Company in connection with the transfer of all
operating assets and associated liabilities of the Predecessor in
exchange for all the outstanding Common Stock of the Company.
f) Reflects the pro forma effect on selling, general and administrative
expense related to amounts earned in 1996 under deferred incentive
compensation agreements with certain executives of the Predecessor.
Expenses related to such agreements will not recur in future periods due
to the cancellation of the agreements as described in b) above.
F-19
<PAGE>
U.S. RENTALS, INC. (THE COMPANY)
NOTES TO UNAUDITED PRO FORMA
COMBINED BALANCE SHEETS AND STATEMENTS OF OPERATIONS--(CONTINUED)
Offerings:
g) Reflects the retirement of debt as described in (k) below with a portion
of the proceeds from the Offerings.
h) Reflects the net proceeds to the Company from the Offerings less the
payment of direct expenses relating to the Offerings and the retirement
of debt as described in (g) and (i).
i) Reflects the pro forma effect on retained earnings of the penalty
associated with early repayment of senior notes.
j) Adjustment to record the pro forma C corporation tax provision,
including effects of adjustments from (d) above.
k) Reflects the pro forma effect on interest expense and the related tax
effect of retiring debt with a portion of the net proceeds from the
Offerings. Such debt includes bank borrowings under a credit and
security agreement, senior notes payable and other notes payable.
3. PRO FORMA NET INCOME PER SHARE
Pro forma per share data is computed based on 30,748,975 shares of Common
Stock outstanding after giving effect to the Offering Related Transactions and
the Offerings.
F-20
<PAGE>
There is a large overview of a Profit Center covering the middle and left side
of the page. Pictures on the right side of the page are, from top to bottom: an
interior view of a Profit Center showroom with a customer looking at a product;
an overview of a Profit Center; and an interior view of a Profit Center with a
customer being served by a salesperson.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF ANY OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE,
OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Offering Related Transactions............................................. 13
Use of Proceeds........................................................... 13
Dividend Policy........................................................... 13
Dilution.................................................................. 14
Capitalization............................................................ 15
Selected Financial Data................................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 18
Business.................................................................. 24
Management................................................................ 33
Certain Transactions...................................................... 38
Principal Stockholders.................................................... 40
Description of Capital Stock.............................................. 41
Shares Eligible for Future Sale........................................... 43
Underwriting.............................................................. 44
Legal Matters............................................................. 46
Experts................................................................... 46
Available Information..................................................... 47
Index to Financial Statements............................................. F-1
</TABLE>
------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
10,000,000 SHARES
[LOGO OF U.S. RENTALS]
COMMON STOCK
----------------
PROSPECTUS
----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, DATED JANUARY 28, 1997
, 1997
10,000,000 SHARES
[LOGO OF U.S. RENTALS]
COMMON STOCK
All of the 10,000,000 shares of common stock, $.01 par value per share (the
"Common Stock"), offered hereby are being sold by U.S. Rentals, Inc. Of the
10,000,000 shares of Common Stock offered by the Company, 8,000,000 shares are
being offered for sale in the United States and Canada by the U.S. Underwriters
(the "U.S. Offering") and 2,000,000 shares are being offered for sale outside
the United States and Canada in a concurrent offering by the International
Managers (the "International Offering" and, together with the U.S. Offering,
the "Offerings"), subject to transfers between the U.S. Underwriters and the
International Managers. See "Underwriting."
Prior to the Offerings, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price will be
between $19.00 and $21.00 per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price.
The Common Stock has been approved for listing on the New York Stock Exchange
upon notice of issuance under the symbol "USR."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS (1) COMPANY (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................................ $ $ $
Total (3)................................ $ $ $
- --------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the several U.S. Underwriters and
International Managers against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $1,350,000.
(3) The Company has granted to the U.S. Underwriters a 30-day option to
purchase up to 1,500,000 additional shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to the Public, Underwriting Discounts and Commissions and Proceeds to
the Company will be $ , $ and $ , respectively. See "Underwriting."
The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, subject to various prior conditions, including their right to
reject any order in whole or in part. It is expected that delivery of share
certificates will be made in New York, New York, on or about , 1997.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH INTERNATIONAL
SALOMON BROTHERS INTERNATIONAL LIMITED
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS OF COMMON STOCK
The following is a general summary of certain United States federal income
and estate tax consequences of the ownership, sale or other disposition of
Common Stock by a person (a "non-U.S. holder") that, for United States federal
income tax purposes, is a nonresident alien individual, a foreign corporation,
a foreign partnership or a foreign estate or trust, as such terms are defined
in the Internal Revenue Code of 1986, as amended (the "Code"). This summary
does not address all aspects of United States federal income and estate taxes
that may be relevant to non-U.S. holders in light of their particular facts
and circumstances or to certain types of non-U.S. holders that may be subject
to special treatment under United States federal income tax laws (for example,
individual non-U.S. holders who are former citizens or former long-term
residents of the United States, insurance companies, tax exempt organizations,
financial institutions or broker-dealers). Furthermore, this summary does not
discuss any aspects of foreign, state or local taxation. This summary is based
on current provisions of the Code, existing and proposed regulations
promulgated thereunder and administrative and judicial interpretations
thereof, all of which are subject to change, possibly retroactively.
DIVIDENDS
Dividends paid to a non-U.S. holder of Common Stock will generally be
subject to withholding of United States federal income tax at a 30% rate or
such lower rate as may be specified by an applicable income tax treaty, unless
the dividends are effectively connected with the conduct of a trade or
business of the non-U.S. holder within the United States. To claim the benefit
of an applicable tax treaty rate, a non-U.S. holder may have to file with the
Company or its dividend paying agent an exemption or reduced treaty rate
certificate or letter in accordance with the terms of such treaty.
Dividends that are effectively connected with such holder's conduct of a
trade or business in the United States are generally subject to tax on a net
income basis (that is, after allowance for applicable deductions) at rates
applicable to United States citizens, resident aliens and domestic United
States corporations, and are not generally subject to withholding. Any such
effectively connected dividends received by a non-U.S. corporation may also,
under certain circumstances, be subject to an additional "branch profits tax"
at a 30% rate on such lower rate as may be specified by an applicable income
tax treaty.
Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of
such country for purposes of the withholding discussed above (unless the payor
has knowledge to the contrary). Under the current interpretation of United
States Treasury regulations, the same presumption applies for purposes of
determining the applicability of a tax treaty rate; however, under proposed
United States Treasury regulations not currently in effect, a non-U.S. holder
of Common Stock who wishes to claim the benefit of an applicable treaty rate
would be required to satisfy applicable certification and other requirements.
Certain certification and disclosure requirements must be complied with in
order to be exempt from withholding under the effectively connected income
exemption discussed above.
A non-U.S. holder of Common Stock that is eligible for a reduced rate of
United States tax withholding pursuant to an income tax treaty may obtain a
refund of any excess amounts currently withheld by filing an appropriate claim
for refund with the United States Internal Revenue Service.
DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to United States federal
income tax in respect of gain recognized on the disposition of Common Stock
unless (i) the gain is effectively connected with the conduct of a trade or
business of a non-U.S. holder in the United States, and if a tax treaty
applies, attributable to a permanent establishment maintained by the non-U.S.
holder, (ii) in the case of a non-U.S. holder who is a nonresident alien
43
<PAGE>
individual and holds Common Stock as a capital asset, such holder is present
in the United States for 183 or more days in the taxable year of the sale and
either (a) such individual's "tax home" for United States federal income tax
purposes is in the United States or (b) the gain is attributable to an office
or other fixed place of business maintained in the United States by such
individual, or (iii) if the Company is or has been a "U.S. real property
holding corporation" for federal income tax purposes at any time during the
five-year period ending on the date of the disposition or, if shorter, the
period during which the non-U.S. holder held the Common Stock and the non-U.S.
holder holds, actually or constructively, at any time during the applicable
period, more than 5% of the Common Stock. Although the Company owns some real
estate assets, it is not now and does not expect in the foreseeable future to
be a United States real property holding corporation for United States federal
tax purposes.
FEDERAL ESTATE TAXES
Common Stock owned or treated as owned by a holder who is neither a United
States citizen nor a United States resident (as specially defined for United
States federal estate tax purposes) at the time of death will be included in
such holder's gross estate for United States federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise.
UNITED STATES INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
The Company must report annually to the Internal Revenue Service and to each
non-U.S. holder the amount of dividends paid to such holder and the tax
withheld with respect to such dividends. These information reporting
requirements apply regardless of whether withholding is required. Copies of
the information returns reporting such dividends and withholding may also be
made available to the tax authorities in the country in which the non-U.S.
holder resides under the provisions of an applicable income tax treaty.
United States backup withholding (which generally is imposed at a 31% rate)
generally will not apply to (i) the payment of dividends paid on Common Stock
to a non-U.S. holder at an address outside the United States or (ii) the
payment of the proceeds of the sale of Common Stock to or through the foreign
office of a foreign broker. In the case of the payment of proceeds from such a
sale of Common Stock through foreign offices of United States brokers, or
foreign brokers with certain types of relationships to the United States,
however, information reporting (but not backup withholding) is required with
respect to the payment unless the broker has documentary evidence in its files
that the owner is a non-U.S. holder (and has no actual knowledge to the
contrary) and certain other requirements are met or the holder otherwise
establishes an exemption. The payment of the proceeds of a sale of shares of
Common Stock to or through a U.S. office of a broker is subject to information
reporting and possible backup withholding at a rate of 31% unless the owner
certifies its non-U.S. status under penalties of perjury or otherwise
establishes an exemption. Any amounts withheld under the backup withholding
rules from a payment to a non-U.S. holder will be allowed as a refund or a
credit against such non-U.S. holder's United States federal income tax
liability, provided that the required information is furnished to the Internal
Revenue Service.
The United States Treasury has recently issued proposed regulations
regarding the withholding and information reporting rules discussed above. In
general, the proposed regulations do not alter the substantive withholding and
information reporting requirements but unify current certification procedures
and forms and clarify and modify reliance standards. For instance, the
proposed regulations would, among other changes, eliminate the presumption
under current regulations with respect to dividends paid to addresses outside
the United States. If finalized in their current form, the proposed
regulations would generally be effective for payments made after December 31,
1997, subject to certain transition rules.
THE FOREGOING SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY. ACCORDINGLY,
INVESTORS ARE URGED TO CONSULT WITH THEIR TAX ADVISORS WITH RESPECT TO THE
UNITED STATES FEDERAL IMCOME TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION
OF COMMON STOCK, INCLUDING THE APPLICATION AND EFFECT OF THE LAWS OF ANY
STATE, LOCAL, FOREIGN OR OTHER TAXING JURISDICTION.
44
<PAGE>
UNDERWRITING
Subject to certain terms and conditions contained in an underwriting
agreement (the "Underwriting Agreement"), the U.S. Underwriters named below
(the "U.S. Underwriters") for whom DLJ, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Salomon Brothers Inc are acting as representatives (the "U.S.
Representatives"), and the international managers named below (the
"International Managers"), for whom DLJ, Merrill Lynch International and
Salomon Brothers International Limited are acting as representatives (the
"International Representatives" and together with the U.S. Representatives,
the "Representatives") have severally agreed to purchase from the Company the
number of shares of Common Stock set forth opposite their names below.
<TABLE>
<S> <C>
NUMBER OF
U.S. UNDERWRITERS SHARES
----------
Donaldson, Lufkin & Jenrette Securities Corporation...............
Merrill Lynch, Pierce, Fenner & Smith Incorporated................
Salomon Brothers Inc..............................................
----------
U.S. Offering subtotal.......................................... 8,000,000
INTERNATIONAL MANAGERS
Donaldson, Lufkin & Jenrette Securities Corporation...............
Merrill Lynch International.......................................
Salomon Brothers International Limited............................
----------
International Offering subtotal................................. 2,000,000
----------
Total......................................................... 10,000,000
==========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to the approval of
certain legal matters by counsel and to certain other conditions. If any of
the shares of Common Stock are purchased by the Underwriters pursuant to the
Underwriting Agreement, all such shares of Common Stock (other than the shares
of Common Stock covered by the over-allotment option described below) must be
so purchased. The offering price and underwriting discounts and commissions
per share for the U.S. Offering and the International Offering are identical.
Prior to the Offerings, there has been no established trading market for the
Common Stock. The initial price to the public for the Common Stock offered
hereby will be determined by negotiation between the Company and the
Representatives. The factors to be considered in determining the initial price
to the public include the history of and the prospects for the industry in
which the Company competes, the ability of the Company's management, the past
and present operations of the Company, the historical results of operations of
the Company, the prospects for future earnings of the Company, the general
condition of the securities markets at the time of the Offerings and the
recent market prices of securities of generally comparable companies.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect thereof.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public initially at the
price to the public set forth on the cover page of this Prospectus and to
certain dealers (who may include the Underwriters) at such price less a
concession not to exceed $ per share. The Underwriters may allow, and
such dealers may reallow, discounts not in excess of $ per share to any
other Underwriter and certain other dealers.
45
<PAGE>
The Company has granted to the U.S. Underwriters an option to purchase up to
an aggregate of 1,500,000 additional shares of Common Stock at the initial
public offering price less underwriting discounts and commissions solely to
cover over-allotments. Such option may be exercised in whole or in part from
time to time during the 30-day period after the date of this Prospectus. To
the extent that the U.S. Underwriters exercise such option, each of the U.S.
Underwriters will be committed, subject to certain conditions, to purchase a
number of option shares proportionate to such U.S. Underwriter's initial
commitment as indicated in the preceding table.
The Company, the Predecessor and the Principal Stockholder have agreed not
to directly or indirectly offer, sell, contract to sell or otherwise dispose
of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, or in any manner transfer all or
a portion of the economic consequences associated with the ownership of such
Common Stock, or to cause a registration statement covering any shares of
Common Stock to be filed, for 180 days after the date of this Prospectus
without the prior written consent of DLJ, subject to certain limited
exceptions, and provided that the Company may grant options pursuant to, and
issue shares of Common Stock upon the exercise of options under, the 1997
Plan. See "Shares Eligible for Future Sale."
Pursuant to an Agreement Between U.S. Underwriters and International
Managers, each U.S. Underwriter has represented and agreed that, with respect
to the shares included in the U.S. Offering and with certain exceptions, (a)
it is not purchasing any Common Stock for the account of anyone other than a
U.S. or Canadian Person (as defined below) and (b) it has not offered or sold,
and will not offer or sell, directly or indirectly, any Common Stock or
distribute this Prospectus outside of the U.S. or Canada or to anyone other
than a U.S. or Canadian Person. Pursuant to the Agreement Between U.S.
Underwriters and International Managers, each International Manager has
represented and agreed that, with respect to the shares included in the
International Offering and with certain exceptions, (a) it is not purchasing
any Common Stock for the account of any U.S. or Canadian Person and (b) it has
not offered or sold, and will not offer or sell, directly or indirectly, any
Common Stock or distribute this Prospectus within the U.S. or Canada or to any
U.S. or Canadian Person. The foregoing limitations do not apply to
stabilization transactions and to certain other transactions among the
International Managers and the U.S. Underwriters. As used herein, "U.S. or
Canadian Person" means any national or resident of the U.S. or Canada or any
corporation, pension, profit-sharing or other trust or other entity organized
under the laws of the U.S. or Canada or of any political subdivision thereof
(other than a branch located outside the U.S. or Canada of any U.S. or
Canadian Person) and includes any U.S. or Canadian branch of a person who is
not otherwise a U.S. or Canadian Person, and "U.S." means the United States of
America, its territories, its possessions and all areas subject to its
jurisdiction.
Pursuant to the Agreement Between U.S. Underwriters and International
Managers, sales may be made between the U.S. Underwriters and the
International Managers of any number of shares of Common Stock to be purchased
pursuant to the Underwriting Agreement as may be mutually agreed. The per
share price and currency of settlement of any shares so sold shall be the
public offering price set forth on the cover page of this Prospectus, in U.S.
dollars, less an amount not greater than the per share amount of the
concession to the dealers set forth above.
Pursuant to the Agreement Between U.S. Underwriters and International
Managers, each U.S. Underwriter has represented that it has not offered or
sold, and has agreed not to offer or sell, any Common Stock, directly or
indirectly in Canada in contravention of the securities laws of Canada or any
province or territory thereof and has represented that any offer of Common
Stock in Canada will be made only pursuant to an exemption from the
requirement to file a prospectus in the province or territory of Canada in
which such offer is made. Each U.S. Underwriter has further agreed to send to
any dealer who purchases from it any Common Stock a notice stating in
substance that, by purchasing such Common Stock, such dealer represents and
agrees that it has not offered or sold, and will not offer or sell, directly
or indirectly, any of such Common Stock in Canada in contravention of the
securities laws of Canada or any province or territory thereof and that any
offer of Common Stock in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of
Canada in which such offer is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Common Stock a notice to the
foregoing effect.
46
<PAGE>
Pursuant to the Agreement Between U.S. Underwriters and International
Managers, each International Manager has represented that (i) it has not
offered or sold and during the period of six months from the date of this
Prospectus will not offer or sell any shares of Common Stock to persons in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances
which do not constitute an offer to the public in the United Kingdom for the
purposes of the Public Offers of Securities Regulations 1995 (the
"Regulations"); (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 of Great Britain and the
Regulations with respect to anything done by it in relation to the Common
Stock in, from or otherwise involving the United Kingdom; and (iii) it has
only issued or passed on and will only issue or pass on in the United Kingdom
any document received by it in connection with the issue of the Common Stock
to a person who is of a kind described in Article 8 of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) (No. 2) Order 1995 of Great
Britain or is a person to whom such document may otherwise lawfully be issued
or passed on.
The Representatives have informed the Company that they do not expect to
make sales to accounts over which they exercise discretionary authority in
excess of 5% of the number of shares of Common Stock offered hereby.
Up to an aggregate of 500,000 shares of Common Stock, or approximately 5% of
the shares offered hereby, have been reserved for sale at the public offering
price to certain employees of the Company and other persons designated by the
Company. The maximum investment of any such person may be limited by the
Company in its sole discretion. The number of shares of Common Stock available
for sale to the general public will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered by the Underwriters to the general public on the same basis as the
other shares offered hereby. This program will be administered by DLJ.
The Common Stock has been approved for listing on the NYSE upon notice of
issuance. In order to meet the requirements for listing on the NYSE, the
Underwriters have undertaken to sell lots of 100 or more shares of Common
Stock to a minimum of 2,000 beneficial holders.
LEGAL MATTERS
The validity of the shares of the Common Stock offered hereby will be passed
upon for the Company by O'Melveny & Myers LLP, Los Angeles, California.
Certain legal matters will be passed upon for the Underwriters by Latham &
Watkins, Los Angeles, California.
EXPERTS
The financial statements of U.S. Rentals, Inc., the Predecessor, as of
December 31, 1995 and 1996 and for each of the three years in the period ended
December 31, 1996 and of U.S. Rentals, Inc., the Company, as of December 31,
1996 included in this Prospectus have been so included in reliance on the
reports of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
47
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement"), of which this Prospectus forms a part, covering the Common Stock
to be sold pursuant to the Offerings. As permitted by the rules and
regulations of the Commission, this Prospectus omits certain information,
exhibits and undertakings contained in the Registration Statement. Such
additional information, exhibits and undertakings can be inspected at and
obtained from the Commission at prescribed rates at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 and at certain regional offices of the
Commission located at Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 13th Floor, 7 World Trade Center, New
York, New York, 10048. The Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. In addition, the Common Stock has been approved for listing on the
NYSE upon notice of issuance, and reports and other information concerning the
Company may be inspected at the offices of such exchange. For additional
information with respect to the Company, the Common Stock and related matters
and documents, reference is made to the Registration Statement. Statements
contained herein concerning any such document are not necessarily complete
and, in each instance, reference is made to the copy of such document filed as
an exhibit to the Registration Statement. Each such statement is qualified in
its entirety by such reference.
The Company will issue annual reports and unaudited quarterly reports to its
stockholders for the first three quarters of each fiscal year. Annual reports
will include audited consolidated financial statements prepared in accordance
with accounting principles generally accepted in the United States and a
report of its independent public accountants with respect to the examination
of such financial statements. In addition, the Company will issue such other
interim reports as it deems appropriate.
48
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF ANY OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE,
OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Offering Related Transactions............................................. 13
Use of Proceeds........................................................... 13
Dividend Policy........................................................... 13
Dilution.................................................................. 14
Capitalization............................................................ 15
Selected Financial Data................................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 18
Business.................................................................. 24
Management................................................................ 32
Certain Transactions...................................................... 37
Principal Stockholders.................................................... 39
Description of Capital Stock.............................................. 40
Shares Eligible for Future Sale........................................... 42
Certain United States Federal Tax Consequences to Non-United States
Holders of Common Stock.................................................. 43
Underwriting.............................................................. 45
Legal Matters............................................................. 47
Experts................................................................... 47
Available Information..................................................... 48
Index to Financial Statements............................................. F-1
</TABLE>
------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
10,000,000 SHARES
[LOGO OF U.S. RENTALS]
COMMON STOCK
----------------
PROSPECTUS
----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH INTERNATIONAL
SALOMON BROTHERS
INTERNATIONAL LIMITED
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the
issuance and distribution of the Common Stock being registered. All amounts
are estimates except the SEC registration fee, the NASD filing fee and the
NYSE listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 73,182
NASD filing fee.................................................. 24,650
NYSE listing fee................................................. 107,350
Accounting fees and expenses..................................... 350,000
Legal fees and expenses.......................................... 325,000
Blue Sky qualification fees and expenses......................... 7,500
Printing and engraving expenses.................................. 150,000
Transfer agent and registrar fees................................ 12,000
D&O Insurance.................................................... 290,000
Miscellaneous.................................................... 10,318
----------
Total........................................................ $1,350,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation provides that to the fullest
extent permitted by the DGCL, a director of the Company shall not be liable to
the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director. Under the DGCL, liability of a director may not be limited
(i) for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases and
(iv) for any transaction from which the director derives an improper personal
benefit. The effect of the provisions of the Company's Certificate of
Incorporation is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of the fiduciary duty of care
as a director (including breaches resulting from negligent or grossly
negligent behavior), except in the situations described in clauses (i) through
(iv) above. This provision does not limit or eliminate the rights of the
Company or any stockholder to seek nonmonetary relief such as an injunction or
rescission in the event of a breach of a director's duty of care. In addition,
the Company's Certificate of Incorporation provides that the Company shall
indemnify its directors, officers, employees and agents against losses
incurred by any such person by reason of the fact that such person was acting
in such capacity.
The Company has entered into agreements (the "Indemnification Agreements")
with each of the directors and officers of the Company pursuant to which the
Company has agreed to indemnify such director or officer from claims,
liabilities, damages, expenses, losses, costs, penalties or amounts paid in
settlement incurred by such director or officer in or arising out of such
person's capacity as a director, officer, employee and/or agent of the Company
or any other corporation of which such person is a director or officer at the
request of the Company to the maximum extent provided by applicable law. In
addition, such director or officer is entitled to an advance of expenses to
the maximum extent authorized or permitted by law.
To the extent that the Board of Directors or the stockholders of the Company
wish to limit or repeal the ability of the Company to provide indemnification
as set forth in the Company's Certificate of Incorporation, such repeal or
limitation may not be effective as to directors and officers who are parties
to the Indemnification Agreements, because their rights to full protection
would be contractually assured by the Indemnification
II-1
<PAGE>
Agreements. It is anticipated that similar contracts may be entered into, from
time to time, with future directors of the Company.
The Form of Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Company and
its directors and officers for certain liabilities arising under the
Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Predecessor has been in the equipment rental business since 1969.
Immediately prior to the closing of the Offerings, in connection with a
reorganization of the Company, the Company intends to issue an aggregate of
20,748,975 shares of the Company's Common Stock to the Predecessor in exchange
for the Predecessor's transfer of substantially all of its operating assets
and associated liabilities. See "Offering Related Transactions." The Company
intends to issue the shares to the Predecessor without registration under the
Securities Act, in reliance upon the exemption provided by Section 4(2) of the
Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1** Form of Underwriting Agreement
2.1** Asset Contribution Agreement
3.1 Restated Certificate of Incorporation of the Company
3.2 Amended and Restated Bylaws of the Company
4.1 Specimen Common Stock certificate
5.1** Opinion of O'Melveny & Myers LLP
10.1 Form of Indemnification Agreement between the Company and each of its
executive officers and directors
10.2** Form of Employment Agreement between the Company and John S. McKinney
10.3 Form of Registration Rights Agreement
10.4** 1997 Performance Award Plan
10.5** Form of Employment Agreement between the Company and William F. Berry
10.6* Second Amended and Restated Credit Agreement by and among the
Predecessor, Bank of America NT&SA as agent, and the banks named
therein dated as of August 21, 1996
10.7* Form of Privately Placed Note Agreement
10.8 Security Agreement by and among the Predecessor, Bank of America NT&SA
as agent, and the banks named therein dated as of August 21, 1996
10.9 Form of Intercreditor Agreement
10.10* Schedule to Forms of Note Agreement and Intercreditor Agreement
10.11** Cancellation of Deferred Compensation Agreement between the
Predecessor and William F. Berry dated as of January 27, 1997
10.12** Cancellation of Deferred Compensation Agreement between the
Predecessor and John S. McKinney dated as of January 27, 1997
11 Statement of Computation of Per Share Earnings
23.1 Consent of Price Waterhouse LLP
23.3** Consent of O'Melveny & Myers LLP (included in Exhibit 5.1)
24.1* Power of Attorney
27.1 Financial Data Schedule
</TABLE>
- ---------------------
*Previously filed
**To be filed by amendment
(b) Financial Statement Schedules
Schedule II
All other schedules are omitted because they are not required, are not
applicable, or the information is included in the Financial Statements or
notes thereto.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required
by the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the SEC
such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. If a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act, and will be governed by
the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
the registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Modesto, State of California, on January 28, 1997.
U.S. RENTALS, INC.
By: /s/ John S. McKinney
----------------------------------
John S. McKinney
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman of the Board January 28, 1997
- -----------------------------------
Richard D. Colburn
* President, Chief Executive January 28, 1997
- ----------------------------------- Officer and Director
William F. Berry
/s/ John S. McKinney Vice President--Finance, January 28, 1997
- ----------------------------------- Chief Financial Officer, and
John S. McKinney Director (chief financial
officer and principal
accounting officer)
* Director January 28, 1997
- -----------------------------------
Bernard E. Lyons
</TABLE>
*By: /s/ John S. McKinney
- -----------------------------
John S. McKinney
Attorney-in-fact
II-4
<PAGE>
SCHEDULE II
U.S. RENTALS, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT ---------------------------------
BEGINNING OF CHARGED TO COSTS CHARGED TO OTHER DEDUCTIONS: BALANCE AT
DESCRIPTION PERIOD AND EXPENSES ACCOUNTS WRITE-OFFS END OF PERIOD
----------- ------------ ---------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
1994
Allowance for Doubtful
Accounts............. $4,216 $2,807 $ -- $(1,822) $5,201
1995
Allowance for Doubtful
Accounts............. $5,201 $3,441 $ -- $(2,476) $6,166
1996
Allowance for Doubtful
Accounts............. $6,166 $4,075 $ -- $(3,250) $6,991
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ----
<C> <S> <C>
1.1** Form of Underwriting Agreement
2.1** Asset Contribution Agreement
3.1 Restated Certificate of Incorporation of the Company
3.2 Amended and Restated Bylaws of the Company
4.1 Specimen Common Stock certificate
5.1** Opinion of O'Melveny & Myers LLP
10.1 Form of Indemnification Agreement between the Company and each
of its executive officers and directors
10.2** Form of Employment Agreement between the Company and John S.
McKinney
10.3 Form of Registration Rights Agreement
10.4** 1997 Performance Award Plan
10.5** Form of Employment Agreement between the Company and William F.
Berry
10.6* Second Amended and Restated Credit Agreement by and among the
Predecessor, Bank of America NT&SA as agent, and the banks
named therein dated as of August 21, 1996
10.7* Form of Privately Placed Note Agreement
10.8 Security Agreement by and among the Predecessor, Bank of
America NT&SA as agent, and the banks named therein dated as of
August 21, 1996
10.9 Form of Intercreditor Agreement
10.10* Schedule to Forms of Note Agreement and Intercreditor Agreement
10.11** Cancellation of Deferred Compensation Agreement between the
Predecessor and William F. Berry dated as of January 27, 1997
10.12** Cancellation of Deferred Compensation Agreement between the
Predecessor and John S. McKinney dated as of January 27, 1997
11 Statement of Computation of Per Share Earnings
23.1 Consent of Price Waterhouse LLP
23.3** Consent of O'Melveny & Myers LLP (included in Exhibit 5.1)
24.1* Power of Attorney
27.1 Financial Data Schedule
</TABLE>
- ---------------------
*Previously filed
**To be filed by amendment
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
U.S. RENTALS, INC.
a Delaware corporation
U.S. Rentals, Inc., a corporation organized and existing under the
laws of the State of Delaware (hereinafter referred to as the "CORPORATION")
hereby certifies as follows:
1. The undersigned is the duly elected, qualified and acting Chief
Financial Officer and Assistant Secretary of the Corporation.
2. The name of the Corporation is U.S. Rentals, Inc. The
Corporation's original Certificate of Incorporation was filed with the Secretary
of State of Delaware on November 13, 1987 under the same name.
3. Pursuant to Sections 241 and 245 of the General Corporation Law of
the State of Delaware, and having been adopted in accordance therewith, this
Restated Certificate of Incorporation restates, integrates and amends the
provisions of the Certificate of Incorporation of the Corporation.
4. The text of the Certificate of Incorporation of the Corporation,
as it may have heretofore been amended or supplemented, is hereby further
amended and restated to read in its entirety as follows:
FIRST: The name of the Corporation is:
-----
U.S. Rentals, Inc.
SECOND: The address, including street, number, city and county, of
------
the registered office of the Corporation in the State of Delaware is:
THE CORPORATION TRUST COMPANY
Corporation Trust Center
1209 Orange Street
Wilmington, New Castle County, Delaware 19801
THIRD: The nature of the business and of the purposes to be conducted
-----
and promoted by the Corporation shall be to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
<PAGE>
FOURTH: The total number of shares of stock which the Corporation
------
shall have authority to issue is One Hundred Ten Million (110,000,000), to be
divided into two classes designated "Common Stock" and "Preferred Stock". The
Corporation shall be authorized to issue (a) One Hundred Million (100,000,000)
shares of Common Stock, par value $.01 per share, and (b) Ten Million
(10,000,000) shares of Preferred Stock, par value $.01 per share.
The Board of Directors of the Corporation (the "BOARD") is hereby
empowered to cause the Preferred Stock to be issued from time to time for such
consideration as it may from time to time fix, to cause such Preferred Stock to
be issued in series with such voting powers and such designations, preferences,
privileges and relative, participating, optional or other special rights as
designated by the Board in the resolution providing for the issuance of such
series and, within the limits and restrictions stated in any resolution or
resolutions of the Board originally defining the number of shares constituting
any series, to increase or decrease (but not below the number of shares of such
series then outstanding), the number of shares of any such series subsequent to
the issue of shares of that series. Shares of Preferred Stock of any one series
shall be identical in all respects.
All shares of any series of Preferred Stock that shall have been
redeemed, converted, exchanged or otherwise surrendered to or acquired by the
Corporation pursuant to its terms, shall be cancelled and have the status of
authorized but unissued shares of Preferred Stock of the Corporation.
FIFTH: Subject to the rights, if any, of the holders of shares of
-----
Preferred Stock then outstanding, if any, to elect additional directors under
specified circumstances, the number of the directors of the Corporation shall be
fixed from time to time by or pursuant to the Bylaws of the Corporation. At
each annual meeting of the stockholders of the Corporation, the directors shall
be elected to hold office until such person's successor is elected and qualified
or until such person's death, retirement, resignation or removal. The directors
need not be stockholders. Elections of directors are not required to be held by
written ballot.
SIXTH: Subject to the rights, if any, of the holders of shares of
-----
Preferred Stock then outstanding, if any, any or all of the directors of the
Corporation may be removed from office by the stockholders only for cause and
only by the affirmative vote of at least 66-2/3% of the outstanding shares of
Common Stock of the Corporation at any annual or special meeting of stockholders
of the Corporation, the notice of which shall state that the removal of a
director or directors is among the purposes of the meeting.
SEVENTH: Newly created directorships resulting from any increase in
-------
the authorized number of directors or any vacancy on the Board resulting from
death, resignation, retirement, disqualification, removal from office or
otherwise shall be filled by the affirmative vote of a majority of the remaining
directors then in office, even
2
<PAGE>
though less than a quorum, or by a sole remaining director. The directors so
chosen shall hold office until the next annual election of directors and until
their successors are duly elected and qualified, unless sooner displaced. If
there are no directors in office, then an election of directors may be held in
the manner provided by statute. If, at the time of filling any vacancy or any
newly created directorship, the directors then in office constitute less than a
majority of the whole Board (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent of the total number of the shares at
the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
office. No decrease in the number of directors constituting the Board shall
shorten the term of any incumbent director.
