<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 10, 1997
REGISTRATION NO. 333-17783
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
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 ORGANIZATION) 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: [_]
---------------
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 FEBRUARY 10, 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>
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. U.S. Rentals is the second largest equipment rental
company in the United States based on 1995 rental revenues. The Company strives
to create a leading market position in each of its markets 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.
=================
</TABLE>
<TABLE>
<S> <C>
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>
- --------------------
(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............ 102,085 125,390 187,525 245,184 324,448 294,895
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 80,730 231,834
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>
- --------------------
(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
$12.51 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. In
January, 1997, the Predecessor paid a cash dividend to the Principal
Stockholder of $2,000,000. In addition, 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 $45.5 million, or $2.19 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 $230.2 million or $7.49 per share of
Common Stock. This represents an immediate increase in pro forma net tangible
book value of $5.30 per share to the Principal Stockholder and an immediate
dilution of $12.51 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..................................................... $2.19
Increase in pro forma net tangible book value per share
attributable to new investors................................. 5.30
-----
Pro forma net tangible book value per share after giving effect
to the Offerings.............................................. 7.49
------
Pro forma net tangible book value dilution per share to new
investors..................................................... $12.51
======
</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% $ 54,731,000 21.5% $ 2.64
New investors........... 10,000,000 32.5% 200,000,000 78.5% 20.00
---------- ----- ------------ -----
Total................. 30,748,975 100.0% $254,731,000 100.0%
========== ===== ============ =====
</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 $ 906 $ 2,772
======== ======== ========
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 54,524 240,574
Retained earnings........................... 66,845 (7,030) (9,047)
-------- -------- --------
Total stockholder's equity................ 80,730 47,701 231,834
-------- -------- --------
Total capitalization.......................... $267,440 $230,468 $232,334
======== ======== ========
</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............ 102,085 125,390 187,525 245,184 324,448 294,895
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 80,730 231,834
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.
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.
19
<PAGE>
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.
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
20
<PAGE>
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. U.S. Rentals is the second largest equipment rental
company in the United States based on 1995 rental revenues. The Company
strives to create a leading market position in each of its markets 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
James P. Miscoll 62 Director(a)
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>
- ---------------------
(a) Mr. Miscoll will become a Director shortly after the consummation of the
Offerings.
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.
James P. Miscoll, who will become a Director of the Company shortly after
the consummation of the Offerings, was the Vice Chairman/Executive Officer,
Southern California, for Bank of America from 1985 through 1992. Mr. Miscoll
was also a member of Bank of America's Managing Committee from 1981 through
1992 and the Social Policy Committee from 1980 through 1992. Mr. Miscoll
retired from Bank of America in July 1992 and is currently a member of the
board of directors of AdAstra Resource Corporation, Chela Financial, Coast
Federal Financial, Inc., Motive Power Industries, Inc., Rykoff-Sexton, Inc.,
and Senior Advisor to America International Group, Inc.
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.
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<PAGE>
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.
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 approximately $2.7 million 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 approximately $1.3 million.
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 approximately $13.3 million and $6.7 million, 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."
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<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 $ 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 $293,590
======== ======== ========
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 54,524
Retained earnings.............................. 69,192 66,845 (7,030)
-------- -------- --------
Total stockholder's equity...................... 83,077 80,730 47,701
-------- -------- --------
Total liabilities and stockholder's equity...... $245,184 $324,448 $293,590
======== ======== ========
</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, the payment of a cash dividend of $2,000,000 to
the Predecessor's stockholder as discussed in Note 9, 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.
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.
F-7
<PAGE>
U.S. RENTALS, INC. (PREDECESSOR)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 $ (2,000)(a) $ 906 $ 1,866 (i) $ 2,772
Accounts receivable,
net.................... -- 35,653 -- 35,653 -- 35,653
Notes receivable from
affiliate.............. -- 25,365 (25,365)(b) -- -- --
Notes receivables,
other.................. -- 563 (345)(b) 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)(i) --
Prepaid expenses and
other assets........... -- 5,793 (3,709)(b) 2,084 -- 2,084
-------- -------- -------- -------- --------- --------
Total assets............ $ 561 $324,448 $(31,419) $293,590 $ 1,305 $294,895
======== ======== ======== ======== ========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and
other liabilities...... $ 561 $ 57,008 $ (1,477)(b) $ 56,092 $ (561)(i) $ 55,531
Notes payable to
affiliates............. -- 23,943 (23,943)(b) -- -- --
Notes payable, other.... -- 162,767 20,000 (c) 182,767 (182,267)(h) 500
Deferred tax liability.. -- -- 7,030 (d) 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 (f) 207 100 (i) 307
Paid-in capital........ -- 13,186 41,338 (f) 54,524 186,050 (i) 240,574
Retained earnings...... -- 66,845 (2,000)(a) (7,030) (2,017)(j) (9,047)
(3,300)(b)
(20,000)(c) -- --
(7,030)(d) -- --
(41,545)(f) -- --
-------- -------- -------- -------- --------- --------
Total stockholder's
equity................. -- 80,730 (33,029) 47,701 184,133 231,834
-------- -------- -------- -------- --------- --------
Total liabilities and
stockholder's equity... $ 561 $324,448 $(31,419) $293,590 $ 1,305 $294,895
======== ======== ======== ======== ========= ========
</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)(g) 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 (e) 62 -- 62
Interest income from
affiliate.............. -- 3,420 (3,420)(e) -- -- --
Interest income, other.. -- 26 -- 26 -- 26
Interest expense,
related parties........ -- (3,078) 3,078 (e) -- -- --
Interest expense, other. -- (8,399) -- (8,399) 8,360 (l) (39)
----- -------- -------- -------- ------ --------
Income before income
taxes.................. -- 33,458 1,909 35,367 8,360 43,727
Income taxes............ -- 374 13,861 (k) 14,235 3,363 (l) 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 a cash dividend of $2,000,000 paid to the Predecessor's
stockholder in January, 1997.
b) 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.
c) Prior to the transfer as described in b) 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.
d) 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.
e) 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.
f) 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.
g) 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 c) above.
F-19
<PAGE>
U.S. RENTALS, INC. (THE COMPANY)
NOTES TO UNAUDITED PRO FORMA
COMBINED BALANCE SHEETS AND STATEMENTS OF OPERATIONS--(CONTINUED)
Offerings:
h) Reflects the retirement of debt as described in (l) below with a portion
of the proceeds from the Offerings.
i) 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 (h) and (j).
j) Reflects the pro forma effect on retained earnings of the penalty
associated with early repayment of senior notes.
k) Adjustment to record the pro forma C corporation tax provision,
including effects of adjustments from (e) above.
l) 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 FEBRUARY 10, 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>
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
44
<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.
45
<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.
46
<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.
47
<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.
48
<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.
49
<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
Certain United States Federal Tax Consequences to Non-United States
Holders of Common Stock.................................................. 44
Underwriting.............................................................. 46
Legal Matters............................................................. 48
Experts................................................................... 48
Available Information..................................................... 49
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 Agreements. It is
anticipated that similar contracts may be entered into, from time to time,
with future directors of the Company.
II-1
<PAGE>
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
99.1 Consent of James P. Miscoll
</TABLE>
- ---------------------
*Previously filed
(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. 2 to Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Modesto, State of California, on February 10, 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. 2 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 February 10, 1997
___________________________________
Richard D. Colburn
* President, Chief Executive February 10, 1997
___________________________________ Officer and Director
William F. Berry
/s/ John S. McKinney Vice President--Finance, February 10, 1997
___________________________________ Chief Financial Officer, and
John S. McKinney Director (chief financial
officer and principal
accounting officer)
* Director February 10, 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
99.1 Consent of James P. Miscoll
</TABLE>
- ---------------------
*Previously filed
<PAGE>
10,000,000 Shares
U.S. RENTALS, INC.
Common Stock
UNDERWRITING AGREEMENT
February __, 1997
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
SALOMON BROTHERS INC
As representatives of the
several U.S. underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH INTERNATIONAL
SALOMON BROTHERS INTERNATIONAL LIMITED
As representatives of the
several international managers
named in Schedule II hereto
c/o Donaldson, Lufkin & Jenrette Securities Corporation
Jupiter House
Trinton Court
14 Finsbury Square
London EC2A 1BR, England
Dear Sirs:
U.S. Rentals, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell 8,000,000 shares of its Common Stock, par value $0.01 per share
(the "U.S. Firm Shares"), to the several U.S. underwriters named in Schedule I
hereto (the "U.S. Underwriters") in connection with the offering and sale of
such U.S. Firm Shares in the United States and Canada to United States and
Canadian Persons (as such terms are defined in the Agreement Between U.S.
Underwriters and International Managers of even date herewith), and 2,000,000
shares of its Common Stock, par value $0.01 per share (the "International
Shares"), to the several International Managers named in Schedule II hereto (the
"International Managers") in connection with the offering and sale of such
International
<PAGE>
Shares outside the United States and Canada to persons other than United States
and Canadian Persons. The U.S. Firm Shares and the International Shares are
hereinafter collectively referred to as the "Firm Shares." Donaldson, Lufkin &
Jenrette Securities Corporation, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Salomon Brothers Inc shall act as representatives (the "U.S.
Representatives") of the several U.S. Underwriters, and Donaldson Lufkin &
Jenrette Securities Corporation, Merrill Lynch International and Salomon
Brothers International Limited shall act as representatives (the "International
Representatives") of the several International Managers. The U.S. Underwriters
and the International Managers are hereinafter collectively referred to as the
"Underwriters."
The Company also proposes to issue and sell to the several U.S.
Underwriters not more than an additional 1,500,000 shares of its Common Stock,
par value $0.01 per share (the "Additional Shares"), if requested by the U.S.
Underwriters as provided in Section 2 hereof. The Firm Shares and the
Additional Shares are herein collectively called the "Shares." The shares of
common stock of the Company to be outstanding after giving effect to the sales
contemplated hereby are hereinafter referred to as the "Common Stock."
1. Registration Statement and Prospectus. The Company has prepared and
-------------------------------------
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively called the
"Act"), a registration statement on Form S-1 including a prospectus relating to
the Shares, which may be amended. The registration statement contains two
prospectuses to be used in connection with the offering and sale of the Shares:
the U.S. prospectus, to be used in connection with the offering and sale of
Shares in the United States and Canada to United States and Canadian Persons,
and the international prospectus, to be used in connection with the offering and
sale of Shares outside the United States and Canada to persons other than United
States and Canadian Persons. The international prospectus is identical to the
U.S. prospectus except for the outside front and back cover pages and the
section captioned "Certain United States Federal Tax Consequences to Non-United
States Holders of Common Stock." The registration statement as amended at the
time when it becomes effective, including a registration statement (if any)
filed pursuant to Rule 462(b) under the Act increasing the size of the offering
registered under the Act and information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A or
Rule 434 under the Act, is hereinafter referred to as the "Registration
Statement"; and the U.S. prospectus and the international prospectus (including
any prospectus subject to completion taken together with any term sheet meeting
the requirements of Rule 434(b) or Rule 434(c) under the Act) in the form first
used to confirm sales of Shares is hereinafter referred as the "Prospectus."
2. Agreements to Sell and Purchase. On the basis of the representations
-------------------------------
and warranties contained in this Agreement, and subject to its terms and
conditions, the Company agrees to issue and sell, and each U.S. Underwriter
agrees, severally and not jointly, to purchase from the Company at a price per
share of $______ (the "Purchase Price"), the number of U.S. Firm Shares set
forth opposite the name of such U.S. Underwriter in Schedule I hereto.
The Company hereby agrees to issue and sell the International Shares to the
International Managers named in Schedule II hereto, and each of the
International Managers, upon the basis of the representations and warranties
contained in this Agreement, and subject to its terms and conditions, agrees,
severally and not jointly, to purchase from the Company at the Purchase Price
the respective number of International Shares set forth opposite the name of
such International Manager in Schedule II hereto.
2
<PAGE>
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to issue
and sell to the U.S. Underwriters the Additional Shares and the U.S.
Underwriters shall have the right to purchase, severally and not jointly, up to
1,500,000 Additional Shares from the Company at the Purchase Price. Additional
Shares may be purchased solely for the purpose of covering over-allotments made
in connection with the offering of the Firm Shares. The U.S. Underwriters may
exercise their right to purchase Additional Shares in whole or in part from time
to time by giving written notice thereof to the Company within 30 days after the
date of this Agreement; provided, however, that if the U.S. Underwriters
exercise their right to purchase the Additional Shares in part on more than one
occasion (other than on the Closing Date, as defined below), the U.S.
Underwriters shall pay all of the incremental expenses of the Company associated
with the closing with respect to each exercise of such right occurring after the
first Option Closing Date (as defined below). The U.S. Representatives shall
give any such notice on behalf of the U.S. Underwriters and such notice shall
specify the aggregate number of Additional Shares to be purchased pursuant to
such exercise and the date for payment and delivery thereof. The date specified
in any such notice shall be a business day (i) no earlier than the Closing Date
(as hereinafter defined), (ii) no later than ten business days after such notice
has been given and (iii) no earlier than two business days after such notice has
been given. If any Additional Shares are to be purchased, each U.S.
Underwriter, severally and not jointly, agrees to purchase from the Company the
number of Additional Shares (subject to such adjustments to eliminate fractional
shares as the U.S. Representatives may determine) which bears the same
proportion to the total number of Additional Shares to be purchased from the
Company as the number of U.S. Firm Shares set forth opposite the name of such
U.S. Underwriter in Schedule I bears to the total number of U.S. Firm Shares.
The Company hereby agrees and the Company shall, concurrently with the
execution of this Agreement, deliver an agreement executed by each person listed
on Annex I hereto, pursuant to which each such person agrees not to offer, sell,
contract to sell, grant any option to purchase, or otherwise dispose of any
common stock of the Company or any securities convertible into or exercisable or
exchangeable for such common stock or in any other manner transfer all or a
portion of the economic consequences associated with the ownership of any such
common stock, except to the Underwriters pursuant to this Agreement, for a
period of 180 days after the date of the Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. Notwithstanding
the foregoing, during such period (i) the Company may grant stock options
pursuant to the Company's 1997 Performance Award Plan, (ii) the Company may
issue shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security, in each case described in the Prospectus as
outstanding or to be outstanding on the Closing Date, and (iii) such person
listed on Annex I may transfer shares of Common Stock to one or more charitable
organizations, affiliates, members of such person's immediate family, or a
trust, the sole beneficiaries of which are members of such person's immediate
family or a charitable organization, and such person may pledge shares of Common
Stock, in each case if such transferee or pledgee, as the case may be, agrees in
writing to be bound by the restrictions set forth in this paragraph.
3. Terms of Public Offering. The Company is advised by you that the
------------------------
Underwriters propose (i) to make a public offering of their respective portions
of the Shares as soon after the effective date of the Registration Statement as
in your judgment is advisable and (ii) initially to offer the Shares upon the
terms set forth in the Prospectus.
Each U.S. Underwriter hereby makes to and with the Company the
representations and agreements of such U.S. Underwriter contained in the fifth
paragraph of Section 3 of the Agreement Between U.S. Underwriters and
International Managers of even date herewith. Each International
3
<PAGE>
Manager hereby makes to and with the Company the representations and agreements
of such International Manager contained in the seventh, eighth, ninth and tenth
paragraphs of Section 3 of such Agreement.