EIGHTH: Special meetings of the stockholders of the Corporation, for
------
any purpose or purposes, unless otherwise prescribed by statute, may be called
by the Chairman of the Board, any Vice Chairman of the Board or the President,
and shall be called by the President, the Secretary or the Assistant Secretary
at the request in writing of a majority of the Board, the Chairman or any Vice
Chairman of the Board, and shall be held at such place, on such date, and at
such time as shall be fixed by the person or persons calling the meeting. Such
special meetings may not be called by any other person or persons. Such request
shall state the purpose or purposes of the proposed meeting. Business
transacted at any special meeting of stockholders shall be limited to the
purposes stated in the notice.
NINTH: At an annual meeting of stockholders, only such business shall
-----
be conducted, and only such proposals shall be acted upon, as shall have been
brought before the annual meeting (a) by, or at the direction of, a majority of
the directors, or (b) by any stockholder of the Corporation who complies with
the notice procedures set forth in this Article. For a proposal to be properly
brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the Corporation. To
be timely, a stockholder's notice must be delivered to, or mailed and received
at, the principal executive office of the Corporation not less than 60 days
prior to the scheduled annual meeting, regardless of any postponements,
deferrals or adjournments of that meeting to a later date; provided, however,
that if less than 70 days' notice or prior public disclosure of the date of the
scheduled annual meeting is given or made, notice by the stockholder, to be
timely, must be so delivered or received not later than the close of business on
the tenth day following the earlier of the day on which such notice of the date
of the scheduled annual meeting was mailed or the day on which such public
disclosure was made. A stockholder's notice to the Secretary shall set forth as
to each matter the stockholder proposes to bring before the annual meeting (a) a
brief description of the proposal desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (b)
the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business and any other stockholders known by such
stockholder to be supporting such proposal, (c) the class and number of shares
of the Corporation's stock
3
<PAGE>
that are beneficially owned by the stockholder on the date of such stockholder
notice and by any other stockholders known by such stockholder to be supporting
such proposal on the date of such stockholder notice, and (d) any financial
interest of the stockholder in such proposal.
The presiding officer of the annual meeting shall determine and
declare at the annual meeting whether the stockholder proposal was made in
accordance with the terms of this Article. If the presiding officer determines
that a stockholder proposal was not made in accordance with the terms of this
Article, the presiding officer shall so declare at the annual meeting and any
such proposal shall not be acted upon at the annual meeting.
This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, and committees of the
Board, but, in connection with such reports, no new business shall be acted upon
at such annual meeting unless stated, filed and received as provided in this
Article.
TENTH: Subject to the rights, if any, of the holders of shares of
-----
Preferred Stock then outstanding, if any, only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors. Nominations of persons for election to the Board may be made at a
meeting of stockholders by or at the direction of the Board, by any nominating
committee or person appointed by the Board, or by any stockholder of the
Corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Article. Such
nominations, other than those made by or at the direction of the Board or by any
nominating committee or person appointed by the Board, shall be made pursuant to
timely notice in writing to the Secretary. To be timely, a stockholder's notice
must be delivered to, or mailed and received at, the principal executive office
of the Corporation not less than 60 days prior to the scheduled annual meeting,
regardless of any postponement, deferrals or adjournments of that meeting to a
later date; provided, however, that if less than 70 days' notice or prior public
disclosure of the date of the scheduled annual meeting is given or made, notice
by the stockholder, to be timely, must be so delivered or received not later
than the close of business on the tenth day following the earlier of the day on
which such notice of the date of the scheduled annual meeting was mailed or the
day on which such public disclosure was made. A stockholder's notice to the
Secretary shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director, (i) the name, age, business
address and residence address of the person, (ii) the class and number of shares
of capital stock of the Corporation that are beneficially owned by the person
and (iii) any other information relating to the person that is required to be
disclosed in solicitations for proxies for election of directors pursuant to
Rule 14a under the Securities Exchange Act of 1934, as amended; and (b) as to
the stockholder giving the notice (i) the name and address, as they appear on
the Corporation's books, of the stockholder and (ii) the class and number of
shares of the Corporation's stock that are beneficially owned by the stockholder
on the date of such stockholder notice. The
4
<PAGE>
Corporation may require any proposed nominee to furnish such other information
as may reasonably be required by the Corporation to determine the eligibility of
such proposed nominee to serve as director of the Corporation.
The presiding officer of the annual meeting shall determine and
declare at the annual meeting whether the nomination was made in accordance with
the terms of this Article. If the presiding officer determines that a
nomination was not made in accordance with the terms of this Article, the
presiding officer shall so declare at the annual meeting and any such defective
nomination shall be disregarded.
ELEVENTH: Notwithstanding anything contained in this Certificate of
--------
Incorporation to the contrary, the affirmative vote of the holders of at least
50% of the outstanding shares of Common Stock of the Corporation shall be
required to amend or repeal Articles FIFTH, SIXTH, SEVENTH, EIGHTH, NINTH,
TENTH, ELEVENTH, TWELFTH or THIRTEENTH of this Certificate of Incorporation or
to adopt any provision inconsistent therewith.
The Board is expressly empowered to adopt, amend or repeal the Bylaws
of the Corporation. Any adoption, amendment or repeal of the Bylaws of the
Corporation by the Board shall require the approval of a majority of the total
number of authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any resolution providing for
adoption, amendment or repeal is presented to the Board). The stockholders
shall also have power to adopt, amend or repeal the Bylaws of the Corporation.
In addition to any vote of the holders of any class or series of stock of the
Corporation required by law, the affirmative vote of the holders of at least
fifty percent (50%) of the outstanding shares of Common Stock of the Corporation
shall be required to adopt, amend or repeal any provision of the Bylaws of the
Corporation.
TWELFTH: The Corporation may indemnify any person who was or is made
-------
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "PROCEEDING"), by reason of the fact that such
person, or a person of whom such person is the legal representative, is or was a
director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another Corporation
or of a partnership, joint venture, limited liability company, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity while
serving as a director, officer, employee or agent, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against any Loss.
"Loss" means any expense, liability or loss (including, but not limited to,
attorneys' fees,
5
<PAGE>
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) actually and reasonably incurred or suffered by such person in
connection therewith, and such indemnification shall inure to the benefit of his
or her heirs, executors and administrators.
THIRTEENTH: The personal liability of the directors of the
----------
Corporation is hereby eliminated to the fullest extent permitted by paragraph
(7) of subsection (b) of Section 102 of the General Corporation Law of the State
of Delaware, as the same may be amended and supplemented.
FOURTEENTH: The Corporation is to have perpetual existence.
----------
FIFTEENTH: From time to time any of the provisions of this
---------
Certificate of Incorporation may be amended, altered or repealed, and other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted in the manner and at the time prescribed by said laws,
and all rights at any time conferred upon the stockholders of the Corporation by
this Restated Certificate of Incorporation are granted subject to the provisions
of this Article.
[remainder of page intentionally left blank]
6
<PAGE>
IN WITNESS WHEREOF, this Corporation has caused this Restated
Certificate of Incorporation to be signed by John S. McKinney, its Chief
Financial Officer and Assistant Secretary, this ____ day of _________, 1997.
U.S. RENTALS, INC.,
a Delaware corporation
By:
-------------------------------------------
John S. McKinney
Chief Financial Officer and
Assistant Secretary
S-1
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
U.S. RENTALS, INC.
A DELAWARE CORPORATION
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 Offices................................................... 1
1.1 Registered Office......................................... 1
1.2 Other Offices............................................. 1
ARTICLE 2 Meetings of Stockholders.................................. 1
2.1 Place of Meetings......................................... 1
2.2 Annual Meeting of Stockholders............................ 1
2.3 Quorum; Adjourned Meetings and Notice Thereof............. 1
2.4 Voting.................................................... 2
2.5 Proxies................................................... 2
2.6 Special Meetings.......................................... 2
2.7 Notice of Stockholder's Meetings.......................... 2
2.8 Stockholder Proposals..................................... 3
2.9 Maintenance and Inspection of Stockholder List............ 3
2.10 Action by Written Consent................................. 4
ARTICLE 3 Directors................................................. 4
3.1 Number, Election and Tenure............................... 4
3.2 Vacancies................................................. 4
3.3 Notification of Nomination................................ 5
3.4 Powers.................................................... 6
3.5 Directors' Meetings....................................... 6
3.6 Regular Meetings.......................................... 6
3.7 Special Meetings.......................................... 6
3.8 Quorum.................................................... 6
3.9 Action Without Meeting.................................... 6
3.10 Telephonic Meetings....................................... 6
3.11 Committees of Directors................................... 7
3.12 Minutes of Committee Meetings............................. 7
3.13 Compensation of Directors................................. 7
3.14 Indemnification........................................... 7
ARTICLE 4 Officers.................................................. 10
4.1 Officers.................................................. 10
4.2 Election of Officers...................................... 10
4.3 Subordinate Officers...................................... 10
4.4 Compensation of Officers.................................. 10
4.5 Term of Office; Removal and Vacancies..................... 10
4.6 Chairman of the Board..................................... 11
4.7 President................................................. 11
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
4.8 Vice President............................................ 11
4.9 Secretary................................................. 11
4.10 Assistant Secretaries..................................... 11
4.11 Chief Financial Officer................................... 12
4.12 Assistant Treasurer....................................... 12
ARTICLE 5 Certificates of Stock..................................... 12
5.1 Certificates.............................................. 12
5.2 Signatures on Certificates................................ 12
5.3 Statement of Stock Rights, Preferences, Privileges........ 13
5.4 Lost Certificates......................................... 13
5.5 Transfers of Stock........................................ 13
5.6 Fixing Record Date........................................ 13
5.7 Registered Stockholders................................... 14
ARTICLE 6 General Provisions........................................ 14
6.1 Dividends................................................. 14
6.2 Payment of Dividends...................................... 14
6.3 Checks.................................................... 14
6.4 Fiscal Year............................................... 14
6.5 Corporate Seal............................................ 14
6.6 Manner of Giving Notice................................... 14
6.7 Waiver of Notice.......................................... 14
6.8 Annual Statement.......................................... 15
ARTICLE 7 Amendments................................................ 15
7.1 Amendment by Directors or Stockholders.................... 15
</TABLE>
ii
<PAGE>
AMENDED AND RESTATED BYLAWS
of
U.S. RENTALS, INC.
a Delaware corporation
ARTICLE 1
OFFICES
-------
1.1 REGISTERED OFFICE. The registered office of the Corporation shall be in
-----------------
the City of Wilmington, County of New Castle, State of Delaware.
1.2 OTHER OFFICES. The Corporation may also have offices at such other
-------------
places as the Board of Directors (the "BOARD") may from time to time determine
or the business of the Corporation may require.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS. Meetings of stockholders shall be held at any place
-----------------
designated by the Board. In the absence of any such designation, stockholders'
meetings shall be held at the principal executive office of the Corporation.
2.2 ANNUAL MEETING OF STOCKHOLDERS. The annual meeting of stockholders shall
------------------------------
be held each year on a date and a time designated by the Board. At each annual
meeting directors shall be elected and any other proper business may be
transacted.
2.3 QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF. A majority of the stock
---------------------------------------------
issued and outstanding and entitled to vote at any meeting of stockholders, the
holders of which are present in person or represented by proxy, shall constitute
a quorum for the transaction of business except as otherwise provided by law, by
the Certificate of Incorporation, or by these Amended and Restated Bylaws (the
"BYLAWS"). A quorum, once established, shall not be broken by the withdrawal of
enough votes to leave less than a quorum and the votes present may continue to
transact business until adjournment. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, a majority of the
voting stock represented in person or by proxy may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented, any business may
1
<PAGE>
be transacted that might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote thereat.
2.4 VOTING. When a quorum is present at any meeting, the vote of the holders
------
of a majority of the stock having voting power present in person or represented
by proxy shall decide any question brought before such meeting, unless the
question is one upon which by express provision of law, or the Certificate of
Incorporation, or these Bylaws, a different vote is required in which case such
express provision shall govern and control the decision of such question.
2.5 PROXIES. At each meeting of the stockholders, each stockholder having the
-------
right to vote may vote in person or may authorize another person or persons to
act for the stockholder by proxy appointed by an instrument in writing
subscribed by such stockholder and bearing a date not more than three years
prior to said meeting, unless said instrument provides for a longer period. All
proxies must be filed with the Secretary of the Corporation at the beginning of
each meeting in order to be counted in any vote at the meeting. Each stockholder
shall have one vote for each share of stock having voting power, registered in
the stockholder's name on the books of the Corporation on the record date set by
the Board as provided in Article 5, Section 5.6. All elections shall be had and
all questions decided by a plurality vote, unless a higher voting standard is
required by the Corporation's Certificate of Incorporation, these Bylaws, or the
law.
2.6 SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose,
----------------
or purposes, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called by the Chairman of the Board, any Vice Chairman of
the Board or the President, and shall be called by the President, the Secretary
or the Assistant Secretary at the request in writing of a majority of the Board,
the Chairman or any Vice Chairman of the Board and shall be held at such place,
on such date, and at such time as shall be fixed by the person or persons
calling the meeting. Such special meetings may not be called by any other person
or persons. Such request shall state the purpose or purposes of the proposed
meeting. Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice.
2.7 NOTICE OF STOCKHOLDER'S MEETINGS. Whenever stockholders are required or
--------------------------------
permitted to take any action at a meeting, a written notice of the meeting shall
be given. The notice shall state the place, date and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. The written notice of any meeting shall be given to each stockholder
entitled to vote at such meeting not less than ten nor more than sixty days
before the date of the meeting. If mailed, notice is given when deposited in the
United States mail, postage prepaid, directed to the stockholder at the
stockholder's address as it appears on the records of the Corporation.
2
<PAGE>
2.8 STOCKHOLDER PROPOSALS. At an annual meeting of stockholders, only such
---------------------
business shall be conducted, and only such proposals shall be acted upon, as
shall have been brought before the annual meeting (a) by, or at the direction
of, a majority of the directors, or (b) by any stockholder of the Corporation
who complies with the notice procedures set forth in this Section. For a
proposal to be properly brought before an annual meeting by a stockholder, the
stockholder must be given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder's notice must be delivered to, or
mailed and received at, the principal executive office of the Corporation not
less than 60 days prior to the scheduled annual meeting, regardless of any
postponements, deferrals or adjournments of that meeting to a later date;
provided, however, that if less than 70 days' notice or prior public disclosure
of the date of the scheduled annual meeting is given or made, notice by the
stockholder, to be timely, must be so delivered or received not later than the
close of business on the tenth day following the earlier of the day on which
such notice of the date of the scheduled annual meeting was mailed or the day on
which such public disclosure was made. A stockholder's notice to the Secretary
shall set forth as to each matter the stockholder proposes to bring before the
annual meeting (a) a brief description of the proposal desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (b) the name and address, as they appear on the Corporation's
books, of the stockholder proposing such business and any other stockholders
known by such stockholder to be supporting such proposal, (c) the class and
number of shares of the Corporation's stock that are beneficially owned by the
stockholder on the date of such stockholder notice and by any other stockholders
known by such stockholder to be supporting such proposal on the date of such
stockholder notice, and (d) any financial interest of the stockholder in such
proposal.
The presiding officer of the annual meeting shall determine and declare at
the annual meeting whether the stockholder proposal was made in accordance with
the terms of this Section. If the presiding officer determines that a
stockholder proposal was not made in accordance with the terms of this Section,
the presiding officer shall so declare at the annual meeting and any such
proposal shall not be acted upon at the annual meeting.
This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, directors and
committees of the Board, but, in connection with such reports, no new business
shall be acted upon at such annual meeting unless stated, filed and received as
provided in this Section.
2.9 MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST. The officer who has charge
----------------------------------------------
of the stock ledger of the Corporation shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting,
3
<PAGE>
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
2.10 ACTION BY WRITTEN CONSENT. Unless otherwise restricted by the Certificate
-------------------------
of Incorporation or these Bylaws, any action required or permitted to be taken
at any meeting of the stockholders may be taken by the written consent of the
stockholders, if a consent in writing, setting forth the action to be taken,
shall be signed by the holders of outstanding shares having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present. Where
the approval of the stockholders is given without a meeting, the Secretary shall
give prompt notice of the corporate action approved by the stockholders. Such
notice shall be given in the same manner as notice of stockholders' meetings.
All such written consents shall be filed with the minutes of proceedings of the
stockholders and actions authorized or taken under such actions shall have the
same force and effect as those adopted by vote of the stockholders.
ARTICLE 3
DIRECTORS
---------
3.1 NUMBER, ELECTION AND TENURE. The authorized number of directors which
---------------------------
shall constitute the Board shall not be less than four (4) nor more than seven
(7). The exact number shall be determined from time to time by resolution of
the Board. Until otherwise determined by such resolution, the Board shall
consist of four (4) persons. Directors shall be elected at the annual meeting
of stockholders and each director shall serve until such person's successor is
elected and qualified or until such person's death, retirement, resignation or
removal. The directors need not be stockholders. Elections of directors are
not required to be held by written ballot. Subject to the rights, if any, of
the holders of shares of Preferred Stock then outstanding, if any, any or all
directors of the Corporation may be removed from office by the stockholders only
for cause and only by the affirmative vote of at least 50% of the outstanding
shares of Common Stock of the Corporation at any annual or special meeting of
stockholders of the Corporation, the notice of which shall state that the
removal of a director or directors is among the purposes of the meeting.
3.2 VACANCIES. Vacancies on the Board by reason of death, resignation,
---------
retirement, disqualification, removal from office, or otherwise, and newly
created directorships resulting from any increase in the authorized number of
directors shall be filled solely by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum, or by a sole
remaining director. The directors so chosen shall hold office until the next
annual election of directors and until their successors are duly elected and
qualified, unless sooner displaced. If there are no directors in office, then an
4
<PAGE>
election of directors may be held in the manner provided by statute. If, at the
time of filling any vacancy or any newly created directorship, the directors
then in office constitute less than a majority of the whole Board (as
constituted immediately prior to any such increase), the Court of Chancery may,
upon application of any stockholder or stockholders holding at least ten percent
of the total number of the shares at the time outstanding having the right to
vote for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office. No decrease in the number of directors
constituting the Board shall shorten the term of any incumbent director.
3.3 NOTIFICATION OF NOMINATION. Subject to the rights, if any, of the holders
--------------------------
of shares of Preferred Stock then outstanding, if any, only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors. Nominations of persons for election to the Board may be
made at a meeting of stockholders by or at the direction of the Board, by any
nominating committee or person appointed by the Board, or by any stockholder of
the Corporation entitled to vote for the election of directors at the meeting
who complies with the notice procedures set forth in this Section. Such
nominations, other than those made by or at the direction of the Board or by any
nominating committee or person appointed by the Board, shall be made pursuant to
timely notice in writing to the Secretary. To be timely, a stockholder's notice
must be delivered to, or mailed and received at, the principal executive office
of the Corporation not less than 60 days prior to the scheduled annual meeting,
regardless of any postponements, deferrals or adjournments of that meeting to a
later date; provided, however, that if less than 70 days' notice or prior public
disclosure of the date of the scheduled annual meeting is given or made, notice
by the stockholder, to be timely, must be so delivered or received not later
than the close of business on the tenth day following the earlier of the day on
which such notice of the date of the scheduled annual meeting was mailed or the
day on which such public disclosure was made. A stockholder's notice to the
Secretary shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director, (i) the name, age, business
address and residence address of the person, (ii) the class and number of shares
of capital stock of the Corporation that are beneficially owned by the person
and (iii) any other information relating to the person that is required to be
disclosed in solicitations for proxies for election of directors pursuant to
Rule 14a under the Securities Exchange Act of 1934, as amended; and (b) as to
the stockholder giving the notice (i) the name and address, as they appear on
the Corporation's books, of the stockholder and (ii) the class and number of
shares of the Corporation's stock that are beneficially owned by the stockholder
on the date of such stockholder notice. The Corporation may require any proposed
nominee to furnish such other information as may reasonably be required by the
Corporation to determine the eligibility of such proposed nominee to serve as
director of the Corporation.
The presiding officer of the annual meeting shall determine and declare at
the annual meeting whether the nomination was made in accordance with the terms
of this Section. If the presiding officer determines that a nomination was not
made in
5
<PAGE>
accordance with the terms of this Section, the presiding officer shall so
declare at the annual meeting and any such defective nomination shall be
disregarded.
3.4 POWERS. The property and business of the Corporation shall be managed by
------
or under the direction of its Board. In addition to the powers and authorities
by these Bylaws expressly conferred upon them, the Board may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation or by these Bylaws directed or
required to be exercised or done by the stockholders.
3.5 DIRECTORS' MEETINGS. The directors may hold their meetings, cause the
-------------------
Corporation to have one or more offices, and keep the books of the Corporation,
outside of the State of Delaware.
3.6 REGULAR MEETINGS. Regular meetings of the Board may be held without notice
----------------
at such time and place as shall from time to time be determined by the Board.
3.7 SPECIAL MEETINGS. Special meetings of the Board may be called by the
----------------
President on forty-eight hours' notice to each director, either personally or by
mail or by telegram; special meetings shall be called by the President or the
Secretary in like manner and on like notice on the written request of two
directors unless the Board consists of only one director; in which case special
meetings shall be called by the President or Secretary in like manner or on like
notice on the written request of the sole director.
3.8 QUORUM. At all meetings of the Board a majority of the authorized number
------
of directors shall be necessary and sufficient to constitute a quorum for the
transaction of business, and the vote of a majority of the directors present at
any meeting at which there is a quorum, shall be the act of the Board, except as
may be otherwise specifically provided by statute, by the Certificate of
Incorporation or by these Bylaws. If a quorum shall not be present at any
meeting of the Board the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present. If only one director is authorized, such sole director
shall constitute a quorum.
3.9 ACTION WITHOUT MEETING. Unless otherwise restricted by the Certificate of
----------------------
Incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the Board or of any committee thereof may be taken without a
meeting, if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
3.10 TELEPHONIC MEETINGS. Unless otherwise restricted by the Certificate of
-------------------
Incorporation or these Bylaws, members of the Board, or any committee designated
by the Board, may participate in a meeting of the Board, or any committee, by
means of conference telephone or similar communications equipment by means of
which all
6
<PAGE>
persons participating in the meeting can hear each other, and such participation
in a meeting shall constitute presence in person at such meeting.
3.11 COMMITTEES OF DIRECTORS. The Board may, by resolution passed by a majority
-----------------------
of the whole Board, designate one or more committees, each such committee to
consist of one or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not the member or members constitute a quorum, may unanimously appoint
another member of the Board to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the extent provided in the
resolution of the Board, shall have and may exercise all the powers and
authority of the Board in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's property and
assets, recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the Bylaws of the Corporation; and,
unless the resolution or the Certificate of Incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
3.12 MINUTES OF COMMITTEE MEETINGS. Each committee shall keep regular minutes
-----------------------------
of its meetings and report the same to the Board when required.
3.13 COMPENSATION OF DIRECTORS. Unless otherwise restricted by the Certificate
-------------------------
of Incorporation or these Bylaws, the Board shall have the authority to fix the
compensation of directors. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board and may be paid a fixed sum for
attendance at each meeting of the Board or a stated salary as director. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.
3.14 INDEMNIFICATION.
---------------
(a) THIRD PARTY ACTIONS. The Corporation shall indemnify any
-------------------
person who was or is made a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by
or in the right of the Corporation) by reason of the fact that such person
is or was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another
7
<PAGE>
Corporation, partnership, joint venture, limited liability company, trust
or other enterprise, against all expense, liability and loss (including,
but not limited to, attorneys' fees, judgments, fines, ERISA excise taxes
and amounts paid or to be paid in settlement) actually and reasonably
incurred by such person in connection with such action, suit or proceeding
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the Corporation,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe such person's conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which the person reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was
unlawful.
(b) ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The
---------------------------------------------
Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment
in its favor by reason of the fact that such person is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, or agent of another
corporation, partnership, joint venture, limited liability company, trust
or other enterprise against expenses, liability and loss (including
attorneys' fees) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Corporation and except that no such
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable for negligence
or misconduct in the performance of his duty to the Corporation unless and
only to the extent that the Court of Chancery of Delaware or the court in
which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such Court of Chancery or such other
court shall deem proper.
(c) SUCCESSFUL DEFENSE. To the extent that a director, officer,
------------------
employee or agent of the Corporation shall be successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
paragraphs (a) and (b), or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
(d) DETERMINATION OF CONDUCT. Any indemnification under
------------------------
paragraphs (a) and (b) (unless ordered by a court) shall be made by the
8
<PAGE>
Corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper
in the circumstances because such person has met the applicable standard of
conduct set forth in paragraphs (a) and (b). Such determination shall be
made (1) by the Board by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2)
if such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
(e) PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred in
------------------------------
defending a civil or criminal action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board in the manner provided in paragraph
(d) upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount unless it shall ultimately
be determined that such person is entitled to be indemnified by the
Corporation as authorized in this Section.
(f) INDEMNITY NOT EXCLUSIVE. The indemnification provided by
-----------------------
this Section shall not be deemed exclusive of any other rights to which
those indemnified may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in
such person's official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be
a director, officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such a person.
(g) INSURANCE INDEMNIFICATION. The Board may authorize, by a
-------------------------
vote of a majority of a quorum of the Board, the Corporation to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against such person and incurred by such
person in any such capacity, or arising out of such person's status as
such, whether or not the Corporation have the power to indemnify such
person against such liability under the provisions of this Section.
(h) DEFINITIONS. For the purposes of this Section, references to
-----------
"the Corporation" shall include, in addition to the resulting corporation,
any constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its directors,
officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is
or was serving at the request of such constituent corporation as a
director, officer, employee or agent of another
9
<PAGE>
corporation, partnership, joint venture, limited liability company, trust
or other enterprise, shall stand in the same position under the provisions
of this Section with respect to the resulting or surviving corporation as
he would have with respect to such constituent corporation if its separate
existence had continued. Further, for purposes of this Section, references
to "other enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with respect to
an employee benefit plan; and references to "serving at the request of the
Corporation" shall include service as a director, officer, employee or
agent of the Corporation which imposes duties on, or involves services by,
such director, officer, employee or agent with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted in
good faith and in a manner he reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this Section.
ARTICLE 4
OFFICERS
--------
4.1 OFFICERS. The officers of the Corporation shall be chosen by the Board and
--------
shall include a Chairman of the Board, if elected, a President, a Secretary, and
a Chief Financial Officer. The Corporation may also have at the discretion of
the Board such other officers as are desired, including one or more Vice
Presidents, one or more Assistant Secretaries and Assistant Treasurers, and such
other officers as may be appointed in accordance with the provisions of Section
4.3. In the event there are two or more Vice Presidents, then one or more may
be designated as Executive Vice President, Senior Vice President, or other
similar or dissimilar title. At the time of the election of officers, the
directors may by resolution determine the order of their rank. Any number of
offices may be held by the same person, unless the Certificate of Incorporation
or these Bylaws otherwise provide.
4.2 ELECTION OF OFFICERS. The Board, at its first meeting after each
--------------------
annual meeting of stockholders, shall choose the officers of the Corporation.
4.3 SUBORDINATE OFFICERS. The Board may appoint such other officers and
--------------------
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board.
4.4 COMPENSATION OF OFFICERS. The salaries of all officers and agents of
------------------------
the Corporation shall be fixed by the Board or by a compensation committee
established by the Board.
4.5 TERM OF OFFICE; REMOVAL AND VACANCIES. The officers of the
-------------------------------------
Corporation shall hold office until their successors are chosen and qualify
in their stead. Any officer
10
<PAGE>
elected or appointed by the Board may be removed at any time by the affirmative
vote of a majority of the Board. If the office of any officer or officers
becomes vacant for any reason, the vacancy shall be filled by the Board.
4.6 CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an officer
---------------------
be elected, shall, if present, preside at all meetings of the Board and exercise
and perform such other powers and duties as may be from time to time assigned to
him by the Board or prescribed by these Bylaws. If there is no President, the
Chairman of the Board shall in addition be the Chief Executive Officer of the
Corporation and shall have the powers and duties prescribed in Section 4.7.
4.7 PRESIDENT. Subject to such supervisory powers, if any, as may be
---------
given by the Board to the Chairman of the Board, if there be such an officer,
the President shall be the Chief Executive Officer of the Corporation and shall,
subject to the control of the Board, have general supervision, direction and
control of the business and officers of the Corporation. The President shall
preside at all meetings of the stockholders and, in the absence of the Chairman
of the Board, or if there be none, at all meetings of the Board. The President
shall be an ex-officio member of all committees and shall have the general
powers and duties of management usually vested in the office of President and
Chief Executive Officer of corporations, and shall have such other powers and
duties as may be prescribed by the Board or these Bylaws.
4.8 VICE PRESIDENT. In the absence or disability of the President, the
--------------
Vice Presidents in order of their rank as fixed by the Board, or if not ranked,
the Vice President designated by the Board, shall perform all the duties of the
President, and when so acting shall have all the powers of and be subject to all
the restrictions upon the President. The Vice Presidents shall have such other
duties as from time to time may be prescribed for them, respectively, by the
Board.
4.9 SECRETARY. The Secretary shall attend all sessions of the Board and
---------
all meetings of the stockholders and record all votes and the minutes of all
proceedings in a book to be kept for that purpose; and shall perform like duties
for the standing committees when required by the Board. The Secretary shall
give, or cause to be given, notice of all meetings of the stockholders and of
the Board, and shall perform such other duties as may be prescribed by the Board
or these Bylaws. The Secretary shall keep in safe custody the seal of the
Corporation, and when authorized by the Board, affix the same to any instrument
requiring it, and when so affixed shall be attested by the Secretary's signature
or by the signature of an Assistant Secretary. The Board may give general
authority to any other officer to affix the seal of the Corporation and to
attest to the affixing by such person's signature.
4.10 ASSISTANT SECRETARIES. The Assistant Secretary, or if there be more
---------------------
than one, the Assistant Secretaries in the order determined by the Board, or if
there be no such determination, the Assistant Secretary designated by the Board,
shall, in the absence or disability of the Secretary, perform the duties and
exercise the powers of the Secretary
11
<PAGE>
and shall perform such other duties and have such other powers as the Board may
from time to time prescribe.
4.11 CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall have the
-----------------------
custody of the corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all moneys, and other valuable effects in the name and to the
credit of the Corporation, in such depositories as may be designated by the
Board. The Chief Financial Officer shall disburse the funds of the Corporation
as may be ordered by the Board, taking proper vouchers for such disbursements,
and shall render to the Board, at its regular meetings, or when the Board so
requires, an account of all his transactions as Chief Financial Officer and of
the financial condition of the Corporation. If required by the Board, the Chief
Financial Officer shall give the Corporation a bond, in such sum and with such
surety or sureties as shall be satisfactory to the Board, for the faithful
performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in the possession or under the control of the Chief Financial Officer and
belonging to the Corporation.
4.12 ASSISTANT TREASURER. The Assistant Treasurer, or if there shall be
-------------------
more than one, the Assistant Treasurers in the order determined by the Board, or
if there be no such determination, the Assistant Treasurer designated by the
Board, shall, in the absence or disability of the Chief Financial Officer,
perform the duties and exercise the powers of the Chief Financial Officer and
shall perform such other duties and have such other powers as the Board may from
time to time prescribe.
ARTICLE 5
CERTIFICATES OF STOCK
---------------------
5.1 CERTIFICATES. Every holder of stock of the Corporation shall be entitled
------------
to have a certificate signed in the name of the Corporation by the Chairman or
Vice Chairman of the Board, or the President or a Vice President, and by the
Secretary or an Assistant Secretary, or the Chief Financial Officer or Assistant
Treasurer of the Corporation, certifying the number of shares represented by the
certificate owned by such stockholder in the Corporation.
5.2 SIGNATURES ON CERTIFICATES. Any or all of the signatures on the
--------------------------
certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent, or registrar at the date
of issue.
12
<PAGE>
5.3 STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES. If the Corporation
--------------------------------------------------
shall be authorized to issue more than one class of stock or more than one
series of any class, the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualification, limitations or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate which the Corporation shall issue to represent such class or
series of stock, provided that, except as otherwise provided in section 202 of
the General Corporation Law of Delaware, in lieu of the foregoing requirements,
there may be set forth on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, a statement
that the Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
5.4 LOST CERTIFICATES. The Board may direct a new certificate or certificates
-----------------
to be issued in place of any certificate or certificates theretofore issued by
the Corporation alleged to have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen or destroyed. When authorizing such issue of a new certificate
or certificates, the Board may, in its discretion and as a condition precedent
to the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
5.5 TRANSFERS OF STOCK. Upon surrender to the Corporation, or the transfer
------------------
agent of the Corporation, of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
5.6 FIXING RECORD DATE. In order that the Corporation may determine the
------------------
stockholders entitled to notice of or to vote at any meeting of the
stockholders, or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board may fix a record date
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board may fix a new record date for the adjourned meeting.
13
<PAGE>
5.7 REGISTERED STOCKHOLDERS. The Corporation shall be entitled to treat
-----------------------
the holder of record of any share or shares of stock as the holder in fact
thereof and accordingly shall not be bound to recognize any equitable or other
claim or interest in such share on the part of any other person, whether or not
it shall have express or other notice thereof, save as expressly provided by the
laws of the State of Delaware.
ARTICLE 6
GENERAL PROVISIONS
------------------
6.1 DIVIDENDS. Dividends upon the capital stock of the Corporation, subject to
---------
the provisions of the Certificate of Incorporation, if any, may be declared by
the Board at any regular or special meeting, pursuant to law. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation.