4. Delivery and Payment. Delivery to the Underwriters of and payment for
--------------------
the Firm Shares shall be made at 10:00 A.M., New York City time, on the third or
fourth business day unless otherwise permitted by the Commission pursuant to
Rule 15c6-1 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") following the date of the initial public offering (the "Closing Date"), at
such place as you shall designate. The Closing Date and the location of
delivery of and the form of payment for the Firm Shares may be varied by
agreement between you and the Company.
Delivery to the U.S. Underwriters of and payment for any Additional Shares
to be purchased by the U.S. Underwriters shall be made at such place as the U.S.
Representatives shall designate at 10:00 A.M., New York City time, on the date
specified in the applicable exercise notice given by you pursuant to Section 2
(an "Option Closing Date"). Any such Option Closing Date and the location of
delivery of and the form of payment for such Additional Shares may be varied by
agreement between the U.S. Representatives and the Company.
Certificates for the Shares shall be registered in such names and issued in
such denominations as you shall request in writing not later than two full
business days prior to the Closing Date or an Option Closing Date, as the case
may be. Such certificates shall be made available to you for inspection not
later than 9:30 A.M., New York City time, on the business day next preceding the
Closing Date or the applicable Option Closing Date, as the case may be.
Certificates in definitive form evidencing the Shares shall be delivered to you
on the Closing Date or the applicable Option Closing Date, as the case may be,
with any transfer taxes thereon duly paid by the Company, for the respective
accounts of the several Underwriters, against payment of the Purchase Price
therefor by wire transfer or certified or official bank checks payable in
Federal funds to the order of the Company.
5. Agreements of the Company. The Company agrees with you:
-------------------------
(a) To use its best efforts to cause the Registration Statement to
become effective at the earliest possible time.
(b) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) when the Registration Statement has become effective
and when any post-effective amendment to it becomes effective, (ii) of any
request by the Commission for amendments to the Registration Statement or
amendments or supplements to the Prospectus or for additional information,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the suspension of
qualification of the Shares for offering or sale in any jurisdiction, or
the initiation of any proceeding for such purposes, and (iv) of the
happening of any event during the period referred to in paragraph (e) below
which makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or which requires the making of any
additions to or changes in the Registration Statement or the Prospectus in
order to make the statements therein not misleading. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to
obtain the withdrawal or lifting of such order at the earliest possible
time.
(c) To furnish to you, without charge, six signed copies of the
Registration Statement as first filed with the Commission and of each
amendment to it, including all exhibits, and to
4
<PAGE>
furnish to you and each Underwriter designated by you such number of
conformed copies of the Registration Statement as so filed and of each
amendment to it, without exhibits, as you may reasonably request.
(d) Not to file any amendment or supplement to the Registration
Statement, whether before or after the time when it becomes effective, or
to make any amendment or supplement to the Prospectus (including the
issuance or filing of any term sheet within the meaning of Rule 434) of
which you shall not previously have been advised or to which you shall
reasonably object; and to prepare and file with the Commission, promptly
upon your reasonable request, any amendment to the Registration Statement
or supplement to the Prospectus (including the issuance or filing of any
term sheet within the meaning of Rule 434) which may be necessary or
advisable in connection with the distribution of the Shares by you, and to
use its best efforts to cause the same to become promptly effective.
(e) Promptly after the Registration Statement becomes effective, and
from time to time thereafter for such period as in the opinion of counsel
for the Underwriters a prospectus is required by law to be delivered in
connection with sales by an Underwriter or a dealer, to furnish to each
Underwriter and dealer as many copies of the Prospectus (and of any
amendment or supplement to the Prospectus) as such Underwriter or dealer
may reasonably request.
(f) If during the period specified in paragraph (e) any event shall
occur as a result of which, in the opinion of counsel for the Underwriters
it becomes necessary to amend or supplement the Prospectus in order to make
the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if it is
necessary to amend or supplement the Prospectus to comply with any law,
forthwith to prepare and file with the Commission an appropriate amendment
or supplement to the Prospectus so that the statements in the Prospectus,
as so amended or supplemented, will not in the light of the circumstances
when it is so delivered, be misleading, or so that the Prospectus will
comply with law, and to furnish to each Underwriter and to such dealers as
you shall specify, such number of copies thereof as such Underwriter or
dealers may reasonably request.
(g) Prior to any public offering of the Shares, to cooperate with you
and counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters
and by dealers under the state securities or Blue Sky laws of such
jurisdictions as you may request, to continue such qualification in effect
so long as required for distribution of the Shares and to file such
consents to service of process or other documents as may be necessary in
order to effect such registration or qualification. Notwithstanding the
foregoing, the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any such
jurisdiction where it is not presently qualified or where it would be
subject to taxation as a foreign corporation.
(h) To mail and make generally available to its stockholders as soon
as reasonably practicable an earnings statement covering a period of at
least twelve months after the effective date of the Registration Statement
(but in no event commencing later than 90 days after such date) which shall
satisfy the provisions of Section 11(a) of the Act, and to advise you in
writing when such statement has been so made available.
(i) During the period of five years after the date of this Agreement,
(i) to mail as soon as reasonably practicable after the end of each fiscal
year to the record holders of its
5
<PAGE>
Common Stock a financial report of the Company and its subsidiaries on a
consolidated basis (and a similar financial report of all unconsolidated
subsidiaries, if any), all such financial reports to include a consolidated
balance sheet, a consolidated statement of operations, a consolidated
statement of cash flows and a consolidated statement of stockholders'
equity as of the end of and for such fiscal year, together with comparable
information as of the end of and for the preceding year, certified by
independent certified public accountants, and (ii) to make generally
available as soon as practicable after the end of each quarterly period
(except for the last quarterly period of each fiscal year) to such holders,
a consolidated balance sheet, a consolidated statement of operations and a
consolidated statement of cash flows (and similar financial reports of all
unconsolidated subsidiaries, if any) as of the end of and for such period,
and for the period from the beginning of such year to the close of such
quarterly period, together with comparable information for the
corresponding periods of the preceding year.
(j) During the period referred to in paragraph (i), to furnish to you
as soon as available a copy of each report or other publicly available
information of the Company mailed to the holders of Common Stock or filed
with the Commission and such other publicly available information
concerning the Company and its subsidiaries as you may reasonably request.
(k) To pay all costs, expenses, fees and taxes incident to (i) the
preparation, printing, filing and distribution under the Act of the
Registration Statement (including financial statements and exhibits), each
preliminary prospectus and all amendments and supplements to any of them
prior to or during the period specified in paragraph (e), (ii) the printing
and delivery of the Prospectus and all amendments or supplements to it
during the period specified in paragraph (e), (iii) the printing and
delivery of this Agreement, the Preliminary and Supplemental Blue Sky
Memoranda and all other agreements, memoranda, correspondence and other
documents printed and delivered in connection with the offering of the
Shares (including in each case any disbursements of counsel for the
Underwriters relating to such printing and delivery), (iv) the registration
or qualification of the Shares for offer and sale under the securities or
Blue Sky laws of the several states (including in each case the fees and
disbursements of counsel for the Underwriters relating to such registration
or qualification and memoranda relating thereto), (v) filings and clearance
with the National Association of Securities Dealers, Inc. in connection
with the offering of the Shares, (vi) the listing of the Shares on the New
York Stock Exchange, and (vii) furnishing such copies of the Registration
Statement, the Prospectus and all amendments and supplements thereto as may
be requested for use in connection with the offering or sale of the Shares
by the Underwriters or by dealers to whom Shares may be sold.
(l) To use its best efforts to maintain the inclusion of such Common
Stock on the New York Stock Exchange for a period of five years after the
effective date of the Registration Statement.
(m) As soon as practicable, to use its best efforts and to perform all
action necessary to qualify as a foreign corporation authorized to do
business in each jurisdiction where the nature of its business or its
ownership or leasing of property requires such qualification, except where
the failure to be so qualified would not have a material adverse effect on
the Company.
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(n) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company
prior to the Closing Date or any Option Closing Date, as the case may be,
and to satisfy all conditions precedent to the delivery of the Shares.
(o) Following the consummation of the offering of the Shares, to use
the proceeds from the sale of the Shares in the manner described in the
Prospectus under the caption "Use of Proceeds."
6. Representations and Warranties of the Company. Each of the
---------------------------------------------
Company and USR Holdings, Inc., a California corporation formerly known as U.S.
Rentals, Inc. (the "Predecessor"), represents and warrants to each Underwriter
that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) Each part of the Registration Statement, when such part
became effective, did not contain and each such part, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii)
the Registration Statement and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the
Act and (iii) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, except that the representations and warranties set
forth in this paragraph (b) do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information relating to
any Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use therein.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, and each Registration Statement filed
pursuant to Rule 462(b) under the Act, if any, complied when so filed in
all material respects with the Act and did not contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) Each of the Predecessor, the Company and USR Leasing Company, a
California corporation (the "Subsidiary"), have been duly incorporated, and
each is validly existing as a corporation in good standing under the laws
of its jurisdiction of incorporation and has the corporate power and
authority to carry on its business as it is currently being conducted and
to own, lease and operate its properties. Each of the Predecessor and the
Subsidiary is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the
nature of its business or its ownership or leasing of property requires
such qualification, except where the failure to be so qualified would not
have a material adverse effect on the Predecessor, the Company and the
Subsidiary, taken as a whole.
(e) As of the date hereof, the Company has no subsidiaries. As of the
Closing Date, the sole subsidiary of the Company will be the Subsidiary.
All of the outstanding shares of
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capital stock of the Subsidiary have been duly authorized and validly
issued and are fully paid and non-assessable, and as of the Closing Date
will be owned of record by the Company, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature.
(f) Prior to the consummation of the transactions contemplated by the
Asset Contribution Agreement dated as of February 21, 1997 between the
Predecessor and the Company (the "Asset Contribution Agreement"), no
capital stock of the Company is or will be issued and outstanding. All
shares of capital stock of the Company that will be outstanding as of the
Closing Date will be duly authorized, validly issued, fully paid and non-
assessable and not subject to any preemptive or similar rights; and the
Shares have been duly authorized and, when issued and delivered to the
Underwriters against payment therefor as provided by this Agreement, will
be validly issued, fully paid and non-assessable, and the issuance of such
Shares will not be subject to any preemptive or similar rights.
(g) The authorized capital stock of the Company, including the Common
Stock, conforms as to legal matters to the description thereof contained in
the Prospectus.
(h) Neither the Predecessor, the Company nor the Subsidiary is in
violation of its respective charter or by-laws or in default in the
performance of any obligation, agreement or condition contained in any
bond, debenture, note or any other evidence of indebtedness or in any other
agreement, indenture or instrument to which the Predecessor, the Company or
the Subsidiary is a party or by which the Predecessor, the Company or the
Subsidiary or their respective property is bound, which violation or
default would have a material adverse effect on the Predecessor, the
Company and the Subsidiary, taken as a whole.
(i) The execution, delivery and performance of this Agreement,
compliance by the Company and the Predecessor with all the provisions
hereof and the consummation of the transactions contemplated hereby and the
Offering Related Transactions (as defined in the Prospectus) will not
require any consent, approval, authorization or other order of any court,
regulatory body, administrative agency or other governmental body (except
as such may be required under securities or Blue Sky laws) and will not
conflict with or constitute a breach of any of the terms or provisions of,
or a default under, the charter or by-laws of the Predecessor, the Company
or the Subsidiary or, except as to defaults, violations or conflicts which
individually or in the aggregate would not be material to the Company and
the Subsidiary, taken as a whole, any agreement, indenture or other
instrument to which the Predecessor, the Company or the Subsidiary is a
party or by which the Predecessor, the Company or the Subsidiary or their
respective property is bound, or violate or conflict with any laws,
administrative regulations or rulings or court decrees applicable to the
Predecessor, the Company, the Subsidiary or their respective property.
(j) Except as otherwise set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Predecessor, the
Company or the Subsidiary is a party or of which any of their respective
property is the subject, which proceedings, individually or in the
aggregate, might result in a material adverse change in the business,
prospects, financial condition or results of operations of the Predecessor,
the Company and the Subsidiary, taken as a whole, and, to the best
knowledge of the Predecessor and the Company, no such proceedings are
threatened or contemplated. No contract or document of a character
required to be described in the Registration Statement or the Prospectus or
to be filed as an exhibit to the Registration Statement is not so described
or filed as required.
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(k) Neither the Predecessor, the Company nor the Subsidiary has violated
any foreign, federal, state or local law or regulation relating to the
protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("Environmental
Laws"), nor any federal or state law relating to discrimination in the
hiring, promotion or pay of employees nor any applicable federal or state
wages and hours laws, nor any provisions of the Employee Retirement Income
Security Act or the rules and regulations promulgated thereunder, which in
each case might result in any material adverse change in the business,
prospects, financial condition or results of operations of the Predecessor,
the Company and the Subsidiary, taken as a whole.
(l) The Predecessor, the Company and the Subsidiary have such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits"), including, without limitation, under any
applicable Environmental Laws, as are necessary to own, lease and operate
their respective properties and to conduct their respective businesses,
except where the failure to have such permits would not have a material
adverse effect on the Predecessor, the Company and the Subsidiary, taken as
a whole; the Predecessor, the Company and the Subsidiary have fulfilled and
performed all of their material obligations with respect to such permits
and no event has occurred which allows, or after notice or lapse of time
would allow, revocation or termination thereof or results in any other
material impairment of the rights of the holder of any such permit; and,
except as described in the Prospectus, there are no restrictions contained
in such permits, compliance with which would have a material adverse effect
on the Predecessor, the Company and the Subsidiary, taken as a whole.
(m) In the ordinary course of its business, the Predecessor conducted
a regular review of the effect of Environmental Laws on the business,
operations and properties of the Predecessor transferred to the Company
pursuant to the Asset Contribution Agreement, in the course of which it
identified and evaluated associated costs and liabilities (including,
without limitation, any capital or operating expenditures required for
clean-up, closure of properties or compliance with Environmental Laws or
any permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties). On the basis
of such review, the Predecessor and the Company have reasonably concluded
that such associated costs and liabilities would not, singly or in the
aggregate, have a material adverse effect on the Company and the
Subsidiary, taken as a whole.
(n) Except as otherwise set forth in the Prospectus or such as are not
material to the business, prospects, financial condition or results of
operations of the Predecessor, the Company and the Subsidiary, taken as a
whole, the Predecessor, the Company and the Subsidiary has good and
marketable title, free and clear of all liens, claims, encumbrances and
restrictions except liens for taxes not yet due and payable, to all
property and assets described in the Registration Statement as being owned
by it. All leases to which the Predecessor, the Company or the Subsidiary
is a party are valid and binding and no default has occurred or is
continuing thereunder, which might result in any material adverse change in
the business, prospects, financial condition or results of operations of
the Predecessor, the Company and the Subsidiary taken as a whole, and the
Predecessor, the Company and the Subsidiary enjoy peaceful and undisturbed
possession under all such leases to which any of them is a party as lessee
with such exceptions as do not materially interfere with the use made by
the Predecessor, the Company or the Subsidiary.
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(o) The Predecessor maintains and, as of the Closing Date, the Company
will maintain, insurance and self-insurance reserves that taken as a whole
are reasonably adequate.
(p) Price Waterhouse LLP are independent public accountants with
respect to the Predecessor and the Company as required by the Act.