6.2 PAYMENT OF DIVIDENDS. Before payment of any dividend there may be set
--------------------
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve fund to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interests of the
Corporation, and the directors may abolish any such reserve.
6.3 CHECKS. All checks or demands for money and notes of the Corporation
------
shall be signed by such officer or officers as the Board may from time to time
designate.
6.4 FISCAL YEAR. The fiscal year of the Corporation shall be fixed by
-----------
resolution of the Board.
6.5 CORPORATE SEAL. The corporate seal shall have inscribed thereon the
--------------
name of the Corporation, the year of its organization and the words "Corporate
Seal, Delaware". Said seal may be used by causing it or a facsimile thereof to
be impressed or affixed or reproduced or otherwise.
6.6 MANNER OF GIVING NOTICE. Whenever, under the provisions of the statutes
-----------------------
or of the Certificate of Incorporation or of these Bylaws, notice is required to
be given to any director or stockholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail, addressed to
such director or stockholder, at his address as it appears on the records of the
Corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
6.7 WAIVER OF NOTICE. Whenever any notice is required to be given under the
----------------
provisions of the statutes or of the Certificate of Incorporation or of these
Bylaws, a
14
<PAGE>
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time therein, shall be deemed to be
equivalent.
6.8 ANNUAL STATEMENT. The Board shall present at each annual meeting, and
----------------
at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
Corporation.
ARTICLE 7
AMENDMENTS
----------
7.1 AMENDMENT BY DIRECTORS OR STOCKHOLDERS. The Board is expressly empowered
--------------------------------------
to adopt, amend or repeal Bylaws of the Corporation, without the approval of the
stockholders. Any adoption, amendment or repeal of Bylaws of the Corporation by
the Board shall require the approval of a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any resolution providing for adoption,
amendment or repeal is presented to the Board). The stockholders shall also
have power to adopt, amend or repeal the Bylaws of the Corporation. In addition
to any vote of the holders of any class or series of stock of the Corporation
required by law or by the Certificate of Incorporation, the affirmative vote of
the holders of at least fifty percent (50%) of the outstanding shares of Common
Stock of the Corporation shall be required to adopt, amend or repeal any
provisions of the Bylaws of the Corporation.
15
<PAGE>
CERTIFICATE OF SECRETARY
OF
U.S. RENTALS, INC.
a Delaware corporation
I certify that:
(1) I am the duly elected and acting Chief Financial Officer and
Assistant Secretary of U.S. Rentals, Inc., a Delaware corporation; and
(2) The foregoing Bylaws, comprising fifteen (15) pages, constitute
the Bylaws of said Corporation as duly adopted by Unanimous Written Consent of
the Board of Directors of said Corporation as of __________________, 1997.
IN WITNESS WHEREOF, I have hereunto subscribed my name this _______
day of ____________, 1997.
--------------------------------------
John S. McKinney
Chief Financial Officer and
Assistant Secretary
<PAGE>
Temporary Certificate--Exchangeable for Definitive Engraved Certificate
When Ready for Delivery
COMMON STOCK COMMON STOCK
USR [LOGO OF U.S. RENTALS, INC.]
U.S. RENTALS, INC.
SEE REVERSE FOR CERTAIN DEFINITIONS AND A
STATEMENT AS TO THE RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS ON SHARES
CUSIP 902966 10 0
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE PER
SHARE, OF
U.S. RENTALS, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsmilie signatures
of its duly authorized officers.
Dated:
/s/ William F. Berry [SEAL OF U.S. RENTALS, INC.] /s/ R.D. COLBURN
PRESIDENT AND CHAIRMAN
CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ AMERICAN BANK NOTE COMPANY JAN 17, 1997 dw +
+ 3504 ATLANTIC AVENUE +
+ SUITE 12 +
+ LONG BEACH, CA 90807 048458fc +
+ (310) 989-2333 +
+ (FAX) (310) 426-7450 270-19X proof /s/ FM REV 2 +
+ ------ +
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
<PAGE>
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of determination, the
number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge at
the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- ................... Custodian ...................
(Cust) (Minor)
under Uniform Gifts to Minors
Act .............................................
(State)
UNIF TRF MIN ACT -- ................... Custodian (until age .......)
(Cust)
......................... under Uniform Transfers
(Minor)
to Minors Act ...................................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _________________ hereby sell(s), assign(s) and
transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
++++++++++++++++++++++++++++++++++++++++
+ +
+ +
++++++++++++++++++++++++++++++++++++++++
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _____________________
X ___________________________________________________
X ___________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By ____________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
++++++++++++++++++++++++++++++++++++++++++++++++++
+ AMERICAN BANK NOTE COMPANY JAN 16, 1997 dw +
+ 3504 ATLANTIC AVENUE +
+ SUITE 12 +
+ LONG BEACH, CA 90807 048458bk +
+ (310) 989-2333 +
+ (FAX) (310) 426-7450 proof /s/ SE NEW +
+ ------ +
++++++++++++++++++++++++++++++++++++++++++++++++++
<PAGE>
INDEMNIFICATION AGREEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions............................................................. 1
-----------
2. Indemnification......................................................... 2
---------------
2.1 Indemnification in Third Party Actions............................ 2
2.2 Indemnification in Proceedings By or In the Name of the Company... 2
2.3 Partial Indemnification........................................... 2
2.4 Indemnification Hereunder Not Exclusive........................... 3
2.5 Indemnification of Indemnified Costs of Successful Party.......... 3
2.6 Indemnified Costs Advanced........................................ 3
2.7 Limitations on Indemnification.................................... 3
3. Presumptions............................................................ 4
------------
3.1 Presumption Regarding Standard of Conduct......................... 4
3.2 Determination of Right to Indemnification......................... 4
3.2.1 Burden.................................................... 4
3.2.2 Standard.................................................. 4
4. Other Agreements........................................................ 4
----------------
4.1 Change in Control................................................. 4
4.2 Maintenance of Liability Insurance................................ 5
4.2.1 Affirmative Covenant of the Company....................... 5
4.2.2 Indemnitee Named as Insured............................... 5
4.3 Agreement to Serve................................................ 5
4.4 Effect of this Agreement on Employment Agreement.................. 5
4.5 Nature of Rights; Separability.................................... 6
4.6 Savings Clause.................................................... 6
4.7 Repayment of Indemnified Costs.................................... 6
4.8 Repayment......................................................... 6
5. Indemnification Procedure............................................... 6
-------------------------
5.1 Notice............................................................ 6
5.2 Company Participation............................................. 6
5.3 Settlement........................................................ 7
5.4 Subrogation....................................................... 7
6. Miscellaneous Provisions................................................ 7
------------------------
6.1 Amendments; Waivers............................................... 7
6.2 Integration....................................................... 7
6.3 Interpretation; Governing Law..................................... 7
6.4 Headings.......................................................... 8
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
6.5 Counterparts.................................................... 8
6.6 Successors and Assigns.......................................... 8
6.7 Expenses; Legal Fees............................................ 8
6.8 Representation by Counsel; Interpretation....................... 8
6.9 Specific Performance............................................ 8
6.10 Time is of the Essence.......................................... 8
6.11 Notices......................................................... 8
</TABLE>
ii
<PAGE>
U.S. RENTALS, INC.
INDEMNIFICATION AGREEMENT
-------------------------
This Indemnification Agreement (this "AGREEMENT") is made as of __________,
1997, by and between U.S. Rentals, Inc., a Delaware corporation (the "COMPANY"),
and the individual whose name appears below the word "Indemnitee" on the
signature page (the "INDEMNITEE"). In consideration of the services of the
Indemnitee, and to induce the Indemnitee to continue to serve as a director
and/or officer, the Company and the Indemnitee agree as follows:
R E C I T A L S
A. The Indemnitee has agreed to serve as a director and/or officer of the
Company and in such capacity will render valuable services to the
Company.
B. The Company has concluded that insurance and statutory indemnity
provisions may provide inadequate protection to individuals requested
to serve as its directors and officers.
C. To induce and encourage the Indemnitee to serve as a director and/or
officer of the Company, the Company's Board of Directors has decided
that this Agreement is not only reasonable and prudent, but necessary,
to promote and ensure the best interests of the Company and its
stockholders.
1. DEFINITIONS
-----------
As used in this Agreement:
"AGENT" means a director, officer, employee or agent of the Company or of any
other corporation, partnership, joint venture, trust, employee benefit plan, or
other enterprise that the Indemnitee served in any of such capacities at the
request of the Company.
"CHANGE IN CONTROL" has the meaning set forth in the Company's 1997 Performance
Award Plan.
"EXPENSES" includes, but is not limited to, attorneys' fees, disbursements and
retainers, accounting and witness fees, travel and deposition costs, expenses of
investigations and amounts paid in settlement by or on behalf of the Indemnitee,
and any expenses of establishing a right to indemnification pursuant to this
Agreement, to the extent actually and reasonably incurred by the Indemnitee in
connection with any Proceeding. "EXPENSES" does not include the amount of
judgments, fines, penalties or ERISA excise taxes actually levied against the
Indemnitee.
1
<PAGE>
"INDEMNIFIED COSTS" means all Expenses, judgments, fines, penalties and ERISA
excise taxes actually and reasonably incurred by the Indemnitee in connection
with the investigation, defense, appeal, or settlement of any Proceeding.
A "POTENTIAL CHANGE IN CONTROL" will be deemed to have occurred if:
(a) the Company enters into an agreement or arrangement that would
constitute a Change in Control if consummated;
(b) any person (including the Company) publicly announces an intention to
take or to consider taking actions that would constitute a Change in
Control if consummated; or
(c) the Board of Directors adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has
occurred.
"PROCEEDING" means any threatened, pending or completed action, suit or
proceeding (including appeals thereof), whether brought by or in the name of the
Company or otherwise and whether of a civil, criminal or administrative or
investigative nature, in which the Indemnitee is or will be a party at the time
because the Indemnitee is or was an Agent, whether or not the Indemnitee is
serving in such capacity at the time any liability or Expense is incurred for
which indemnification or reimbursement is to be provided under this Agreement.
2. INDEMNIFICATION
---------------
2.1 INDEMNIFICATION IN THIRD PARTY ACTIONS. The Company will indemnify the
--------------------------------------
Indemnitee if the Indemnitee becomes a party to, is threatened to be made a
party to, is a witness or other participant in, or is otherwise involved in
any Proceeding (other than a Proceeding by or in the name of the Company to
procure a judgment in its favor), because the Indemnitee is or was an
Agent, against all Indemnified Costs, to the fullest extent permitted by
applicable law. Any settlement must be approved in writing by the Company.
2.2 INDEMNIFICATION IN PROCEEDINGS BY OR IN THE NAME OF THE COMPANY. The
---------------------------------------------------------------
Company will indemnify the Indemnitee if the Indemnitee is a party to, is
threatened to be made a party to, is a witness or other participant in, or
is otherwise involved in any Proceeding by or in the name of the Company to
procure a judgment in its favor because the Indemnitee was or is an Agent
of the Company against all Expenses in connection with the defense or
settlement of the Proceeding, to the fullest extent permitted by applicable
law.
2.3 PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under any provision
-----------------------
of this Agreement to indemnification by the Company for some or a portion
of, but not the total
2
<PAGE>
amount of, the Indemnified Costs, the Company will nevertheless indemnify
the Indemnitee for the portion of the Indemnified Costs to which the
Indemnitee is entitled.
2.4 INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The indemnification provided by
---------------------------------------
this Agreement is not exclusive of any other rights to which the Indemnitee
may be entitled under the Certificate of Incorporation, the Bylaws, any
agreement, any vote of stockholders or disinterested directors, applicable
law, or otherwise, both as to action in the Indemnitee's official capacity
and as to action in another capacity on behalf of the Company.
2.5 INDEMNIFICATION OF INDEMNIFIED COSTS OF SUCCESSFUL PARTY. Notwithstanding
--------------------------------------------------------
any other provisions of this Agreement, to the extent that the Indemnitee
has been successful in defense of any Proceeding or in defense of any
claim, issue or matter in the Proceeding, on the merits or otherwise,
including, but not limited to, the dismissal of a Proceeding without
prejudice, the Indemnitee will be indemnified against all Indemnified Costs
incurred in connection therewith to the fullest extent permitted by
applicable law.
2.6 INDEMNIFIED COSTS ADVANCED. The Indemnified Costs incurred by the
--------------------------
Indemnitee in any Proceeding will be paid promptly by the Company in
advance of the final disposition of the Proceeding at the written request
of the Indemnitee to the fullest extent permitted by applicable law. The
advances to be made will be paid by the Company to the Indemnitee within
(30) days following delivery of the written request by Indemnitee to the
Company, accompanied by substantiated documentation.
2.7 LIMITATIONS ON INDEMNIFICATION. The Company is not required to make
------------------------------
payments to:
(a) indemnify or advance Indemnified Costs with respect to Proceedings
initiated or brought voluntarily by the Indemnitee and not by way of
defense, except with respect to Proceedings brought to establish or
enforce a right to indemnification under this Agreement or any other
statute or law or otherwise as required under applicable law;
(b) indemnify the Indemnitee for any Indemnified Costs for which payment
is actually made to the Indemnitee under an insurance policy, except
for any excess beyond the amount of payment under the policy;
(c) indemnify the Indemnitee for any Indemnified Costs sustained in any
Proceeding for an accounting of profits made from the purchase or sale
by the Indemnitee of securities of the Company pursuant to Section
16(b) of the Securities Exchange Act of 1934, as amended, the rules
and regulations promulgated thereunder and amendments thereto or
similar provisions of any federal, state or local law;
(d) indemnify the Indemnitee for any Indemnified Costs resulting from
Indemnitee's conduct that is finally adjudged by a court of competent
jurisdiction to have been willful misconduct, knowingly fraudulent or
deliberately dishonest; or
3
<PAGE>
(e) indemnify the Indemnitee if a court of competent jurisdiction finally
determines that such payment is unlawful.
3. PRESUMPTIONS
------------
3.1 PRESUMPTION REGARDING STANDARD OF CONDUCT. The Indemnitee will be
-----------------------------------------
conclusively presumed to have met the relevant standards of conduct as
defined by applicable law for indemnification pursuant to this Agreement
unless a determination that the Indemnitee has not met the relevant
standards is made by (a) the Board of Directors of the Company by a
majority vote of a quorum consisting of directors who are not parties to
the Proceeding, (b) the stockholders of the Company by majority vote, or
(c) in a written opinion by independent legal counsel, selection of whom
has been made by the Company's Board of Directors and approved by the
Indemnitee.
3.2 DETERMINATION OF RIGHT TO INDEMNIFICATION.
-----------------------------------------
3.2.1 BURDEN. If a claim under this Agreement is not paid by the Company
------
within 30 days of receipt of written notice, the right to
indemnification as provided by this Agreement will be enforceable by
the Indemnitee in any court of competent jurisdiction. The burden of
proving by clear and convincing evidence that indemnification or
advances are not appropriate will be on the Company. Neither the
failure of the directors, stockholders, or independent legal counsel
to have made a determination prior to the commencement of the action
that indemnification or advances are proper in the circumstances
because the Indemnitee has met the applicable standard of conduct,
nor an actual determination by the directors, stockholders or
independent legal counsel that the Indemnitee has not met the
applicable standard of conduct, will be a defense to the action or
create a presumption that the Indemnitee has not met the applicable
standard of conduct.
3.2.2 STANDARD. The Indemnitee's Expenses incurred in connection with any
--------
Proceeding concerning the Indemnitee's right to indemnification or
advances in whole or in part pursuant to this Agreement will also be
indemnified by the Company regardless of the outcome of the
Proceeding, unless a court of competent jurisdiction determines that
each of the material assertions made by the Indemnitee in the
Proceeding was not made in good faith or was frivolous.
4. OTHER AGREEMENTS
----------------
4.1 CHANGE IN CONTROL. If there is a Change in Control or a Potential Change
-----------------
in Control of the Company (other than a Change in Control or Potential
Change in Control that has been approved by a majority of the Company's
Board of Directors who were directors immediately prior to the Change in
Control or Potential Change in Control), then with
4
<PAGE>
respect to all matters thereafter arising concerning the rights of the
Indemnitee to be indemnified for Indemnified Costs, the Company will seek
legal advice only from independent counsel selected by the Indemnitee, and
reasonably satisfactory to the Company, and who has not otherwise performed
other services for the Company or the Indemnitee within the last three
years ("SPECIAL INDEPENDENT COUNSEL"). The Special Independent Counsel,
among other things, will render its written opinion to the Company and the
Indemnitee as to whether and to what extent the Indemnitee would be
permitted to be indemnified under applicable law. The Company will pay the
reasonable fees and expenses of the Special Independent Counsel.
4.2 MAINTENANCE OF LIABILITY INSURANCE.
----------------------------------
4.2.1 AFFIRMATIVE COVENANT OF THE COMPANY. While the Indemnitee continues
-----------------------------------
to serve as a director or officer of the Company, and thereafter
while the Indemnitee is subject to any possible Proceeding, the
Company will promptly obtain and maintain in full force and effect
directors' and officers' liability insurance ("D&O INSURANCE") in
reasonable amounts from reputable insurers. The Company has no
obligation, however, to obtain or maintain D&O Insurance if it
determines in good faith that insurance is not reasonably available,
the premium costs for insurance are disproportionate to the amount
of coverage provided, the coverage provided by insurance is so
limited by exclusions that it provides an insufficient benefit, or
the Indemnitee is covered by similar insurance maintained by a
subsidiary of the Company. If at the time it receives a notice a
Proceeding has commenced the Company has D&O Insurance, the Company
will give prompt notice of such commencement to the insurers as
required by the respective policies. The Company will thereafter
take all necessary or desirable action to cause such insurers to
pay, on behalf of the Indemnitee, all amounts payable as a result of
such proceeding in accordance with the terms of such policies.
4.2.2 INDEMNITEE NAMED AS INSURED. In all D&O Insurance policies, the
---------------------------
Indemnitee will be named as an insured in a manner that provides the
Indemnitee the same rights and benefits accorded to the most
favorably insured of the Company's directors and officers.
4.3 AGREEMENT TO SERVE. Indemnitee will serve or continue to serve as an Agent
------------------
of the Company for so long as the Indemnitee is duly elected or appointed
or until the Indemnitee voluntarily resigns. Indemnitee will give notice
to the Company at least thirty (30) days prior to voluntarily resigning.
4.4 EFFECT OF THIS AGREEMENT ON EMPLOYMENT AGREEMENT. Any present or future
------------------------------------------------
employment agreement between the Indemnitee and the Company is not modified
by this Agreement. Nothing contained in this Agreement creates in the
Indemnitee any right of continued employment.
5
<PAGE>
4.5 NATURE OF RIGHTS; SEPARABILITY. The rights afforded to the Indemnitee by
------------------------------
this Agreement are contract rights and may not be diminished, eliminated or
otherwise affected by amendments to the Company's Certificate of
Incorporation, Bylaws or agreements, including D&O Insurance policies.
Each provision of this Agreement is a separate and distinct agreement and
independent of the others, so that if any provision of this Agreement is
held to be invalid or unenforceable for any reason, the invalidity or
unenforceability will not affect the validity or enforceability of the
other provisions. To the extent required, any provision of this Agreement
may be modified by a court of competent jurisdiction to preserve its
validity and to provide the Indemnitee with the broadest possible
indemnification permitted under applicable law.
4.6 SAVINGS CLAUSE. If this Agreement or any portion of it is invalidated on
--------------
any ground by any court of competent jurisdiction, then the Company will
nevertheless indemnify the Indemnitee as to Indemnified Costs with respect
to any Proceeding to the full extent permitted by any applicable portion of
this Agreement that is not invalidated, or by any applicable law.
4.7 REPAYMENT OF INDEMNIFIED COSTS. The Indemnitee will reimburse the Company
------------------------------
for all Indemnified Costs paid by the Company in defending any Proceeding
against the Indemnitee if and only to the extent that a court of competent
jurisdiction finally decides that the Indemnitee is not entitled to be
indemnified by the Company for such Indemnified Costs under the provisions
of applicable law, the Company's Bylaws, Certificate of Incorporation, this
Agreement, or otherwise. The Indemnitee will repay such amounts advanced
only if, and to the extent that, it is ultimately determined that
Indemnitee is not entitled to be indemnified for such Indemnified Costs by
the Company pursuant to this Agreement.
4.8 REPAYMENT. The Indemnitee will promptly repay to the Company any amounts
---------
paid to the Indemnitee pursuant to other rights of indemnification or under
any insurance policy, to the extent those payments are duplicative of
payments under this Agreement.
5. INDEMNIFICATION PROCEDURE
-------------------------
5.1 NOTICE. Promptly after receipt of notice that a Proceeding has commenced,
------
the Indemnitee will, if a claim is to be made under this Agreement, notify
the Company of that fact. The failure to notify the Company will not
relieve it from any liability that it may have to the Indemnitee except to
the extent of the Company's material damage resulting from such failure.
5.2 COMPANY PARTICIPATION. The Company will be entitled to participate in any
---------------------
Proceeding at its own expense and, except as otherwise provided below, to
the extent that it may wish, the Company may assume the defense of any
Proceeding for which indemnification is sought hereunder, with counsel
reasonably satisfactory to the Indemnitee. After the Company notifies the
Indemnitee of the Company's election to assume the defense of a
6
<PAGE>
Proceeding, during the Company's good faith active defense the Company will
not be liable to the Indemnitee under this Agreement for any legal or other
expenses subsequently incurred by the Indemnitee in connection with the
defense of the Proceeding, other than reasonable costs of investigation or
as otherwise provided below. The Indemnitee will have the right to employ
the Indemnitee's counsel in any Proceeding, but the fees and expenses of
the counsel incurred after the Company assumes the defense of the
Proceeding will be at the expense of the Indemnitee, unless (a) the
employment of counsel by the Indemnitee has been authorized by the Company,
(b) the Indemnitee has reasonably concluded that there may be a conflict of
interest between the Company and the Indemnitee in the conduct of the
defense of a Proceeding, or (c) the Company has not in fact employed
counsel to assume the defense of a Proceeding. In each of the foregoing
cases the fees and expenses of the Indemnitee's counsel will be at the
expense of the Company. The Company will not be entitled to assume the
defense of any Proceeding brought by or on behalf of the Company or as to
which the Indemnitee has made the conclusion that there may be a conflict
of interest between the Company and the Indemnitee.
5.3 SETTLEMENT. The Company will not settle or compromise any Proceeding in
----------
any manner that would impose any penalty or limitation on the Indemnitee
without the Indemnitee's consent. The Indemnitee will not settle or
compromise any Proceeding without the Company's consent. Neither the
Company nor the Indemnitee will unreasonably withhold their consent or
approval under this Agreement.
5.4 SUBROGATION. If the Company pays Indemnified Costs, the Company will be
-----------
subrogated to the extent of such payment to all of the rights of recovery
of the Indemnitee against third parties. The Indemnitee will do all things
reasonably necessary to secure such rights, including the execution of
documents necessary to enable the Company effectively to bring suit to
enforce such rights.
6. MISCELLANEOUS PROVISIONS
------------------------
6.1 AMENDMENTS; WAIVERS. Amendments, waivers, consents and approvals under
-------------------
this Agreement must be in writing and designated as such. No failure or
delay in exercising any right will be deemed a waiver of such right.
6.2 INTEGRATION. This Agreement is the entire agreement between the parties
-----------
pertaining to its subject matter, and supersedes all prior agreements and
understandings of the parties in connection with such subject matter.
6.3 INTERPRETATION; GOVERNING LAW. This Agreement is to be construed as a
-----------------------------
whole and in accordance with its fair meaning. This Agreement is to be
interpreted in accordance with the laws of the State of Delaware relating
to indemnification of Agents.
7
<PAGE>
6.4 HEADINGS. Headings of Sections and subsections are for convenience only
--------
and are not a part of this Agreement.
6.5 COUNTERPARTS. This Agreement may be signed in one or more counterparts,
------------
all of which constitute one agreement.
6.6 SUCCESSORS AND ASSIGNS. This Agreement is binding upon and inures to the
----------------------
benefit of each party and such party's respective heirs, personal
representatives, successors and assigns. Nothing in this Agreement,
express or implied, is intended to confer any rights or remedies upon any
other person.
6.7 EXPENSES; LEGAL FEES. Each party will pay its own expenses in the
--------------------
negotiation, preparation and performance of this Agreement. The prevailing
party in any action relating to this Agreement will be entitled to
reasonable legal fees, costs and expenses incurred in such action.
6.8 REPRESENTATION BY COUNSEL; INTERPRETATION. Each party acknowledges that it
-----------------------------------------
has been given an opportunity to be represented by counsel in connection
with this Agreement. Any rule of law, including, but not limited to,
Section 1654 of the California Civil Code, or any legal decision that would
require interpretation of any claimed ambiguities in this Agreement against
the party that drafted it, has no application and is expressly waived.
6.9 SPECIFIC PERFORMANCE. The Company acknowledges that in view of the
--------------------
uniqueness of the matters contemplated by this Agreement, the Indemnitee
would not have an adequate remedy at law for money damages if this
Agreement is not being performed in accordance with its terms. The Company
therefore agrees that the Indemnitee will be entitled to specific
enforcement of the terms hereof in addition to any other remedy to which
the Indemnitee may be entitled.
6.10 TIME IS OF THE ESSENCE. Time is of the essence in the performance of each
----------------------
provision of this Agreement.
6.11 NOTICES. Any notice to be given hereunder must be in writing and delivered
-------
as follows (or to another address designated in writing):
IF TO U.S. RENTALS, INC.: IF TO THE INDEMNITEE:
- ------------------------ --------------------
1581 Cummins Drive, Suite 155 At the Indemnitee's most recent address
Modesto, California 95358 on the books and records of the Company
Attention: President
8
<PAGE>
The parties have signed this Agreement as of the date on page one.
INDEMNITEE
--------------------------------------
Print Name:
-------------------------
U.S. RENTALS, INC.
By:
---------------------------------
Title:
------------------------------
S-1
<PAGE>
REGISTRATION RIGHTS AGREEMENT
BETWEEN
U.S. RENTALS, INC.
A DELAWARE CORPORATION
AND
USR HOLDINGS, INC.
A CALIFORNIA CORPORATION
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
1. Certain Definitions.................................................... 1
-------------------
2. Registration Rights.................................................... 3
-------------------
2.1 Demand Registration.............................................. 3
2.1.1 Size of Offering......................................... 3
2.1.2 Company Participation.................................... 3
2.1.3 Delay.................................................... 4
2.2 "Piggyback" Registration......................................... 5
2.2.1 Notice................................................... 5
2.2.2 Underwritten Offering.................................... 5
2.2.3 Best Efforts............................................. 5
2.2.4 Withdrawals.............................................. 6
2.3 Selection of Underwriters........................................ 6
3. Registration Procedures................................................ 6
-----------------------
3.1 Copies; Review................................................... 6
3.2 Amendments....................................................... 6
3.3 Notification..................................................... 7
3.4 Information Included............................................. 7
3.5 Copies........................................................... 8
3.6 Blue Sky Registration............................................ 8
3.7 Other Registrations.............................................. 8
3.8 Certificates..................................................... 8
3.9 Other Actions.................................................... 8
3.10 Due Diligence.................................................... 9
3.11 Section 11(a) Notice............................................. 9
3.12 Expenses......................................................... 9
4. Indemnification........................................................ 9
---------------
4.1 Indemnification by the Company................................... 9
4.2 Indemnification by Holder of Registrable Securities.............. 10
4.3 Contribution..................................................... 11
4.4 Conduct of Indemnification Proceedings........................... 11
5. Other Agreements....................................................... 12
----------------
5.1 Holdback Agreements.............................................. 12
5.1.1 Restrictions on Public Sale by the Company............... 12
5.1.2 Restrictions on Public Sale by the Holder................ 12
5.2 Rule 144......................................................... 12
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
5.3 Representations and Warranties................................... 12
5.3.1 Validity................................................. 12
5.3.2 No Inconsistent Agreements............................... 13
5.3.3 Furnish Information...................................... 13
5.3.4 Assignment............................................... 13
6. Miscellaneous Provisions............................................... 13
------------------------
6.1 Amendments; Waivers.............................................. 13
6.2 Integration...................................................... 13
6.3 Interpretation; Governing Law.................................... 13
6.4 Headings......................................................... 13
6.5 Counterparts..................................................... 14
6.6 Successors and Assigns........................................... 14
6.7 Expenses; Legal Fees............................................. 14
6.8 Representation by Counsel; Interpretation........................ 14
6.9 Specific Performance............................................. 14
6.10 Time is of the Essence........................................... 14
6.11 Notices.......................................................... 14
</TABLE>
(ii)
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT"), is entered into
as of January __, 1997, between U.S. Rentals, Inc., a Delaware corporation (the
"COMPANY"), and USR Holdings, Inc., a California corporation (the "HOLDER"). The
parties agree as follows.
RECITALS
--------
A. The Holder owns shares of the Company's Common Stock (the "COMMON
STOCK").
B. The Common Stock was issued without registration under the
Securities Act, and therefor, its resale by the Holder is subject
to restrictions under the Securities Act.
C. In connection with the Company's initial Offering of its Common
Stock the Company has agreed to enter into this Agreement with
the Holder.
1. CERTAIN DEFINITIONS
-------------------
As used in this Agreement:
"AFFILIATE" means any Person directly or indirectly controlling or controlled by
or under direct or indirect common control with another Person.
"BUSINESS DAY" means any day that commercial banks are not authorized or
required to close in Los Angeles, California.
"COMMISSION" means the Securities and Exchange Commission or any other similar
or successor agency of the United States government administering the Securities
Act.
"COMMON STOCK" means the Common Stock of the Company, par value $0.01 per share.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, and any similar or
successor federal statute, and the rules and regulations of the Commission
thereunder, as in effect at the time.
"OFFERING" means the registration of the Company's securities under the
Securities Act, whether underwritten or not, for sale to the public.
"S-3 REGISTRATION STATEMENT" means a Registration Statement on Form S-3.
1
<PAGE>
"PERMITTED TRANSFEREE" means
(a) any entity all of the equity of which is directly or indirectly owned
by the transferor;
(b) in the case of a transferor who is an individual, (i) such
transferor's spouse and lineal descendants, (ii) such transferor's
successors, personal representatives and heirs, (iii) any trustee of
any trust created primarily for the benefit of any, some or all of
such spouse and lineal descendants (but that may include beneficiaries
that are charities) or of any revocable trust created by such
transferor, (iv) following the death of such transferor, all
beneficiaries under either such trust, (v) the transferor, in the case
of a transfer from any Permitted Transferee back to its transferor and
(vi) any entity all of the equity of which is directly or indirectly
owned by any of the foregoing; or
(c) any charitable or educational organization that is exempt from federal
income taxes.
"PERSON" means a corporation, an association, a trust, a partnership, a limited
liability company, a joint venture, an organization, a business, an individual,
a government or political subdivision thereof, or a governmental body.
"PROSPECTUS" means the prospectus included in any Registration Statement,
together with and including any amendment or supplement to such prospectus,
covering the Offering of any portion of the Registrable Securities covered by a
Registration Statement, and all material incorporated by reference in such
Prospectus.
"REGISTRABLE SECURITIES" means shares of the Common Stock held by the Holder or
otherwise acquired by the Holder (collectively, the "SHARES") and any securities
issued or issuable with respect to the Shares by way of a stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation, reclassification or other reorganization. A security
will cease to be a Registrable Security when it (a) has been effectively
registered under the Securities Act and disposed of in accordance with the
Registration Statement covering it, (b) is distributed to the public pursuant to
Rule 144 (or any similar rule then in force) under the Securities Act or (c) has
otherwise been transferred and a new certificate not bearing a restrictive
legend and not subject to any stop transfer order lawfully has been delivered by
or on behalf of the Company and no other restriction on transfer exists.
"REGISTRATION STATEMENT" means a registration statement filed by the Company
with the Commission covering Registrable Securities.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any similar
federal statute, together with the rules and regulations of the Commission
promulgated thereunder, as in effect at the time.
2
<PAGE>
Other Definitions. The following terms have the meanings set forth in the
- -----------------
following sections:
<TABLE>
<CAPTION>
Definition Section
---------- -------
<S> <C>
"COMPANY" Introduction
"CONTROLLING PERSON" 6.1
"DEMAND NOTICE" 2.1
"DEMAND REGISTRATION STATEMENT" 2.1
"COMMON STOCK" Recitals
"OTHER SHARES" 2.1.2
"PIGGYBACK NOTICE" 2.2.1
"PIGGYBACK REGISTRATION STATEMENT" 2.2
"REGISTRATION EXPENSES" 5
"SHARES" 1
</TABLE>
2. REGISTRATION RIGHTS
-------------------
2.1 DEMAND REGISTRATION. Commencing six months after the initial Offering of
-------------------
the Common Stock, the Holder may, by notice to the Company (the "DEMAND
NOTICE"), demand that the Company file, and the Company will file, a
Registration Statement as soon as practicable covering the Registrable
Securities specified in the Demand Notice (a "DEMAND REGISTRATION STATEMENT").
Such Demand Registration Statement will be filed on an appropriate form under
the Securities Act, no later than 90 days after the Company receives the Demand
Notice. The Company is only required to file two Demand Registration Statements
(other than on Form S-3). In addition, the Holder will be entitled at any time
while the Company is eligible to file Registration Statements on Form S-3, to
demand that the Company file and cause to be declared effective S-3 Registration
Statements as provided herein. The Company will use its best efforts to cause
any Demand Registration Statement to be declared effective on the date requested
by the managing underwriter for the Offering (no earlier than 60 days from the
date of the Demand Notice), or, if such Offering is not underwritten, as soon as
practicable after the filing with the Commission. The Company will keep such
Demand Registration Statement effective until the Offering is completed (but not
more than 180 days from the effective date of the Demand Registration
Statement).
2.1.1 SIZE OF OFFERING. The Holder will not make a Demand Notice unless
----------------
the proposed size of the Offering is at least $10,000,000 (based
upon the reported trading price of the Registrable Securities at the
time of the Demand Notice).
2.1.2 COMPANY PARTICIPATION. The Company can elect to register equity
---------------------
securities of the Company in any Demand Registration Statement or to
participate in the Offering, by including any of its equity
securities in the Demand Registration Statement, subject to the
following:
3
<PAGE>
(a) NOTICE. The Company must give notice of such election to the
------
Holder within 15 days after the Demand Notice was given to it,
including the number of Shares proposed to be sold by the
Company in the Offering (the "OTHER SHARES");
(b) CONDITIONS. The Company must agree to sell such Other Shares on
----------
the same basis provided in the underwriting arrangements
approved by the Holder and the Company (including standard
indemnification provisions) and to timely complete and execute
all questionnaires, powers of attorney, indemnities, holdback
agreements, underwriting agreements and other documents
reasonably required by such underwriting arrangements, by the
Commission, or by any state securities regulatory body;
(c) LIMITATION ON AMOUNT. The number of Other Shares that may be
--------------------
sold by the Company will be limited if the managing underwriter
decides that market conditions require a limitation. In such
event, the number of shares of Common Stock that may be sold in
the Offering will be allocated first to the Holder, second, to
the extent available, to the Company, and, third, to the extent
available, to any other party having registration rights with
respect to the Common Stock.
2.1.3 DELAY. The Company may delay the filing of a Demand Registration
-----
Statement if upon receipt of the Demand Notice (a) the Company
notifies the Holder that it is contemplating filing a registration
statement within 120 days of such demand, (b) the Company notifies
the Holder that a material event has occurred or is likely to occur
that has not been publicly disclosed that, if disclosed, would have
a material adverse effect on the Company and its ability to
consummate the Offering under the Demand Registration Statement, or
(c) the Company decides that the registration and offering could
interfere with any material financing, acquisition, disposition,
corporate reorganization or other material transaction involving the
Company or its subsidiaries. In the case of clause (a) of this
subsection, the Company will use its best efforts, as soon as
practicable, upon the earlier of the Company's abandonment of its
contemplated registration statement or the expiration of the 120-day
period to file the Demand Registration Statement, unless such Demand
Notice is withdrawn by the Holder. In the case of clause (b) or
clause (c), the Company may not delay the filing of the Demand
Registration Statement for more than 120 days from the date of the
Demand Notice unless such Demand Notice is withdrawn by the Holder.
The Company cannot exercise the foregoing rights of postponement
more than once in any 12-month period. If there is a postponement
under any clause above, the Demand Notice may be withdrawn by the
Holder by notice to the Company. In such case, no Demand Notice will
have been delivered for the purposes of Section 2.1.
4
<PAGE>
2.2 "PIGGYBACK" REGISTRATION. If at any time, or from time to time, the
------------------------
Company decides to file a Registration Statement covering any shares of its
Common Stock (other than a registration statement on Form S-4 or S-8, or
any form substituted therefor) for its own account or for the account of
any stockholder (a "PIGGYBACK REGISTRATION STATEMENT"), the Holder will be
entitled to include Registrable Securities in such registration and related
Offering on the following terms and conditions.
2.2.1 NOTICE. The Company will promptly give notice of such decision to
------
the Holder (a "PIGGYBACK NOTICE"). The Holder will have the right to
request, by notice to the Company within ten (10) Business Days
after it receives the Piggyback Notice, that a specific number of
Registrable Securities held by the Holder be included in the
Piggyback Registration Statement and related underwritten Offering.
If the Piggyback Registration Statement relates to an underwritten
Offering, the Piggyback Notice must specify the name of the managing
underwriter for such Offering. The Piggyback Notice must also
specify the number of shares to be registered for the account of the
Company and for the account of any stockholder, and the intended
method of disposition of such shares.
2.2.2 UNDERWRITTEN OFFERING. If the Piggyback Registration Statement
---------------------
relates to an underwritten Offering, as a condition to participation
in such Piggyback Registration Statement the Holder must agree to
sell its Registrable Securities on the same basis provided in the
underwriting arrangements approved by the Company (including
standard indemnification provisions) and to timely complete and
execute all questionnaires, powers of attorney, indemnities,
holdback agreements, underwriting agreements and other documents
required under the terms of such underwriting arrangements, by the
Commission or by any state securities regulatory body.
2.2.3 BEST EFFORTS. The Company will use its best efforts to include in
------------
the Piggyback Registration Statement the number of Registrable
Securities requested in response to the Piggyback Notice. If the
managing underwriter for any underwritten Offering under the
Piggyback Registration Statement reasonably decides that inclusion
of all or any portion of the Holder's specified Registrable
Securities in such Offering would materially and adversely affect
the ability of the underwriters to sell all of the securities
requested to be included in such Offering, and delivers to the
Holder its written opinion to such effect, the number of securities
that may be sold in such Offering will be limited. Securities to be
sold will be allocated first to the Company (or, if the Offering is
being made principally for the account of another Person, to such
Person), second to the Holder, and, third, to any other party having
registration rights with respect to the Common Stock.
5
<PAGE>
2.2.4 WITHDRAWALS. The Holder will have the right to withdraw its
-----------
Registrable Securities from the Piggyback Registration Statement,
but if it relates to an underwritten Offering, it may only do so
during the time period and on terms agreed upon by the Holder and
the underwriters for such underwritten Offering. The Company will,
on five (5) Business Days notice to the Holder, have the right to
withdraw any Piggyback Registration Statement at any time prior to
the effective date thereof.
2.3 SELECTION OF UNDERWRITERS. If the Registrable Securities covered by a
-------------------------
Demand Registration Statement are to be sold in an underwritten Offering,
the managing underwriter of such Offering may be designated by the Holder.
Such underwriter must be reasonably acceptable to the Company. If the
Registrable Securities included in a Piggyback Registration Statement are
to be sold in an underwritten Offering, the managing underwriter of such
Offering will be designated by the Company.
3. REGISTRATION PROCEDURES
-----------------------
The Company will use its best efforts to effect any registration under
Section 2 in a manner that permits the sale of the Registrable Securities
covered thereby in accordance with the intended method or methods of
disposition. The Company will, as promptly as practicable, do the following.
3.1 COPIES; REVIEW. At least five (5) Business Days before filing a
--------------
Registration Statement or Prospectus, the Company will furnish to the
Holder (if the Holder is participating in such Registration Statement) (the
"REGISTERING HOLDER") and the underwriters, if any, copies of all such
documents proposed to be filed. Such documents will be subject to the
review of the Registering Holder and such underwriters (and their
respective counsel). The Company will not file any Registration Statement
or any Prospectus to which the Registering Holder or the underwriters, if
any, reasonably object. If the Registration Statement is a Piggyback
Registration Statement relating to an underwritten Offering and the
underwriters do not agree with such objection by the Registering Holder,
and the Registering Holder is permitted to withdraw its Registrable
Securities from such Offering, the Company can file the Piggyback
Registration Statement notwithstanding such objection by the Registering
Holder.
3.2 AMENDMENTS. The Company will (a) prepare and file with the Commission
----------
such amendments and post-effective amendments to the Registration Statement
as may be necessary to keep the Registration Statement effective for the
applicable time period required herein, (b) cause the Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented
to be filed pursuant to Rule 424 under the Securities Act, and (c) comply
with the provisions of the Securities Act with respect to the disposition
of all securities covered by such Registration Statement during the
applicable period in accordance with the intended methods of disposition by
the Registering Holder set forth in such Registration Statement or
Prospectus supplement.
6
<PAGE>
3.3 NOTIFICATION. The Company will promptly notify the Registering Holder and
------------
the managing underwriters, and (if requested by any such Person) confirm
such notification in writing, (a) when the Prospectus has been filed, and,
with respect to the Registration Statement, when it has become effective,
(b) of any request by the Commission for amendments or supplements to the
Registration Statement or the Prospectus or for additional information, (c)
of the issuance of any stop order suspending the effectiveness of the
Registration Statement, or the refusal or suspension of qualification of
registration of Registrable Securities, or the initiation of any
proceedings for that purpose, (d) if at any time the representations and
warranties of the Company contemplated by Section 8 cease to be true and
correct, and (e) of any event that makes any material statement made in the
Registration Statement, the Prospectus or any document incorporated therein
by reference untrue or that requires the making of any changes in the
Registration Statement, the Prospectus or any document incorporated therein
by reference in order to make the statements therein not misleading in any
material respect. The Company will make every reasonable effort to obtain
the withdrawal of any order suspending the effectiveness of the
Registration Statement at the earliest possible moment. If any event
contemplated by clause (e) occurs, the Company will promptly prepare a
supplement or post-effective amendment to the Registration Statement or the
Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers
of the Registrable Securities, the Prospectus will not contain an untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein not misleading. Upon receipt of any notice
from the Company that any event of the kind described in clause (e) has
happened, the Registering Holder will discontinue offering the Registrable
Securities until the Registering Holder receives the copies of the
supplemented or amended Prospectus contemplated by the previous sentence,
or until it is advised in writing by the Company that the use of the
Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the Prospectus.
The period during which distribution of the Shares is suspended will not be
counted toward completion of the required period of effectiveness for any
Registration Statement.
3.4 INFORMATION INCLUDED. If requested by the managing underwriters or the
--------------------
Registering Holder, the Company will immediately incorporate in a
Prospectus supplement or post-effective amendment such information as the
managing underwriters and the Registering Holder agree should be included
therein relating to the sale of the Registrable Securities, including, but
not limited to, information with respect to the number of Registrable
Securities being sold to such underwriters or other Persons, the purchase
price being paid therefor by such underwriters or other Persons and any
other terms of the distribution of the Registrable Securities to be sold in
such Offering. Such information will include, if applicable, any required
disclosure of arrangements with underwriters. The Company will make all
required filings of such Prospectus supplement or post-effective amendment
as promptly as practicable after being notified of the matters to be
incorporated in such Prospectus supplement or post-effective amendment.
7
<PAGE>
3.5 COPIES. The Company will (a) promptly furnish to the Registering Holder
------
and each managing underwriter without charge, at least one signed copy of
the Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, all documents incorporated
therein by reference and all exhibits (including those incorporated by
reference), and (b) promptly deliver to the Registering Holder and the
underwriters without charge, as many copies of the Prospectus (including
each preliminary Prospectus) and any amendment or supplement thereto as
such Persons may reasonably request. The Company consents to the use of the
Prospectus or any amendment or supplement thereto by the Registering Holder
and the underwriters in connection with the Offering and sale of the
Registrable Securities covered by the Prospectus or any amendment or
supplement thereto.
3.6 BLUE SKY REGISTRATION. Prior to any Offering of Registrable Securities
---------------------
covered by a Registration Statement under Section 2, the Company will
register or qualify or cooperate with the Registering Holder, the
underwriters and their respective counsel in connection with the
registration or qualification of such Registrable Securities under the
securities or blue sky laws of such jurisdictions as the Registering Holder
or underwriter reasonably request in writing, and do any and all other acts
or things necessary or advisable to enable the disposition in such
jurisdictions of such Registrable Securities. The Company will not be
required to take any actions under this subsection if such actions would
require it to submit to the general taxation of such jurisdiction or to
file therein any general consent to service of process, unless this
limitation means that the Registrable Securities would not be qualified (or
exempt from qualification) for offer and sale in at least 20 states.
3.7 OTHER REGISTRATIONS. The Company will use its best efforts to cause the
-------------------
Registrable Securities covered by the Registration Statement to be
registered with or approved by such governmental agencies or authorities
other than the Commission and state securities regulatory bodies as may be
necessary to enable the Registering Holder or the underwriters to
consummate the disposition of such Registrable Securities.
3.8 CERTIFICATES. The Company will cooperate with the Registering Holder and
------------
the managing underwriter to facilitate the timely preparation and delivery
of certificates representing Registrable Securities to be sold that do not
bear any restrictive legends. Such certificates will be in such
denominations and registered in such names as the managing underwriter
requests at least two business days prior to any sale of Registrable
Securities to the underwriters.
3.9 OTHER ACTIONS. In addition, the Company will (a) make such representations
-------------
and warranties to the Registering Holder and the underwriters as are
customarily made by issuers to underwriters in primary underwritten
offerings (or as may be reasonably requested by the underwriters), (b)
obtain opinions of counsel to the Company and updates (which counsel and
opinions must be reasonably satisfactory to the Registering Holder), (c)
obtain customary "cold comfort" letters and updates from the Company's
independent certified public accountants addressed to the underwriters, and
use its best
8
<PAGE>
efforts to obtain such a letter for the Registering Holder or to obtain a
letter from such accountants authorizing the Registering Holder to rely on
such "cold comfort" letter, (d) if an underwriting agreement is entered
into, ensure that it sets forth in full the indemnification provisions and
procedures of Section 6 with respect to the Company and the Registering
Holder, and (e) deliver such documents and certificates as may be requested
by the Registering Holder and the managing underwriter to evidence
compliance with clause (a) and with any customary conditions contained in
the underwriting agreement or other agreement entered into by the Company
with the Registering Holder. The above will be done in connection with each
closing under such underwriting or similar agreement or as and to the
extent required thereunder.
3.10 DUE DILIGENCE. The Company will make available for inspection by the
-------------
Registering Holder, any underwriter participating in any, and any attorney
or accountant retained by the Registering Holder or managing underwriter,
all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors and
employees to be available to discuss and to supply all information
reasonably requested by any such person in connection with the Registration
Statement. All such records, information or documents will be subject to
standard confidentiality arrangements.
3.11 SECTION 11(a) NOTICE. The Company will make generally available to its
--------------------
stockholders earnings statements satisfying the provisions of Section 11(a)
of the Securities Act.
3.12 EXPENSES. Except as set forth in the next to last sentence of this
--------
Section, all expenses incident to the Company's performance of or
compliance with this Agreement, including, but not limited to, all
registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger expenses,
telephone and delivery expenses, and fees and disbursements of Company
counsel and of independent certified public accountants of the Company
(including the expenses of any special audit required by or incident to
such performance), will be borne by the Company. The Company will also pay
its internal expenses, the expense of any annual audit and the fees and
expenses of any Person retained by the Company. In addition, the Company
will pay all reasonable fees and disbursements of counsel to the Holder.
All such expenses are referred to as "REGISTRATION EXPENSES." All
underwriting fees and commissions with respect to an underwritten Offering,
and transfer taxes, if any, will be borne by the Holder in proportion to
the number of Registrable Securities sold by it.
4. INDEMNIFICATION
---------------
4.1 INDEMNIFICATION BY THE COMPANY. The Company will indemnify and hold
------------------------------
harmless the Holder, its officers, directors, agents (including, but not
limited to counsel) and employees and each Person who controls the Holder
(within the meaning of Section 15 of the Securities Act) (each, a
"CONTROLLING PERSON") (all of the foregoing are "INDEMNIFIED PERSONS") from
and against any and all losses, claims, damages and
9
<PAGE>
liabilities (including any investigation, legal or other expenses
("LOSSES") reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted) to
which the Indemnified Person may become subject under the Securities Act,
the Exchange Act or other federal or state statutory law or regulation, at
common law or otherwise, insofar as such Losses arise out of or are based
upon (a) any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement, Prospectus or preliminary
prospectus or any amendment or supplement thereto or the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or (b)
any violation by the Company of the Securities Act or the Exchange Act, or
other federal or state law applicable to the Company and relating to any
action or inaction required of the Company in connection with such
registration. In addition, the Company will reimburse the Indemnified
Person for any investigation, legal or other expenses incurred by such
Indemnified Person in connection with investigating or defending any such
Loss. The Company will not be liable with respect to the portion of any
such Loss that arises out of or is based upon any alleged untrue statement
or alleged omission made in such Registration Statement, preliminary
Prospectus, Prospectus, or amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by the
Indemnified Person specifically for use therein. Such indemnity will remain
in full force and effect regardless of any investigation made by or on
behalf of the Indemnified Person, and will survive the transfer of such
securities by the Indemnified Person. The Company will also indemnify
underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in the distribution, their officers
and directors and each Person who controls such Persons (within the meaning
of Section 15 of the Securities Act) to the same extent customarily
requested by such Persons in similar circumstances.
4.2 INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES. If the Holder sells
---------------------------------------------------
Registrable Securities under a Prospectus that is part of a Registration
Statement, the Holder will indemnify and hold harmless the Company, its
directors and each officer who signed such Registration Statement and each
Person who controls the Company (within the meaning of Section 15 of the
Securities Act) under the same circumstances as the foregoing indemnity
from the Company to the Holder but only to the extent that such Losses
arise out of or are based upon any untrue statement of a material fact or
omission of a material fact that was made in the Prospectus, the
Registration Statement, or any amendment or supplement thereto, in reliance
upon and in conformity with written information relating to the Holder
furnished to the Company by the Holder expressly for use therein. In no
event will the aggregate liability of the Holder exceed the amount of the
net proceeds received by the Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation. Such indemnity
will remain in full force and effect regardless of any investigation made
by or on behalf of the Company or such officer, director, employee or
Controlling Person, and will survive the transfer of such securities by the
Holder. The Company and the Holder will be entitled to receive indemnities
from underwriters, selling brokers, dealer managers and similar securities
10
<PAGE>
industry professionals participating in the distribution, to the same
extent as customarily furnished by such Persons in similar circumstances.
4.3 CONTRIBUTION. If the indemnification provided for in the foregoing
------------
Sections is unavailable to an indemnified party or is insufficient to hold
such indemnified party harmless for any Losses in respect of which the
foregoing Sections would otherwise apply by their terms (other than by
reason of exceptions provided in the foregoing Sections), then each
applicable indemnifying party, in lieu of indemnifying such indemnified
party, will have a joint and several obligation to contribute to the amount
paid or payable by such indemnified party as a result of such Losses. Such
contribution will be in such proportion as is appropriate to reflect the
relative fault of the indemnifying party, on the one hand, and such
indemnified party, on the other hand, in connection with the actions,
statements or omissions that resulted in such Losses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying
party, on the one hand, and indemnified party, on the other hand, will be
determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact, has been
taken or made by, or relates to information supplied by, such indemnifying
party or indemnified party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent any such
action, statement or omission. The amount paid or payable by a party as a
result of any such Losses will be deemed to include any investigation,
legal or other fees or expenses incurred by such party in connection with
any investigation or proceeding, to the extent such party would have been
indemnified for such expenses if the indemnification provided for in the
foregoing Sections was available to such party.
4.4 CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to
--------------------------------------
indemnification hereunder will (a) give prompt notice to the indemnifying
party of any claim with respect to which it seeks indemnification, and (b)
permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party. Any Person
entitled to indemnification hereunder will have the right to employ
separate counsel and to participate in the defense of such claim, but the
fees and expenses of such counsel will be at the expense of such Person and
not of the indemnifying party unless (x) the indemnifying party has agreed
to pay such fees or expenses, (y) the indemnifying party has failed to
assume the defense of such claim and employ counsel reasonably satisfactory
to such Person, or (z) in the opinion of counsel of the Person to be
indemnified, a conflict of interest may exist between such Person and the
indemnifying party with respect to such claims. In the case of (z) if the
Person notifies the indemnifying party in writing that such Person elects
to employ separate counsel at the expense of the indemnifying party, the
indemnifying party will not have the right to assume the defense of such
claim on behalf of such Person. If such defense is not assumed by the
indemnifying party, the indemnifying party will not be subject to any
liability for any settlement made without its consent (but such consent
will not be unreasonably withheld). No indemnified party will be required
to consent to entry of any judgment or enter into any settlement that does
not include as an unconditional term the
11
<PAGE>
giving of a release, by all claimants or plaintiffs, to such indemnified
party from all liability in respect to such claim or litigation. Any
indemnifying party who is not entitled to, or elects not to, assume the
defense of a claim will not be obligated to pay the fees and expenses of
more than one counsel in each relevant jurisdiction for all parties
indemnified by such indemnifying party with respect to such claim.
5. OTHER AGREEMENTS
----------------
5.1 HOLDBACK AGREEMENTS.
-------------------
5.1.1 RESTRICTIONS ON PUBLIC SALE BY THE COMPANY. The Company will not
------------------------------------------
effect any public or private sale or distribution of securities of
the same class as the Registrable Securities, or securities
convertible into or exchangeable or exercisable for securities of
the same class as the Registrable Securities during the 10-day
period prior to, and during the 90-day period beginning on the
closing date of, an Offering made pursuant to Demand Notice.
5.1.2 RESTRICTIONS ON PUBLIC SALE BY THE HOLDER. If requested by the
-----------------------------------------
managing underwriter of an underwritten Offering, the Holder will
not effect any public sale or distribution of securities of the same
class (or securities exchangeable or exercisable for or convertible
into securities of the same class) as the securities included in the
Offering (including, but not limited to, a sale pursuant to Rule 144
of the Securities Act) during the 10-day period prior to and the 90-
day period (in the case of Offerings subsequent to the initial
Offering (or shorter period requested by the underwriter) beginning
on the effective date of, such Offering.
5.2 RULE 144. The Company will file, on a timely basis, all reports required
--------
to be filed by it under the Securities Act and the Exchange Act, and will
take such further action and provide such documents as any holder of
Registrable Securities may request, all to the extent required from time to
time to enable the Holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the
conditions provided by (a) Rule 144 under the Securities Act, as such rule
may be amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the Commission. Upon the request of the Holder, the
Company will deliver to the Holder a statement verifying that it has
complied with such information and requirements.
5.3 REPRESENTATIONS AND WARRANTIES.
------------------------------
5.3.1 VALIDITY. The Company represents and warrants to the Holder that
--------
this Agreement has been duly and validly executed and delivered by
the Company and constitutes a legally valid and binding agreement of
the Company enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency,
reorganization and other similar laws now or hereafter in effect
relating to or affecting creditors' rights generally and except that
the remedy of
12
<PAGE>
specific performance and injunctive and other forms of equitable
relief are subject to certain equitable defenses and to the
discretion of the court before which any proceeding therefor may be
brought and except as rights to indemnity and contribution hereunder
may be limited by federal or state securities laws.
5.3.2 NO INCONSISTENT AGREEMENTS. The Company represents and warrants
--------------------------
that it has not previously entered into, and will not on or after
the date of this Agreement enter into, any agreement with respect to
its securities that is inconsistent with the terms of this
Agreement, including any agreement that impairs or limits the
registration rights granted to the Holder or that otherwise
conflicts with the provisions hereof or would preclude the Company
from discharging its obligations under this Agreement.
5.3.3 FURNISH INFORMATION. The Company will promptly deliver to the
-------------------
Holder copies of all financial statements, reports and proxy
statements that the Company is required to send to its stockholders
generally.
5.3.4 ASSIGNMENT. This Agreement and the rights hereunder are assignable
----------
by any Holder to Permitted Transferees in connection with the
transfer of Registrable Securities, and upon assignment such
Permitted Transferees will become "HOLDER" under this Agreement.
Such Permitted Transferees must agree in writing to be bound by the
terms of this Agreement and to any lender in connection with a loan
to a Holder that is secured by Registerable Securities, so long as
such lender agrees in writing to be bound by the terms hereof. Other
than as set forth above, this Agreement is not assignable. Further,
no rights under this Agreement may be assigned without the
concurrent assignment of the related Shares.
6. MISCELLANEOUS PROVISIONS
------------------------
6.1 AMENDMENTS; WAIVERS. Amendments, waivers, demands, consents and approvals
-------------------
under this Agreement must be in writing and designated as such. No failure
or delay in exercising any right will be deemed a waiver of such right.
6.2 INTEGRATION. This Agreement is the entire agreement between the parties
-----------
pertaining to its subject matter, and supersedes all prior agreements and
understandings of the parties in connection with such subject matter.
6.3 INTERPRETATION; GOVERNING LAW. This Agreement is to be construed as a
-----------------------------
whole and in accordance with its fair meaning. This Agreement is to be
interpreted in accordance with the laws of the State of California.
6.4 HEADINGS. Headings of Sections and subsections are for convenience only
--------
and are not a part of this Agreement.
13
<PAGE>
6.5 COUNTERPARTS. This Agreement may be executed in one or more counterparts,
------------
all of which constitute one agreement.
6.6 SUCCESSORS AND ASSIGNS. This Agreement is binding upon and inures to the
----------------------
benefit of each party and such party's respective heirs, personal
representatives, successors and assigns, including any Permitted
Transferees. Nothing in this Agreement, express or implied, is intended to
confer any rights or remedies upon any other person.
6.7 EXPENSES; LEGAL FEES. Each party will pay its own expenses in the
--------------------
negotiation, preparation and performance of this Agreement. The prevailing
party in any action relating to this Agreement will be entitled to recover,
in addition to other appropriate relief, reasonable legal fees, costs and
expenses incurred in such action.
6.8 REPRESENTATION BY COUNSEL; INTERPRETATION. Each party acknowledges that it
-----------------------------------------
has been represented by counsel in connection with this Agreement. Any rule
of law, including, but not limited to, Section 1654 of the California Civil
Code, or any legal decision that would require interpretation of any
claimed ambiguities in this Agreement against the party that drafted it,
has no application and is expressly waived.
6.9 SPECIFIC PERFORMANCE. In view of the uniqueness of the matters
--------------------
contemplated by this Agreement, the Indemnitee would not have an adequate
remedy at law for money damages if this Agreement is not being performed in
accordance with its terms. The Company therefore agrees that the Indemnitee
will be entitled to specific enforcement of the terms hereof in addition to
any other remedy to which the Indemnitee may be entitled.
6.10 TIME IS OF THE ESSENCE. Time is of the essence in the performance of each
----------------------
and every term, provision and covenant in this Agreement.
6.11 NOTICES. Any notice to be given hereunder must be in writing and delivered
-------
as follows (or to another address as either shall designate in writing):
IF TO U.S. RENTALS, INC.: IF TO USR HOLDINGS, INC.:
- ------------------------ ------------------------
1581 Cummins Drive, Suite 155 At the most recent address on the books
Modesto, California 95358 and records of the Company for USR
Attention: President Holdings, Inc.
[ REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ]
14
<PAGE>
This Registration Rights Agreement has been signed as of the date on
page one.
U.S. RENTALS, INC.
_____________________________
By:
Its:
USR HOLDINGS, INC.
_____________________________
By: Richard D. Colburn
Its: President
<PAGE>
EXHIBIT 10.8
CONFORMED COPY
================================================================================
THIRD AMENDED AND RESTATED SECURITY AGREEMENT
RE: RECEIVABLES, INVENTORY, EQUIPMENT,
AND DOCUMENTS
Dated as of July 1, 1996
By and Between
U.S. RENTALS, INC.
(the "Company")
And
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Collateral Agent
(the "Collateral Agent")
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Heading Page
<S> <C>
Parties..................................................................... 1
Recitals.................................................................... 1
Section 1. Grant of Security Interest in the Collateral............ 3
Section 2. Terms Defined in the Credit Agreement................... 6
Section 3. Covenants, Agreements, Representations and Warranties... 6
Section 4. Special Provisions Re: Receivables...................... 12
Section 5. Collection of Receivables............................... 13
Section 6. Special Provisions Re: Inventory........................ 15
Section 7. Power of Attorney....................................... 16
Section 8. Defaults and Remedies................................... 16
Section 9. Application of Proceeds................................. 19
Section 10. Continuing Agreement.................................... 19
Section 11. Miscellaneous........................................... 19
Signature................................................................... 22
</TABLE>
Attachments to Security Agreement:
Exhibit 1 -- Form of Account Letter Agreement
Schedule A -- Description of Accounts
Schedule B -- Locations
Schedule C -- Permitted Trade Names
-i-
<PAGE>
THIRD AMENDED AND RESTATED SECURITY AGREEMENT
RE: RECEIVABLES, INVENTORY, EQUIPMENT,
AND DOCUMENTS
This Third Amended and Restated Security Agreement (the "Agreement") is
dated as of July 1, 1996, by and between U.S. Rentals, Inc., a California
corporation, with its mailing address at 1581 Cummins Drive, Suite 155, Modesto,
California 95358 (the "Company"), and Bank of America National Trust and Savings
Association, acting as collateral agent hereunder for the Banks and the Agent
(as hereinafter defined) and for the Noteholders hereinafter identified and
defined (in such capacity, and any successor or successors thereto acting in
such capacity, being hereinafter referred to as the "Collateral Agent"), with
its mailing address at 1455 Market Street, 13th Floor, San Francisco, California
94103, Attention: Agency Management Services No. 10831.
RECITALS:
A. The Company and Bank of America National Trust and Savings Association
(in its capacity as a lender, "BofA") have heretofore entered into that certain
First Amended and Restated Credit Agreement dated as of August 11, 1995 (as
amended from time to time, the "BofA Credit Agreement"), pursuant to which BofA
has extended credit to the Company on the terms provided therein. The BofA
Credit Agreement may be further amended, restated, superseded or otherwise
modified from time to time in the form of a syndicated credit agreement among
the Company, certain banks, including BofA, from time to time party thereto, and
Bank of America National Trust and Savings Association, as the agent for such
banks (in such capacity, and any successor or successors thereto acting in such
capacity, being hereinafter referred to as the "Agent") (a "Syndicated
Credit Agreement"; such a Syndicated Credit Agreement and the BofA Credit
Agreement are referred to collectively and separately, as applicable, as the
"Credit Agreement"). The banks, including BofA, from time to time party to a
Syndicated Credit Agreement and BofA, as a lender under the BofA Credit
Agreement, are referred to herein as the "Banks."
B. Loans outstanding under the BofA Credit Agreement were secured by that
certain Revised, Amended and Restated Security Agreement (Receivables,
Inventory, Equipment and Documents) dated September 30, 1990 (the "1990 Security
Agreement").
C. Pursuant to the terms of those certain Note Agreements dated as of
August 15, 1995 (as amended from time to time, the "1995 Note Agreements"),
between the Company and the several Purchasers named in Schedule I thereto (the
"1995 Purchasers" and, together with each successive holder from time to time of
the 1995 Senior Notes described below, the "1995 Noteholders"), the Company has
heretofore sold and the 1995 Purchasers have heretofore purchased from the
Company its (1) 6.82% Senior Secured Notes, Series A, Due 1999, in the aggregate
principal amount of $10,000,000, (2) 6.89% Senior Secured Notes, Series B, Due
2000, in the aggregate principal amount of $10,000,000, (3) 7.04% Senior Secured
Notes, Series C, Due 2001, in the aggregate principal amount of
<PAGE>
$10,000,000, and (4) 7.13% Senior Secured Notes, Series D, Due 2002, in the
aggregate principal amount of $20,000,000 (collectively, the "1995 Senior
Notes").
D. Loans outstanding under the BofA Credit Agreement and all obligations
of the Company under the 1995 Note Agreements and the 1995 Senior Notes are
secured by that certain Second Amended and Restated Security Agreement
Re: Receivables, Inventory, Equipment and Documents dated August 15, 1995 (the
"1995 Security Agreement") which agreement amended and restated the 1990
Security Agreement.
E. Pursuant to the terms of those certain Note Agreements dated as of
July 1, 1996 (as amended from time to time, the "1996 Note Agreements"; the
1996 Note Agreements together with the 1995 Note Agreements are hereinafter
referred to as the "Note Agreements"), between the Company and the several
Purchasers named in Schedule I thereto (the "1996 Purchasers" and, together with
each successive holder from time to time of the 1996 Senior Notes described
below and with the 1995 Noteholders, the "Noteholders"), the Company has agreed
to sell and the 1996 Purchasers have agreed to purchase from the Company its
(1) 7.62% Senior Secured Notes, Series E, Due 2001, in the aggregate principal
amount of $20,000,000 and (2) 7.76% Senior Secured Notes, Series F, Due 2002, in
the aggregate principal amount of $20,000,000 (collectively, the "1996 Senior
Notes"; the 1996 Senior Notes together with the 1995 Senior Notes are
hereinafter referred to as the "Senior Notes").
F. As a condition to the continuance or maintenance of financial
accommodations to be given to the Company by the Banks and the 1995 Noteholders,
and as a condition precedent to the purchase of the 1996 Senior Notes by the
1996 Purchasers, BofA, the 1995 Noteholders and the 1996 Purchasers have
required that the Company and the Collateral Agent enter into this Agreement
amending and restating the 1995 Security Agreement in order to modify the terms,
conditions and covenants thereof to provide that the obligations of the Company
in respect of the Note Agreements and the Senior Notes constitute secured
obligations thereunder, and as otherwise more particularly set forth herein.
G. Pursuant to the terms of the Intercreditor Agreement dated as of
August 15, 1995, as amended, modified or supplemented from time to time, among
the Banks and the Noteholders, the Collateral Agent has agreed to act as
collateral agent for and on behalf of the Agent, the Banks and the Noteholders.