(q) The financial statements, together with related schedules and
notes forming part of the Registration Statement and the Prospectus (and
any amendment or supplement thereto), present fairly the consolidated
financial position, results of operations and changes in financial position
of the Predecessor, the Company and the Subsidiary on the basis stated in
the Registration Statement at the respective dates or for the respective
periods to which they apply; such statements and related schedules and
notes have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved, except as
disclosed therein; the other financial and statistical information and data
set forth in the Registration Statement and the Prospectus (and any
amendment or supplement thereto) is, in all material respects, accurately
presented and prepared on a basis consistent with such financial statements
and the books and records of the Predecessor and the Company; and the pro
forma financial statements and the related notes thereto included in the
Registration Statement and the Prospectus have been prepared in accordance
with the applicable requirements of the Act and on the basis described
therein, and the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give effect
to the transactions and circumstances referred to therein.
(r) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(s) Except as set forth in the Prospectus, no holder of any security
of the Company has any right to require registration of shares of Common
Stock or any other security of the Company.
(t) In the case of Rule 434(b) term sheets, such term sheet and
prospectus subject to completion provided by the Company to the Underwriters for
use in connection with the offering and sale of the Shares pursuant to Rule 434
under the Act together are not materially different from the prospectus included
in the Registration Statement at the time of effectiveness or an effective post-
effective amendment thereto and such term sheet sets forth all information
material to investors with respect to the offering that is not disclosed in the
prospectus subject to completion or the confirmation.
(u) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens related to or
entitling any person to purchase or otherwise to acquire any shares of the
capital stock of, or other ownership interest in, the Company or the
Subsidiary except as otherwise disclosed in the Prospectus.
(v) Except as disclosed in the Prospectus, there are no business
relationships or related party transactions required to be disclosed
therein by Item 404 of Regulation S-K of the Commission.
(w) There is (i) no significant unfair labor practice complaint
pending against the Predecessor, the Company or the Subsidiary or, to the
best knowledge of the Predecessor or the Company, threatened against any of
them, before the National Labor Relations Board or any state
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or local labor relations board, and no significant grievance or more
significant arbitration proceeding arising out of or under any collective
bargaining agreement is so pending against the Predecessor, the Company or
the Subsidiary or, to the best knowledge of the Predecessor or the Company,
threatened against any of them, and (ii) no significant strike, labor
dispute, slowdown or stoppage pending against the Predecessor, the Company
or the Subsidiary or, to the best knowledge of the Predecessor or the
Company, threatened against it or the Subsidiary except for such actions
specified in clause (i) or (ii) above, which, singly or in the aggregate
could not reasonably be expected to have a material adverse effect on the
Predecessor, the Company and the Subsidiary, taken as a whole.
(x) The Predecessor, the Company and the Subsidiary maintain a system
of internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(y) All material tax returns required to be filed by the Predecessor,
the Company and the Subsidiary in any jurisdiction have been filed, other
than those filings being contested in good faith, and all material taxes,
including withholding taxes, penalties and interest, assessments, fees and
other charges due pursuant to such returns or pursuant to any assessment
received by the Predecessor, the Company or the Subsidiary have been paid,
other than those being contested in good faith and for which adequate
reserves have been provided.
(z) The Company has filed a registration statement pursuant to Section
12(b) of the Exchange Act, to register the Common Stock, has filed an
application to list the Shares on the New York Stock Exchange, and has
received notification that the listing has been approved, subject to notice
of issuance of the Shares.
(aa) The Predecessor, the Company and the Subsidiary possess, or
possess the right to use, the patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks and trade names (collectively,
"Intellectual Property") presently employed by them in connection with the
businesses now operated by them, and neither the Predecessor, the Company
nor the Subsidiary has received any notice of infringement of or conflict
with asserted rights of others with respect to the foregoing which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a material adverse change in the business,
prospects, financial condition or results of operations of the Predecessor,
the Company and the Subsidiary, taken as a whole. The use of such
Intellectual Property in connection with the business and operations of the
Predecessor, the Company and the Subsidiary does not, to the Predecessor's
and the Company's knowledge, infringe on the rights of any person.
(ab) The statistical and market-related data included in the
Prospectus are based on or derived from sources which the Predecessor and
the Company believe to be reliable and accurate in all material respects.
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7. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, from and against
any and all losses, claims, damages, liabilities and judgments caused by
any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or caused by any
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
judgments are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to any
Underwriters furnished in writing to the Company by or on behalf of any
Underwriter through you expressly for use therein; provided, however, that
the foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages, liabilities and
judgments purchased Shares, or any person controlling such Underwriter, if
a copy of the Prospectus (as then amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) was not sent or
given by or on behalf of such Underwriter to such person, if required by
law so to have been delivered, at or prior to the written confirmation of
the sale of the Shares to such person, and if the Prospectus (as so amended
and supplemented) would have cured the defect giving rise to such loss,
claim, damage, liability or judgment.
(b) In case any action shall be brought against any Underwriter or any
person controlling such Underwriter, based upon any preliminary prospectus,
the Registration Statement or the Prospectus or any amendment or supplement
thereto and with respect to which indemnity may be sought against the
Company, such Underwriter shall promptly notify the Company in writing and
the Company shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to such indemnified party and payment of
all fees and expenses. Any Underwriter or any such controlling person
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Underwriter or such controlling
person unless (i) the employment of such counsel shall have been
specifically authorized in writing by the Company, (ii) the Company shall
have failed to assume the defense and employ counsel or (iii) the named
parties to any such action (including any impleaded parties) include both
such Underwriter or such controlling person and the Company and such
Underwriter or such controlling person shall have been advised by such
counsel that there may be one or more legal defenses available to it which
are different from or additional to those available to the Company (in
which case the Company shall not have the right to assume the defense of
such action on behalf of such Underwriter or such controlling person, it
being understood, however, that the Company shall not, in connection with
any one such action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more
than one separate firm of attorneys (in addition to any local counsel
reasonably necessary for the defense of any such action) for all such
Underwriters and controlling persons, which firm shall be designated in
writing by Donaldson, Lufkin & Jenrette Securities Corporation and that all
such fees and expenses shall be reimbursed as they are incurred). The
Company shall not be liable for any settlement of any such action effected
without its written consent but if settled with the written consent of the
Company, the Company agrees to indemnify and hold harmless any Underwriter
and any such controlling person from and against any loss or liability by
reason of
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such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such proceeding.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement and any person controlling the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the
same extent as the foregoing indemnity from the Company to each Underwriter
but only with reference to information relating to such Underwriter
furnished in writing by or on behalf of such Underwriter through you
expressly for use in the Registration Statement, the Prospectus or any
preliminary prospectus. In case any action shall be brought against the
Company, any of its directors, any such officer or any person controlling
the Company based on the Registration Statement, the Prospectus or any
preliminary prospectus and in respect of which indemnity may be sought
against any Underwriter, the Underwriter shall have the rights and duties
given to the Company (except that if the Company shall have assumed the
defense thereof, such Underwriter shall not be required to do so, but may
employ separate counsel therein and participate in the defense thereof but
the fees and expenses of such counsel shall be at the expense of such
Underwriter), and the Company, its directors, any such officers and any
person controlling the Company shall have the rights and duties given to
the Underwriter, by Section 7(b) hereof. The statements contained in the
Prospectus in the fifth and twelfth paragraphs of the section captioned
"Underwriting" constitute the only information heretofore furnished to the
Company in writing by any Underwriter expressly for use in the Registration
Statement, the Prospectus or any preliminary prospectus.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities and judgments (i) in
such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other hand from
the offering of the Shares or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company and the Underwriters
in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative benefits received by the
Company and the Underwriters shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses)
received by the Company, and the total underwriting discounts and
commissions received by the Underwriters, bear to the total price to the
public of the Shares, in each case as set forth in the table on the cover
page of the Prospectus. The relative fault of the Company and the
Underwriters shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Company or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement
or omission.
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The Company and the Underwriters agree that it would not be just
and equitable if contribution pursuant to this Section 7(d) were determined
by pro rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as
a result of the losses, claims, damages, liabilities or judgments referred
to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7, no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations
to contribute pursuant to this Section 7(d) are several in proportion to
the respective number of Shares purchased by each of the Underwriters
hereunder and not joint.
8. Conditions of Underwriters' Obligations. The several obligations
---------------------------------------
of the Underwriters to purchase the Firm Shares under this Agreement are subject
to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company and the
Predecessor contained in this Agreement shall be true and correct on the Closing
Date with the same force and effect as if made on and as of the Closing Date.
(b) The Registration Statement shall have become effective not later
than 5:00 P.M. (and in the case of a Registration Statement filed under Rule
462(b) of the Act, not later than 10:00 P.M.), New York City time, on the date
of this Agreement or at such later date and time as you may approve in writing,
and at the Closing Date no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been commenced or shall be pending before or contemplated by
the Commission.
(c) (i) Since the date of the latest balance sheet included in the
Registration Statement and the Prospectus, there shall not have been any
material adverse change, or any development involving a prospective material
adverse change, in the condition, financial or otherwise, or in the earnings,
affairs or business prospects, whether or not arising in the ordinary course of
business, of the Company or the Predecessor, (ii) since the date of the latest
balance sheet included in the Registration Statement and the Prospectus there
shall not have been any change, or any development involving a prospective
material adverse change, in the capital stock or in the long-term debt of the
Company or the Predecessor from that set forth in the Registration Statement and
Prospectus, (iii) the Predecessor, the Company and the Subsidiary shall have no
liability or obligation, direct or contingent, which is material to the Company
and the Subsidiary, taken as a whole, other than those reflected in the
Registration Statement and the Prospectus and (iv) on the Closing Date you shall
have received a certificate dated the Closing Date, signed by William F. Berry
and John S. McKinney, in their capacities as President and Chief Executive
Officer and Chief Financial Officer, respectively, of the Company and the
Predecessor confirming the matters set forth in paragraphs (a), (b), and (c) of
this Section 8.
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(d) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of O'Melveny & Myers LLP, counsel for the Company, to the effect that:
(i) The Company, the Predecessor and the Subsidiary have been duly
incorporated, and each is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation with the
corporate power to own, lease and operate its properties and assets and to
carry on its businesses as described in the Registration Statement.
(ii) The outstanding shares of capital stock of the Subsidiary have
been duly authorized by all necessary corporate action on the part of the
Subsidiary and are validly issued, fully paid and non-assessable, and are
owned of record by the Company.
(iii) The outstanding shares of capital stock of the Company have
been duly authorized by all necessary corporate action on the part of the
Company and are validly issued, fully paid and non-assessable.
(iv) The Shares have been duly authorized by all necessary corporate
action on the part of the Company, and, upon payment for and delivery of
the Shares in accordance with this Agreement and the countersigning of the
certificate or certificates representing the Shares by a duly authorized
signatory of the registrar for the Company's Common Stock, the Shares will
be validly issued, fully paid and non-assessable. Holders of the capital
stock of the Company are not entitled to any preemptive right to subscribe
to any additional shares of the Company's capital stock under the Company's
Restated Certificate of Incorporation or Amended and Restated Bylaws, any
Delaware, New York or California statute or regulation or any agreement
filed as an Exhibit to the Registration Statement (the "Filed Agreements").
(v) The execution, delivery and performance of this Agreement have
been duly authorized by all necessary corporate action on the part of the
Company and the Predecessor, and this Agreement has been duly executed and
delivered by the Company and the Predecessor.
(vi) The Registration Statement has become effective under the Act
and, to the knowledge of such counsel, no stop order suspending its
effectiveness has been issued and no proceedings for that purpose are
pending before or contemplated by the Commission.
(vii) The statements in the Prospectus under the captions "Risk
Factors--Anti-Takeover Provisions," "Risk Factors--Shares Eligible for
Future Sale; Registration Rights," "Offering Related Transactions,"
"Certain Transactions," "Description of Capital Stock," "Shares Eligible
for Future Sale," "Certain United States Federal Tax Consequences to Non-
United States Holders of Common Stock," and "Underwriting" in the
Prospectus and Items 14 and 15 of Part II of the Registration Statement
insofar as such statements summarize the Company's Restated Certificate of
Incorporation, the Amended and Restated Bylaws, Registration Rights
Agreement, Asset Contribution Agreement, Cancellation of Deferred
Compensation Agreements and Indemnification Agreements (each as defined in
the Registration Statement) or the provisions of any statute or regulation
referred to therein, accurately present in all material respects the
information required by Form S-1.
(viii) The Predecessor's and the Company's execution and delivery of,
and performance of their respective obligations under, this Agreement and
the Asset Contribution Agreement do
15
<PAGE>
not (A) violate the Predecessor's and the Company's charter or bylaws, (B)
violate, breach, or result in a default under, any existing obligation of
or restriction on the Predecessor or the Company under any Filed Agreement,
or (C) breach or otherwise violate any existing obligation of or
restriction on the Predecessor or the Company under any order, judgment or
decree of any New York, California, Delaware or federal court or
governmental authority binding on the Predecessor or the Company that such
counsel has, in the exercise of customary professional diligence,
recognized as applicable to the Predecessor or the Company or to
transactions of the type contemplated by this Agreement, except that, such
counsel need not express an opinion regarding any federal securities laws
or Blue Sky or state securities laws, or the Predecessor's compliance with
financial covenants in any Filed Agreement.
(ix) No order, consent, permit or approval of any New York,
California, Delaware or federal governmental authority that such counsel
has, in the exercise of customary professional diligence, recognized as
applicable to the Predecessor or the Company or the transactions of the
type contemplated by this Agreement is required on the part of the
Predecessor or the Company for the execution and delivery of, and
performance of their respective obligations under, this Agreement or the
Asset Contribution Agreement. The execution and delivery by the
Predecessor and the Company of, and performance of their respective
obligations under, this Agreement and the Asset Contribution Agreement, do
not violate any New York, California, Delaware or federal statute or
regulation that such counsel has, in the exercise of customary professional
diligence, recognized as applicable to the Predecessor or the Company or to
transactions of the type contemplated by this Agreement except that, such
counsel need not express an opinion regarding any federal securities laws
or Blue Sky or state securities laws.
(x) Such counsel does not know of any legal or governmental proceeding
pending or threatened to which the Predecessor, the Company or the
Subsidiary is a party or to which any of their respective property is
subject which is required to be described in the Registration Statement or
the Prospectus and is not so described, or of any contract or other
document of a character required to be described in the Registration
Statement or the Prospectus or filed as an exhibit to the Registration
Statement which is not described or filed as required.
(xi) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(xii) The Offering Related Transactions have been duly and validly
authorized by all necessary corporate action on the part of each of the
Predecessor and the Company, as applicable.
(xiii) To the best of such counsel's knowledge, no holder of any
security of the Company has any right to require registration of shares of
Common Stock or any other security of the Company, except as described in
the Prospectus.
(xiv) The Registration Statement, on the date it was filed, appeared
on its face to comply in all material respects with the requirements as to
form for registration statements on Form S-1 under the Act and related
rules and regulations in effect at the date of filing, except that such
counsel need not express an opinion concerning the financial statements and
other financial information contained or incorporated by reference therein.
(xv) In addition, such opinion shall contain a statement to the effect
that in connection with such counsel's participation in the preparation of
the Registration Statement and the
16
<PAGE>
Prospectus, they have not independently verified the accuracy, completeness
or fairness of the statements contained therein, and the limitations
inherent in the examination made by such counsel and the knowledge
available to such counsel are such that such counsel is unable to assume,
and does not assume, any responsibility for such accuracy, completeness or
fairness, except as otherwise specifically stated in clause (vii) above.
However, on the basis of such counsel's review and participation in
conferences in connection with the preparation of the Registration
Statement and the Prospectus, and relying as to materiality to a large
extent on the opinions of officers and other representatives of the
Company, such counsel does not believe that the Registration Statement as
of its effective date contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, and such counsel does not
believe that the Prospectus on the date hereof contains any untrue
statement of a material fact or omits to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Such counsel need not express an opinion or belief as to the financial
statements or other financial information contained in the Registration
Statement or the Prospectus.