H. The Company has agreed to execute and deliver this Agreement to the
Collateral Agent as collateral agent for the Agent, the Banks and the
Noteholders.
I. The Company has determined that the execution and delivery of this
Agreement is in furtherance of its corporate purposes and is in its best
interest and that it will derive substantial benefit, whether directly or
indirectly, from the execution of this Agreement, having regard for all relevant
facts and circumstances.
-2-
<PAGE>
NOW, THEREFORE, in consideration of the premises and for the purpose of
inducing the purchase and acceptance of the 1996 Senior Notes by the
1996 Purchasers and the continuance and maintenance of financial accommodations
by the Banks pursuant to the Credit Agreement and by the 1995 Noteholders
pursuant to the 1995 Note Agreements, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company does hereby covenant and agree with the Collateral Agent as follows:
Section 1. Grant of Security Interest in the Collateral. (a) The Company
hereby ratifies and confirms its grant of a security interest in, and
acknowledges and agrees that the Collateral Agent has and shall continue to have
for the benefit of the Agent, the Banks and the Noteholders a continuing
security interest in, any and all right, title and interest of the Company,
whether now existing or hereafter acquired or arising, in and to:
(1) Receivables. All Receivables, whether now existing or hereafter
arising, and however evidenced or acquired, in which the Company now has or
hereafter acquires any rights (the term "Receivables" means and includes
accounts, accounts receivable, rents, contract rights, including without
limitation rights under contracts for the purchase of supplies,
instruments, notes, drafts, acceptances, documents, chattel paper, any
right of the Company to payment for goods sold, leased or rented or for
services rendered, whether arising out of the sale, lease or rental of
Inventory (as hereinafter defined) or otherwise and whether or not earned
by performance, and all other forms of obligations owing to the Company,
and all of the Company's rights to any goods and merchandise (including
without limitation any returned or repossessed goods and the right of
stoppage in transit) which is represented by, arises from or is related to
any of the foregoing);
(2) General Intangibles. All general intangibles, whether now owned
or hereafter acquired or arising, or in which the Company now has or
hereafter acquires any rights, including without limitation all causes of
action, goodwill and similar intangibles and all income tax refunds, all
privileges, franchises, immunities, licenses, permits and similar
intangibles, any rights under contracts or agreements to which the Company
is, or may become, a party (including, without limitation, all notes
receivable from affiliates of the Company or any of its Subsidiaries), any
rights to receive any payments in connection with the termination of any
pension plan or employee stock ownership plan or trust established for the
benefit of employees of the Company and all other intangible personal
property (including things in action) not otherwise covered by this
Agreement;
(3) Know-How and Trade Secret Collateral. All know-how, inventions,
processes, methods, information, data and plans, to the extent that the
foregoing constitute trade secrets of the Company, and all licenses or
other similar agreements granted to or by the Company with respect to any
of the foregoing, in any case whether now existing or hereafter created or
developed;
-3-
<PAGE>
(4) Inventory. All Inventory, whether now owned or hereafter
acquired, and all documents of title at any time evidencing or representing
any part thereof (the term "Inventory" means and includes all goods (i)
which are held for sale, lease or rental, including without limitation any
and all aerial work platforms, bulldozers, cranes, forklifts, earth moving
equipment, compaction equipment, trucks, portable air compressors, hand
tools, plumbing, landscape and garden equipment and all similar goods held
for sale, lease or rental by the Company or are to be furnished under
contracts of service or consumed in the Company's business, or (ii) which
are raw materials, work-in-process, finished goods (including, without
limitation, supplies and related products), packaging materials and all
other materials and supplies of every nature in each case used or usable in
connection with the acquisition, processing, supply, servicing, storing,
packing, shipping, advertising, selling, leasing, rental or furnishing of
such goods and any constituents or parts thereof, or (iii) which are
returned or repossessed goods);
(5) Equipment. All equipment (exclusive of equipment constituting
Inventory as described in clause (4) above), whether now owned or hereafter
acquired, wherever located, including without limitation, any and all
apparatus, computer equipment, computer software, fittings, fixtures,
furnishings, furniture, hardware improvements, machinery, building signs,
maintenance and repair equipment, office equipment, copiers, security
systems, telephone systems and typewriters as the same are now and will
hereafter be constituted, whether now owned by the Company or hereafter
acquired, together with all appliances, instruments, improvements,
accessories, equipment, parts and appurtenances appertaining or attached
thereto, or from time to time incorporated herein or installed as part
thereof, and all substitutions, renewals and replacements of and additions,
improvements, assessions and accumulations to all thereof which are now
owned or hereafter acquired by the Company;
(6) Accounts, Investments, Monies, etc. (i) All accounts now owned
or hereafter acquired by the Company and, in any event shall include,
without limitation, the accounts described on Schedule A attached hereto
(the "Accounts"); and all funds held in the Accounts and all certificates
and instruments, if any, from time to time representing or evidencing the
Accounts, (ii) all notes, certificates of deposit, deposit accounts, checks
and other instruments from time to time hereafter delivered to or otherwise
possessed by the Company or the Agent, the Banks for or on behalf of the
Company in substitution for or in addition to any or all of the then
existing Collateral (as defined below), (iii) all Investments from time to
time, and all certificates and instruments, if any, from time to time
representing or evidencing such Investments and (iv) all cash, currency,
coins and monies held by the Company or held in any deposit account by the
Company (collectively, "Cash");
(7) Other. Any and all other property or interests in property of
any type whatsoever in the possession of the Company to the extent such
property is not covered by the foregoing and to the extent a security
interest may legally be granted in
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such property or interests in property under the Code (as hereinafter
defined), but excluding in any event all real estate owned by the Company
and fixtures thereon;
(8) Records. Supporting evidence and documents relating to any of
the above described property, including, without limitation, written
applications, credit information, account cards, payment records,
correspondence, delivery and installation certificates, invoice copies,
delivery receipts, notes and other evidences of indebtedness, insurance
certificates and the like, customer lists, together with all books of
account, ledgers and cabinets in which the same are reflected or
maintained, all whether now existing or hereafter arising (collectively,
the "Records");
(9) Additions. All additions to and substitutions and replacements
of any and all of the foregoing, whether now existing or hereafter arising;
(10) Proceeds and Products. All proceeds and products of the
foregoing and all insurance of the foregoing and the proceeds thereof
including, without limitation, the proceeds of any business interruption
insurance or any key man life insurance policy covering the life of any
officer or director of the Company, whether now existing or hereafter
arising; and
(11) Louisiana Collateral. Upon the execution of the Original
Security Agreements between the Company and B of A on November 10, 1986,
the Company and B of A executed separate collateral and security document
applicable to certain property and rights situated in, or governed under
the laws of, the State of Louisiana, including resolutions of the Board of
Directors of the Company, Collateral Chattel Mortgage Notes, Collateral
Chattel Mortgages, Collateral Pledge Agreements, Assignments of Accounts
Receivable, and Notices of Assignments of Accounts Receivable (collectively
the "Louisiana Collateral Documents"), certain of which Louisiana
Collateral Documents were recorded with the offices of the Clerks of the
Court and Recorders of Caddo, Jefferson and Ouachita Parishes, Louisiana.
The State of Louisiana subsequently enacted into law a version of Article 9
of the Uniform Commercial Code (designated Chapter 9 of Title 10 of the
Louisiana Revised Statutes, as amended). The Company, the Agent, the Banks
and the Noteholders intend to continue in effect and perpetuate, in the
name of the Collateral Agent, the collateral and security interest under
Louisiana law with respect to such Collateral which is presently located
in, or is subject to the laws of, the State of Louisiana, uninterrupted
from November 10, 1986. Therefore, the Agent, the Banks, the Noteholders
and the Company agree that this act of Third Amended and Restated Security
Agreement Re: Receivables, Inventory, Equipment and Documents shall apply
to and include all such Collateral as may now or in the future be situated
in, or subject to the law of, the state of Louisiana, to the same extent
and with the same ranking as is otherwise provided for in this act of Third
Amended and Restated Security Agreement Re: Receivables, Inventory,
Equipment and Documents;
all of the foregoing being herein referred to as the "Collateral".
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(b) Obligations Secured. The lien and security interest herein granted
to the Collateral Agent for the benefit of the Agent, the Banks and the
Noteholders is made and given to secure, and shall secure, the prompt payment
and performance in full when due (whether by lapse of time, acceleration or
otherwise) of (i) any and all indebtedness, obligations and liabilities of the
Company to the Agent or the Banks under or in connection with or evidenced by
(x) the Credit Agreement or (y) the notes of the Company issued under the Credit
Agreement or (z) this Agreement, in each case whether now existing or hereafter
arising (and whether arising before or after the filing of a petition in
bankruptcy), due or to become due, direct or indirect, absolute or contingent,
and howsoever evidenced, held or acquired, (ii) all indebtedness, obligations
and liabilities of the Company to the Noteholders under or in connection with or
evidenced by (x) the Note Agreements or (y) the Senior Notes issued by the
Company in connection therewith or (z) this Agreement, in each case whether now
existing or hereafter arising (and whether arising before or after the filing of
a petition in bankruptcy), due or to become due, direct or indirect, absolute or
contingent, and howsoever evidenced, held or acquired, (iii) all indebtedness,
obligations and liabilities of the Company to the Collateral Agent under or in
connection with or evidenced by this Agreement, in each case whether now
existing or hereafter arising (and whether arising before or after the filing of
a petition in bankruptcy), due or to become due, direct or indirect, absolute or
contingent, and howsoever evidenced, held or acquired, and (iv) any and all
expenses and charges, legal or otherwise, suffered or incurred by the Collateral
Agent, the Agent, the Banks and the Noteholders in collecting or enforcing any
of such indebtedness, obligations and liabilities or in realizing on or
protecting or preserving any security therefor, including, without limitation,
the lien and security interest granted hereby (all of the indebtedness,
obligations, liabilities, expenses and charges described in clauses (i), (ii),
(iii) and (iv) above being hereinafter referred to as the "Secured
Obligations").
(c) On the date the Company executes and delivers this Agreement, the
security interests granted hereunder by the Company shall constitute valid
security interests under the Code (as hereinafter defined) securing the Secured
Obligations.
Section 2. Terms Defined in the Credit Agreement. All capitalized terms
used herein without definition shall have the same meanings herein as such terms
have in the Credit Agreement as the Credit is in effect on the date hereof.
Section 3. Covenants, Agreements, Representations and Warranties. The
Company hereby covenants and agrees with, and represents and warrants to, the
Collateral Agent, the Agent, the Banks and the Noteholders that:
(a) Unless and to the extent the Collateral Agent shall otherwise
consent in writing, the Collateral is and will remain in the Accounts or in
the Company's possession or control or deemed to be located under the Code
at the locations listed under Item A on Schedule B in the form attached
hereto, or as Schedule B may hereafter be amended or modified by instrument
in writing delivered to the Collateral Agent (collectively the "Permitted
Collateral Locations"), except for (i) Collateral which in the ordinary
course of the Company's business as presently conducted is in transit
between the Permitted Collateral Locations, (ii) Inventory which in the
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ordinary course of the Company's business as presently conducted is being
shipped to customers of the Company or is in the possession of customers of
the Company pursuant to a lease or rental arrangement between such customer
and the Company, and (iii) Inventory in transit to the Company at a
Permitted Collateral Location from the supplier of such items. The Company
shall not hold Cash in any depository account other than the Accounts and
any other accounts of which the Company has given the Collateral Agent
written notice pursuant to periodic updates made by the Company at the
Collateral Agent's request. Upon the occurrence of an Event of Default
hereunder and upon the request of the Collateral Agent, the Company shall
execute an Account Letter Agreement covering such depository account(s)
substantially in the form of Exhibit 1 attached hereto and such Account
Letter Agreement shall be acknowledged and agreed to by the subject bank;
provided that, on or prior to the effective date hereof, the Company shall
execute and deliver an Account Letter Agreement acknowledged and agreed to
by the Collateral Agent covering the concentration account No. 12331-13468
of the Company maintained with BofA. If for any reason Collateral is at
any time kept or located at locations other than those permitted by the
foregoing, the Collateral Agent shall nevertheless have and retain a
security interest therein. As indicated on Schedule B, the Company owns or
leases and will own or lease all the Permitted Collateral Locations. As of
the date hereof, the Company's chief executive office and chief place of
business is at 1581 Cummins Drive, Suite 155, Modesto, California 95358 and
the Company has no other places of business other than those listed on said
Schedule B. The Company will not maintain its chief executive office or
places of business at any location other than those specified pursuant to
the immediately preceding sentence without first providing the Collateral
Agent 60 days' prior written notice of its intent to do so; provided,
however, that such notice shall not be deemed effective until the
Collateral Agent has acknowledged receipt thereof; provided, further, that
the Company will at all times maintain its chief executive office in the
State of California.
(b) The Collateral and every part thereof is and will be free and
clear of all security interests, liens (including without limitation
mechanics', laborers' and statutory liens), attachments, levies and
encumbrances of every kind, nature and description and whether voluntary or
involuntary, except for the security interest of the Collateral Agent
therein and liens permitted under the Credit Agreement and Note Agreements
(collectively the "Permitted Liens"). The Company will warrant and defend
the Collateral against any claims and demands (other than the Permitted
Liens) of all persons at any time claiming the same or any interest in the
Collateral adverse to the Collateral Agent.
(c) The Company will pay promptly when due all taxes, assessments,
and governmental charges and levies upon or against the Collateral in each
case before the same become delinquent and before penalties accrue thereon,
unless (1) the validity, applicability or amount thereof is being contested
in good faith by appropriate actions or proceedings which will prevent the
forfeiture or sale of such Collateral or any material interference with the
use thereof by the Company and (2) the Company shall
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<PAGE>
have set aside on its books, reserves deemed by it to be adequate with
respect thereto in accordance with and as required by GAAP.
(d) The Company will not waste or destroy the Collateral or any part
thereof and will not be negligent in the care and use of any Collateral.
The Company will not use, sell, lease, rent or distribute any Collateral in
violation of any statute, ordinance or other governmental requirement. The
Company will perform in all material respects its obligations under any
contract or other agreement constituting a part of the Collateral, it being
understood and agreed that the Collateral Agent, the Agent, the Banks and
the Noteholders have no responsibility to perform such obligations.
(e) Subject to (S)(S)(a), 6(b) and 6(c) hereof and except as
permitted by the Credit Agreement and Note Agreements, the Company will
not, without the Collateral Agent's prior written consent, sell, assign,
mortgage, lease or otherwise dispose of or otherwise permit a Lien to exist
on the Collateral or any interest therein.
(f) The Company will insure the Collateral which is insurable
against such risks and hazards as other companies similarly situated insure
against, and including in any event commercial general and commercial
liability insurance and such other coverage as the Collateral Agent may
reasonably specify, in amounts and under policies written by companies of
recognized national standing which are authorized to do business in the
state in which the Collateral is located, and which are otherwise
acceptable to the Collateral Agent, provided that the Company shall be
permitted to self-insure in a commercially reasonable manner consistent
with its current practices so long as adequate reserves with respect
thereto are maintained. All premiums on third party insurance shall be
paid by the Company and the policies of such insurance (or certificates
therefor) delivered to the Collateral Agent.
All such policies of insurance: (1) shall contain loss payable
clauses to the Collateral Agent as its interest may appear (and, if the
Collateral Agent requests, naming the Collateral Agent, the Agent, the
Banks and the Noteholders as additional insureds therein), (2) in the case
of policies covering loss or damage to the Collateral, shall provide that
losses, if any, shall be payable solely to the Collateral Agent under a
standard loss payable clause satisfactory to the Collateral Agent,
(3) shall provide that the Collateral Agent's, the Agent's, the Banks' and
the Noteholders' interests shall be insured regardless of any breach or
violation by the Company of any warranties, declarations or conditions
contained in such policies, (4) the insurers shall waive any right of
subrogation of the insurers to any set-off or counterclaim or any other
deduction, whether by attachment or otherwise, in respect of any liability
of the Company, (5) such insurance, as to the interest of the Collateral
Agent and/or the Agent, the Banks and the Noteholders, as the case may be,
therein, shall not be invalidated by the use or operation of the Collateral
for purposes which are not permitted by such policies, nor by any
foreclosures or other proceedings relating to the Collateral, nor by change
in title to or ownership of the Collateral, (6) if any premium or
installment is not paid when due, or if such insurance would lapse or be
cancelled, terminated or materially changed for any reason whatsoever, the
insurers
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<PAGE>
will promptly notify the Collateral Agent and any such lapse, cancellation,
termination or change shall not be effective as to the Collateral Agent
and/or the Agent, the Banks and the Noteholders, as the case may be, for 30
days after receipt of such notice, and (7) appropriate certification shall
be made to the Collateral Agent by each insurer with respect thereto.
The Company hereby authorizes the Collateral Agent, upon the
occurrence and during the continuation of any Event of Default hereunder,
at the Collateral Agent's option to adjust, compromise and settle any
losses under any insurance afforded, and the Company does hereby
irrevocably constitute the Collateral Agent, its officers, agents and
attorneys, as its attorneys-in-fact, with full power and authority, upon
the occurrence and during the continuation of any Event of Default
hereunder, to effect such adjustment, compromise and/or settlement and to
endorse any drafts drawn by an insurer of the Collateral or any part
thereof and to do everything necessary to carry out such purposes and to
receive and receipt for any unearned premiums due under policies of such
insurance; but unless the Collateral Agent elects to adjust, compromise or
settle losses as aforesaid, such adjustment, compromise and/or settlement
shall be made by the Company, subject to final approval of the Collateral
Agent in the case of losses exceeding $250,000.
(g) The Company will, upon reasonable notice, at all times allow the
Collateral Agent, the Agent, the Banks and the Noteholders, or their
respective representatives, free access to and right of inspection of the
Collateral located on premises under the Company's control; provided,
however, so long as no Event of Default hereunder exists and is continuing,
any such access or inspection shall only be allowed during the Company's
normal business hours. The Company will, upon request of the Collateral
Agent, and then only to the extent it is within the Company's power so to
do, authorize and instruct all bailees and any other parties at any time
holding, storing, shipping, leasing or renting all or any part of the
Collateral to permit the Collateral Agent or its designees to examine and
inspect any of the Collateral then in such party's possession and to verify
from such party's own books and records any information concerning the
Collateral or any part thereof which the Collateral Agent may seek to
verify. The Company shall have the right to accompany the Collateral Agent
on any such examination or inspection. As to any premises not owned by the
Company wherein any of the Collateral is located, the Company shall, upon
the occurrence of an Event of Default hereunder and upon the request of the
Collateral Agent, use its best efforts to cause each owner of such premises
to enter into an agreement in form and substance satisfactory to the
Collateral Agent subordinating any lien such owner may have by contract or
under law with respect to such Collateral to the Lien of this Agreement,
allowing the removal of such Collateral by the Collateral Agent and
otherwise in form and substance reasonably acceptable to the Collateral
Agent.
(h) The Company agrees from time to time to deliver to the
Collateral Agent, the Agent, the Banks and any Noteholder such evidence
(including copies) of the existence and identity of the Collateral and of
its availability as collateral security
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<PAGE>
pursuant hereto, as the Collateral Agent, the Agent, the Banks or such
Noteholder may reasonably request.
(i) The Company will comply in all material respects with the terms
and conditions of any leases, easements, right-of-way agreements or other
agreements binding upon the Company or affecting the Collateral in each
case which cover the premises owned, leased or otherwise controlled by the
Company wherein the Collateral is located and any orders, ordinances, laws
or statutes of any city, state or other governmental entity, department or
agency having jurisdiction with respect to such premises or the conduct of
business thereon.
(j) The Company has not invoiced Receivables or otherwise transacted
business, and does not invoice Receivables or otherwise transact business,
under any trade names other than the Company's name set forth in the
introductory paragraph of this Agreement and except for the invoicing of
Receivables on invoices which contain one of the trade names listed on
Schedule C attached hereto and made a part hereof, but which indicate such
trade name to be a division of or trade name for the Company and so
identify the Company by its correct corporate name. The Company will not
change its name, or except as aforesaid, transact business under any trade
name, in each case without first giving the Collateral Agent 30 days' prior
written notice of its intent to do so, provided that in the case of any
acquisition by the Company of any business entity or operation giving rise
to the requirement to give notice to the Collateral Agent of the use of a
new trade name pursuant to the foregoing, such notice shall be given to the
Collateral Agent within 30 days following the date such acquisition is
finalized.
(k) The Company represents that this Agreement creates a valid
security interest in the Collateral securing payment and performance of the
Secured Obligations and that all filings and other action necessary to
perfect such security interest have been taken. The Collateral Agent
agrees to prepare, and the Company agrees to cooperate with the Collateral
Agent to execute and deliver to the Collateral Agent, such further
agreements and assignments or other instruments and to do all such other
things necessary or reasonably appropriate to assure the Collateral Agent
its security interest hereunder, including such financing statement or
statements, continuation statements or amendments thereof or supplements
thereto or other instruments as may from time to time be required in order
to comply with the California Uniform Commercial Code and any successor
statute(s) thereto (the "Code").
All such statements, amendments and supplements prepared by the
Collateral Agent shall be presented to the Company for its signature and
shall be timely filed by the Collateral Agent in all such places as are
necessary to maintain the Collateral Agent's perfected security interest in
the Collateral. The Company agrees to deliver to the Collateral Agent on
August 1, 2000 an opinion of counsel, which opinion may be from internal
counsel, in the State of California and each other state in which
Collateral may be located pursuant to the terms of this Agreement, to the
effect that
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this Agreement continues to create a valid security interest in the
Collateral securing payment and performance of the Secured Obligations
subject to the Permitted Liens and that all filings and other action
necessary to perfect such security interest have been taken. Such opinion
shall also set forth and describe any filings or other actions which may
reasonably be expected to become necessary within the immediately
succeeding twenty-four-month period to maintain perfection of such security
interest. All such filings and actions shall be promptly made by the
Company. The Company hereby agrees that a carbon, photographic or other
reproduction of this Agreement or any such financing statement is
sufficient for filing as a financing statement by the Collateral Agent
without notice thereof to the Company wherever the Collateral Agent in its
sole discretion desires to file the same.
In the event for any reason the law of any jurisdiction other than
California becomes or is applicable to the Collateral or any part thereof,
or to any of the Secured Obligations, the Company agrees to execute and
deliver all such instruments and to do all such other things as the
Collateral Agent in its sole discretion reasonably deems necessary or
appropriate to preserve, protect and enforce the security interest of the
Collateral Agent as set forth herein under the law of such other
jurisdiction to at least the same extent as such security interest would be
protected under the Code. If any Collateral is in the possession or
control of any of the Company's agents or processors and the Collateral
Agent so requests, the Company agrees to notify such agents or processors
in writing of the Collateral Agent's security interest therein and, upon
the occurrence and continuance of an Event of Default hereunder and at the
Collateral Agent's request, instruct all agents and processors in
possession of Collateral to hold all such Collateral for the Collateral
Agent's account and subject to the Collateral Agent's instructions. The
Company agrees to mark its books and records to reflect the security
interest of the Collateral Agent in the Collateral.
(l) On failure of the Company to perform any of the covenants and
agreements herein contained, the Collateral Agent may, at its option,
perform the same and in so doing may expend such sums as the Collateral
Agent may reasonably deem advisable in the performance thereof, including
without limitation the payment of any insurance premiums, the payment of
any taxes, liens and encumbrances, expenditures made in defending against
any adverse claim and all other expenditures which the Collateral Agent may
be compelled to make by operation of law or which the Collateral Agent may
make by agreement or otherwise for the protection of the security hereof.
All such sums and amounts so expended shall be repayable by the Company
immediately without notice or demand, shall constitute so much additional
Secured Obligations and shall bear interest from the date said amounts are
expended at the rate per annum (computed on the basis of a 360-day year for
the actual number of days elapsed) determined by adding 2% to the rate per
annum from time to time announced by Bank of America National Trust and
Savings Association in San Francisco, California, as its prime commercial
rate with any change in such rate per annum as so determined by reason of a
change in such prime commercial rate to be effective on the date of such
change in said prime commercial rate (such rate per annum as so determined
being hereinafter referred to as the "Default Rate"). No such
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<PAGE>
performance of any covenant or agreement by the Collateral Agent on behalf
of the Company, and no such advancement or expenditure therefor, shall
relieve the Company of any default under the terms of this Agreement. The
Collateral Agent, in making any payment hereby authorized may do so
according to any bill, statement or estimate procured from the appropriate
public office or holder of the claim to be discharged without inquiry into
the accuracy of such bill, statement or estimate or into the validity of
any tax assessment, sale, forfeiture, tax lien or title or claim. The
Collateral Agent, in performing any act hereunder, shall be the sole judge
in reasonably determining whether the Company is required to perform the
same under the terms of this Agreement.
(m) Immediately upon the Company's receipt thereof, the Company
shall cause to be delivered to the Collateral Agent all chattel paper and
instruments relating to the Inventory (other than motor vehicle title
documents and other chattel paper evidencing title to equipment) which the
Company now owns or may at any time or times hereafter acquire, with
appropriate endorsement and assignment in favor of the Collateral Agent,
with full recourse to the Company. Upon the request of the Collateral
Agent, the Company shall cause to be delivered to the Collateral Agent all
such motor vehicle title documents and other chattel paper evidencing title
to equipment with appropriate endorsement and assignment in favor of the
Collateral Agent, with full recourse to the Company.
(n) The Company shall respond promptly to all reasonable requests of
the Collateral Agent for information concerning the conduct of all lawsuits
brought by the Company (or in which the Company participates) against any
other Person.
Section 4. Special Provisions Re: Receivables. (a) As of the time any
Receivable becomes subject to the security interest provided for hereby, the
Company shall be deemed to have warranted as to each and all of such Receivables
that each Receivable and all papers and documents relating thereto are genuine
and in all respects what they purport to be; that each Receivable is valid and
subsisting and, if such Receivable is an account receivable, arises out of a
bona fide sale, lease or rental of goods by the Company to, or in the process of
being delivered to, or out of and for services theretofore actually rendered by
the Company to, the account debtor named therein; that no such Receivable is
evidenced by any instrument or chattel paper unless such instrument or chattel
paper is promptly endorsed by the Company and delivered to the Collateral Agent
(other than chattel paper consisting of rental agreements and other ordinary
course agreements relating to the lease, rental or sale of goods which shall
only be delivered to the Collateral Agent after the occurrence of an Event of
Default hereunder and upon the request of the Collateral Agent); that no surety
bond was required or given in connection with said Receivable or the contracts
or purchase orders out of which the same arose; and that if said Receivable is
scheduled, listed or referred to on any Borrowing Base Certificate as an
Eligible Receivable, that said Receivable qualifies as an Eligible Receivable as
of the date covered by such Borrowing Base Certificate.
(b) The Company shall keep all of its books and records relating to the
Receivables only at its chief executive office and places of business as
specified pursuant to (S)3(a).
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(c) Unless and until an Event of Default hereunder occurs and is
continuing and the Collateral Agent notifies the Company otherwise, any goods
sold by the Company which are returned by a customer or account debtor or
otherwise recovered may be resold by the Company in the ordinary course of its
business in accordance with (S)6(b) hereof; upon the occurrence and during the
continuation of any Event of Default hereunder if the Company is so instructed
by the Collateral Agent, such goods shall be set aside and held by the Company
as trustee for the Collateral Agent, the Agent, the Banks and the Noteholders
and shall remain part of the Collateral Agent's Collateral. Unless and until an
Event of Default hereunder occurs and is continuing and the Collateral Agent
notifies the Company otherwise, the Company may settle and adjust disputes and
claims with its customers and account debtors, handle returns and recoveries and
grant discounts, credits and allowances in the ordinary course of business and
otherwise for amounts and on terms which the Company in good faith considers
advisable. However, upon the occurrence and during the continuation of any
Event of Default hereunder and if so instructed by the Collateral Agent, the
Company shall notify the Collateral Agent promptly of all returns and recoveries
and on request deliver the goods to the Collateral Agent. Upon the occurrence
and during the continuation of any Event of Default hereunder and if so
instructed by the Collateral Agent, the Company shall also notify the Collateral
Agent promptly of all disputes and claims and settle or adjust them at no
expense to the Collateral Agent, the Agent, the Banks or the Noteholders, but no
discount, credit or allowance other than on normal trade terms in the ordinary
course of business shall be granted to any customer or account debtor and no
returns of goods shall be accepted by the Company without the Collateral Agent's
consent. The Collateral Agent may, at all times upon the occurrence and during
the continuation of any Event of Default hereunder, settle or adjust disputes
and claims directly with customers or account debtors for amounts and upon terms
which the Collateral Agent considers advisable.
Section 5. Collection of Receivables. (a) Until an Event of Default
hereunder has occurred and is continuing and the Collateral Agent instructs the
Company otherwise, the Company shall make collection of all Receivables and may
use the same to carry on its business in the ordinary course as presently
conducted and otherwise subject to the terms thereof.
(b) Upon the occurrence and during the continuation of any Event of
Default hereunder, whether or not the Collateral Agent has exercised any or all
of its rights under other provisions of this (S)5, upon the request of the
Collateral Agent:
(1) all instruments and chattel paper at any time constituting part
of the Receivables (including any postdated checks) shall, upon receipt by
the Company, be immediately endorsed to and deposited with the Collateral
Agent; and/or
(2) the Company shall instruct all account debtors to remit all
payments in respect of Receivables to a lockbox or lockboxes under the sole
custody and control of the Collateral Agent to be maintained at post
offices selected by the Collateral Agent.
(c) Upon the occurrence and during the continuation of any Event of
Default hereunder, whether or not the Collateral Agent has exercised any or all
of its rights under
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other provisions of this (S)5, the Collateral Agent or its designee may notify
the Company's customers or account debtors at any time without prior notice to
the Company that Receivables have been assigned to the Collateral Agent or of
the Collateral Agent's security interest therein and either in its own name, or
the Company's or both, demand, collect (including without limitation through a
lockbox analogous to that described in (S)5(b)(2)), receive, receipt for, sue
for, compound and give acquittance for any or all amounts due or to become due
on Receivables, and in the Collateral Agent's discretion file any claim or take
any other action or proceeding which the Collateral Agent may deem necessary or
appropriate to protect and realize upon the security interest of the Collateral
Agent in the Receivables.
(d) Any proceeds of Receivables or other Collateral transmitted to or
otherwise received by the Collateral Agent pursuant to any of the provisions of
(S)(S)5(b) or (c) shall be handled and administered by the Collateral Agent in
and through a remittance account or accounts maintained by the Collateral Agent
at a commercial bank or banks selected by the Collateral Agent (collectively the
"Depository Banks" and individually a "Depository Bank") and the Company
acknowledges that the maintenance of such remittance accounts by the Collateral
Agent is solely for the Collateral Agent's own convenience and that the Company
does not have any right, title or interest in such remittance accounts or any
amounts at any time standing to the credit thereof and shall be subject to the
right of the Collateral Agent therein as set forth in this Agreement. The
Collateral Agent may apply all or any part of any proceeds of Receivables or
other Collateral received by it from any source to the payment of the Secured
Obligations then due and payable in such amounts and in such manner and order as
set forth in the Intercreditor Agreement. The Collateral Agent need not apply or
give credit for any item included in proceeds of Receivables or other Collateral
until the Depository Bank has received final payment therefor at its office in
cash or final solvent credits current at the site of deposit acceptable to the
Collateral Agent and such Depository Bank as such. However, if the Collateral
Agent does permit credit to be given for any item prior to a Depository Bank
receiving final payment therefor and such Depository Bank fails to receive such
final payment or an item is charged back to the Collateral Agent or any
Depository Bank for any reason, the Collateral Agent may at its election in
either instance charge the amount of such item back against any such remittance
accounts, together with interest thereon at the Default Rate. Concurrently with
each transmission of any proceeds of Receivables or other Collateral to any
remittance account, the Company shall furnish the Collateral Agent with a report
in such form as the Collateral Agent shall require identifying the particular
Receivable or other Collateral from which the same arises or relates. The
Company hereby indemnifies the Collateral Agent, the Agent, the Banks and the
Noteholders from and against all liabilities, damages, losses, actions, claims,
judgments, costs, expenses, charges and reasonable attorneys' fees suffered or
incurred by such persons because of the maintenance of the foregoing
arrangement, except for such liabilities, damages, losses, actions, claims,
judgments, costs, expenses, charges and fees which result solely and directly
from the gross negligence or willful misconduct of the person seeking to be
indemnified. The Collateral Agent, the Agent, the Banks and the Noteholders
shall have no liability or responsibility to the Company for a Depository Bank
accepting any check, draft or other order for payment of money bearing the
legend
-14-
<PAGE>
"payment in full" or words of similar import or any other restrictive legend or
endorsement whatsoever or be responsible for determining the correctness of any
remittance.
Section 6. Special Provisions Re: Inventory. (a) The Company at its own
cost and expense will maintain, keep and preserve the Inventory and Records in
good condition.
(b) The Company may, unless and until an Event of Default hereunder
occurs and is continuing and the Collateral Agent instructs the Company
otherwise, without further consent or approval of the Collateral Agent, use,
consume, sell, lease and rent the Inventory in the ordinary course of its
business, but a sale in the ordinary course of business shall not include any
transfer or sale in satisfaction, partial or complete, of a debt owing by the
Company.
(c) As of the time any Inventory becomes subject to the security interest
provided for hereby, the Company shall be deemed to have warranted as to any and
all of such Inventory that all warranties of the Company set forth in this
Agreement are true and correct with respect to such Inventory; such Inventory is
located at a location set forth in or pursuant to (S)3(a) hereof other than
Inventory of the kind referred to in clauses (i), (ii) and (iii) of (S)3(a)
hereof; and if such inventory is scheduled, listed or referred to in any
Borrowing Base Certificate, such Inventory qualifies as Eligible Inventory as of
the date covered by such Borrowing Base Certificate.
(d) The Company shall at the request of the Collateral Agent provide the
Collateral Agent from time to time as specified by the Collateral Agent with a
report of a physical listing and the location of all Inventory, provided that
unless an Event of Default shall have occurred and be continuing, the Company
shall not be required to provide such a report to the Collateral Agent more
frequently than once in any calendar year. The Company shall at all times
hereafter maintain a perpetual inventory for all items of Inventory, keeping
correct and accurate records itemizing and describing the kind, type, quality
and quantity of Inventory, the Company's cost therefor and daily withdrawals
therefrom and additions thereto, all of which records shall be available during
the Company's usual business hours at the request of the Collateral Agent.
Immediately upon the occurrence of an Event of Default, and at such other times
prior to the occurrence of an Event of Default as the Collateral Agent shall
request, the Company shall conduct a physical count of the inventory and
promptly following such physical inventory shall supply the Collateral Agent
with a report in a form and with such specificity as may be reasonably
satisfactory to the Collateral Agent concerning such physical count of the
Inventory. The Company shall furnish such other reports and information
concerning Inventory as the Collateral Agent may reasonably request.
(e) If any of the Inventory is at any time evidenced by a document of
title, then, upon the request of the Collateral Agent, such document shall be
promptly delivered by the Company to the Collateral Agent.
(f) The Collateral Agent shall not be responsible for: (i) the
safekeeping of the Inventory; (ii) any loss or damage to the Inventory;
(iii) any diminution in the value of the
-15-
<PAGE>
Inventory; or (iv) any act or default of any carrier, warehouseman, bailee,
forwarding agency, lessee from or customer of the Company leasing or renting
Inventory, or any other Person. As among the Company and the Collateral Agent,
all risk of loss, damage, destruction or diminution in value of the Inventory
shall be borne by the Company. No Inventory shall be at any time or times
hereafter stored with a bailee, warehouseman, consignee or similar third party
(excluding Inventory leased or rented to a third party in the ordinary course of
business) without the Collateral Agent's prior written consent. The Company
shall not sell any Inventory to any customer on approval, or any other basis
which entitles the customer to return or may obligate the Company to repurchase
such Inventory, except in the ordinary course of its business as presently
conducted, it being understood that in its ordinary course of business as
presently conducted the Company does, in fact, sell Inventory on approval and
lease and rent Inventory to third parties with the option to purchase.
Section 7. Power of Attorney. In addition to any other powers of attorney
contained herein, the Company appoints the Collateral Agent, its nominee, or any
other Person whom the Collateral Agent may designate as the Company's attorney
in fact, with full power upon the occurrence and during the continuance of an
Event of Default hereunder, to sign the Company's name on verifications of
accounts and to send requests for verification of Receivables to customers or
account debtors, to endorse the Company's name on any checks, notes,
acceptances, money orders, drafts or other forms of payment or security that may
come into the Collateral Agent's possession, to sign the Company's name on any
invoice or bill of lading relating to any Receivables, on claims to enforce
collection of any Receivables, on notices to and drafts against customers, on
schedules and assignments of Receivables, on notices of assignment and on
public records, to notify the post office authorities to change the address for
delivery of the Company's mail to an address designated by the Collateral Agent,
to receive, open and dispose of all mail addressed to the Company and to do all
things necessary to carry out this Agreement. The Company hereby ratifies and
approves all acts of any such attorney and agrees that neither the Collateral
Agent nor any such attorney will be liable for any acts or omissions nor for any
error of judgment or mistake of fact or law other than their gross negligence
or willful misconduct. The foregoing power of attorney, being coupled with an
interest, is irrevocable so long as the Agreement remains in effect. The
Collateral Agent may file one or more financing statements disclosing its
security interest in any or all of the Collateral without the Company's
signature appearing thereon. The Company also hereby grants the Collateral Agent
a power of attorney to execute any such financing statement, or amendments and
supplements to financing statements, on behalf of the Company without notice
thereof to the Company, which power of attorney is coupled with an interest and
is irrevocable until the Secured Obligations have been fully satisfied and the
commitment of the Banks and any Noteholder to extend credit to the Company has
terminated.
Section 8. Defaults and Remedies. (a) The occurrence of any of the
following events, or the existence of any of the following conditions, shall
constitute an "Event of Default" hereunder:
-16-
<PAGE>
(1) the occurrence of any event or the existence of any condition
which is specified as an Event of Default under either the Credit Agreement
or the Note Agreements; or
(2) any representation or warranty made by the Company herein, or in
any written statement or certificate furnished by it pursuant hereto, or in
connection with this Agreement shall be untrue in any material respect as
of the date of the issuance or making thereof; or
(3) default by the Company in the observance or performance of any
provision, covenant or agreement contained in (S)3(b), (f), (g), and (k)
hereof; or
(4) default in the observance or performance by the Company of any
other provision of this Agreement which is not remedied within 30 days
after the earlier of (i) the day on which a Responsible Officer of the
Company first obtains knowledge of such default, or (ii) the day on which
written notice thereof is given to the Company by the Collateral Agent.
(b) With respect to all of the Collateral other than Cash, upon the
occurrence and during the continuation of any Event of Default hereunder, the
Collateral Agent shall have, in addition to all other rights provided herein or
by law, the rights and remedies of a secured party under the Code (regardless of
whether the Code is the law of the jurisdiction where the rights or remedies are
asserted and regardless of whether the Code applies to the affected Collateral),
and further the Collateral Agent may, without demand and without advertisement,
notice, hearing or process of law, all of which the Company hereby waives, at
any time or times, sell and deliver any or all Collateral (other than Cash) held
by or for it at public or private sale, for cash, upon credit or otherwise, at
such prices and upon such terms as the Collateral Agent deems advisable, in its
sole discretion, provided that said disposition complies with any and all
mandatory legal requirements. In addition to all other sums due the Collateral
Agent, any Bank or any Noteholder hereunder, the Company shall pay the
Collateral Agent, any Bank and any Noteholder all costs and expenses incurred by
the Collateral Agent, such Bank or such Noteholder, including a reasonable
allowance for attorneys' fees and court costs, in obtaining, liquidating or
enforcing payment of Collateral or Secured Obligations or in the prosecution or
defense of any action or proceeding by or against the Collateral Agent, such
Bank, such Noteholder or the Company concerning any matter arising out of or
connected with this Agreement or the Collateral or Secured Obligations,
including without limitation any of the foregoing arising in, arising under or
related to a case under the United States Bankruptcy Code (or any successor
statute). Any requirement of reasonable notice shall be met if such notice is
personally served on or mailed, postage prepaid, to the Company in accordance
with (S)11(b) hereof at least 10 days before the time of sale or other event
giving rise to the requirement of such notice; however, no notification need be
given to the Company if the Company has signed, after an Event of Default
hereunder has occurred, a statement renouncing any right to notification of sale
or other intended disposition. The Collateral Agent shall not be obligated to
make any sale or other disposition of the Collateral regardless of notice having
been given. The Collateral Agent, any bank or any noteholder may be the
purchaser at any such sale. To the extent
-17-
<PAGE>
permitted by applicable law, the Company hereby waives all of its rights of
redemption from any such sale. Subject to the provisions of applicable law, the
Collateral Agent may postpone or cause the postponement of the sale of all or
any portion of the Collateral by announcement at the time and place of such
sale, and such sale may, without further notice, be made at the time and place
to which the sale was postponed or the Collateral Agent may further postpone
such sale by announcement made at such time and place.
(c) With respect to all of the Collateral other than Cash, without in any
way limiting the foregoing, the Collateral Agent shall, upon the occurrence and
during the continuation of any Event of Default hereunder, have the right, in
addition to all other rights provided herein or by law, to take physical
possession of any and all of the Collateral (other than Cash) and anything found
therein, the right for that purpose to enter without legal process any premises
where such Collateral may be found (provided such entry be done lawfully), and
the right to maintain such possession on the Company's premises (the Company
hereby agreeing to lease such premises without cost or expense to the Collateral
Agent or its designee if the Collateral Agent so requests) or to remove the
Collateral (other than Cash) or any part thereof to such other places as the
Collateral Agent may desire. Upon the occurrence and during the continuation of
any Event of Default hereunder, the Company shall, upon the Collateral Agent's
demand, assemble the Collateral (other than Cash) and make it available to the
Collateral Agent at a place designated by the Collateral Agent. If the
Collateral Agent exercises its right to take possession of the Collateral (other
than Cash), the Company shall also at its expense perform any and all other
steps reasonably requested by the Collateral Agent to preserve and protect the
security interest hereby granted in such Collateral, such as placing and
maintaining signs indicating the security interest of the Collateral Agent,
appointing overseers for such Collateral and maintaining inventory records.
(d) With respect to Cash, upon the occurrence and during the continuation
of any Event of Default hereunder, the Collateral Agent shall have, in addition
to all other rights provided herein or by law, the rights and remedies of a
secured party under the Code (regardless of whether the Code is the law of the
jurisdiction where the rights or remedies are asserted and regardless of whether
the Code applies to the affected Collateral), the right (1) to exercise
exclusive control over any proceeds of Collateral in its possession or held at
any Depository Bank or in any lockbox established pursuant to (S)5(b) hereof and
(2) to exercise any and all rights with respect to deposit accounts of the
Company and Cash (including without limitation those maintained with the
Collateral Agent, any Bank or any Noteholder), including without limitation the
right to collect, withdraw and receive all amounts due or to become due or
payable under each such deposit account, and shall have the right to apply such
amounts in reduction of the Secured Obligations as contemplated by (S)9 hereof.
(e) Failure by the Collateral Agent to exercise any right, remedy or
option under this Agreement or any other agreement between the Company and the
Collateral Agent or provided by law, or delay by the Collateral Agent in
exercising the same, shall not operate as a waiver; no waiver hereunder shall be
effective unless it is in writing, signed by the party against whom such waiver
is sought to be enforced and then only to the extent specifically
-18-
<PAGE>
stated. Neither the Collateral Agent nor any party acting as attorney for the
Collateral Agent shall be liable hereunder for any acts or omissions or for any
error of judgment or mistake of fact or law other than their gross negligence or
willful misconduct. The rights and remedies of the Collateral Agent, the Agent,
the Banks and the Noteholders under this Agreement shall be cumulative and not
exclusive of any other right or remedy which the Collateral Agent, the Agent,
the Banks or the Noteholders may have.
Section 9. Application of Proceeds. The proceeds and avails of the
Collateral at any time received by the Collateral Agent upon the occurrence and
during the continuation of any Event of Default hereunder shall, when received
by the Collateral Agent in cash or its equivalent, be applied by the Collateral
Agent in reduction of the Secured Obligations as set forth in the Intercreditor
Agreement. The Company shall remain liable to the Collateral Agent, the Agent,
the Banks and the Noteholders for any deficiency. Any surplus remaining after
the full payment and satisfaction of the Secured Obligations shall be returned
to the Company or to whomsoever the Collateral Agent reasonably determines is
lawfully entitled thereto.
Section 10. Continuing Agreement. This Agreement shall be a continuing
agreement in every respect and shall remain in full force and effect until all
of the Secured Obligations, principal, premium, if any, and interest, and all
other amounts then due and payable under any of the Credit Agreement, Note
Agreements and the Senior Notes have been fully paid and satisfied in cash and
any commitment of the Banks to extend any credit to the Company under the Credit
Agreement shall have terminated. Upon such termination of this Agreement, the
Collateral Agent shall, upon the request and at the expense of the Company,
forthwith release all its liens and security interests hereunder.
Section 11. Miscellaneous. (a) This Agreement and the provisions hereof
may be changed, discharged or terminated only by an instrument in writing signed
by the Company and the Collateral Agent (upon the direction of the Majority
Benefited Parties, as such term is defined in the Intercreditor Agreement). This
Agreement shall create a continuing security interest in the Collateral and
shall be binding upon the Company, its successors and assigns and shall inure,
together with the rights and remedies of the Collateral Agent, the Agent, the
Banks and the Noteholders hereunder, to the benefit of the Collateral Agent, the
Agent, the Banks and the Noteholders and their respective successors and assigns
which are permitted under the Note Agreements, the Credit Agreement and the
Intercreditor Agreement; provided, however, that the Company may not assign its
rights or delegate its duties hereunder without the Collateral Agent's prior
written consent. The Company hereby releases the Collateral Agent from any
liability for any act or omission relating to the Collateral or this Agreement,
except the Collateral Agent's gross negligence or willful misconduct.
(b) Except as otherwise specified herein, all notices hereunder shall be
in writing (including telecopy) and shall be given to the relevant party at its
address or telecopier number set forth below, or such other address or
telecopier number as such party may hereafter specify by notice to the other
given by United States certified or registered mail, by overnight air courier,
by telecopy or by other telecommunication device capable of
-19-
<PAGE>
creating a written record of such notice and its receipt. Notices given by
telecopy shall be confirmed in writing within 24 hours by overnight air courier
at the address for the relevant party provided below. Notices hereunder shall be
addressed:
To the Company at:
U.S. Rentals, Inc.
1581 Cummins Drive, Suite 155
Modesto, California 95358
Attention: Chief Financial Officer
Telephone: (209) 544-9000
Telecopier: (209) 544-6756
To the Collateral Agent at:
Bank of America National Trust and Savings Association
1455 Market Street, 13th Floor
San Francisco, California 94103
Agency Management Services No. 10831
Attention: Charles Graber
Telephone: (415) 436-3495
Telecopier: (415) 436-2700
To the Agent and the Banks at their respective addresses and telecopy
numbers set forth in the Credit Agreement
To the Noteholders at their respective addresses for notices set forth
in the Note Agreements
Each such notice, request or other communication shall be effective upon
receipt.
(c) In the event that any provision hereof shall be deemed to be invalid
by reason of the operation of any law or by reason of the interpretation placed
thereon by any court, this Agreement shall be construed as not containing such
provision, but only as to such jurisdictions where such law or interpretation is
operative, and the invalidity of such provision shall not affect the validity of
any remaining provision hereof, and any and all other provisions hereof which
are otherwise lawful and valid shall remain in full force and effect.
(d) This Agreement shall be deemed to have been made in the State of
California and shall be governed by and construed in accordance with the laws of
the State of California, without regard to principles of conflicts of laws. All
terms which are used in this Agreement which are defined in the Code shall have
the same meanings herein as said terms do in the Code unless this Agreement
shall otherwise specifically provide. The headings in this instrument are for
convenience of reference only and shall not limit or otherwise affect the
meaning of any provision hereof.
-20-
<PAGE>
(e) In acting under or by virtue of this Agreement, the Collateral Agent
shall be entitled to all the rights, authority, privileges and immunities
provided in the Intercreditor Agreement and all the provisions of said
Intercreditor Agreement are incorporated by reference herein with the same force
and effect as if set forth herein in their entirety. The Collateral Agent shall
not take action under this Agreement unless permitted or required to do so under
the terms of the Intercreditor Agreement. The Collateral Agent hereby disclaims
any representation or warranty to the Agent, the Banks and the Noteholders
concerning the perfection of the security interest granted hereunder or in the
value of any of the Collateral.
(f) EACH OF THE COMPANY AND THE COLLATERAL AGENT HEREBY, TO THE FULLEST
EXTENT PERMITTED BY LAW, WAIVES TRIAL BY JURY IN ANY ACTION BROUGHT UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OF THE DOCUMENTS OR INSTRUMENTS EXECUTED
IN CONNECTION HEREWITH.
(g) This Agreement may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each constituting an
original, but all together one and the same instrument.
-21-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed as of the date first above written.
U.S. RENTALS, INC.
By /s/ John S. McKinney
-------------------------------
Name: John S. McKinney
Title: Vice President and
Chief Financial Officer
-22-
<PAGE>
Accepted and agreed to by the Collateral Agent as of the date first above
written.
Bank of America National Trust and
Savings Association, as Collateral Agent
for the Noteholders, the Agent and the
Banks
By /s/ Robert W. Troutman
----------------------------------
Name: Robert W. Troutman
Title: Vice President
-23-
<PAGE>
FORM OF ACCOUNT LETTER AGREEMENT
________________, 199__
[Name and Address of Bank]
Re: U.S. Rentals, Inc.
Ladies and Gentlemen:
We, U.S. Rentals, Inc. (the "Company"), hereby notify you that, effective
immediately, we have transferred exclusive ownership and control of our
accounts, numbered __________________ maintained with you together with any
other accounts which we may hereafter open with you (collectively, the
"Accounts") to Bank of America National Trust and Savings Association, as
Collateral Agent (the "Collateral Agent") for the holders of the Senior
Obligations (as such term is defined in the hereinafter described Security
Agreement), located at 1455 Market Street, 13th Floor, Agency Management
Services No. 10831, San Francisco, California 94103.
We hereby irrevocably instruct you to make all payments to be made by you
out of or in connection with the Accounts in accordance with the instructions of
the Collateral Agent. In this regard, we wish to note that the Collateral Agent
in the accompanying Acknowledgment and Authorization has authorized you to
continue to accept instructions from the Company until you shall have received a
Notice of Revocation from the Collateral Agent in the form attached hereto as
Annex A (a "Notice of Revocation"). It is understood and agreed that you shall
have no obligation to investigate the authority of the Collateral Agent to
execute a Notice of Revocation or to verify the circumstances underlying its
delivery. Furthermore, we agree to hold you harmless for any actions taken by
you in reliance on a Notice of Revocation. No revocation of this letter
agreement by the Company shall be valid without the written consent of the
Collateral Agent.
We also hereby notify you that the Collateral Agent shall be irrevocably
entitled to exercise any and all rights in respect of or in connection with the
Accounts, including, without limitation, the right to specify when payments are
to be made out of or in connection with the Accounts.
All funds deposited into the Accounts will not be subject to deductions,
setoff, banker's lien or any other right in favor of any other person other than
the Collateral Agent, except that you may setoff against the Accounts the face
amount of any check deposited in and credited to such Accounts which is
subsequently returned for any reason. Your compensation for providing the
services contemplated herein shall be as mutually agreed between you and us from
time to time and we will continue to pay such compensation, and you agree not to
terminate the Accounts without giving the Collateral Agent at least 60 days'
prior written notice.
EXHIBIT 1
(to Security Agreement)
<PAGE>
Please agree to the terms of, and acknowledge receipt of, this letter by
signing in the space provided below on two of the enclosed copies of this letter
and returning both copies to: _________________________.
Very truly yours,
U.S. RENTALS, INC.
By ___________________________
Its
Acknowledged and agreed to
as of this _____ day of
_____________, _______, by:
[NAME OF BANK]
By ________________________________
Its
-2-
<PAGE>
FORM OF NOTICE OF REVOCATION
[Date]
[Name and Address of Bank]
Re: U.S. Rentals, Inc.
Ladies and Gentlemen:
Reference is hereby made to (i) that certain Account Letter Agreement dated
____________, 199__ (the "Account Letter Agreement") addressed to you from U.S.
Rentals, Inc. (the "Company") and (ii) Section 8(d) of the Third Amended and
Restated Security Agreement Re: Receivables, Inventory, Equipment, and Documents
dated as of July 1, 1996 (as amended or restated from time to time, the
"Security Agreement") by and between the Company and Bank of America National
Trust and Savings Association, as Collateral Agent (the "Collateral Agent") for
the holders of the Secured Obligations (as such term is defined in the Security
Agreement).
Pursuant to the terms of the Account Letter Agreement, the Collateral Agent
hereby notifies you that (i) an Event of Default under the Security Agreement
has occurred and is continuing; and (ii) all authority granted to the Company to
direct the payment of funds from the accounts covered by and more particularly
described in the Account Letter Agreement (collectively, the "Accounts")
pursuant to the Acknowledgment and Authorization from the Collateral Agent to
you, which was acknowledged and agreed to by you on _________, 199__, has been
revoked. From and after the date hereof, the Collateral Agent will be
exercising exclusive control over the Accounts and you are instructed to
discontinue accepting instructions from the Company for the payment of funds
from said Accounts. All further instructions regarding the Accounts will be
delivered by the Collateral Agent.
Very truly yours,
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Collateral
Agent
By ____________________________________
Its
ANNEX A
(to Account Letter Agreement)
<PAGE>
ACKNOWLEDGMENT AND AUTHORIZATION
Bank of America National Trust and Savings Association, as Collateral Agent
(the "Collateral Agent") for the holders of the Secured Obligations (as such
term is defined in the hereinafter described Security Agreement), hereby
acknowledges the transfer to it of exclusive ownership and control of the
"Accounts" (as defined in, and pursuant to the terms of the foregoing letter
(the "Letter Agreement")) executed by U.S. Rentals, Inc. (the "Company") and
acknowledged by [Name of Bank] (the "Bank"). Pursuant to the second paragraph
of the Letter Agreement, the Collateral Agent hereby authorizes the Bank to
continue to accept instructions from the Company for the payment of funds from
said Accounts until the Collateral Agent notifies the Bank in writing to the
contrary, which notice shall (a) reference (S)8(d) of the Third Amended and
Restated Security Agreement Re: Receivables, Inventory, Equipment, and Documents
dated as of July 1, 1996 by and between the Company and the Collateral Agent (as
amended or restated from time to time, the "Security Agreement") and (b) state
that an Event of Default under the Security Agreement has occurred and is
continuing. Any such written notice shall be effective on the business day
received by Bank if received before 4:00 P.M. (__________ time) and if not
received by such time, on the next succeeding business day. The Collateral
Agent agrees to reimburse Bank for all costs and expenses incurred by Bank in
connection with the performance of the terms of the Letter Agreement after the
date on which the Collateral Agent gives Bank the written notice described in
the preceding sentence to the extent such costs and expenses are not reimbursed
by the Company.
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Collateral
Agent
By ____________________________________
Its
Acknowledged and agreed to
as of this _____ day of
______________, 199___ by:
[NAME OF BANK]
By _________________________________
Its
<PAGE>
SCHEDULE A
DESCRIPTION OF ACCOUNTS
<TABLE>
<CAPTION>
Location Bank
- -------- ----
<S> <C>
Home Office and Bank of America
CA Profit Centers Corporate Service Center
Department #5693
1850 Gateway Blvd. 4th Floor
Concord, CA 94520
Attn: Barbara Garibaldi
Central Cash Account # 12331-13468
Depository ZBA Account # 12336-11070
AP Controlled Documents
ZBA Account # 12334-11071
Group Insurance Account # 12332-11072
1st Union National Bank Account # 79985-14389
- ---------------------------------------------------------------------------
Corporate Bank of America
1120 La Collina 555 South Flower Street
Beverly Hills, CA 90210 Los Angeles, CA 90071
General Account # 145-9900632
Payroll Account # 145-9700577
USR Leasing Company Bank of America
Corporate Service Center
Same as above
Account # 12333-11807
- ---------------------------------------------------------------------------
Jan Turner Gallery Bank of America
9006 Melrose Ave. PO Box 30746
Los Angeles, CA 90069 Los Angeles, CA 90030
(310) 271-4453
Account # 01346-09285
</TABLE>
<PAGE>
SCHEDULE A
DESCRIPTION OF ACCOUNTS
<TABLE>
<CAPTION>
===============================================================================
PC# LOCATION BANK ACCOUNT #
===============================================================================
<S> <C> <C> <C>
#7 3266 E. Washington St. Bank of America 81751-11893
Phoenix Phoenix, AZ 85034 2902 N. 44th St.
0007 (5) (602) 273-7401 Phoenix, AZ 85018
(602) 248-4609
(800) 284-8491
#12 3448 S. Decatur Blvd. FIB of Nevada 147-0177022
Las Vegas Las Vegas, NV 89102 Spring Mountain Branch
0012 (5) (702) 871-5575 P.O. Box 98588
Las Vegas, NV 89193
(800) 777-3000
#17 1458 Lomaland Drive Montwood National Bank 402-858-9
El Paso El Paso, TX 79935 Main Branch
0017 (4) (915) 598-1264 P.O. Box 937007
El Paso, TX 79937-7007
(915) 779-4800
#27 1011 South Prudence Bank of America 86351-21556
Tucson Tucson, AZ 85710 7880 E. Broadway
0027 (3) (602) 296-7611 Tucson, AZ 85710
(800) 284-8491
#28 790 Glendale Rd. FIB of Nevada 144-9180571
Sparks Sparks, NV 89431 McCarran Boulevard Office
0028 (1) (702) 359-6660 P.O. Box 11007
Reno, NV 89520-0010
(800) 777-3000
(702) 753-4502
#31 112 W. Airline Highway First American Bank 41-3538-5
Kenner Kenner, LA 70062 P.O. Box 550
0031 (5) (504) 467-1512 Vacherie, LA 77090-0550
(504) 265-2265
#32 12017 North Loop Rd. Bank of America, Texas 03174-46264
San Antonio San Antonio, TX 78216 15142 San Pedro
0032 (3) (210) 494-5288 San Antonio, TX 78232
(210) 496-1136
#33 613 Sterlington Rd. Regions Bank 42-0010-4892
Monroe Monroe, LA 71203 P.O. Box 7232
0033 (1) (318) 323-7775 Monroe, LA 71211-7232
(318) 362-8200
#34 2640 Linwood Ave. Hibernia National Bank 3189120
Shreveport Shreveport, LA 71103 P.O. Box 61540
0034 (9) (318) 635-6404 New Orleans, LA 71060
(318) 221-5406
(800) 236-7462
</TABLE>
<PAGE>
SCHEDULE A
DESCRIPTION OF ACCOUNTS
<TABLE>
<CAPTION>
===============================================================================
PC# LOCATION BANK ACCOUNT #
===============================================================================
<S> <C> <C> <C>
#35 2465 W. Cardinal Drive Lamar Bank 132910
Beaumont Beaumont, TX 77705 3200 Avenue A
0035 (6) (409) 842-5614 Beaumont, TX 77705
(800) 323-3606
(409) 838-4781
#36 609 North Bell Bank One, Northwest Austin 75-00259002
Cedar Park Cedar Park, TX 78613 P.O. Box 2266
0036 (4) (512) 335-0061 Austin, TX 78780-2266
(512) 404-1111
(800) 695-1111
(512) 479-5400
#37 5317 Mansfield High Bank of America Texas 84503-01050
Fort Worth Fort Worth, TX 76119 4351 Little Road
0037 (2) (817) 483-6411 Arlington, TX 76016-5604
(817) 478-2132
#38 1350 South Loop 12 Bank of America Texas 78179-01384
Irving Irving, TX 75060 330 West Irving Boulevard
0038 (0) (214) 579-7506 Irving, TX 75060-2905
(214) 259-2639
#39 17138 US Highway 290 Sterling Bank 001-0193348
Jersey Houston, TX 77040 P.O. Box 40333
Village (713) 466-7040 Houston, TX 77240-0333
0039 (8) (713) 466-8300
(713) 507-7378 Statements
#40 5415 Bissonnet Bank of America Texas 24069-00637
Bellaire Houston, TX 77081 4555 Bissonnet
0040 (6) (713) 666-0731 Bellaire, TX 77401-3195
(713) 664-2112
#41 1201 Capital Ave. NationsBank of Texas 232-080751-1
Plano Plano, TX 75074 P.O. Box 831547
0041 (4) (214) 423-8996 Dallas, TX 75283-1547
(800) 462-6289
#42 4301 San Dario Avenue Int'l Bank of Commerce 7095856-01
Laredo Laredo, TX 78041 4501 San Bernardo Ave.
0042 (2) (210) 724-7368 Laredo, TX 78042
(210) 722-7611
#52 3171 N. Deer Run Rd. First Interstate Bank 163-0145300
Carson City Carson City, NV 89701 1550 Highway 50 East
0052 (1) (702) 884-9745 P.O. Box 1010
Carson City, NV 89702-1010
(702) 885-1154
</TABLE>
<PAGE>
SCHEDULE A
DESCRIPTION OF ACCOUNTS
<TABLE>
<CAPTION>
===============================================================================
PC# LOCATION BANK ACCOUNT #
===============================================================================
<S> <C> <C> <C>
#53 729 West Idaho FIB of Nevada 027-0043380
Elko Elko, NV 89801 P.O. Box 471
0053 (9) (702) 738-3565 Elko, NV 89801
(800) 777-3000
(702) 738-2136
#64 2800 University Blvd. N.E. Bank of America 20619-91582
Albuquerque Albuquerque, NM 87107 5101 Menaul NE
0064 (6) (505) 884-6565 P.O. Box 25000
Albuquerque, NM 87125
(505) 889-1570
#65 1919 E. 8th St. Texas Commerce Bank 095-00968453
Odessa Odessa, TX 79761 620 N. Grant Street
0065 (3) (915) 332-1211 Odessa, TX 79760
(915) 335-4401
#69 9501 Interstate 30 Metropolitan National Bank 105430
Little Rock Little Rock, AR 72209 P.O. Box 8010
0069 (5) (501) 565-5200 Little Rock, AR 72203
(501) 377-7600
#84 P.O. Box 42387 Texas Commerce Bank 018-00049510
Houston Houston, TX 77242 P.O. Box 2558
Credit (713) 784-2330 Houston, TX 77252
0084 (4) (713) 216-7000
#101 1855 South Cole Rd. Bank of America 24513-905
Boise Boise, ID 83704 421 North Cole Rd.