The opinion of O'Melveny & Myers LLP described in paragraph (d) above
shall be rendered to you at the request of the Company and shall so state
therein.
(e) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Latham & Watkins, counsel for the Underwriters, as to the
matters referred to in clauses (iv), (v), (vi), (vii) (but only with respect to
the statements under the caption "Description of Capital Stock" and
"Underwriting") and (xv) of the foregoing paragraph (d). In giving such opinion
with respect to the matters covered by clause (xv) such counsel may state that
their opinion and belief are based upon their participation in the preparation
of the Registration Statement and Prospectus and any amendments or supplements
thereto and review and discussion of the contents thereof, but are without
independent check or verification except as specified.
(f) You shall have received a letter on and as of the Closing Date, in
form and substance satisfactory to you, from Price Waterhouse LLP, independent
public accountants, with respect to the financial statements and certain
financial information contained in the Registration Statement and the Prospectus
substantially in the form and substance of the letter delivered to you by Price
Waterhouse LLP on the date of this Agreement.
(g) The Company shall have delivered to you the agreements specified
in Section 2 hereof.
(h) The Company shall not have failed at or prior to the Closing Date
to perform or comply with any of the agreements herein contained and required to
be performed or complied with by the Company at or prior to the Closing Date.
(i) As of the Closing Date, the Offering Related Transactions (as
defined in the Prospectus) shall have been consummated (including all
transactions contemplated by the Asset Contribution Agreement) and there shall
have been no material amendments, alterations, modifications or waivers to the
form of any Filed Agreement on or prior to the date hereof or in the exhibits or
schedules thereto.
17
<PAGE>
(j) You shall have received complete sets of all documents, including,
without limitation, all opinions, required to be delivered in connection with
the Offering Related Transactions.
The several obligations of the Underwriters to purchase any Additional Shares
hereunder are subject to the delivery to you on the applicable Option Closing
Date of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of such Additional
Shares and other matters related to the issuance of such Additional Shares.
9. Effective Date of Agreement and Termination. This Agreement
-------------------------------------------
shall become effective upon the later of (i) execution of this Agreement and
(ii) when notification of the effectiveness of the Registration Statement has
been released by the Commission.
This Agreement may be terminated at any time prior to the Closing Date
by you by written notice to the Company if any of the following has occurred:
(i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or
development involving a prospective material adverse change in the condition,
financial or otherwise, of the Predecessor, the Company and the Subsidiary,
taken as a whole, or the earnings, affairs, or business prospects of the
Predecessor, the Company and the Subsidiary, taken as a whole, whether or not
arising in the ordinary course of business, which would, in your judgment, make
it impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus; (ii) any outbreak or escalation of hostilities
or other national or international calamity or crisis or change in economic
conditions or in the financial markets of the United States or elsewhere that,
in your judgment, is material and adverse and would, in your judgment, make it
impracticable to market the Shares on the terms and in the manner contemplated
in the Prospectus; (iii) the suspension or material limitation of trading in
securities on the New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market System or limitation on prices for securities on any such
exchange or the Nasdaq National Market System; (iv) the enactment, publication,
decree or other promulgation of any federal or state statute, regulation, rule
or order of any court or other governmental authority which in your opinion
materially and adversely affects, or will materially and adversely affect, the
business or operations of the Predecessor, the Company or the Subsidiary; (v)
the declaration of a banking moratorium by either federal or New York State
authorities; or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in your
opinion has a material adverse effect on the financial markets in the United
States.
If on the Closing Date or on an Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase the
Firm Shares or Additional Shares, as the case may be, which it or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused to
purchase is not more than one-tenth of the total number of Shares to be
purchased on such date by all Underwriters, each non-defaulting Underwriter
shall be obligated severally, in the proportion which the number of Firm Shares
set forth opposite its name in Schedule I bears to the total number of Firm
Shares which all the non-defaulting Underwriters, as the case may be, have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused to
purchase on such date; provided that in no event shall the number of Firm Shares
or Additional Shares, as the case may be, which any Underwriter has agreed to
purchase pursuant to Section 2 hereof be increased pursuant to this Section 9 by
an amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter. If
on the Closing Date or on an
18
<PAGE>
Option Closing Date, as the case may be, any Underwriter or Underwriters shall
fail or refuse to purchase Firm Shares, or Additional Shares, as the case may
be, and the aggregate number of Firm Shares or Additional Shares, as the case
may be, with respect to which such default occurs is more than one-tenth of the
aggregate number of Shares to be purchased on such date by all Underwriters and
arrangements satisfactory to you and the Company for purchase of such Shares are
not made within 48 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Underwriter and the Company.
In any such case which does not result in termination of this Agreement, either
you or the Company shall have the right to postpone the Closing Date or the
applicable Option Closing Date, as the case may be, but in no event for longer
than seven days, in order that the required changes, if any, in the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of any such
Underwriter under this Agreement.
10. Miscellaneous. Notices given pursuant to any provision of this
-------------
Agreement shall be addressed as follows: (a) if to the Company, to U.S.
Rentals, Inc., 1581 Cummins Drive, Suite 155, Modesto, California 95358,
Attention: John S. McKinney, and (b) if to any Underwriter or to you, to you c/o
Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York,
New York 10172, Attention: Syndicate Department, or in any case to such other
address as the person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, its officers and directors and
of the several Underwriters set forth in or made pursuant to this Agreement
shall remain operative and in full force and effect, and will survive delivery
of and payment for the Shares, regardless of (i) any investigation, or statement
as to the results thereof, made by or on behalf of any Underwriter or by or on
behalf of the Company, the officers or directors of the Company or any
controlling person of the Company, (ii) acceptance of the Shares and payment for
them hereunder and (iii) termination of this Agreement.
If this Agreement shall be terminated by the Underwriters because of
any failure or refusal on the part of the Company to comply with the terms or to
fulfill any of the conditions of this Agreement, the Company agrees to reimburse
the several Underwriters for all out-of-pocket expenses (including the fees and
disbursements of counsel) reasonably incurred by them.
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the
Underwriters, any controlling persons referred to herein and their respective
successors and assigns, all as and to the extent provided in this Agreement, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Shares from any of the several Underwriters merely because of such
purchase.
This Agreement shall be governed and construed in accordance with the
laws of the State of New York.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
19
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
U.S. RENTALS, INC., a Delaware corporation
By: ________________________________________
Name: William F. Berry
Title: President and Chief Executive Officer
USR HOLDINGS, INC., a California corporation
By: ________________________________________
Name: Richard D. Colburn
Title: Chairman of the Board
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
SALOMON BROTHERS INC
Acting severally on behalf of themselves
and the several U.S. Underwriters named
in Schedule I hereto
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH INTERNATIONAL
SALOMON BROTHERS INTERNATIONAL LIMITED
Acting severally on behalf of themselves
and the several International Managers
named in Schedule II hereto
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: ______________________________________
Name: Randall L. Bort
Title: Vice President
20
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of Firm Shares
U.S. Underwriters to be Purchased
----------------- -----------------------
<S> <C>
Donaldson, Lufkin & Jenrette
Securities Corporation
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Salomon Brothers Inc
---------
Total 8,000,000
</TABLE>
21
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
Number of Firm Shares
International Managers to be Purchased
---------------------- -----------------------
<S> <C>
Donaldson, Lufkin & Jenrette
Securities Corporation
Merrill Lynch International
Salomon Brothers International Limited
---------
Total 2,000,000
</TABLE>
22
<PAGE>
ANNEX I
REQUIRED LOCK-UP AGREEMENTS
Richard D. Colburn
USR Holdings, Inc. (a California corporation f/k/a U.S. Rentals, Inc.)
23
<PAGE>
EXHIBIT 2.1
ASSET CONTRIBUTION AGREEMENT
dated as of
February __, 1997
by and between
USR HOLDINGS, INC.
and
U.S. RENTALS, INC.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Contribution of Assets............................................... 1
----------------------
1.1 Contributed Assets........................................... 1
1.2 Excluded Assets.............................................. 1
1.3 Restricted Assets............................................ 2
1.4 "As Is" Condition............................................ 2
1.5 Further Assurances........................................... 2
1.6 Special Power of Attorney.................................... 3
1.6.1 Appointment.......................................... 3
1.6.2 Persons Authorized................................... 3
1.6.3 Scope................................................ 3
2.1 Assumed Liabilities.......................................... 3
2.2 Excluded Liabilities......................................... 4
2.3 Further Assurances........................................... 4
3. Issuance of Common Stock............................................. 4
------------------------
3.1 Issuance of Common Stock............................... 4
4. Covenants............................................................ 4
---------
4.1 Access................................................. 4
4.2 Reimbursement.......................................... 4
4.3 Confidentiality........................................ 5
4.4 Transfer Employees..................................... 5
5. Representations and Warranties....................................... 5
------------------------------
5.1 Holdings............................................... 5
5.1.1 Organization................................... 5
5.1.2 Authorization; Binding......................... 6
5.2 Company................................................ 6
5.2.1 Organization................................... 6
5.2.2 Authorization Binding.......................... 6
5.2.3 Authorization, Issuance of Capital Stock....... 6
6. Indemnification...................................................... 7
---------------
6.1 Holdings' Indemnity.................................... 7
6.2 Company's Indemnity.................................... 7
6.3 Limitation on Indemnification.......................... 7
6.3.1 Longer Indemnification Period.................. 7
6.4 Notice of Claims....................................... 7
6.5 Amount................................................. 8
6.6 Defense................................................ 8
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
7. Tax Matters.......................................................... 9
-----------
7.1 Indemnification for Taxes.............................. 9
7.2 Review of Tax Returns; Tax Audits...................... 9
7.3 Cooperation............................................ 10
8. Dispute Resolution................................................... 10
------------------
8.1 Dispute Resolution..................................... 10
8.1.1 Negotiation.................................... 10
8.1.2 Mediation...................................... 11
8.1.3 Arbitration.................................... 11
8.1.4 Extension of Time Periods...................... 11
9. Miscellaneous........................................................ 11
-------------
9.2 Bulk Transfer Laws..................................... 11
9.3 Expenses............................................... 11
9.4 Amendments; Waivers.................................... 11
9.5 Integration............................................ 12
9.6 Interpretation; Governing Law.......................... 12
9.7 Headings............................................... 12
9.8 Counterparts........................................... 12
9.9 Successors and Assigns................................. 12
9.10 Representation by Counsel; Interpretation.............. 12
9.11 Specific Performance................................... 12
9.12 Time is of the Essence................................. 12
9.13 Notices................................................ 12
10. Certain Definitions.................................................. 13
-------------------
</TABLE>
ii
<PAGE>
ASSET CONTRIBUTION AGREEMENT
THIS ASSET CONTRIBUTION AGREEMENT (this "AGREEMENT") is dated as of
February __, 1997 by and between U.S. Rentals, Inc., a Delaware corporation
("COMPANY"), and USR Holdings, Inc. a California corporation ("HOLDINGS").
Capitalized terms are defined in Section 10. Company and Holdings agree as
follows:
BACKGROUND
----------
A. Holdings is engaged in the equipment rental business. Holdings also has
certain non-operating assets and liabilities.
B. A registration statement with respect to Company's initial public offering
of Common Stock has been declared effective. The Board of Directors of
Holdings has determined that it is in the best interests of Holdings and
its sole stockholder to contribute Holdings' equipment rental business to
Company and to have Company assume the liabilities relating to such
business in exchange for all of Company's outstanding capital stock.
C. Holdings and Company have determined that it is desirable to set forth
their agreement with respect to Holdings' transfer of certain assets to,
and the assumption of certain liabilities by, Company and the issuance by
Company of Common Stock to Holdings.
1. CONTRIBUTION OF ASSETS.
----------------------
1.1 CONTRIBUTED ASSETS. Except as to any Restricted Assets, Holdings
------------------
contributes, conveys, grants, assigns, transfers and delivers to Company,
and Company accepts from Holdings, all of the assets, properties, rights
and privileges of every kind and nature whatsoever, real and personal,
tangible and intangible, absolute or contingent, wherever located, owned or
held for use by Holdings in the conduct of the Business as of the
Contribution Date and not listed on SCHEDULE 1 (the "CONTRIBUTED ASSETS").
1.2 EXCLUDED ASSETS. "EXCLUDED ASSETS" are only those assets listed on
---------------
SCHEDULE 1 and:
(a) the consideration delivered to Holdings pursuant to this Agreement;
and
1
<PAGE>
(b) cash equal to the greater of (i) 48% of Holdings' regular taxable
income, or (ii) 38% of Holdings' alternative taxable income for the
period from January 1, 1997 through the Contribution Date. To
accomplish the foregoing, Holdings' regular and alternative taxable
income for such period will be estimated by Holdings, and cash equal
to the greater of 48% or 38% respectively, of such estimated amount
will be retained by Holdings on the Contribution Date. If Holdings'
actual taxable income or alternative taxable income during such period
is subsequently determined to be more or less than the estimated
taxable income taken into account pursuant to the preceding sentence,
the difference, as computed in (i) or (ii) above, will be transferred
by Holdings to Company or by Company to Holdings, as appropriate. For
purposes of the foregoing, regular taxable income represents the sum
of Holdings' regular taxable income items from Form 1120S, Schedule K,
for the period from January 1, 1997 through the Contribution Date, and
alternative taxable income represents regular taxable income (as
defined above) plus the alternative minimum tax adjustments and tax
preference items reflected on Form 1120S, Schedule K.
1.3 RESTRICTED ASSETS. Holdings and Company will use their respective best
-----------------
efforts to obtain the Approval of any third party that is required in
connection with the transfer of the Restricted Assets and upon receipt of
such Approval such Restricted Assets will, without any further
consideration or action of the parties, be deemed to be contributed,
conveyed, granted, assigned and transferred to Company and will thereafter
constitute part of the Contributed Assets as if they had been so
contributed, conveyed granted, assigned and transferred on the Contribution
Date. If for any reason any Restricted Asset cannot be transferred to
Company, as a result of the inability to obtain a required Approval or
otherwise, the parties will use their respective best efforts to give
Company the economic benefits of such Restricted Asset as if it had been
transferred to Company.
1.4 "AS IS" CONDITION. The Contributed Assets are conveyed to and accepted by
-----------------
Company in an "as is" condition, free of any warranties or representations
whatsoever, and Holdings EXPRESSLY DISCLAIMS ANY WARRANTIES, EXPRESS OR
IMPLIED, WITH RESPECT THERETO.
1.5 FURTHER ASSURANCES. Holdings will, without further consideration, at any
------------------
time and from time to time after the date of this Agreement, (a) execute
and deliver to Company such further instruments of sale, conveyance,
assignment and transfer, and (b) take such other action, all
2
<PAGE>
upon the reasonable request of Company, to further document or evidence the
contribution, conveyance, grant, assignment, transfer and delivery of all
or any portion of the Contributed Assets to Company, to assure and confirm
to any other person the ownership of the Contributed Assets by Company, and
to permit Company to exercise any of the franchises, rights, licenses or
privileges intended to be contributed, granted, conveyed, assigned,
transferred and delivered pursuant to this Agreement.
1.6 SPECIAL POWER OF ATTORNEY.
-------------------------
1.6.1 APPOINTMENT. Holdings appoints Company its true and lawful attorney-
-----------
in-fact to:
(a) execute, acknowledge and deliver all such further assignments,
transfers, conveyances, deeds, bills of sale or other
instruments, documents or assurances as may be required to
transfer to or vest in Company or to protect the right, title
and interest of Company in the Contributed Assets; and
(b) accept and endorse and deposit for Company's own account
instruments, drafts, checks, notes and other similar items
payable to Holdings (or presented in payment to Company) for
any of the Contributed Assets.
1.6.2 PERSONS AUTHORIZED. This special power of attorney may be exercised
------------------
on behalf of Company by any officer of Company by affixing the
manual or facsimile signature of any such officer of Company to any
such instrument or other document.
1.6.3 SCOPE. Holdings further gives and grants to Company full power and
-----
authority to do and perform every act necessary and proper to be
done in the exercise of the foregoing powers as fully as Holdings
might or could do, with full power of substitution and revocation,
hereby ratifying and confirming all that Company lawfully does or
causes to be done by virtue of this Agreement. This special power of
attorney is coupled with an interest and is irrevocable.
2. ASSUMPTION OF CERTAIN LIABILITIES.
---------------------------------
2.1 ASSUMED LIABILITIES. Except as to the Excluded Liabilities, Company
-------------------
assumes any and all Liabilities of Holdings, relating to or arising out of
the operation of the Business (the "ASSUMED LIABILITIES").
3
<PAGE>
2.2 EXCLUDED LIABILITIES. "EXCLUDED LIABILITIES" include only those liabilities
--------------------
listed on SCHEDULE 1 and any Liability relating solely to the Excluded
Assets.
2.3 FURTHER ASSURANCES. Upon the reasonable request of Holdings at any time,
------------------
and from time to time, after the date of this Agreement, without further
consideration, Company will execute and deliver such further instruments of
assumption and take such other actions as Holdings reasonably requires of
Company to further document or evidence the assumption of the Assumed
Liabilities, including, but not limited to, the execution of such
instruments as may be requested by any creditor, lessor or any other person
whose consent is required to consummate the transactions contemplated by
this Agreement.
3. ISSUANCE OF COMMON STOCK.
------------------------
3.1 ISSUANCE OF COMMON STOCK. On the Contribution Date, Company will deliver
------------------------
to Holdings certificates representing 20,748,975 shares of Company's Common
Stock, $0.01 par value, registered in the name of Holdings (the "HOLDINGS
SHARES"), and Holdings acknowledges receipt of them.
4. COVENANTS.
---------
4.1 ACCESS. Holdings will give Company reasonable access during Holdings'
------
normal business hours and upon reasonable prior notice to all books and
records of Holdings relating to the Contributed Assets, the Assumed
Liabilities and the operations of the Business. Company will have the
right at its own expense to make copies of such materials to the extent
that they relate to the operations of the Business. Company will give
Holdings reasonable access during Company's normal business hours and upon
reasonable prior notice to all books and records relating to the Excluded
Assets, Restricted Assets, and Excluded Liabilities. Holdings will have
the right at its own expense to make copies of such materials to the extent
they relate to the Excluded Assets, Restricted Assets, and Excluded
Liabilities.
4.2 REIMBURSEMENT. Holdings will reimburse Company for such amounts as Company
-------------
may reasonably request from time to time in connection with any services
provided, or costs, expenses, obligations or liabilities incurred, by
Company after the Contribution Date in connection with the Excluded Assets
and Excluded Liabilities. Any such payment will be made within thirty days
of receipt of a reasonably detailed invoice.
4
<PAGE>
4.3 CONFIDENTIALITY. The parties to this Agreement will hold in strict
---------------
confidence all information concerning the other in its possession or
furnished by the other pursuant to this Agreement. The foregoing does not
extend to portions of the information that (a) are or become generally
available to the public other than as a result of a disclosure by such
party or its representatives or (b) become available to such party or its
representatives on a non-confidential basis from a source that is not
prohibited from disclosing such information by a legal, contractual or
fiduciary obligation. Neither party will release or disclose such
information to any other Person, except its auditors, attorneys, financial
advisors, bankers and other consultants and advisors, unless disclose is
compelled by judicial or administrative process or, pursuant to an opinion
of its counsel, by other requirements of law. If either party is requested
in any proceeding to disclose information concerning the other, it will
give the other party prompt written notice of such request so that the
other party may seek an appropriate protective order, and use commercially
reasonable efforts, upon the request and at the expense of the other party,
to obtain assurances that the confidentiality of such information will be
maintained.
4.4 TRANSFER EMPLOYEES. As of the Contribution Date, Company will offer to
------------------
employ, on an at will basis (except for William F. Berry and John S.
McKinney, who will be employed by Company pursuant to employment
agreements), all of the employees of Holdings. Company will offer to
employ Holdings' employees at the same rates of compensation and otherwise
on the same terms and conditions of employment, including, to the extent
practicable, employee benefits, as exist with respect to such employees'
employment by Holdings. Company's employees previously employed by
Holdings will receive, to the extent practicable, credit for prior service
with Holdings for eligibility and vesting purposes in any of Holdings'
Benefit Programs and Company's employees who participated in any Holdings'
Benefit Program immediately prior to their employment by Company will
participate, to the extent practicable, immediately in Company's equivalent
Benefit Program.
5. RERESENTATIONS AND WARRANTIES.
------------------------------
5.1 HOLDINGS. Holdings represents and warrants to Company that:
--------
5.1.1 ORGANIZATION. Holdings is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of
California with all necessary corporate power and authority to
execute, deliver and perform this Agreement.
5
<PAGE>
5.1.2 AUTHORIZATION; BINDING NATURE. The execution, delivery and
-----------------------------
performance of this Agreement by Holdings has been duly and validly
authorized by the Board of Directors of Holdings and by all other
necessary corporate action on the part of Holdings. This Agreement
constitutes the legally valid and binding obligation of Holdings,
enforceable in accordance with its terms.
5.2 COMPANY. Company represents and warrants to Holdings that:
-------
5.2.1 ORGANIZATION. Company is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Delaware
with all necessary corporate power and authority to execute, deliver
and perform this Agreement.
5.2.2 AUTHORIZATION BINDING. The execution, delivery and performance of
---------------------
this Agreement by Company has been duly and validly authorized by the
Board of Directors of Company and by all other necessary corporate
action on the part of Company. This Agreement constitutes the legally
valid and binding obligation of Company, enforceable in accordance
with its terms.
5.2.3 AUTHORIZATION, ISSUANCE OF CAPITAL STOCK. As of the Contribution
----------------------------------------
Date, the authorized capital stock of Company will consist of
100,000,000 shares of Common Stock, par value $0.01 per share and
10,000,000 shares of Preferred Stock, par value $0.01 per share. No
shares of capital stock of the Company other than the Holdings Shares
will be issued and outstanding immediately prior to the closing of
the IPO. As of the Contribution Date, the Holdings Shares will be
validly issued, fully paid and nonassessable and will represent all
of the issued and outstanding securities of Company prior to the IPO.
As of the Contribution Date, there will be no outstanding Contracts
or other rights or obligations to subscribe for, to purchase, to
issue or grant any rights to acquire, any securities of Company, or
to restructure or recapitalize Company, other than stock options
granted under Company's 1997 Performance Award Plan and the
underwriting agreement relating to the IPO. As of the Contribution
Date, there will be no outstanding Contracts of Company to
repurchase, redeem or otherwise acquire any securities of Company.
6
<PAGE>
6. INDEMNIFICATION.
---------------
6.1 HOLDINGS' INDEMNITY. Holdings will indemnify and hold the Company
-------------------
Indemnified Persons harmless from and against any Loss incurred by any
Company Indemnified Person to the extent that such Loss arises from (a) any
breach by Holdings of any warranty or the inaccuracy of any representation
of Holdings contained in this Agreement or (b) any of the Excluded
Liabilities and Excluded Assets.
6.2 COMPANY'S INDEMNITY. Company will indemnify and hold the Holdings
-------------------
Indemnified Persons harmless from and against any Loss incurred by a
Holdings Indemnified Person to the extent that such Loss arises from (a)
any breach by Company of any warranty or the inaccuracy of any
representation of Company contained in this Agreement, (b) any of the
Assumed Liabilities, Contributed Assets, or Restricted Assets or (c) the
operations of the Business either before or after the Contribution Date.
6.3 LIMITATION ON INDEMNIFICATION. The indemnification provided for under this
-----------------------------
Section 6 will terminate five years after the Contribution Date (and no
claims will be made by any party indemnified under this Section 6
thereafter).
6.3.1 LONGER INDEMNIFICATION PERIOD. The foregoing does not apply to the
-----------------------------
following:
(a) any Loss that an indemnified party has notified the indemnifying
party about in accordance with the requirements of Section 6.5 on or
before the date such indemnification would otherwise terminate in
accordance with this Section 6.4; as to such loss, the obligation of
the indemnifying party will continue until the liability of the
indemnified party has been determined pursuant to this Article 6 and
the indemnifying party has reimbursed the indemnified for the full
amount of such Loss in accordance with this Section 6; or
(b) any Environmental Loss.
6.4 Notice of Claims. If a party hereto believes that it has suffered or
----------------
incurred any Loss, it will notify the other party, promptly, describing
such Loss, the amount of it, if known, and the method of computing such
amount, all with reasonable detail. If any action at law or suit in equity
is instituted by or against a third party with respect to which any of the
indemnified persons intends to claim any liability or expense as Loss under
this Section 6, any such indemnified person will promptly notify the
indemnifying party of such action or suit. In any event, failure of the
7
<PAGE>
indemnified party to notify the indemnifying party under this Section 6.5
will not abrogate the indemnified party's right to indemnification except
to the extent that the indemnifying party has been actually prejudiced by
the failure to receive notice.
6.5 AMOUNT. The amount to which an indemnified person will be entitled under
------
this Section 6 will be determined by agreement between the indemnified
person and the indemnifying party. If the parties are unable to agree upon
such amount, the indemnifying party will pay any amount agreed upon between
the parties and the remainder will be determined in accordance with Section
8.
6.6 DEFENSE. The indemnifying party will be entitled to participate in, and to
-------
the extent that it may elect by written notice delivered to the indemnified
party promptly after receiving the notice described in Section 6.6, to
assume the defense of any third party claim, action or suit, with counsel
satisfactory to such indemnified party; but, if the defendants in any such
action include both the indemnified party and the indemnifying party and
the indemnified party has reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties that are
different from or additional to those available to the indemnifying party,
the indemnified party or parties will have the right to select separate
counsel to assert such legal defenses and otherwise to participate in the
defense of such action on behalf of such indemnified party or parties.
Upon receipt of notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such action and approval
by the indemnified party of counsel, the indemnifying party will not be
liable to such indemnified party under this Section 6 for any legal
expenses subsequently incurred by such indemnified party in connection with
the defense thereof unless (a) the indemnified party has employed separate
counsel in connection with the assertion of legal defenses in accordance
with the proviso to the next preceding sentence, (b) the indemnifying party
has not employed counsel satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of commencement
of the suit, action or proceeding or (c) the indemnifying party has
authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party; and except that, if clause (a) or (c) is
applicable, such liability will be only in respect of the counsel referred
to in such clause (a) or (c). The indemnifying party will not agree to any
settlement of a third party claim, action or suit that does not include a
full release of any further liability on the party of the indemnified party
with respect to all matters at issue. The indemnifying party will not
agree to any settlement of a third party claim, action or suit without the
indemnified party's written consent; but the indemnified party
8
<PAGE>
will not unreasonably withhold its consent to any settlement solely for
monetary damages to be paid by the indemnifying party.
7.0 TAX MATTERS.
-----------
7.1 INDEMNIFICATION FOR TAXES. Except as provided in this Section, Company
-------------------------
will be responsible for, and will indemnify Holdings against, any Liability
for Taxes relating to the Business for any period (or portion thereof)
ending on or before the Contribution Date that are or may become payable by
Holdings in connection with the Business or the transfer of the Business to
Company pursuant to this Agreement. In addition, if any audit or similar
adjustment is made after the date of this Agreement to Holdings' taxable
income attributable to the Business for any period beginning before the
Contribution Date, and such adjustment results in additional income Taxes
being required to be paid by the Principal Stockholder as a result of
Holdings' status as an S corporation during such period, Company will pay
to Holdings (for subsequent distribution to the Principal Stockholder) an
amount equal to the additional Taxes imposed on the Principal Stockholder
as a result of the adjustment; but, the foregoing payment shall not take
into account any additional Taxes attributable to an adjustment to
Holdings' taxable income that relates to the Excluded Assets or Excluded
Liabilities. Holdings will be responsible for, and shall indemnify Company
against, any Liability for Taxes relating to the Excluded Assets or
Excluded Liabilities.
7.2 REVIEW OF TAX RETURNS; TAX AUDITS. Company has the right to review any
---------------------------------
Tax return of Holdings prior to its filing to the extent it relates to
Taxes for which Company could be responsible pursuant to Section 7.1, and
Holdings will consult with Company in good faith regarding any positions
taken therein. Without Company's written consent (which may not be
unreasonably withheld), Holdings will not take any position in such return
inconsistent with past practices to the extent such position, if
successfully challenged, could result in an indemnification payment by
Company pursuant to Section 7.1. Company will be responsible for, and will
have the right to control the examination or audit (and disposition
thereof) of any Tax Return of Holdings insofar as such audit relates to
matters that could give rise to an indemnification payment by Company
pursuant to this Agreement; but Holdings will have the opportunity to
participate in any such proceedings and to approve the disposition thereof
to the extent it could result in additional liability of Holdings or the
Principal Stockholder for Taxes that Company would not be responsible for
pursuant to Section 7.1 above.
9
<PAGE>
7.3 COOPERATION. After the Contribution Date, Company and Holdings will
-----------
provide each other with cooperation, information and documents reasonably
required or requested relating to Taxes, including but not limited to, in
connection with (a) the preparation and filing of any Tax return, amended
Tax return, or claim for refund, (b) determining any Tax liability or a
right to refund of Taxes, (c) conducting or defending any audit or other
proceeding in respect of Taxes, or (d) effectuating the terms of this
Agreement. Without limiting the foregoing, Company will provide Holdings,
at no expense to Holdings, and its affiliates with all assistance requested
by Holdings (including the services of Company's tax personnel) in
connection with the preparation of Tax returns relating to periods (or
portions thereof) ending on or before the Contribution Date. The parties
hereto will retain, and cause their affiliates to retain, all Tax return
schedules and work papers, and other material records and documents
relating thereto, until the expiration of the statute of limitations for
the taxable years to which such Tax returns and other documents relate or
until the final determination of any Tax in respect of such years, if
earlier.
8. DISPUTE RESOLUTION.
------------------
8.1 DISPUTE RESOLUTION. The parties will attempt in good faith to resolve any
------------------
dispute arising out of or relating to this Agreement or the Schedules in
the following priority:
8.1.1 NEGOTIATION. Those executives of the parties who have authority to
-----------
settle the controversy and have direct responsibility for
administration of the relationships established pursuant to this
Agreement will attempt in good faith to negotiate a settlement. Any
party having a dispute or claim will give the other party written
notice stating the nature of the dispute in reasonable detail.
Within ten (10) days after delivery of the notice, the receiving
party will submit to the other a written response also in reasonable
detail. The notice and the response will include (a) a statement of
each party's position and a summary of arguments supporting that
position and (b) the name and title of the executive who will
represent that party and of any other person who will accompany the
executive. Within ten (10) days after delivery of the written
response, the executives of both parties will meet at a mutually
acceptable time and place, and thereafter as often as they
reasonably deem necessary, to attempt to resolve the dispute. All
reasonable requests for information made by one party to the other
will be honored.