0101 (6) (208) 322-6225 Boise, ID 83704
(208) 323-8700
#102 15 McGill Highway Bank of America - Nevada 967000399
Ely Ely, NV 89301 399 Altman Street
0102 (4) (702) 289-3200 Ely, NV 89301
(702) 289-4425
(702) 289-3843 Fax
#111 1122 E. Northeast Loop 323 Southside Bank 1248847
Tyler Tyler, TX 75710 2121 W. Gentry Parkway
0111 (5) (903) 596-7368 Tyler, TX 75702
(903) 531-7111
#112 1425 South Main Bank of America Texas 66867-00796
Keller Keller, TX 76244 P.O. Box 619031
0112 (3) (817) 431-9419 Dallas, TX 75261-9031
(817) 431-8451
</TABLE>
<PAGE>
SCHEDULE A
DESCRIPTION OF ACCOUNTS
<TABLE>
<CAPTION>
===============================================================================
PC# LOCATION BANK ACCOUNT #
===============================================================================
<S> <C> <C> <C>
#131 1300 South West Street Bank IV 331000031456
Wichita Wichita, KS 67213 500 S. West
0131 (3) (316) 943-4237 Wichita, KS 67201
(316) 261-4242
#132 525 N. Broadway/ Bank IV 331000031463
Salina 1116 Hixson 500 S. West
0132 (1) Salina, KS 67401 Wichita, KS 67201
(913) 823-3779 (316) 261-4242
#133 2795 McConnell Bank of Fayetteville 80016227
Fayetteville Fayetteville, AR 72703 P.O. Box 1728
0133 (9) (501) 442-4233 Fayetteville, AR 72702
(501) 444-4444
#134 2314 South 8th Street Farmers and Merchants Bank 001007-555-0
Rogers Rogers, AR 72756 4th and Chestnut
0134 (7) (501) 636-5055 Rogers, AR 72756
(501) 636-4233
#135 8316 West Interstate 40 Bank of Oklahoma 819024546
Oklahoma Oklahoma City, OK 73128 Windsor Hills
City (405) 232-0004 2601 N. Meridian
0135 (4) Oklahoma City, OK 73107
(405) 951-5800
(800) 722-4601
</TABLE>
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
- --------------------------- --------------------------------------------------------------- ---------------------------------
P.C. LOCATION MANAGER TELEPHONE STREET ADDRESS CITY ST ZIP
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C>
* 02 Downey Torre Niles 310-861-0978 9606 E. Firestone Blvd. Downey CA 90241
* 03 Long Beach Kelly Dingeman 310-422-1283 5640 Cherry Avenue Long Beach CA 90805
04 San Jose Ed Heinz 408-251-7730 2101 Alum Rock Ave. San Jose CA 95116
05 Modesto-Yosemite Burt Baucom 209-522-5211 2443 Yosemite Blvd. Modesto CA 95354
07 Phoenix Don Ebert 602-273-7401 3266 E. Washington St. Phoenix AZ 85034
* 08 Canoga Park Mike Rau 818-340-5881 7755 Canoga Avenue Canoga Park CA 91304
09 Montclair Chris Kerber 909-624-9615 10625 Monte Vista Ave. Montclair CA 91763
10 Victorville Graeme Carr 619-245-3458 16363 "D" Street Victorville CA 92392
11 Ventura Stan Millard 805-644-7319 3665 Market Street Ventura CA 93003
12 Las Vegas Lee Braden 702-871-5575 3448 So. Decatur Blvd. Las Vegas NV 89102
* 13 Fontana Andy Anderson 909-829-4881 16190 Valley Blvd. Fontana CA 92335
14 Carmichael George Carousos 916-487-7887 7424 Fair Oaks Blvd. Carmichael CA 95608
15 Fullerton Bill Jackson 714-871-5712 1301 S. State College Fullerton CA 92631
16 Sacramento-North Greg Aguilera 916-922-9895 3706 Marysville Blvd. Sacramento CA 95838
* 17 El Paso Joseph Villarreal 915-598-1264 1458 Lomaland Drive El Paso TX 79935
18 Sacramento Joe Cors 916-451-7277 6201 Elvas Avenue Sacramento CA 95819
19 Modesto Russ Denner 209-521-6250 1331 Coldwell Avenue Modesto CA 95350
20 Fresno John Call 209-233-5261 4141 E. Belmont Ave. Fresno CA 93702
* 21 Huntington Beach Dave Valdez 714-842-7765 7614 Warner Avenue Huntington Beach CA 92647
22 Fresno-Blackstone Steven Spence 209-222-3091 4470 N. Blackstone Fresno CA 93726
23 Turlock Tom Gerdes 209-632-7561 2800 N. Golden State Turlock CA 95380
24 Stockton John Fuhrman 209-948-9241 2081 Charter Way Stockton CA 95205
* 25 Merced Don Watts 209-383-2984 1346 West 16th Street Merced CA 95340
26 Lodi Kurt Miller 209-334-2850 210 E. Kettleman Lane Lodi CA 95240
* 27 Tucson Lance Evic 602-296-7611 1011 South Prudence Tucson AZ 85710
28 Sparks Craig Dotson 702-359-6660 790 Glendale Road Sparks NV 89431
* 29 Rocklin Randy Erwin 916-624-0641 4755 Pacific Street Rocklin CA 95677
30 Hartley & Nixon Richard Gray 310-437-0921 1900 W. Anaheim Street Long Beach CA 90813
* 31 Kenner Steve Morris 504-467-1512 112 W. Airline Highway Kenner LA 70062
* 32 San Antonio Tommy Taylor 210-494-5288 12017 North Loop Road San Antonio TX 78216
* 33 Monroe Tommy Gilmer 318-323-7775 900 Martin Luther King Drive Monroe LA 71203
34 Shreveport Jack Ravenna 318-635-6404 2640 Linwood Avenue Shreveport LA 71103
* 35 Beaumont Frank Ewing 409-842-5614 2465 W. Cardinal Drive Beaumont TX 77705
* 36 Cedar Park Randy Jones 512-335-0061 609 North Bell Cedar Park TX 78613
* 37 Fort Worth Greg Forbess 817-483-6411 5317 Mansfield Hwy. Fort Worth TX 76119
* 38 Irving Kenny Perkins 214-579-7506 1350 South Loop 12 Irving TX 75060
* 39 Jersey Village Larry Robeson 713-466-7040 17138 US Highway 290 Houston TX 77040
40 Bellaire Jeff McInemy 713-666-0731 5415 Bissonnet Houston TX 77081
* 41 Plano Bill Carpenter 214-423-8996 1201 Capital Avenue Plano TX 75074
* 42 Laredo Orlando Gonzalez 210-724-7368 4317 San Dario Laredo TX 78041
43 Kearny Mesa Jeff Thomas 619-565-7122 5580 Kearny Villa San Diego CA 92123
* 44 Chula Vista Dave Gregg 619-422-1106 501 "C" Street Chula Vista CA 91910
45 Napa Louis Maldonado 707-255-1066 1865 Tanen Street Napa CA 94559
47 Sunnyvale Jim Nolan 408-736-7560 940 W. Evelyn Avenue Sunnyvale CA 94086
49 Oakland Mike Carter 510-562-3000 700 98th Ave. Oakland CA 94603
* 50 Corona John Strom 909-735-9310 525 Maple Street Corona CA 91720
51 Baldwin Park Barry Kennelly 818-962-4468 15402 Arrow Highway Baldwin Park CA 91706
52 Carson City Robert Johnson 702-884-4745 3223 N. Deer Run Road Carson City NV 89701
53 Elko Mark Romeo 702-738-3565 729 West Idaho Elko NV 89801
54 Cathedral City McKee Colburn 619-328-6573 36025 Cathedral Canyon Cathedral City CA 92234
* 55 Ridgecrest Darrin Sullivan 619-446-7628 1241 Inyokern Road Ridgecrest CA 93555
56 Vista KC Jacobson 619-726-7200 240 West Vista Way Vista CA 92083
57 Redding Chad Maughan 916-221-8851 3040 Crossroads Drive Redding CA 96003
* 58 Chico Rick Russell 916-894-7799 2855 Fair Street Chico CA 95928
59 Santa Rosa Del Keffer 707-585-7621 3939 South Moorland Ave. Santa Rosa CA 95407
60 Arroyo Grande Donald Waugh 805-489-3113 1105 El Camino Real Arroyo Grande CA 93420
61 Lancaster James Kennelly 805-948-2654 43631 Sierra Highway Lancaster CA 93534
62 Indio Joel Smith 619-775-6868 83525 Date Street Indio CA 92201
* 63 Gilroy Raz Quiroga 408-848-2510 6390 Chestnut Street Gilroy CA 95020
64 Albuquerque Louis Womack 505-884-6565 2800 University Blvd. N.E. Albuquerque NM 87107
* 65 Odessa Jim Sacson 915-332-1211 1220 S. Grandview Odessa TX 79761
67 San Juan Capistrano Dan Autry 714-496-4783 32821 Calle Perfecto San Juan Capistrano CA 92675
* 68 Madera Marc Watts 209-673-5831 750 Madera Avenue Madera CA 93637
* 69 Little Rock David Dunlop 501-565-5200 9501 Interstate 30 Little Rock AR 72209
* 101 Boise Pat Tilman 208-322-6225 1855 South Cole Rd. Boise ID 83704
102 Ely Jody Hallmark 702-289-3200 H33 Box 33359 Ely NV 89301
104 Antioch Tom Casey 510-757-5422 1204 Sunset Drive Antioch CA 94509
* 111 Tyler Gary Waxler 903-596-7368 1122 E. Northeast Loop 323 Tyler TX 75710
112 Keller John Lowe 817-431-9419 1425 South Main Keller TX 76244
131 Wichita Tom Smith 316-943-4237 1300 South West Street Wichita KS 67213
132 Salina Tom Smith 913-823-3779 1116 Hixson Salina KS 67401
* 133 Fayetteville Lee Holmes 501-442-4233 2795 McConnell Fayetteville AR 72703
134 Rogers Rob Brown 501-636-5055 2314 South 8th Street Rogers AR 72756
135 Oklahoma City Bill Wimberly 405-232-0004 8316 West Interstate 40 Oklahoma City OK 73128
136 Contractors-L.B. Steve Nadelman 310-432-2954 2020 West Pacific Coast Hwy Long Beach CA 90810
137 Contractors-Gardena Steve Nadelman 310-527-9858 13316 South Western Avenue Gardena CA 90249
</TABLE>
- ----------------
*=OWNED
<PAGE>
SCHEDULE C
PERMITTED TRADE NAMES
U.S. Rentals, Inc.
[LOGO OF U.S. RENTALS] (Registered)
Hartley Nixon Rentals (DBA)
California Equipment Rentals (DBA)
Sisco Equipment Rental & Sales (DBA)
U.S. Hi-Reach (DBA)
Contractors Equipment Rental (DBA)
<PAGE>
EXHIBIT 10.9
CONFORMED COPY
================================================================================
INTERCREDITOR AGREEMENT
AMONG
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
AND
THE NOTEHOLDERS
Re: $10,000,000 6.82% Senior Secured Notes, Series A,
Due August 21, 1999,
$10,000,000 6.89% Senior Secured Notes, Series B,
Due August 21, 2000,
$10,000,000 7.04% Senior Secured Notes, Series C,
Due August 21, 2001,
and
$20,000,000 7.13% Senior Secured Notes, Series D,
Due August 21, 2002
of
U.S. RENTALS, INC.
Dated as of August 15, 1995
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Heading Page
<S> <C>
Parties............................................................. 1
Recitals............................................................ 1
Section 1. Defined Terms...................................... 2
Section 2. Appointment of Collateral Agent.................... 8
Section 3. Decisions Relating to Administration and
Exercise of Remedies Vested in the Majority
Benefited Parties.................................. 8
Section 4. Application of Proceeds............................ 10
Section 5. Preferential Payments and Special Trust Account.... 12
Section 6. Information........................................ 13
Section 7. Additional Parties................................. 14
Section 8. Disclaimers, Indemnity, Etc........................ 14
Section 9. Invalidated Payments............................... 18
Section 10. Miscellaneous...................................... 18
Signature Page...................................................... 21
</TABLE>
-i-
<PAGE>
INTERCREDITOR AGREEMENT
This INTERCREDITOR AGREEMENT (as amended, restated or otherwise modified
from time to time in accordance with the terms hereof, this "Agreement") is
dated as of August 15, 1995 and entered into among the Noteholders (as
hereinafter defined), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
("Bank of America"), as a Lender (as hereinafter defined), and Bank of America
National Trust and Savings Association as the Collateral Agent (as hereinafter
defined). This Agreement is consented to by U.S. Rentals, Inc., a California
corporation ("USR"), by USR's execution of the acknowledgment hereto.
RECITALS
WHEREAS, USR and Bank of America (together with any Successor Lenders (as
hereinafter defined) party thereto from time to time, the "Lenders"), have
entered into the First Amended and Restated Credit Agreement dated as of August
11, 1995 (said agreement, as it may hereafter be amended, restated or otherwise
modified from time to time (the "Existing Credit Agreement") and together with
any Successor Credit Agreement, as hereinafter defined, the "Credit Agreement").
WHEREAS, USR has entered into the Note Agreements (as amended, restated or
otherwise modified from time to time, the "Note Agreement") dated as of the date
of this Agreement with the Noteholders, pursuant to which the Noteholders have
agreed to purchase USR's (i) $10,000,000 6.82% Senior Secured Notes, Series A,
Due August 21, 1999, (ii) $10,000,000 6.89% Senior Secured Notes, Series B,
Due August 21, 2000, (iii) $10,000,000 7.04% Senior Secured Notes, Series C,
Due August 21, 2001 and (iv) $20,000,000 7.13% Senior Secured Notes, Series D,
Due August 21, 2002 (collectively, the "Senior Notes").
WHEREAS, the Lenders have consented to the transactions contemplated hereby
and by the Note Agreement and Noteholders' Security Agreement (as hereinafter
defined).
WHEREAS, the loans made by Bank of America to USR are secured pursuant to a
Revised, Amended and Restated Security Agreement Receivables, Inventory,
Equipment and Documents dated as of September 30, 1990 (said agreement as it may
hereafter be amended, restated or otherwise modified from time to time being
herein referred to as the "Security Agreement"), between USR and Bank of
America, pursuant to which USR has granted a security interest to the Bank of
America in the collateral described in said Security Agreement to secure the
obligations of USR under the Credit Agreement;
WHEREAS, it is a condition precedent to the purchase of the Senior Notes by
the Noteholders under the Note Agreement and to the consent of Bank of America
to the issuance, sale and delivery of the Senior Notes by USR and the execution
and delivery of this Agreement by the Collateral Agent that USR enter into a
Second Amended and Restated Security Agreement Re: Receivables, Inventory,
Equipment and Documents dated as of the date of this Agreement (said agreement
as it may hereafter be amended, restated or otherwise modified from time to time
being herein referred to as the "Amended and
<PAGE>
Restated Security Agreement") to secure the obligations of USR under the Credit
Agreement and to secure the obligations of USR under the Note Agreement and the
Senior Notes.
WHEREAS, the Lenders and the Noteholders (individually a "Party" and
collectively the "Parties") have agreed that the Credit Obligations (as
hereinafter defined) and the Senior Note Obligations (as hereinafter defined)
shall be secured pari passu pursuant to the Amended and Restated Security
Agreement; the Parties desire that Bank of America National Trust and Savings
Association shall be the collateral agent (the "Collateral Agent") to act on
behalf of all Parties regarding the Collateral, all as more fully provided
herein; and the Parties have entered into this Agreement to, among other things,
further define the rights, duties, authority and responsibilities of the
Collateral Agent and the relationship between the Parties regarding their pari
passu interests in the Collateral.
WHEREAS, it is contemplated that the Lenders or other financial
institutions (the "Successor Lenders") may enter into one or more agreements
with USR either extending the maturity of or refinancing all or any portion of
the Credit Obligations or making additional extensions of credit.
WHEREAS, it is contemplated that the Noteholders or other financial
institutions (the "Successor Noteholders") may enter into one or more agreements
with USR either extending the maturity of or refinancing all or any portion of
the Senior Note Obligations or making additional extensions of credit.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the sufficiency and receipt of which are hereby
acknowledged, the Parties hereto hereby agree as follows:
SECTION 1. DEFINED TERMS.
As used in this Agreement, and unless the context requires a different
meaning, capitalized terms not otherwise defined herein have the respective
meanings provided for such terms in the Note Agreement and the following terms
have the meanings indicated below, all such definitions to be equally applicable
to the singular and plural forms of the terms defined:
"Acceleration Premium Obligations" means all obligations of USR to pay a
"Make Whole Amount" (as defined in (S)8.1 of the Note Agreement) to the
Noteholders as a result of the acceleration of the Senior Note Obligations
payable under (S)6.3 of the Note Agreement or any successor provisions thereto.
"Affiliate," as applied to any Person, means any other Person directly or
indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control" (including with
correlative meanings, the terms "controlling," "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the
-2-
<PAGE>
management and policies of that Person, whether through the ownership of voting
securities or by contract or otherwise.
"Agreement" has the meaning ascribed to that term in the introductory
paragraph hereto.
"Amended and Restated Security Agreement" has the meaning ascribed to that
term in the introductory paragraph hereto, and shall include any other
agreements or instruments relating to security given with respect to any
Benefitted Obligation which are executed and delivered after the date hereof.
"Bank Documents" means the Credit Agreement, the Credit Notes, the Amended
and Restated Security Agreement, the Letters of Credit, any documents delivered
pursuant to a Hedging Transaction with a Lender and any other collateral
document given to a Lender or the Collateral Agent.
"Bank of America" has the meaning ascribed to that term in the introductory
paragraph hereto.
"Bankruptcy Proceeding" means, with respect to any Person, a general
assignment by such Person for the benefit of its creditors, or the institution
by or against such Person of any proceeding seeking relief as debtor, or seeking
to adjudicate such Person as bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment or composition of such Person or its debts, under any
law relating to bankruptcy, insolvency, reorganization or relief of debtors, or
seeking appointment of a receiver, trustee, custodian or other similar official
for such Person or for any substantial part of its property.
"Benefited Obligations" means (a) all Credit Obligations, (b) all Senior
Note Obligations, (c) the outstanding Letter of Credit Usage, (d) all Hedging
Exposure and other obligations of USR under or arising in connection with any
Interest Rate Protection Agreement, and (e) all other amounts payable by any
Grantors under this Agreement and the Amended and Restated Security Agreement
(including, without limitation, the reasonable fees and expenses of the
Collateral Agent).
"Benefited Parties" means the holders, from time to time, of the Benefited
Obligations.
"Code" means the Uniform Commercial Code as the same may from time to time
be in effect in the State of California.
"Collateral" means all property and interests in property of the Grantors
in which a Lien has been created under the Amended and Restated Security
Agreement or the Security Agreement.
-3-
<PAGE>
"Collateral Agent" means Bank of America National Trust and Savings
Association in its capacity as collateral agent hereunder and any successor
collateral agent appointed pursuant to (S)8 hereof.
"Collateral Agent--Related Persons" means the directors, officers,
employees and agents of the Collateral Agent.
"Credit Agreement" has the meaning ascribed to that term in the
introductory paragraph hereto.
"Credit Notes" means the promissory notes, if any, issued by USR or any
other borrower under the Credit Agreement.
"Credit Obligations" means all outstanding and unpaid obligations of every
nature of USR from time to time to the Lenders or any of them under the Credit
Agreement, the Credit Notes and any other Bank Documents.
"Directing Party" means, with respect to any particular instruction given
to the Collateral Agent, each Party (and each Benefited Party represented by
such Party) that has given such instruction to the Collateral Agent.
"Enforcement" means the commencement of enforcement, collection (including
judicial or non-judicial foreclosure) or similar proceedings with respect to the
Collateral.
"Event of Default" means an "Event of Default" or "Default" as defined in
any Financing Agreement.
"Existing Credit Agreement" shall mean the First Amended and Restated
Credit Agreement dated as of August 11, 1995 between USR and the Lender.
"Existing Fees and Charges" means any fees, indemnities or other expenses
the payment of which is required by the Existing Credit Agreement or the
Existing Note Agreement.
"Existing Note Agreement" shall mean the Note Agreement dated as of
August 15, 1995 between USR and the Noteholders.
"Financing Agreements" means the Bank Documents, the Noteholder Documents,
any Interest Rate Protection Agreement, this Agreement, each other security
document securing the Benefited Obligations, and any other instruments,
documents or agreements entered into in connection with any Benefited Obligation
or Financing Agreement.
"Grantors" means USR and any other Person who grants any Collateral to the
Collateral Agent under the Amended and Restated Security Agreement or any other
security document securing the Benefited Obligations.
-4-
<PAGE>
"Hedging Exposure" means, on any date of determination for any Hedging
Transaction, the amount, as calculated in good faith and in a commercially
reasonable manner by the Lender that is USR's counterpart for such Hedging
Transaction, which such Lender would pay to a third party (such amount being
expressed as a negative number) or receive from a third party (such amount being
expressed as a positive number) in an arm's-length transaction as consideration
for the third party's entering into a new transaction with such Lender in which:
(a) such Lender holds the same position in the Hedging Transaction as it
currently holds; (b) the third party holds the same position as USR currently
holds; and (c) the new transaction has economic and other terms and conditions
identical in all respects to such Hedging Transaction except that (i) the date
of calculation shall be deemed to be the date of commencement of the new
transaction and (ii) all period end dates shall correspond to all period end
dates, if any, for such Hedging Transaction.
"Hedging Transaction" means each interest rate swap transaction, basis swap
transaction, forward rate transaction, commodity swap transaction, equity
transaction, equity index transaction, foreign exchange transaction, cap
transaction, floor transaction, collar transaction, currency swap transaction or
any other similar transaction (including any option with respect to any of these
transactions and any combination of any of the foregoing) entered into by USR
from time to time pursuant to an Interest Rate Protection Agreement; provided
that such transaction is entered into for purposes of protection from price,
interest rate, or currency fluctuations posed by debt, contract or purchase
order obligations and not for speculative purposes.
"Interest Rate Protection Agreement" means any interest rate swap, cap,
floor, collar, forward rate agreement, or other rate protection transaction, or
any combination of such transactions or agreements or any option with respect to
any such transactions or agreements now existing or hereafter entered into
between USR and any Lender.
"Lenders" has the meaning ascribed to that term in the recitals hereto.
"Letters of Credit" shall mean the standby letters of credit and the
commercial letters of credit issued pursuant to the Credit Agreement.
"Letters of Credit Usage" shall mean, as at any date of determination, the
sum of (i) the Maximum Available Amount plus (ii) the aggregate amount of all
drawings under the Letters of Credit honored by the Lenders and not theretofore
reimbursed by USR.
"Lien" means any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind (including any conditional sale or other title retention
agreement, any lease in the nature thereof, and any agreement to give any
security interest).
"Majority Benefited Parties" means (a) the Required Lenders under the
Credit Agreement, and (b) Noteholders holding (or representing) at least 51% of
the outstanding principal amount of the Senior Notes, each voting as a class,
provided that if at any time the aggregate outstanding principal amount of the
indebtedness (including all Letters of Credit Usage) evidenced by the Credit
Notes or the aggregate outstanding principal amount of the
-5-
<PAGE>
Senior Notes represents less than 10% of the sum of the aggregate outstanding
principal amount of the indebtedness evidenced by the Senior Notes and the
Credit Notes, then "Majority Benefited Parties" shall mean Benefited Parties,
considered as a single class, holding more than 51% of the sum of (i) the
outstanding principal amount of the Senior Notes, plus (ii) the outstanding
principal amount of the Credit Notes.
"Maximum Available Amount" shall mean, as of any date of determination, the
amount that may be drawn under the Letters of Credit (whether or not the
beneficiary thereof shall have presented, or shall be entitled at such time to
present, the drafts or other documents required to draw under the Letters of
Credit).
"New Fees and Charges" means (i) any fees, indemnities or other expenses
the payment of which is not required by the Existing Credit Agreement or the
Existing Note Agreement or (ii) any increase in the amount of such fees,
indemnities or other expenses over the amount of Existing Fees and Charges.
"Non-Directing Party" means, with respect to any particular instruction
given to the Collateral Agent, each Party (and each Benefited Party represented
by such Party) that has not given or agreed with such instruction given to the
Collateral Agent.
"Note Agreement" has the meaning ascribed to that term in the recitals
hereto.
"Noteholder Documents" means (i) the Note Agreement; (ii) the Senior Notes;
and (iii) the Amended and Restated Security Agreement.
"Noteholders" means the Persons named in the Note Agreement and each other
Person which is, at the date of determination, a holder of a Senior Note.
"Opinion of Counsel" means a written opinion of an attorney or firm of
attorneys which in the case of any Person other than the Collateral Agent or
Bank of America may not be an employee of such Person but in the case of the
Collateral Agent or Bank of America may be an employee thereof, a copy of which
opinion is furnished to each Benefited Party.
"Party" has the meaning ascribed to that term in the recitals hereto.
"Person" means any individual, corporation, partnership, trust or other
entity.
"Preferential Payment" means any payments or Proceeds from USR or any other
source with respect to the Benefited Obligations (including from the exercise of
any set-off) which are:
(i) received by a Benefited Party within 90 days prior to the
commencement of a Bankruptcy Proceeding with respect to USR, or the
acceleration of the Senior Notes or the Credit Notes, and which payment
reduces the amount of the Benefited Obligations owed to such Benefited
Party below the amount owed to such Benefited Party as of the 90th day
prior to such occurrence, or
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(ii) received by a Benefited Party (A) within 90 days prior to the
occurrence of any Event of Default (other than an Event of Default arising
as a result of the commencement of a Bankruptcy Proceeding) which has not
been waived or cured within 45 days after the occurrence thereof and which
payment reduces the amount of the Benefited Obligations owed to such
Benefited Party below the amount owed to such Benefited Party as of the
90th day prior to the occurrence of such Event of Default or (B) within
45 days after the occurrence of such Event of Default, or
(iii) received by a Benefited Party after the occurrence of a
Special Event of Default except as provided in (S)5(b).
"Proceeds" has the meaning assigned to it under the Code and, in any event,
includes, but is not limited to, (a) any and all proceeds of any collection,
sale or other disposition of the Collateral, (b) any and all amounts from time
to time paid or payable under or in connection with any of the Collateral and
(c) amounts collected by the Collateral Agent or any Lender by way of set-off,
deduction or counterclaim.
"Required Lenders" means those Lenders having aggregate percentages of the
revolving loan commitments and term loan commitments under the Credit Agreement
entitled to act or refrain from acting under the Credit Agreement.
"Required Noteholders" means, with respect to any particular Event of
Default, the percentage of Noteholders required to accelerate the maturity of
the Notes as a result of such Event of Default under the provisions of the Note
Agreement.
"Security Agreement" has the meaning ascribed to that term in the recitals
hereto, and shall include any other agreements or instruments relating to
Collateral which are executed and delivered after the date hereof.
"Senior Debt" means debt for borrowed money, other than the Senior Notes
and the Credit Agreement, which is not subordinated in right of payment to any
other obligation of USR.
"Senior Note Obligations" means all outstanding and unpaid obligations of
every nature of USR from time to time to the Noteholders under the Noteholder
Documents, including, without limitation, the Acceleration Premium Obligations
and all fees, collection costs and other expenses otherwise accruing under the
Noteholder Documents.
"Senior Notes" has the meaning ascribed to that term in the recitals
hereto.
"Special Event of Default" shall mean (i) the commencement of a Bankruptcy
Proceeding with respect to USR, (ii) any other Event of Default which has not
been waived or cured within 45 days after the occurrence thereof, or (iii) the
acceleration of the Senior Notes or the Credit Notes.
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"Special Trust Account" shall mean that certain interest bearing trust
account maintained by or on behalf of the Collateral Agent for the purpose of
receiving and holding Preferential Payments.
"Successor Credit Agreement" shall mean any replacement, refinancing or
restructuring of the Existing Credit Agreement; provided that each Successor
Lender thereunder or an agent acting on behalf of all such Successor Lenders has
executed an acknowledgment to this Agreement in the form attached hereto as
Exhibit B-1.
"Successor Lenders" has the meaning ascribed to that term in the recitals
hereto.
"Successor Note Agreement" shall mean any replacement, refinancing or
restructuring of the Existing Note Agreement; provided that each Successor
Lender thereunder or an agent acting on behalf of all such Successor Lenders has
executed an acknowledgment to this Agreement in the form attached hereto as
Exhibit B-2.
"Successor Noteholders" has the meaning ascribed to that term in the
recitals hereto.
"USR" has the meaning ascribed to that term in the introductory paragraph
hereto.
SECTION 2. APPOINTMENT OF COLLATERAL AGENT.
Each of the Lenders and each Noteholder hereby irrevocably (subject to
(S)8(g)) appoints, designates and authorizes the Collateral Agent to take such
action on its behalf under the provisions of this Agreement and the Amended and
Restated Security Agreement and to exercise such powers and perform such duties
as are expressly delegated to it by the terms of this Agreement or the Amended
and Restated Security Agreement, together with such powers as are reasonably
incidental thereto. Notwithstanding any provision to the contrary contained
elsewhere in this Agreement or the Amended and Restated Security Agreement, the
Collateral Agent shall not have any duties or responsibilities except those
expressly set forth herein, nor shall the Collateral Agent have or be deemed to
have any fiduciary relationship with any Lender or any Noteholder, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or the Amended and Restated
Security Agreement or otherwise exist against the Collateral Agent.
SECTION 3. DECISIONS RELATING TO ADMINISTRATION AND EXERCISE OF REMEDIES VESTED
IN THE MAJORITY BENEFITED PARTIES.
(a) Except as set forth in (S)3(g), the Collateral Agent agrees that it
will not release Liens or Collateral or commence Enforcement without the
direction of the Majority Benefited Parties. The Collateral Agent agrees to
administer the Amended and Restated Security Agreement and the Collateral and to
make such demands and give such notices under the Amended and Restated Security
Agreement as the Majority Benefited Parties may request, and to take such action
to enforce the Amended and Restated Security Agreement
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and to realize upon, collect and dispose of the Collateral or any portion
thereof as may be directed by the majority benefited parties. The Collateral
Agent shall not be required to take any action that is in the Opinion of Counsel
contrary to law or to the terms of this Agreement or the Amended and Restated
Security Agreement, or that would in the Opinion of Counsel subject it or any of
its officers, employees, agents or directors to liability, and the Collateral
Agent shall not be required to take any action under this Agreement or the
Amended and Restated Security Agreement unless and until the Collateral Agent
shall be indemnified to its reasonable satisfaction by one or more of the
Benefited Parties against any and all loss, cost, expense or liability in
connection therewith.
(b) Each Party agrees that the Collateral Agent shall act as the Majority
Benefited Parties may request (regardless of whether any individual Party or
Benefited Party agrees, disagrees or abstains with respect to such request),
that the Collateral Agent shall have no liability for acting in accordance with
such request and that no Directing Party or Non-Directing Party shall have any
liability to any Non-Directing Party or Directing Party, respectively, for any
such request. The Collateral Agent shall give prompt notice to the Non-
Directing Parties of action taken pursuant to the instructions of the Majority
Benefited Parties to enforce the Amended and Restated Security Agreement;
provided, however, that the failure to give any such notice shall not impair the
right of the Collateral Agent to take any such action or the validity or
enforceability under this Agreement of the action so taken. Notwithstanding
anything herein to the contrary, the Majority Benefited Parties shall agree to
release the Collateral from the security interests granted for the benefit of
any Non-Directing Party only if the Collateral Agent is concurrently releasing
the security interest granted with respect to such Collateral for all Benefited
Parties having a security interest in such Collateral.
(c) Each Party agrees that the only right of a Non-Directing Party under
the Amended and Restated Security Agreement is for Benefited Obligations held by
such Non-Directing Party to be secured by the Collateral for the period and to
the extent provided therein and in this Agreement and to receive a share of the
proceeds of the Collateral, if any, to the extent and at the time provided in
the Amended and Restated Security Agreement and in this Agreement.
(d) The Collateral Agent may at any time request directions from the
Majority Benefited Parties as to any course of action or other matter relating
hereto or relating to the Amended and Restated Security Agreement. Except as
otherwise provided in this Agreement or the Amended and Restated Security
Agreement, directions given by the Majority Benefited Parties to the Collateral
Agent hereunder shall be binding on all Benefited Parties, including all Non-
Directing Parties, for all purposes.
(e) Nothing contained in this Agreement shall affect the rights of any
Party to give USR or any other Grantor notice of any default, accelerate or make
demand for payment of their respective Benefited Obligations under the Financing
Agreements or collect payment thereof other than through a realization on or in
respect of the Collateral or any part or portion thereof, nor shall anything
contained in this Agreement be deemed or construed to affect the rights of any
Party to administer, modify, waive or amend any term or provision
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of any Financing Agreement to which it and USR is a party, other than this
Agreement, the Amended and Restated Security Agreement or any other security
document securing the Benefited Obligations. If a Party (upon authorization of
the Majority Benefited Parties) instructs the Collateral Agent to take any
action, commence any proceedings or otherwise proceed against the Collateral or
enforce the Amended and Restated Security Agreement, and such action or
proceedings are or may be defective without the joinder of other Parties as
parties, then all other Parties shall join in such actions or proceedings. Each
Party agrees not to take any action to enforce any term or provision of the
Amended and Restated Security Agreement or to enforce any of its rights in
respect of the Collateral except through the Collateral Agent in accordance with
this Agreement.
(f) Any Benefited Party which has actual knowledge of an Event of
Default, or facts which indicate that an Event of Default has occurred, shall
deliver to the Collateral Agent a written statement describing such Event of
Default or facts. Failure to do so, however, does not constitute a waiver of
such Event of Default by the Benefited Parties.
(g) Unless an Event of Default has occurred and is continuing, the
Collateral Agent may, without the approval of the Benefited Parties as required
herein, release any Collateral under the Amended and Restated Security Agreement
which is permitted to be sold or disposed of by USR pursuant to the Credit
Agreement and the Note Agreement and execute and deliver such releases as may be
necessary to terminate of record the Benefited Parties' security interest in
such Collateral. In determining whether any such release is permitted, the
Collateral Agent may rely upon instructions from the Majority Benefited Parties.
SECTION 4. APPLICATION OF PROCEEDS.
(a) Any and all Proceeds received by the Collateral Agent in connection
with an Enforcement and any Preferential Payments required to be paid to all
Benefited Parties in accordance with the provisions of (S)5, shall be applied
promptly by the Collateral Agent, as follows:
First: To the payment of the reasonable costs and expenses of such
sale, collection or other realization, including, without duplication, fees
and expenses of counsel to the Collateral Agent evidenced by reasonable and
customary computer back-up detail, unpaid collateral agency fees, and all
reasonable expenses, liabilities and advances made or incurred by the
Collateral Agent in connection therewith;
Second: To the ratable payment of the Benefited Obligations to
Benefited Parties (other than Existing Fees and Charges and New Fees and
Charges), calculated in accordance with the provisions of (S)4(b) hereof;
Third: To the ratable payment of the Existing Fees and Charges to
Benefited Parties;
Fourth: To the ratable payment of the New Fees and Charges to
Benefited Parties; and
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Fifth: After payment in full of all Benefited Obligations, to the
payment to or upon the order of Grantors, or to whomsoever may be lawfully
entitled to receive the same or as a court of competent jurisdiction may
direct, of any surplus then remaining from such Proceeds.
Until such Proceeds are so applied, the Collateral Agent shall hold such
Proceeds in its custody in accordance with its regular procedures for handling
deposited funds.
(b) Any Proceeds received by the Collateral Agent in respect of the
Collateral (net of any amounts applied in accordance with (S)4(a) FIRST) shall
be applied in accordance with the priority set forth in (S)4(a) SECOND so that
each Benefited Party shall receive payment of its proportionate amount of all
such Proceeds, as the case may be. Payment shall be based upon the proportion
which the amount of such Benefited Obligations of such Benefited Party bears to
the total amount of all Benefited Obligations of all such Benefited Parties,
including, without limitation, hedging exposure to any lender. For purposes of
determining the proportionate amounts of all Benefited Obligations sharing in
any such distribution: (i) the amount of the outstanding Credit Obligations
shall be deemed to be the sum of the principal amount of the Credit Notes plus,
subject to (S)4(c), all Letters of Credit Usage and all accrued interest and
fees with respect thereto but excluding New Fees and Charges, (ii) the amount of
the outstanding Senior Note Obligations shall be deemed to be the principal
amount of the Senior Notes plus all accrued interest and fees with respect
thereto, including, without limitation, the Acceleration Premium Obligations,
but excluding New Fees and Charges, and (iii) the amount of the outstanding
Hedging Exposure shall be deemed to be the amount of USR's obligations then due
and payable (exclusive of expenses or similar liabilities, but including early
termination payments then due) in connection with any Hedging Transaction and
all accrued interest and fees with respect thereto, but excluding New Fees and
Charges.