10
<PAGE>
8.1.2 MEDIATION. If the matter has not been resolved by persons referred
---------
to above within thirty (30) days of the disputing party's notice,
the parties will endeavor to settle the dispute by non-binding
mediation under the CPR Model Procedure for Mediation of Business
Disputes then in effect on the date of notice of dispute. Unless the
parties agree otherwise in writing, the neutral third party will be
selected from the CPR Panels of Neutrals, with the assistance of
CPR.
8.1.3 ARBITRATION. If the matter has not been resolved pursuant to non-
-----------
binding mediation within thirty (30) days of the initiation of such
non-binding mediation procedure, or if either party does not agree
to participate in such mediation, then, at the written request of
either party, the dispute will be settled by binding arbitration in
accordance with the CPR Rules for Non-Administered Arbitration of
Business Disputes. Unless otherwise agreed to by the parties in
writing, there will be three arbitrators, each party to select one
such arbitrator and the third to be selected by the other two from
the CPR Panels of Distinguished Neutrals. The arbitration will be
governed by the United States Arbitration Act, 9 U.S.C. 1-16, and
judgment upon the arbitration award rendered may be entered by any
court with competent jurisdiction. The place of arbitration will be
San Francisco, California unless otherwise agreed to by the parties.
The arbitrators are not empowered to award punitive damages or
damages in excess of actual damages.
8.1.4 EXTENSION OF TIME PERIODS. All time periods specified in this
-------------------------
Section regarding negotiation, mediation or arbitration may be
extended by mutual agreement.
9. MISCELLANEOUS.
-------------
9.1 TERMINATION; INTEGRATED PLAN. The transactions contemplated by this
----------------------------
Agreement are part of an integrated plan for the capitalization of the
Company and include the IPO. This Agreement will terminate on the
withdrawal of the registration statement relating to the IPO.
9.2 BULK TRANSFER LAWS. Company and Holdings waive compliance with any
------------------
applicable bulk sales laws.
9.3 EXPENSES. Company will pay all expenses incident to the negotiation,
--------
preparation and performance of this Agreement and the transactions
contemplated hereby.
9.4 AMENDMENTS; WAIVERS. Amendments, waivers, consents and approvals under
-------------------
this Agreement must be in writing and designated as
11
<PAGE>
such. No failure or delay in exercising any right under this Agreement will
be deemed a waiver of such right.
9.5 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.
9.6 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.
9.7 HEADINGS. Headings of Sections and subsections are for convenience only
--------
and are not a part of this Agreement.
9.8 COUNTERPARTS. This Agreement may be signed in one or more counterparts,
------------
all of which constitute one agreement.
9.9 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.
9.10 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.
9.11 SPECIFIC PERFORMANCE. The parties acknowledge that in view of the
--------------------
uniqueness of the matters contemplated by this Agreement, neither party
would have an adequate remedy at law for money damages if this Agreement is
not being performed in accordance with its terms. Each party therefore
agrees that the other party will be entitled to specific enforcement of the
terms hereof in addition to any other remedy to which the other party may
be entitled.
9.12 TIME IS OF THE ESSENCE. Time is of the essence in the performance of each
----------------------
provision of this Agreement.
9.13 NOTICES. Any notice to be given hereunder must be in writing and delivered
-------
as follows (or to another address designated in writing):
12
<PAGE>
<TABLE>
<CAPTION>
IF TO U.S. RENTALS, INC.: IF TO HOLDINGS:
------------------------- --------------
<S> <C>
1581 Cummins Drive, Suite 155 1516 Pontius Avenue
Modesto, California 95358 Los Angeles, California 90025
Attention: President Attention: Secretary
</TABLE>
10. CERTAIN DEFINITIONS.
-------------------
As used in this Agreement, the following definitions apply:
"ACTION" means any pending or threatened action, arbitration,
litigation, inquiry, proceeding or investigation by or before any court,
any governmental or other regulatory or administrative agency or
commission or any arbitration tribunal.
"AGREEMENT" means this Asset Contribution Agreement, as amended or
supplemented, together with all Schedules.
"APPROVAL" means any approval, authorization, consent, qualification or
registration, or any waiver of any of the foregoing, required to be
obtained from, or any notice, statement or other communication required
to be filed with or delivered to, any Governmental Entity or any other
Person.
"ASSUMED LIABILITIES" has the meaning set forth in Section 2.1(a).
"BENEFIT PROGRAM" means an employee benefit program, including, but not
limited to, group health, dental, life, disability and profit sharing
programs.
"BUSINESS" means the operating business carried on by Holdings before
the Contribution Date.
"COMPANY INDEMNIFIED PERSONS" means, collectively, Company and Company's
directors, officers, employees, agents, attorneys, consultants,
successors and assigns.
"CONTRACTS" means all contracts, personal property leases, security
agreements, guaranties and other documents and arrangements with
customers, suppliers and others relating to the operation of the
Business.
"CONTRIBUTED ASSETS" has the meaning set forth in Section 1.1.
"CONTRIBUTION DATE" means the closing date of the IPO.
13
<PAGE>
"CPR" means Center for Public Resources.
"EMPLOYEE BENEFITS LIABILITIES" means any Liabilities to or related to
employees of the Business, including any Liability of Holdings or the
Business in connection with any employee benefit plans (whether or not
subject to the Employee Retirement Income Security Act of 1974, as
amended) and pension plans or any employment, labor, collective
bargaining or union contracts, and including any fines, taxes, penalties
or related charges payable to any party in connection with any of the
foregoing plans or contracts.
"ENVIRONMENTAL LOSS" means all Losses arising from Liabilities incurred,
suffered in connection with, related to or resulting from the presence
at any time of any Hazardous Substance at any real property owned or
leased by Holdings prior to the Contribution Date in connection with the
Business and all fixtures and improvements attached thereto.
"EXCLUDED LIABILITIES" has the meaning set forth in Section 2.2.
"EXCLUDED ASSETS" has the meaning set forth in Section 1.2.
"GOVERNMENTAL ENTITY" means any government or any agency, bureau, board,
commission, court, department, official, political subdivision, tribunal
or other instrumentality of any government, whether federal, state or
local, domestic or foreign.
"HAZARDOUS SUBSTANCE" means (a) substances that are defined or listed
in, or otherwise classified, or that may come to be so defined, listed
or classified pursuant to any applicable statutes, laws, rules or
regulations, as "hazardous substances," "hazardous materials,"
"hazardous wastes" or "toxic substances," or any other formulation
intended to define, list or classify substances by reason of deleterious
properties such as ignitibility, corrosivity, reactivity, radioactivity,
carcinogenicity, toxicity, reproductive toxicity, "TCLP toxicity" or "EP
toxicity" or words of similar import, (b) any oil, petroleum or
petroleum derived substance, (c) any drilling fluids, produced waters
and other wastes associated with the exploration, development, or
production of crude oil, natural gas or geothermal resources, (d) any
flammable substances or explosives, (e) any radioactive materials, (f)
asbestos in any form, (g) urea formaldehyde foam insulation, (h)
electrical equipment that contains any oil or dielectric fluid
containing levels of polychlorinated biphenyls in excess of fifty parts
per million, (i) pesticides or (j) any other chemical, material or
substance, exposure to that is prohibited, limited or regulated by any
governmental authority or that may or could pose a hazard to the health
and safety of any persons in the vicinity of any real property owned or
leased by Holdings prior to
14
<PAGE>
the Contribution Date in connection with the Business and all fixtures
and improvements attached thereto.
"HOLDINGS INDEMNIFIED PERSONS" means, collectively, Holdings and
Holdings' directors, officers, employees, agents, attorneys,
consultants, successors and assigns.
"HOLDINGS SHARES" has the meaning set forth in Section 3.
"IPO" means Company's initial public offering of its Common Stock.
"LIABILITIES" means any debts, liabilities and obligations, absolute or
contingent, matured, or unmatured, liquidated or unliquidated, accrued
or unaccrued, known or unknown, whenever and however arising, and all
costs and expenses relating thereto (including reasonable attorneys'
fees and costs for outside and in-house counsel), and including, but not
limited to, those debts, liabilities and obligations arising under any
law, rule, regulation, Action, threatened Action, order or decree of any
governmental entity or any award of any arbitrator of any kind, and
those arising under any contract, commitment or undertaking.
"LOSSES" means any loss, damage or cost resulting from or relating to
any Liability.
"PERSON" means an association, a corporation, an individual, a
partnership, a trust or any other entity or organization, including a
Governmental Entity.
"PRINCIPAL STOCKHOLDER" means Richard D. Colburn and his heirs,
executors, administrators, successors and assigns.
"RESTRICTED ASSETS" means those Contributed Assets the transfer of which
to Company requires the Approval of a third party and which Approval has
not been obtained on the Contribution Date.
"TAXES" means any federal, state, local or foreign income, franchise,
gross receipts, property, sales, use license, excise, employment,
payroll, withholding or minimum tax, or any other tax, custom, duty,
governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest, fines, penalties or additions
with respect thereto.
15
<PAGE>
IN WITNESS WHEREOF, each of Company and Holdings has caused this
Agreement to be duly executed on its behalf as of the date first above written.
Company:
U.S. RENTALS, INC.
By:______________________________
Name:____________________________
Title:___________________________
Holdings:
USR HOLDINGS, INC.
By:______________________________
Name:____________________________
Title:___________________________
S-1
<PAGE>
SCHEDULE 1
EXCLUDED ASSETS AND EXCLUDED LIABILITIES
----------------------------------------
1-1
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF O'MELVENY & MYERS LLP]
February
6th
1 9 9 7
(310) 553-6700 883,320-001
CC-1 294067.V2
U.S. Rentals, Inc.
1581 Cummins Drive, Suite 155
Modesto, CA 95358
Dear Ladies and Gentlemen:
In connection with the registration under the Securities Act of 1933,
as amended (the "Act") of up to 11,500,000 shares of Common Stock of U.S.
Rentals, Inc. (the "Company"), par value $0.01 per share (the "Shares"), to be
sold by the Company, pursuant to a Registration Statement on Form S-1 (File No.
333-17783) (the "Registration Statement"), filed with the Securities and
Exchange Commission on December 13, 1996, you have requested our opinion set
forth below.
We have considered such facts and examined such questions of law as we
have considered appropriate for purposes of rendering the opinion expressed
below.
We are opining only as to the General Corporation Law of the State of
Delaware and we express no opinion with respect to the applicability or the
effect of any other laws or as to any matters of municipal law or of any other
local agencies within any state.
Subject to the foregoing and in reliance thereon, in our opinion the
Shares have been duly authorized by all necessary corporate action on the part
of the Company and, upon payment for and delivery of the Shares as contemplated
in the Registration Statement and the countersigning of any certificates
representing the Shares by a duly authorized signatory of the registrar for the
Company's Common Stock, the Shares will be validly issued, fully paid and non-
assessable.
<PAGE>
Page 2 - U.S. Rentals, Inc. - February 6, 1997
We consent to your filing this opinion as an exhibit to the
Registration Statement and the reference to our firm under the heading "Legal
Matters."
Very truly yours,
/s/ O'MELVENY & MYERS LLP
---------------------------
O'MELVENY & MYERS LLP
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
1. Employment....................................................... 1
----------
1.1 Term..................................................... 1
----
1.2 Title; Reporting; Policies............................... 1
--------------------------
1.2.1 Title............................................ 1
-----
1.2.2 Reporting........................................ 1
---------
1.2.3 Policies......................................... 1
--------
1.3 Place; Travel............................................ 1
-------------
1.3.1 Place of Employment.............................. 1
-------------------
1.3.2 Travel........................................... 2
------
1.4 Exclusive; Outside Activities............................ 2
-----------------------------
1.5 Consulting Services...................................... 2
-------------------
2. Compensation and Benefits........................................ 2
-------------------------
2.1 Base Salary.............................................. 2
-----------
2.2 Discretionary Bonuses.................................... 3
---------------------
2.3 Benefit Plans............................................ 3
-------------
2.4 Expenses................................................. 3
--------
2.5 Car...................................................... 3
---
2.6 D&O Insurance............................................ 3
-------------
2.7 Vacation................................................. 3
--------
2.8 Indemnity................................................ 3
---------
3. Deferred Compensation............................................ 3
---------------------
3.1 Calculation of Deferred Compensation..................... 3
------------------------------------
3.1.1 Trigger Event Date............................... 4
------------------
3.1.2 Early Termination Date........................... 4
----------------------
3.2 Vesting.................................................. 4
-------
4. Termination...................................................... 4
-----------
4.1 By Company............................................... 4
----------
4.1.1 Death............................................ 4
-----
4.1.2 Unavailability................................... 4
--------------
4.1.3 Good Cause....................................... 5
----------
4.1.4 Without Cause.................................... 5
-------------
4.2 By Employee.............................................. 5
-----------
4.3 Notice of Termination.................................... 5
---------------------
4.4 Effect of Termination.................................... 5
---------------------
4.4.1 Death; Unavailability; or Good Cause............. 5
------------------------------------
4.4.2 Without Good Cause or for Good Reason............ 6
-------------------------------------
4.4.3 Mitigation....................................... 7
----------
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
4.4.4 Effect on Benefit Programs....................... 7
--------------------------
4.4.5 Cooperation...................................... 7
-----------
4.5 Limitation on Severance Payments......................... 7
--------------------------------
4.6 Section 162(m) of the Code............................... 8
--------------------------
5. Other Agreements................................................. 8
----------------
5.1 Confidential Information; etc............................ 8
-----------------------------
5.1.1 Confidential Information......................... 8
------------------------
5.1.2 Customers; Employees............................. 8
--------------------
5.1.3 Documents........................................ 8
---------
5.2 Ownership of Work Product................................ 8
-------------------------
5.3 Insurance................................................ 9
---------
5.4 Assistance in Litigation................................. 9
------------------------
5.5 Withholding; Employment Taxes............................ 9
-----------------------------
6. Dispute Resolution............................................... 10
------------------
6.1 Dispute Resolution....................................... 10
------------------
6.1.1 Procedure for Claims............................. 10
--------------------
6.1.2 Negotiation...................................... 10
-----------
6.1.3 Mediation........................................ 10
---------
6.1.4 Arbitration...................................... 10
-----------
6.1.5 Extension of Time Periods........................ 11
-------------------------
6.2 Exclusivity.............................................. 11
-----------
6.3 Prevailing Party......................................... 11
----------------
6.4 Specific Performance..................................... 11
--------------------
7. General Provisions............................................... 11
------------------
7.1 Assignment............................................... 11
----------
7.2 Payment Obligations Absolute............................. 12
----------------------------
7.3 Successor................................................ 12
---------
7.4 Amendments; Waivers...................................... 12
-------------------
7.5 Integration.............................................. 12
-----------
7.6 Interpretation; Governing Law............................ 12
-----------------------------
7.7 Headings................................................. 12
--------
7.8 Counterparts............................................. 12
------------
7.9 Successors and Assigns................................... 12
----------------------
7.10 Expenses................................................. 12
--------
7.11 Representation by Counsel; Interpretation................ 13
-----------------------------------------
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
7.12 Time is of the Essence............................... 13
----------------------
7.13 Notices.............................................. 13
-------
</TABLE>
Exhibit A
DEFINED TERMS.................................................... Exhibit A - 1
- -------------
(iii)
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is entered into as of February __, 1997 by and
between U.S. Rentals, Inc., a Delaware corporation (the "COMPANY") and John S.
McKinney ("EMPLOYEE"). The parties agree as follows. The capitalized terms on
EXHIBIT A have the meanings respectively assigned to them, which apply equally
to the singular and plural forms of the terms.
1. EMPLOYMENT
----------
1.1 TERM. Employee is hereby employed for the Term, and Employee accepts such
----
employment. Employee will faithfully perform the duties of Employee's
office to the best of Employee's ability.
1.2 TITLE; REPORTING; POLICIES.
--------------------------
1.2.1 TITLE. Employee will serve as Chief Financial Officer of the Company.
-----
Employee will have such duties and responsibilities as are generally
consistent with such position in a public company of comparable
present and projected size. Employee will also serve without
additional compensation in an executive capacity for one or more
direct or indirect subsidiaries of the Company if the Board from time
to time requests. Employee will also, subject to Employee's election
as such, serve as a member of the Board, as well as a member of any
committee of the Board to which Employee may be elected or appointed.
Employee will be entitled to serve as an ex-officio member of any
Executive Committee maintained by the Company or as a regular member
of such committee if Employee is a director of the Company.
1.2.2 REPORTING. Employee will report directly to the Chief Executive
---------
Officer and will be subject to the direction of the Chief Executive
Officer and to such limits on Employee's authority as the Chief
Executive Officer may from time to time reasonably impose.
1.2.3 POLICIES. Employee will be subject to and comply with the policies,
---------
standards and procedures generally applicable to senior executives of
the Company from time to time.
1.3 PLACE; TRAVEL.
-------------
1.3.1 PLACE OF EMPLOYMENT. Employee will be based at the Company's
-------------------
principal executive offices in Modesto, California.
<PAGE>
1.3.2 TRAVEL. Employee will be expected to engage in frequent travel as the
------
Company may reasonably request or as may be required for the proper
discharge of Employee's duties.
1.4 EXCLUSIVE; OUTSIDE ACTIVITIES. Employee will devote full and exclusive
-----------------------------
business time to the Company. The foregoing will not prohibit Employee
from: (a) passive ownership of real or personal property; (b) owning less
than 5% of any class of securities of a corporation that is publicly held;
(c) owning any class of securities of or being a partner in any other
corporation or business not competing directly or indirectly with the
Company or providing goods or services to the Company if, in each case, (x)
such interests are held for investment, (y) Employee does not become
involved in active management of an operating business, and (z) such
ownership or management does not materially interfere with the performance
of Employee's duties. Employee may also hold directorships or similar
positions with nonprofit, charitable, community or other similar
organizations, so long as such activities do not materially interfere with
the performance of Employee's duties. Any other directorships or similar
positions must be approved by the Board.
1.5 CONSULTING SERVICES. Following the Term, Employee will serve as an
-------------------
exclusive consultant to the Company in the equipment rental business for
two (2) years (the "CONSULTING PERIOD"). During the Consulting Period,
Employee will, at reasonable times and places, taking into account any
other employment or activities Employee may then have, be available to
consult with and advise the officers, directors and other representatives
of the Company on any subjects that were within Employee's scope of duties
during the Term. Employee will not be required to devote more than five (5)
Business Days per month to such consulting services. During the Consulting
Period, Employee will not be required to render any services at a distance
of more than 100 miles from Employee's then home, it being understood that
Employee may move from the metropolitan area in which Employee presently
resides. Since the other payments required under this Agreement are
intended in part to compensate Employee for the exclusive consulting
services set forth in this Section, no additional compensation will be paid
for such consulting services. During the Consulting Period, Employee will
not render services or advice directly or indirectly for any business
enterprise that competes directly or indirectly with the Company in either
(a) any county in the State of California, the names of all of which are
deemed to be specifically included herein by this reference, or (b)
anywhere else in the world.
2. COMPENSATION AND BENEFITS
-------------------------
2.1 BASE SALARY. Employee will be paid the Base Salary during the Term in
-----------
accordance with the Company's policies.
2
<PAGE>
2.2 DISCRETIONARY BONUSES. Employee will be eligible to receive additional
---------------------
annual bonuses to the extent, if any, awarded by the Board.
2.3 BENEFIT PLANS. During the Term, Employee will be entitled to participate
-------------
in all Benefit Programs that are available to the Company's executive
officers generally, to the extent Employee qualifies for participation
under their terms. The Company reserves the right to modify, suspend or
discontinue any and all Benefit Programs at any time without notice to or
recourse by Employee so long as such action is taken generally with respect
to other similarly situated persons and does not single Employee out.
2.4 EXPENSES. The Company will pay or reimburse Employee for reasonable travel,
--------
entertainment or other expenses Employee incurs on behalf of the Company in
connection with the performance of Employee's duties. Any such expenses
must be either specifically authorized by the Company or incurred in
accordance with Company policies. Employee must furnish the Company with
evidence relating to such expenses as the Company requires to substantiate
such expenses for tax and accounting purposes.
2.5 CAR. The Company will reimburse Employee for car expenses and will provide
---
maintenance and insurance in accordance with Company policies in effect
from time to time.
2.6 D&O INSURANCE. The Company will furnish Employee with the same Directors'
-------------
and Officers' liability insurance furnished to other executive officers
from time to time, and use reasonable efforts to name Employee as a named
insured for four (4) years after the Term ends.
2.7 VACATION. Employee will be entitled to paid vacation in accordance with the
--------
Company's policies applicable to other executive officers of the Company.
2.8 INDEMNITY. To the fullest extent permitted by applicable law, as from time
---------
to time in effect, the Company will indemnify Employee and hold Employee
harmless for any acts or decisions made in good faith in performing
services for the Company. If Employee is a party to a definitive
indemnification agreement with the Company, the foregoing sentence will not
be applicable.
3. DEFERRED COMPENSATION
---------------------
3.1 CALCULATION OF DEFERRED COMPENSATION. "DEFERRED COMPENSATION" will be
------------------------------------
calculated as follows.
3
<PAGE>
3.1.1 TRIGGER EVENT DATE. On the Trigger Event Date, Deferred Compensation
------------------
will be an amount equal to $1,333,341.
3.1.2 EARLY TERMINATION DATE. On the Early Termination Date, Deferred
----------------------
Compensation will be an amount equal to the sum of:
(a) $133,334; plus
(b) the result obtained by multiplying $1,200,007 by the vested
percentage set forth in Section 3.2.
3.2 VESTING. The portion of the Deferred Compensation determined under Section
-------
3.1.2(b) will be vested in the percentages set forth below for the date on
which the Early Termination Date occurs, with the percentages prorated in
the indicated range through the end of the quarter immediately preceding
the Early Termination Date.
<TABLE>
<CAPTION>
<S> <C>
Prior to January 1, 1998..................................... 0%
January 1, 1998 through December 31, 1998.................... 10%
January 1, 1999 through December 31, 1999.................... 20%
January 1, 2000 through December 31, 2000.................... 30%
January 1, 2001 through December 31, 2001.................... 40%
January 1, 2002 through December 31, 2002.................... 50%
January 1, 2003 through December 31, 2003.................... 60%
January 1, 2004 through December 31, 2004.................... 70%
January 1, 2005 through December 31, 2005.................... 80%
January 1, 2006 through December 31, 2006.................... 90%
After December 31, 2006...................................... 100%
</TABLE>
4. TERMINATION
-----------
4.1 BY COMPANY. The compensation and other benefits provided to Employee under
----------
this Agreement, and the employment of Employee by the Company, may be
terminated prior to the expiration of the Term only as set forth in this
Section 4.1, with the effects set forth in Section 4.4.
4.1.1 DEATH. All payments and benefits under this Agreement will terminate
-----
upon Employee's death, except to the extent that the provisions of
any Benefit Program extend benefits to Employee's estate or family
after death.
4.1.2 UNAVAILABILITY. Employee's employment (other than the consulting
--------------
services set forth in Section 1.5) will terminate upon the date as
of which Employee is determined under this Agreement to have been
Unavailable, without further action or notice by the Company.
4
<PAGE>
4.1.3 GOOD CAUSE. Employee's employment will terminate, and all of
----------
Employee's rights to receive future compensation and other benefits
under this Agreement (except continuing benefits past such date
under the terms of any Benefit Programs, and the payment of Deferred
Compensation vested at the time) will terminate upon a determination
under this Agreement that there is Good Cause for such termination.
4.1.4 WITHOUT CAUSE. The Board has the right to terminate Employee's
-------------
employment at any time, with or without cause.
4.2 BY EMPLOYEE. Employee may terminate employment under this Agreement only if
-----------
Employee has established Good Reason under the terms of this Agreement.
4.3 NOTICE OF TERMINATION. Any termination by the Company for Good Cause, or by
---------------------
Employee for Good Reason, will be communicated by Notice of Termination to
the other party hereto. For purposes of this Agreement, a "NOTICE OF
TERMINATION" will (a) indicate the specific termination provision in this
Agreement relied upon, (b) to the extent applicable, set forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of Employee's employment under such provisions and (c) if
the Date of Termination is other than the date of receipt of such notice,
specify the termination date (which date shall be not more than 15 days
after the giving of such notice). The failure by Employee or the Company to
set forth in the Notice of Termination any fact or circumstance that
contributes to a showing of Good Reason or Good Cause will not waive any
right of Employee or the Company hereunder or preclude Employee or the
Company from asserting such fact or circumstance in enforcing Employee's or
the Company's rights hereunder.
4.4 EFFECT OF TERMINATION.
---------------------
4.4.1 DEATH; UNAVAILABILITY; OR GOOD CAUSE. If Employee dies during the
------------------------------------
Term, becomes Unavailable, or is terminated for Good Cause, the
Company will pay to Employee (or Employee's estate) the sum of (a)
Employee's Base Salary and any accrued bonus to which Employee was
entitled, through the Date of Termination, (b) any other previously
earned but unpaid compensation under this Agreement and (c) all
Deferred Compensation vested as of the Date of Termination as set
forth in Section 3, in each case to the extent not previously paid
(the "ACCRUED OBLIGATIONS"). The Accrued Obligations will be paid in
a lump sum in cash within thirty (30) days after the Date of
Termination. The foregoing amounts will be in addition to any amounts
payable through the Date of Termination under any Benefit Programs in
which Employee was participating as of the Date of Termination. If
employment is terminated due to Disability, Employee will, while
Disabled, continue to participate in any insurance programs that are
part of the Benefit Programs, to the extent that such continued
participation
5
<PAGE>
is possible under their terms. All accruals or vesting of benefits
will terminate as of the Date of Termination.
4.4.2 WITHOUT GOOD CAUSE OR FOR GOOD REASON.
-------------------------------------
(a) If Employee's employment is terminated by the Company for any
reason other than Employee's death, Unavailability or Good
Cause, or by Employee for Good Reason, the Company will pay to
Employee the sum of (i) the Base Salary and any non-
discretionary bonus to which Employee would have been entitled
for the remainder of the Term, and (ii) the total amount of
Deferred Compensation that would have been payable if Employee
had continued as an employee through the Term. Employee will
also be entitled to continue to participate in any insurance
programs that are part of the Benefit Programs, as though
Employee remained an employee, for such period. Such amounts
will be paid or provided to Employee at such times and in such
manner as they would have been paid or provided if no such
termination had occurred. If Employee becomes reemployed with
another employer and is eligible to receive insurance benefits
under another employer provided plan, the insurance benefits
described herein will be secondary to those provided under such
other plan during such applicable period of eligibility.
(b) The payments, set forth in this Section 4.4.2 will constitute
Employee's sole and exclusive right and entitlement in
connection with Employee's employment by the Company and the
termination of such employment and any and all matters related
to or arising in connection with such employment, unless prior
to the acceptance of the first such payment Employee elects not
to accept such payments and to pursue other remedies against the
Company. Employee's acceptance of the first payment will release
the Company and its affiliated entities (including all
directors, officers, employees and agents) from any claims that
Employee might otherwise have or assert in connection with such
matters, other than the Company's continuing obligation to make
the payments and provide the benefits required under this
Section 4. In addition, the Company is entitled to condition
such payments on Employee's execution of a normal release. If
Employee desires to pursue or enforce any such rights,
entitlements or remedies that would otherwise be waived and
released, then Employee must refuse the payments provided for in
this Section 4.4.2 in their entirety. If Employee accepts such
payments, Employee will be deemed to have agreed to the
foregoing exclusivity of rights and waiver of claims.
6
<PAGE>
4.4.3 MITIGATION. Employee has no obligation to seek or accept employment
----------
elsewhere after any termination under this Agreement. However, if
Employee accepts employment elsewhere after any termination under
this Agreement, the Company will have the right to offset any
amounts paid to Employee from such other employment during the
remaining term hereof, including any benefits to which Employee is
entitled under the other company's benefit plans and programs.
4.4.4 EFFECT ON BENEFIT PROGRAMS. The termination of this Agreement as
---------------------------
provided in this Section 4 will not affect the rights of Employee
under Section 3, and will not affect any vested rights that Employee
may have at the Date of Termination pursuant to any Benefit Program.
4.4.5 COOPERATION. Following termination of employment with the Company
-----------
for any reason, Employee will cooperate with the Company, as
reasonably requested by the Company, to effect a transition of
Employee's responsibilities and to ensure that the Company is aware
of all matters being handled by Employee. Employee will, upon
reasonable notice, furnish such information and assistance to the
Company as may reasonably be required by the Company in connection
with any legal or quasi-legal, proceeding, including any external or
internal investigation, involving the Company or any of its
affiliates or in which any of them is, or may become, a party.
4.5 LIMITATION ON SEVERANCE PAYMENTS. If the vesting of any options granted to
--------------------------------
Employee under the Plan upon a Change in Control Event together with all
other payments and the value of any benefit received or to be received by
Employee would result in all or a portion of such payments to be subject to
excise tax under Section 4999 of the Internal Revenue Code, then Employee's
payments will be either (a) the full payments or (b) such lesser amount
that would result in no portion of the payments being subject to excise tax
under Section 4999 of the Internal Revenue Code, whichever of the foregoing
amounts, taking into account the applicable Federal, state, and local
employment taxes, income taxes, and the excise tax imposed by Section 4999
of the Internal Revenue Code, results in the receipt by Employee, on an
after-tax basis, of the greatest amount of the payments notwithstanding
that all or some portion of the payments may be taxable under Section 4999
of the Internal Revenue Code; Employee will be entitled to receive the
foregoing full payments, however, only if the excess of (c) the "parachute
payments" as defined in Section 280G(b)(2) of the Code, over (d) 2.99 times
Employee's "base amount" as defined in Section 280G(b)(3) of the Code
exceeds the sum of (x) the greater of (i) $100,000 or (ii) ten (10) percent
of the payments under this Agreement plus (y) the excise tax imposed under
Section 4999 of the Code, plus (z) the applicable federal, state, and local
employment taxes and income taxes imposed on the excess of (i) the
"parachute payments" as defined in Section 280G(b)(2) of the Code, over (b)
2.99 times Employee's "base amount"
7
<PAGE>
as defined in Section 280G(b)(3) of the Code. All determinations required
to be made under this Section will be made by any nationally recognized
accounting firm that is the Company's outside auditor at the time of such
determination (the "ACCOUNTING FIRM"). The Company will cause the
Accounting Firm to provide detailed supporting calculations of its
determinations to the Company and Employee. Notice must be given to the
Accounting Firm within fifteen (15) Business Days after an event entitling
Employee to a payment under this Agreement. All fees and expenses of the
Accounting Firm will be borne solely by the Company. The Accounting Firm's
determinations must be made with substantial authority (within the meaning
of Section 6662 of the Code).