(c) Notwithstanding anything herein to the contrary, any amounts
distributed for application to USR's liabilities with respect to any such
undrawn Letters of Credit shall be held by the Lenders as collateral security
for such liabilities until a drawing thereon, at which time such collateral
shall be applied to such liabilities. If Letters of Credit constituting part of
the Credit Obligations expire without having been drawn upon in full, the
undrawn portion shall be excluded from the Credit Obligations for purposes of
(S)(S)4(a) and (b) hereof, all as though such undrawn portion had never existed.
If distributions have previously been made under (S)(S)4(a) and (b) hereof with
respect to Letters of Credit constituting part of the Credit Obligations which
expire without having been drawn upon in full, the amounts due each Benefited
Party out of such distribution shall be redetermined by excluding the undrawn
amount of such expired Letters of Credit from the calculations under such
sections and if a redetermination reveals that there has been an overpayment to
any Benefited Party, each Benefited Party which received such an overpayment
shall pay to those other Benefited Parties who were underpaid in respect of such
distribution the amount of the underpayment and in return the remitted Benefited
Parties shall receive from each such underpaid Benefited Party a non-recourse
participation in the Benefited Obligations owing to such underpaid Benefited
Parties in the amount of the underpayment paid over to such Benefited Party.
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(d) Payments by the Collateral Agent in respect of (i) the Credit
Obligations shall be made to the Lenders in accordance with the Credit
Agreement; (ii) the Senior Note Obligations shall be made as directed in writing
by the Noteholder to whom such Senior Note Obligations are owed; and
(iii) Hedging Exposure shall be made as directed by the Lender to which such is
owed.
SECTION 5. PREFERENTIAL PAYMENTS AND SPECIAL TRUST ACCOUNT.
(a) The Collateral Agent shall give each Benefited Party a written notice
(a "Notice of Special Default") promptly after being notified in writing by a
Benefited Party that a Special Event of Default has occurred. After the receipt
of such Notice of Special Default, all Preferential Payments other than those
payments received pursuant to (S)5(b) shall be deposited into the Special Trust
Account. Each Benefited Party agrees that no event of default shall occur as a
result of payments so made on a timely basis to the Collateral Agent.
(b) If (i) such Special Event of Default is waived by the Required
Lenders or the Required Noteholders, or both, as the case may be, and if no
other Event of Default has occurred and is continuing, (ii) such Special Event
of Default is cured by USR or by any amendment of the Credit Agreement or the
Note Agreement, as the case may be, and if no other Event of Default has
occurred and is continuing or (iii) the Benefited Obligations have not been
accelerated and the Majority Benefited Parties have not instructed the
Collateral Agent to seek the appointment of a receiver, commence litigation
against USR, liquidate the Collateral, commence a Bankruptcy Proceeding against
USR, seize Collateral, or exercise other remedies of similar character prior to
the 90th day following such Special Event of Default, the Collateral Agent
thereupon shall return all amounts, together with their pro rata share of
interest earned thereon, held in the Special Trust Account representing payment
of any Benefited Obligations to the Benefited Party initially entitled thereto,
and no payments thereafter received by a Benefited Party shall constitute a
Preferential Payment by reason of such cured or waived Special Event of Default.
No payment returned to a Benefited Party for which such Benefited Party has been
obligated to make a deposit into the Special Trust Account shall thereafter ever
be characterized as a Preferential Payment. If the Special Event of Default is
an Event of Default under the terms of the Credit Agreement and the Note
Agreement, the Collateral Agent shall not return any payments to the Benefited
Parties pursuant to (i) above unless the Required Lenders and the Required
Noteholders have each waived such Special Event of Default.
(c) Each Benefited Party agrees that upon the occurrence of a Special
Event of Default it shall (i) promptly notify the Collateral Agent of the
receipt of any Preferential Payments, (ii) hold such amounts in trust for the
Benefited Parties and act as agent of the Benefited Parties during the time any
such amounts are held by it, and (iii) deliver to the Collateral Agent such
amounts for deposit into the Special Trust Account.
(d) If (i) an Event of Default has occurred and has not been waived or
cured within 90 days after the occurrence thereof, (ii) the Benefited
Obligations have been accelerated or (iii) the Majority Benefited Parties have
instructed the Collateral Agent to seek the appointment of a receiver, commence
litigation against USR, liquidate the Collateral,
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commence a Bankruptcy Proceeding against USR, seize Collateral, or exercise
other remedies of similar character, then all funds, together with interest
earned thereon, held in the Special Trust Account and all subsequent
Preferential Payments shall be applied in accordance with the provisions of
(S)4(a) above. Any Lender or any Noteholder which is aware of the same, shall
give the Collateral Agent written notice of any Event of Default which has
occurred and which has not been waived or cured within 90 days after the
occurrence thereof, provided that failure to give any such notice shall not
modify, amend or otherwise prejudice or affect the rights of any Lender or
Noteholder hereunder.
SECTION 6. INFORMATION.
If the Collateral Agent proceeds to enforce the Amended and Restated
Security Agreement or to collect, sell, otherwise dispose of or take any other
action with respect to any of such agreements or the Collateral or any portion
thereof or proposes to take any other action pursuant to or contemplated by this
Agreement, the Parties hereto agree as follows:
(a) Bank of America shall (i) promptly from time to time, upon the
written request of the Collateral Agent, notify the Collateral Agent of the
outstanding Credit Obligations as at such date as the Collateral Agent may
specify; and (ii) promptly from time to time thereafter notify the
Collateral Agent of any payment received by the Lenders to be applied to
satisfy Credit Obligations. The Lenders shall certify as to such amounts
and the Collateral Agent shall be entitled to rely conclusively upon such
certification.
(b) Each Noteholder shall (i) promptly from time to time, upon the
written request of the Collateral Agent, notify the Collateral Agent of the
outstanding Senior Note Obligations owed to such Noteholder as at such date
as the Collateral Agent may specify; (ii) promptly from time to time, upon
the written request of the Collateral Agent, notify the Collateral Agent of
the amount that would be payable as a "Make Whole Amount" under (S)6.3 of
the Note Agreement or any successor provision thereto if such "Make Whole
Amount" were payable as of such date as the Collateral Agent may specify
and (iii) promptly from time to time thereafter, notify the Collateral
Agent of any payment received thereafter by such Noteholder to be applied
to the principal of or interest or "Make Whole Amount" on the Senior Note
Obligations owing to such Noteholder. Each Noteholder shall certify as to
such amounts and the Collateral Agent shall be entitled to rely
conclusively upon such certification.
(c) Each Lender party to a Hedging Transaction shall (i) promptly
from time to time, upon the written request of the Collateral Agent, notify
the Collateral Agent of the notional amount under such Hedging Transaction
and the amount payable by USR upon early termination of such Hedging
Transaction at the date of termination as fixed by such Interest Rate
Protection Agreement and (ii) promptly from time to time thereafter notify
the Collateral Agent of any payment received by such Lender to be applied
to amounts due upon early termination of such Hedging Transaction. Such
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Lender shall certify as to such amounts and the Collateral Agent shall be
entitled to rely conclusively upon such certification.
(d) Each Lender party to any Letter of Credit shall (i) promptly
from time to time, upon the written request of the Collateral Agent, notify
the Collateral Agent of the Letter of Credit Usage applicable to such
Letter of Credit and (ii) promptly from time to time thereafter notify the
Collateral Agent of any payment received by such Lender to be applied to
amounts due under such Letter of Credit. Such Lender shall certify as to
such amounts and the Collateral Agent shall be entitled to rely
conclusively upon such certification.
SECTION 7. ADDITIONAL PARTIES.
Provided that it is permitted to do so by the terms of the Credit Agreement
and the Note Agreement, USR may enter into one or more Successor Credit
Agreements or Successor Note Agreements and, pursuant thereto, incur additional
Senior Debt. The Senior Debt outstanding under such Successor Credit Agreements
or Successor Note Agreements, as the case may be, shall be secured by the
Collateral as provided herein and in the Amended and Restated Security
Agreement; provided that, at the time USR enters into any such Successor Credit
Agreements or Successor Note Agreements, each Successor Lender party to such
Successor Credit Agreement, or the agent on behalf of all such Successor Lenders
to such Successor Credit Agreement, and each Successor Noteholder party to such
Successor Note Agreement, as the case may be, shall sign an acknowledgment in
the form of Exhibit B-1 or Exhibit B-2, respectively, attached to this
Agreement, by which each such Successor Lender or each such Successor
Noteholder, as the case may be, agrees to be bound by the terms of this
Agreement, and by delivering a signed acknowledgment hereof executed by USR and
each Grantor to the Collateral Agent; and provided further that on the date of
execution and delivery of such Successor Credit Agreement or Successor Note
Agreement, the incurrence by USR of $1.00 of additional Indebtedness would not
constitute an Event of Default under the Note Agreement.
SECTION 8. DISCLAIMERS, INDEMNITY, ETC.
(a) The Collateral Agent may execute any of its duties under this
Agreement or the Amended and Restated Security Agreement by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of counsel
(including in-house counsel) concerning all matters pertaining to such duties.
The Collateral Agent shall not be responsible for the negligence or misconduct
of any agent or attorney-in-fact that it selects with reasonable care.
(b) Neither the Collateral Agent nor any of its employees shall (i) be
liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or the Amended and Restated Security Agreement or
the transactions contemplated hereby (except for its own or their gross
negligence or willful misconduct), or (ii) be responsible in any manner to any
of the Lenders or Noteholders for any recital, statement, representation or
warranty made by USR, or any officer thereof, contained in this
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Agreement or the Amended and Restated Security Agreement or in any certificate,
report, statement or other document referred to or provided for in, or received
by the Collateral Agent under or in connection with, this Agreement or the
Amended and Restated Security Agreement or the validity, effectiveness,
genuineness, enforceability, sufficiency of this Agreement or the Amended and
Restated Security Agreement or for any failure of USR to perform its obligations
hereunder or thereunder. Neither the Collateral Agent nor any of its employees
shall be under any obligation to any Lender or any Noteholder to ascertain or to
inquire as to the observance or performance of any of the agreements contained
in, or conditions of, this Agreement or the Amended and Restated Security
Agreement, or to inspect the properties, books or records of USR.
(c) The Collateral Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex, statement or other
document believed by it to be genuine and correct and to have been signed, sent
or made by the proper Person or Persons, and upon advice and statements of legal
counsel (but not including counsel to USR), independent accountants and other
experts selected by the Collateral Agent. The Collateral Agent shall be fully
justified in failing or refusing to take any action under this Agreement or the
Amended and Restated Security Agreement unless it shall first receive such
advice or concurrence by the Majority Benefited Parties customarily and
reasonably acceptable to the Collateral Agent and, if it so requests, it shall
first be indemnified by the Benefited Parties ratably in accordance with the
amount of the Benefited Obligations held by such Benefited Parties against any
and all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action to the extent not otherwise reimbursed
hereunder. Any such indemnity given by a Benefited Party which is a bank, trust
company, savings and loan association, pension fund, investment company,
insurance company, fraternal benefit society, broker or dealer or other similar
financial institution or entity, regardless of legal form, may be unsecured at
the option of such Benefited Party. The Collateral Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement or
the Amended and Restated Security Agreement in accordance with a request or
consent of the Majority Benefited Parties and such request and any action taken
or failure to act pursuant thereto shall be binding upon all of the Benefited
Parties.
(d) The Collateral Agent shall not be deemed to have knowledge or notice
of the occurrence of any Event of Default or Special Event of Default, unless
the Collateral Agent shall have received written notice from a Lender, a
Noteholder or USR referring to this Agreement, describing such Event of Default
or Special Event of Default, and stating that such notice is a "notice of
default". The Collateral Agent shall take such action with respect to such
Event of Default or Special Event of Default as may be requested by the Majority
Benefited Parties in accordance with (S)3; provided, however, that unless and
until the Collateral Agent has received any such request, the Collateral Agent
may (but shall not be obligated to) take such action, or refrain from taking
such action, with respect to such Event of Default or Special Event of Default,
as it shall deem advisable or in the best interest of the Lenders and the
Noteholders.
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(e) Each Lender and each Noteholder acknowledges that the Collateral
Agent-Related Persons has not made any representation or warranty to it, and
that no act by the Collateral Agent hereinafter taken, including any review of
the affairs of USR and its Subsidiaries, shall be deemed to constitute any
representation or warranty by the Collateral Agent to any Lender or Noteholder.
Each Lender and each Noteholder acknowledges that it has, independently and
without reliance upon the Collateral Agent and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial and
other condition and creditworthiness of USR and its Subsidiaries, and made its
own decision to enter into this Agreement and to extend credit to USR hereunder.
Each Lender and Noteholder also represents that it will, independently and
without reliance upon the Collateral Agent-Related Persons and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit analysis, appraisals and decisions in taking or not taking
action under this Agreement or the Amended and Restated Security Agreement, and
to make such investigations as it deems necessary to inform itself as to the
business, prospects, operations, property, financial and other condition and
creditworthiness of USR. Except for notices, reports and other documents
expressly herein required to be furnished to the Lenders and the Noteholders by
the Collateral Agent, the Collateral Agent shall not have any duty or
responsibility to provide any Lender or Noteholder with any credit or other
information concerning the business, prospects, operations, property, financial
and other condition or creditworthiness of USR which may come into the
possession of any of the Collateral Agent-Related Persons.
(f) Each of the Benefited Parties severally agrees (i) to reimburse the
Collateral Agent in accordance with its pro rata share for any expenses incurred
by the Collateral Agent, including, without duplication of legal services
rendered, reasonable fees and disbursements of counsel to the Collateral Agent
evidenced by reasonable and customary computer back-up detail, arising out of or
as a result of the execution and delivery of this Agreement or the Amended and
Restated Security Agreement or the performance by the Collateral Agent pursuant
thereto of its obligations thereunder or in connection of the enforcement or
protection of the rights of the Collateral Agent and the Benefited Parties
hereunder or under the Amended and Restated Security Agreement, in each case to
the extent that the foregoing shall not have been reimbursed by USR or directly
by one or more of the Benefited Parties or paid from the proceeds of the
Collateral as provided herein and (ii) to the extent not reimbursed by USR or
directly by one or more of the Benefited Parties or paid from the proceeds of
the Collateral, to indemnify and hold harmless the Collateral Agent and the
Collateral Agent-Related Persons in accordance with its pro rata share, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against the
Collateral Agent in its capacity as the Collateral Agent in any way relating to
or arising out of this Agreement or the Amended and Restated Security Agreement
or any action taken or omitted by them under this Agreement or the Amended and
Restated Security Agreement including, without limitation, after the Collateral
Agent has given notice pursuant to the second to the last sentence of
Section 8(h)(i) hereof, provided that no Benefited Party shall be liable to the
Collateral Agent or any Collateral Agent-Related Person for any portion of such
liabilities,
-16-
<PAGE>
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the gross negligence or willful
misconduct of the Collateral Agent or any Collateral Agent-Related Person.
(g) Bank of America and its affiliates may make loans to, issue letters
of credit for the account of, accept deposits from, acquire equity interests in
and generally engage in any kind of banking, trust, financial advisory,
underwriting or other business with USR and its Subsidiaries and Affiliates as
though Bank of America were not the Collateral Agent hereunder and without
notice to or consent of the Lenders or the Noteholders. The Lenders and
Noteholders acknowledge that, pursuant to such activities, Bank of America or
its subsidiaries may receive information regarding USR or its Subsidiaries
(including information that may be subject to confidentiality obligations in
favor of USR or such Subsidiary) and acknowledge that the Collateral Agent shall
be under no obligation to provide such information to them. With respect to its
loans to USR, Bank of America shall have the same rights and powers under this
Agreement as any other Lender and may exercise the same as though it were not
the Collateral Agent, and the terms "Lender" and "Lenders" include Bank of
America in its individual capacity.
(h) (i) The Collateral Agent may resign at any time by giving at least 30
days' notice thereof to the Parties (such resignation to take effect upon the
acceptance by a successor Collateral Agent of any appointment as the Collateral
Agent hereunder) and the Collateral Agent may be removed as the Collateral Agent
at any time by either (1) Benefited Parties holding (or representing) at least
60% of the outstanding principal amount under the Credit Notes (it being
understood that, if the Required Lenders agree on any instruction to be given
the Collateral Agent, the Required Lenders shall be entitled to vote on behalf
of all Lenders for purposes of this clause) or (2) Benefited Parties holding (or
representing) more than 51% of the outstanding principal amount under the Senior
Notes. In the event of any such resignation or removal of the Collateral Agent,
the Majority Benefited Parties shall thereupon have the right to appoint a
successor Collateral Agent which is not a Benefited Party. If no successor
Collateral Agent shall have been so appointed by the Majority Benefited Parties
and shall have accepted such appointment within 30 days after the notice of the
intent of the Collateral Agent to resign or the removal of the Collateral Agent,
then the retiring Collateral Agent may, on behalf of the other Parties, appoint
a successor Collateral Agent. Any successor Collateral Agent appointed pursuant
to this clause shall be a commercial bank or other financial institution
organized under the laws of the United States of America or any state thereof
having (1) a combined capital and surplus of at least $250,000,000 and (2) a
rating upon its long-term senior unsecured indebtedness of "A-2" or better by
Moody's Investors Service, Inc. or "A" or better by Standard & Poor's
Corporation. Notwithstanding the foregoing, in the event (y) the Collateral
Agent shall have received a court order requiring that it resign as Collateral
Agent or (z) the Collateral Agent shall have received a written opinion of
independent outside counsel reasonably acceptable to the Benefited Parties
holding (or representing) more than 51% of the outstanding principal amount of
the Senior Notes that the performance by the Collateral Agent of its duties as
Collateral Agent constitutes a conflict of interest, then in either such event,
the Collateral Agent shall give written notice of such event to the Parties and
the Collateral Agent may resign on the earlier of the 120th day following such
notice or the date
-17-
<PAGE>
on which a successor Collateral Agent has accepted appointment hereunder. With
regard to any such conflict of interest or perceived conflict of interest, the
Parties agree to act in a commercially reasonable manner in addressing any such
conflict of interest.
(ii) Upon the acceptance by a successor Collateral Agent of any
appointment as the Collateral Agent hereunder, such successor Collateral Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring or removed Collateral Agent. The retiring
or removed Collateral Agent shall be discharged from its duties and obligations
hereunder upon the appointment of the successor Collateral Agent. After any
retiring or removed Collateral Agent's resignation or removal hereunder as the
Collateral Agent, the provisions of this (S)8 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as the Collateral Agent.
SECTION 9. INVALIDATED PAYMENTS.
If any amount distributed by the Collateral Agent to a Benefited Party in
accordance with the provisions of this Agreement is subsequently required to be
returned or repaid by the Collateral Agent or such Benefited Party to USR or any
Affiliate thereof or their respective representatives or successors in interest,
whether by court order, settlement or otherwise (a "Repayment Event"), the
Collateral Agent shall thereafter apply Proceeds received in a manner consistent
with the terms of this Agreement such that all Benefited Parties receive such
proportion of the Proceeds as would have been received had the original payment
which gave rise to such Repayment Event not occurred. If a Repayment Event
occurs which results in the Collateral Agent being required to return or repay
any amount distributed by it under this Agreement, the Benefited Party to which
such amount was distributed shall, promptly upon its receipt of a notice thereof
from the Collateral Agent, pay the Collateral Agent such amount; provided that,
if any Benefited Party shall fail to promptly pay such amount to the Collateral
Agent, the Collateral Agent may deduct such amount from any amounts payable
thereafter to such Benefited Party under this Agreement.
SECTION 10. MISCELLANEOUS.
(a) All notices and other communications provided for herein shall be in
writing and may be sent by overnight air courier, facsimile communication or
United States mail and shall be deemed to have been given when delivered by
overnight air courier, upon receipt of facsimile communication if concurrently
with transmission of such telecopy or telex, a copy thereof shall be sent by
overnight courier to the address specified for such notice or communication, or
four business days after deposit in the United States mail, registered or
certified, with postage prepaid and properly addressed. For the purposes
hereof, the addresses of the parties hereto (until notice of a change thereof is
delivered as provided in this (S)10(a)) shall be set forth under each party's
name on the signature pages (including acknowledgments) hereof.
(b) This Agreement may be amended, modified or waived only by an
instrument or instruments in writing signed by all of the holders of Benefited
Obligations and the
-18-
<PAGE>
Collateral Agent; provided, however, that (S)7 of this Agreement may not be
amended or modified without the written consent of USR.
(c) This Agreement shall be binding upon and inure to the benefit of the
Collateral Agent, each Party and their respective successors and assigns. In
the event that the holder of any Credit Note or Senior Note shall transfer such
Credit Note or Senior Note, USR shall promptly so advise the Collateral Agent.
Each transferee of any Credit Note or Senior Note shall take such Credit Note or
Senior Note subject to the provisions of this Agreement and to any request made,
waiver or consent given or other action taken or authorized hereunder, by each
previous holder of such Credit Note or Senior Note, prior to the receipt by the
Collateral Agent of written notice of such transfer; and, except as expressly
otherwise provided in such notice, the Collateral Agent shall be entitled to
assume conclusively that the transferee named in such notice shall thereafter be
vested with all rights and powers as a Party under this Agreement. The
Collateral Agent shall not be obligated to give any Party notice of any such
transfer.
(d) This Agreement shall continue to be effective among the Parties even
though a case or proceeding under any bankruptcy or insolvency law or any
proceeding in the nature of a receivership, whether or not under any insolvency
law, shall be instituted with respect to USR or any other Grantor, or any
portion of the property or assets of USR or any other Grantor, and all actions
taken by the Parties with regard to such proceeding shall be by the Majority
Benefited Parties; provided, however, that nothing herein shall be interpreted
to preclude any Party from filing a proof of claim with respect to its Benefited
Obligations or from casting its vote, or abstaining from voting, for or against
confirmation of a plan of reorganization in a case of bankruptcy, insolvency or
similar law in its sole discretion.
(e) Each Party hereto agrees to do such further acts and things and to
execute and deliver such additional agreements, powers and instruments as any
other Party hereto may reasonably request to carry into effect the terms,
provisions and purposes of this Agreement or to better assure and confirm unto
such other Party hereto its respective rights, powers and remedies hereunder.
(f) This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument, and any of
the parties hereto may execute this Agreement by signing any such counterpart.
A telecopy of the signature of any party on any counterpart shall be effective
as the signature of the party executing such counterpart for purposes of
effectiveness of this Agreement.
(g) This Agreement shall become effective immediately upon execution by
the Parties and shall continue in full force and effect until one year following
the date upon which all Benefited Obligations are irrevocably paid in full and
all commitments under the Credit Agreement have been terminated.
(h) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
-19-
<PAGE>
(i) Headings of sections of this Agreement have been included herein for
convenience only and should not be considered in interpreting this Agreement.
(i) Nothing in this Agreement or the Amended and Restated Security
Agreement, expressed or implied, is intended or shall be construed to confer
upon or give to any Person other than the Benefited Parties, any right, remedy
or claim under or by reason of any such agreement or any covenant, condition or
stipulation herein or therein contained.
(j) In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
-20-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed as of the date and year first written above.
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a Lender
By /s/ Robert Troutman
-------------------------------
Robert Troutman
Its Managing Director
Notice Address:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
Credit Products
5618, 11th Floor
555 S. Flower Street
Los Angeles, CA 90071
Attn: Chas McDonell
Telecopier No.: 213-228-2756
Tel.: 213-228-2027
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Collateral
Agent
By /s/ Charles Graber
--------------------------------
Charles Graber
Its Vice President
Notice Address:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
Agency Management Services #5596
1455 Market Street, 13th Floor
San Francisco, California 94103
Attn: Charles Graber
Telecopier No.: 415-622-4894
Tel: 415-953-4626
-21-
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY, as a Noteholder
By /s/ John B. Joyce
---------------------------------
Its Vice President
Notice Address:
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY
1295 State Street
Springfield, Massachusetts 01111
Attention: Securities Investment Division
JEFFERSON-PILOT LIFE INSURANCE
COMPANY, as a Noteholder
By /s/ Robert E. Whalen II
---------------------------------
Its Second Vice President
Notice Address:
JEFFERSON-PILOT LIFE INSURANCE
COMPANY
100 North Greene
Greenboro, North Carolina 27401
Attention: Securities Administration 3630
PRINCIPAL MUTUAL LIFE INSURANCE
COMPANY, as a Noteholder
By /s/ Jon C. Heiny
---------------------------------
Its Counsel
By /s/ Annette M. Masterson
---------------------------------
Its Assistant Director
Securities Investment
-22-
<PAGE>
Notice Address:
PRINCIPAL MUTUAL LIFE INSURANCE
COMPANY
711 High Street
Des Moines, Iowa 50392-0800
Attention: Investment Department--
Securities Division
Regarding Bond Number 1-B-60511
Telefacsimile: (515) 248-2490
Confirmation: (515) 248-3495
PHOENIX HOME LIFE MUTUAL INSURANCE
COMPANY, as a Noteholder
By /s/ Rosemary T. Strekel
---------------------------------
Its Vice President
Notice Address:
PHOENIX HOME LIFE MUTUAL INSURANCE
COMPANY
One American Row
Hartford, Connecticut 06115
Attention: Private Placements Division
Telecopier Number: (203) 275-5451
PHOENIX AMERICAN LIFE INSURANCE
COMPANY, as a Noteholder
By /s/ Lawrence Reitman
---------------------------------
Its Vice President
Notice Address:
PHOENIX AMERICAN LIFE INSURANCE
COMPANY
c/o Phoenix Home Life Mutual Insurance
Company
One American Row
Hartford, CT 06115
Attn: Private Placements Division
-23-
<PAGE>
ALEXANDER HAMILTON LIFE INSURANCE
COMPANY OF AMERICA, as a Noteholder
By /s/ William Lang
---------------------------------
Its Vice President-Credit Management
Notice Address:
ALEXANDER HAMILTON LIFE INSURANCE
COMPANY OF AMERICA
33045 Hamilton Court
Farmington Hills, Michigan 48334
Attention: Bill Lang, Department R-12A
-24-
<PAGE>
U.S. Rentals, Inc. hereby acknowledges and agrees to the foregoing terms
and provisions contained in this Intercreditor Agreement. By executing this
Intercreditor Agreement, U.S. Rentals, Inc. agrees to be bound by the provisions
thereof as they relate to the relative rights of the Benefited Parties as among
such Benefited Parties; provided, however, that nothing in this Intercreditor
Agreement shall amend, modify, change or supersede the respective terms of the
Financing Agreements as between the Benefited Parties or any of them and U.S.
Rentals, Inc. In the event of any conflict or inconsistency between the terms
of this Intercreditor Agreement and the Financing Agreements, the Financing
Agreements shall govern as between the Benefited Parties thereto and U.S.
Rentals, Inc. U.S. Rentals, Inc. further agrees that the terms of this
Intercreditor Agreement shall not give U.S. Rentals, Inc. any substantive rights
vis a vis any Benefited Party or the Collateral Agent and that it shall not use
the violation of this Intercreditor Agreement by any of the Parties hereto as a
defense to the enforcement by any Benefited Party under any Financing Agreement,
nor assert such violation as a counterclaim or basis for set-off or recoupment
against any of them. U.S. Rentals, Inc. further acknowledges and agrees that
the scope of the agency granted by this Intercreditor Agreement to the
Collateral Agent hereunder is strictly limited by this Intercreditor Agreement
and the Amended and Restated Security Agreement. By its execution hereof, U.S.
Rentals, Inc. hereby represents to each of the Benefited Parties and the
Collateral Agent that the execution, delivery and performance by U.S. Rentals,
Inc. of the Note Agreement and the other Noteholder Documents does not
constitute a violation of any of the provisions of the Credit Agreement or the
Security Agreement.
Without limiting the foregoing, U.S. Rentals, Inc. agrees with the
Collateral Agent that in the event that any Senior Note is transferred and such
transfer is registered pursuant to (S)9.1 of the Note Agreement, it will
promptly and in any event within 30 days following the date of transfer of such
Senior Note notify the Collateral Agent of such fact and identify the transferee
of such Senior Note, provided that the agreement to give such notice by USR
shall not be a condition to such transfer nor shall the failure for any reason
whatsoever of USR to give such notice of any such transfer to the Collateral
Agent have any effect whatsoever on the validity and effectiveness of such
transfer.
U.S. RENTALS, INC.
By /s/ John S. McKinney
---------------------------------
Title: Vice President and Chief
Financial Officer
Date: 08/17/95
-25-
<PAGE>
FORM OF AMENDED AND RESTATED SECURITY AGREEMENT
(ATTACHED)
[See Conformed Copy at Tab 2]
Exhibit A
(to Intercreditor Agreement)
<PAGE>
FORM OF ACKNOWLEDGMENT TO
INTERCREDITOR AGREEMENT FOR SUCCESSOR LENDERS
UNDER A SUCCESSOR CREDIT AGREEMENT
Reference is hereby made to the Intercreditor Agreement dated as of
August 15, 1995 (the "Agreement"), among the Lenders party to the Credit
Agreement and the Collateral Agent, and the Noteholders party thereto and
certain other parties, if any, thereto. The undersigned Successor Lender or its
agent has entered into a Credit Agreement dated as of _______________ with U.S.
Rentals, Inc. and desires the Credit Obligations with respect thereto to be
secured by the Amended and Restated Security Agreement. The undersigned
acknowledges the terms of the Agreement and agrees to be bound thereby.
__________________________________,
as a Successor Lender
By_________________________________
Title____________________________
Date_____________________________
Notice Address:
___________________________________
___________________________________
___________________________________
Acknowledged and Agreed:
U.S. RENTALS, INC.
By_________________________________
Title____________________________
Date_____________________________
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Collateral
Agent
By_________________________________
Its________________________________
Exhibit B-1
(to Intercreditor Agreement)
<PAGE>
___________________________________
(Other Grantors)
By_________________________________
Title____________________________
Date_____________________________
-2-
<PAGE>
FORM OF ACKNOWLEDGMENT TO
INTERCREDITOR AGREEMENT FOR SUCCESSOR NOTEHOLDERS
UNDER A SUCCESSOR NOTE AGREEMENT
Reference is hereby made to the Intercreditor Agreement dated as of
August 15, 1995 (the "Agreement"), among the Lenders party to the Credit
Agreement and the Collateral Agent and the Noteholders party thereto and certain
other parties, if any, thereto. The undersigned Successor Noteholder has
entered into a Note Agreement dated as of _____________ with U.S. Rentals, Inc.
and desires the Senior Note Obligations with respect thereto to be secured by
the Amended and Restated Security Agreement. The undersigned acknowledges the
terms of the Agreement and agrees to be bound thereby.
___________________________________,
as a Successor Noteholder
By_________________________________
Title____________________________
Date_____________________________
Notice Address:
___________________________________
___________________________________
___________________________________
Acknowledged and Agreed:
U.S. RENTALS, INC.
By_________________________________
Title____________________________
Date_____________________________
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Collateral
Agent
By_________________________________
Its________________________________
Exhibit B-2
(to Intercreditor Agreement)
<PAGE>
__________________________________
(Other Grantors)
By_________________________________
Title____________________________
Date_____________________________
-2-
<PAGE>
EXHIBIT 11
U.S. RENTALS, INC. (THE COMPANY)
UNAUDITED PRO FORMA COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Net income......................................................... $26,129,000
Basis for computation of primary earnings per common share:
Weighted average number of shares outstanding during period...... 30,748,975
Income per share................................................. $ 0.85
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated January 27, 1997,
relating to the financial statements of U.S. Rentals, Inc., a California
corporation, and of our report dated January 27, 1997, relating to the
financial statements of U.S. Rentals, Inc., a Delaware corporation, which
appear in such Prospectus. We also consent to the references to us under the
headings "Experts" and "Selected Financial Data" in such Prospectus. However,
it should be noted that Price Waterhouse LLP has not prepared or certified
such "Selected Financial Data".
Sacramento, California
January 27, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM U.S.
RENTALS, INC. (THE PREDECESSOR) COMBINED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996
<CASH> 3,479 2,906
<SECURITIES> 0 0
<RECEIVABLES> 54,822 61,581
<ALLOWANCES> 6,166 6,991
<INVENTORY> 3,938 5,841
<CURRENT-ASSETS> 0 0
<PP&E> 179,218 248,327
<DEPRECIATION> 49,398 63,633
<TOTAL-ASSETS> 245,184 324,448
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
0 0
<COMMON> 699 699
<OTHER-SE> 82,378 80,031
<TOTAL-LIABILITY-AND-EQUITY> 245,184 324,448
<SALES> 242,847 305,837
<TOTAL-REVENUES> 242,847 305,837
<CGS> 167,872 220,221
<TOTAL-COSTS> 204,825 263,683
<OTHER-EXPENSES> 1,620 665
<LOSS-PROVISION> 3,441<F1> 4,075<F1>
<INTEREST-EXPENSE> 8,876 11,477
<INCOME-PRETAX> 31,092 33,458
<INCOME-TAX> 468 374
<INCOME-CONTINUING> 30,624 33,084
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 30,624 33,084
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<FN>
<F1>REPRESENTS THE PROVISION FOR DOUBTFUL ACCOUNTS.
</FN>
</TABLE>