4.6 SECTION 162(m) OF THE CODE. Notwithstanding anything to the contrary in
--------------------------
this Agreement, any payment under this Agreement that would not be
deductible because of Section 162(m) of the Code will not be paid or become
payable until the first day that the payment would be deductible under the
Code. Any such deferred payment will bear interest at the short term
federal rate determined as set forth in the Code.
5. OTHER AGREEMENTS
----------------
5.1 CONFIDENTIAL INFORMATION; ETC.
-----------------------------
5.1.1 CONFIDENTIAL INFORMATION. Employee will hold all Confidential
-------------------------
Information in a fiduciary capacity for the benefit of the Company.
After termination of Employee's employment, Employee will not,
without the prior written consent of the Company or as may otherwise
be required by law or legal process, communicate or divulge any such
Confidential Information to anyone other than the Company and those
designated by it.
5.1.2 CUSTOMERS; EMPLOYEES. During the Term and afterwards for a period of
--------------------
two (2) years, Employee will not (a) solicit customers, suppliers or
clients of the Company to reduce or discontinue their business with
the Company or to engage in business with any competing entity or (b)
attempt to induce any employee of the Company to leave such
employment.
5.1.3 DOCUMENTS. On the Date of Termination, Employee will deliver to the
---------
Company and not keep or deliver to anyone else any and all notes,
notebooks, memoranda, documents and, in general, any and all
material, relating to the Company's business.
5.2 OWNERSHIP OF WORK PRODUCT. If Employee conceives of, discovers, invents or
-------------------------
creates inventions, improvements, new contributions, literary property,
material, ideas and discoveries, whether patentable or copyrightable or not
(all of the foregoing being collectively referred to herein as "WORK
PRODUCT"), or receives
8
<PAGE>
information about business opportunities for the Company, unless Company
otherwise agrees in writing, all of the foregoing will be owned by and
belong exclusively to Company and that Employee will have no personal
interest therein, if they are either related in any manner to the business
(commercial or experimental) of Company, or are, in the case of Work
Product, conceived or made on Company's time or with the use of Company's
facilities or materials, or, in the case of business opportunities, are
presented to Employee for the possible interest or participation of
Company. Employee will further, unless Company otherwise agrees in writing,
(a) promptly disclose any such Work Product and business opportunities to
Company; (b) assign to Company, upon request and without additional
compensation, the entire rights to such Work Product and business
opportunities; (c) sign all papers necessary to carry out the foregoing;
and (d) give testimony in support of Employee's inventorship or creation in
any appropriate case. Employee will not to assert any rights to any Work
Product or business opportunity as having been made or acquired by Employee
prior to the date of this Agreement except for Work Product or business
opportunities, if any, disclosed to and acknowledged by Company in writing
prior to the date hereof.
5.3 INSURANCE. The Company will have the right to take out life, health,
---------
accident, "Key-man" or other insurance covering Employee, in the name of
the Company and at the Company's expense in any amount deemed appropriate
by the Company. Employee will assist the Company in obtaining such
insurance, including, but not limited to, submitting to any reasonably
required medical examination.
5.4 ASSISTANCE IN LITIGATION. Employee will render assistance, advice and
------------------------
counsel to the Company at its request regarding any matter, dispute or
controversy with which the Company may become involved and of which
Employee has or may have reason to have knowledge, information or
expertise. Such services will be without additional compensation if
Employee is then employed by the Company and for reasonable compensation
and subject to Employee's reasonable availability if Employee is not. In
any event, the Company will pay all of Employee's reasonable out-of-pocket
expenses in connection therewith, including, but not limited to, reasonable
fees of Employee's legal counsel.
5.5 WITHHOLDING; EMPLOYMENT TAXES. To the extent required by the law in effect
-----------------------------
at the time any amounts under this Agreement are paid, the Company will
withhold from such payment the taxes required to be withheld by applicable
law.
6. DISPUTE RESOLUTION
------------------
6.1 DISPUTE RESOLUTION. The parties will attempt in good faith to resolve any
-------------------
dispute arising out of or relating to this Agreement or any termination of
employment in the following priority:
9
<PAGE>
6.1.1 PROCEDURE FOR CLAIMS. The party filing a claim must give notice of it
--------------------
to the other party within six months of the date the party filing the
claim knew of it or the date of the termination, whichever is
earlier; provided, however, that in the case of a claim relating to
financial calculations, the filing date for such claim will be six
(6) months after the date Employee receives audited financial
statements of the Company (or such other financial information that
the Company indicates was utilized to compute the amounts in
question) for the period upon which such calculations were based. Any
claim not brought within the required time period will be waived
forever.
6.1.2 NEGOTIATION. The executives of the Company who have authority to
-----------
settle the controversy and have direct responsibility for
administration of the relationships established pursuant to this
Agreement, and Employee, will attempt in good faith to negotiate a
settlement. Any party having a dispute or claim will give the other
party written notice stating the nature of the dispute in reasonable
detail. Within ten (10) days after delivery of the notice, the
receiving party will submit to the other a written response also in
reasonable detail. The notice and the response will include (a) a
statement of each party's position and a summary of arguments
supporting that position and (b) the name and title of the person who
will represent that party and of any other person who will accompany
such person. Within ten (10) days after delivery of the written
response, both parties will meet at a mutually acceptable time and
place, and thereafter as often as they reasonably deem necessary, to
attempt to resolve the dispute. All reasonable requests for
information made by one party to the other will be honored.
6.1.3 MEDIATION. If the matter has not been resolved by persons referred to
---------
above within thirty (30) days of the disputing party's notice, the
parties will endeavor to settle the dispute by non-binding mediation
in San Francisco, California under the CPR Model Procedure for
Mediation of Business Disputes then in effect on the date of notice
of dispute. Unless the parties agree otherwise in writing, the
neutral third party will be selected from the CPR Panels of Neutrals,
with the assistance of CPR.
6.1.4 ARBITRATION. If the matter has not been resolved pursuant to
-----------
non-binding mediation within thirty (30) days of the initiation of
such non-binding mediation procedure, or if either party does not
agree to participate in such mediation, then, at the written request
of either party, the dispute will be settled by binding arbitration
in accordance with the CPR Rules for Non-Administered Arbitration of
Business Disputes. Unless otherwise agreed to by the parties in
writing, there will be three arbitrators, each party to select one
such arbitrator and the third to be selected by the other two from
the CPR Panels of Distinguished Neutrals. The arbitration will be
governed by the United States Arbitration Act, 9 U.S.C. 1-16, and
judgment upon the
10
<PAGE>
arbitration award rendered may be entered by any court with
competent jurisdiction. The place of arbitration will be in San
Francisco, California unless otherwise agreed to by the parties. The
arbitrators are not empowered to award punitive damages or damages
in excess of actual damages.
6.1.5 EXTENSION OF TIME PERIODS. All time periods specified in this
-------------------------
Section regarding negotiation, mediation or arbitration may be
extended by mutual agreement.
6.2 EXCLUSIVITY. The dispute resolution procedures in Section 6.1 are the
------------
exclusive method to resolve disputes of any nature arising out of or
relating to this Agreement, to the employment of Employee by the Company or
to the termination of such employment. Any actions, suits or litigation
relating to such matters will be brought only to enforce any final awards
resulting from arbitration under Section 6.1.
6.3 PREVAILING PARTY. 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.
6.4 SPECIFIC PERFORMANCE. In view of the uniqueness of the matters contemplated
--------------------
by this Agreement, the Company would not have an adequate remedy at law for
money damages if this Agreement is not being performed in accordance with
its terms. Employee therefore agrees that the Company will be entitled to
specific enforcement of the terms hereof in addition to any other remedy to
which the Company may be entitled.
7. GENERAL PROVISIONS
------------------
7.1 ASSIGNMENT. This Agreement is a personal contract, and the rights,
----------
interests and obligations of Employee under this Agreement may not be sold,
transferred, assigned, pledged or hypothecated, except that this Agreement
may be assigned by the Company to any corporation or other business entity
that succeeds to all or substantially all of the business of the Company
through merger, consolidation, corporate reorganization or by acquisition
of all or substantially all of the assets of the Company and that assumes
the Company's obligations under this Agreement. The terms and conditions of
this Agreement will inure to the benefit of and be binding upon any
successor to the business of the Company and Employee's heirs and legal
representatives.
7.2 PAYMENT OBLIGATIONS ABSOLUTE. The Company's obligation to pay Employee the
----------------------------
compensation and to make the arrangements provided herein will not be
affected by any circumstances, including, without limitation, any set-off,
counterclaim,
11
<PAGE>
recoupment, defense or other right that the Company may have against him or
anyone else. All amounts payable by the Company hereunder will be paid
without notice or demand.
7.3 SUCCESSOR. The Company will require any successor (whether direct or
---------
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by
agreement in form and substance satisfactory to Employee, to expressly
assume and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place.
7.4 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.
7.5 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.
7.6 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.
7.7 HEADINGS. Headings of Sections and subsections are for convenience only and
--------
are not a part of this Agreement.
7.8 COUNTERPARTS. This Agreement may be executed in one or more counterparts,
------------
all of which constitute one agreement.
7.9 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.
7.10 EXPENSES. Each party will pay its own expenses in the negotiation and
--------
preparation of this Agreement.
7.11 REPRESENTATION BY COUNSEL; INTERPRETATION. Each party acknowledges that it
-----------------------------------------
has had the 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.
12
<PAGE>
7.12 TIME IS OF THE ESSENCE. Time is of the essence in the performance of each
----------------------
and every term, provision and covenant in this Agreement.
7.13 NOTICES. Any notice to be given hereunder must be in writing and delivered
-------
to the following addresses (or to another address as either shall
designate in writing). Such notice shall be effective (a) if given by
telecopy or if confirmed by return telecopy, (b) one Business Day after
delivery through a generally recognized and reputable overnight courier or
messenger for next day delivery or (c) if given by mail or any other
means, when actually delivered to the address specified.
<TABLE>
<CAPTION>
IF TO U.S. RENTALS, INC.: IF TO EMPLOYEE:
- ------------------------ --------------
<S> <C>
1581 Cummins Drive, Suite 155 At the most recent address on the books
Modesto, California 95358 and records of the Company for Employee
Attention: Board of Directors
</TABLE>
IN WITNESS WHEREOF, each of Company and Employee has caused this Agreement
to be duly executed on its behalf as of the date first above written.
Company:
U.S. RENTALS, INC.
By:______________________________
Name:____________________________
Title:___________________________
Employee:
_________________________________
John S. McKinney
13
<PAGE>
EXHIBIT A
---------
DEFINED TERMS
-------------
"AGREEMENT" means this Employment Agreement, as amended from time to time.
"BASE SALARY" means the annual amount of $105,000.
"BENEFICIARY" has the meaning set forth in the Plan.
"BENEFIT PROGRAMS" means programs such as group health, dental, life and
disability, profit sharing, pension and similar programs made generally
available to the senior executives of the Company.
"BOARD" means the Company's Board of Directors as composed at the time, not
including Employee.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day national
banks in the State of California are authorized or required by law to close.
"CHANGE IN CONTROL EVENT" has the meaning set forth in the Plan.
"CODE" means the Internal Revenue Code of 1986, as amended from time to time.
"COMPANY" means U.S. Rentals, Inc., a Delaware corporation, together with its
subsidiaries.
"CONFIDENTIAL INFORMATION" means information not known by the trade generally or
not reasonably available to a knowledgeable person in the trade, even though
such information may have been disclosed to one or more third parties pursuant
to consulting agreements, joint research agreements, or other agreements entered
into by the Company. Confidential Information does not include information that
is required to be disclosed by law, statute, regulation or legal or
administrative process.
"DATE OF TERMINATION" means:
(a) if Employee's employment is terminated by the Company for
Good Cause, or by Employee for Good Reason, the date of receipt
of the Notice of Termination or any later date specified
therein, as the case may be;
Exhibit A -1
<PAGE>
(b) if Employee's employment is terminated by the Company other
than for Good Cause or Unavailability, the date on which the
Company notifies Employee of such termination; and
(c) if Employee's employment is terminated by reason of death or
Unavailability, the date of death of Employee or the effective
date of the Unavailability, as the case may be.
"DEFERRED COMPENSATION" has the meaning set forth in Section 3.
"DISABILITY" or "DISABLED" means a disability where Employee is unable to
effectively engage in the material activities required for Employee's position
with the Company by reason of any medically determinable physical or mental
impairment that can be expected to result in death or that has lasted or can be
expected to last for a period of 90 consecutive days or for shorter periods
aggregating 180 days in any consecutive 12 month period.
"EARLY TERMINATION DATE" means the date of termination for Good Cause or
Employee's termination without Good Reason.
"GOOD CAUSE" means a finding by the Board in good faith that Employee has
(a) been guilty of a willful act or acts of dishonesty
constituting a felony that were intended to and did result
directly or indirectly in substantial gain or personal
enrichment to Employee at the expense of the Company;
(b) willfully failed to substantially perform Employee's duties
hereunder (other than failure resulting from Employee's
Unavailability due to Disability) persisting for a reasonable
period following the delivery to Employee of written notice
specifying the details of any alleged failure to perform, which
failure has resulted in demonstrable and material injury and
damage to the Company;
(c) engaged in any substantiated act involving moral turpitude;
(d) engaged in any act that, in each case, has subjected, or if
generally known would subject, the Company to public ridicule
or embarrassment;
(e) violated or failed to comply in any material respect with the
Company's published rules, regulations or policies, as in
effect from time to time;
(f) breached this Agreement; or
Exhibit A - 2
<PAGE>
(g) been incarcerated for more than 10 days.
An event specified in (b), (c), (d), (e) or (f) above will not constitute "GOOD
CAUSE" until the Board provides Employee with written notice of such event
setting forth in reasonable detail the specifics of such event and such event
has not been cured to the reasonable satisfaction of the Board within thirty
days of such notice (except upon the subsequent occurrence of a substantially
similar event, in which case such second event will constitute "Good Cause"
without any notice or cure period). Employee will be entitled to be heard by
the Board before any such determination is made. Action or inaction by Employee
will not be considered "willful" unless done or omitted by Employee
intentionally or not in good faith and without reasonable belief that Employee's
action or inaction was in the best interests of the Company, and will not
include failure to act by reason of total or partial Unavailability due to
physical or mental illness.
"GOOD REASON" means, other than an event also constituting Good Cause:
(a) a material diminution in Employee's duties, responsibilities
or title;
(b) a Change in Control Event; or
(c) the Company's material breach of this Agreement.
"INCLUDING" or "INCLUDES," when following any general provision, sentence,
clause, statement, term or matter, will be deemed to be followed by ", but not
limited to," and ", but is not limited to," respectively.
"PLAN" means the Company's 1997 Performance Award Plan.
"TERM" means the period from the date hereof through the earlier of (a) December
31, 2003 or (b) the date Employee dies, becomes Unavailable, is terminated for
any reason, or voluntarily terminates employment. The Term will be
automatically extended to December 31, 2006, unless Employee gives notice of
non-renewal not later than June 30, 2003. Any reference herein to the Term
includes such period of extension.
"TRIGGER EVENT DATE" means the earliest of December 31, 2006, the date of a
Change in Control Event, or the date of Employee's death, Disability or
Termination Without Cause.
"UNAVAILABILITY" or "UNAVAILABLE" means Employee being unable to fully perform
Employee's duties by reason of Disability, or by reason of any statute, law,
ordinance, regulation, order, judgment or decree, except for an instance that
would constitute Good Cause.
Exhibit A - 3
<PAGE>
EXHIBIT 10.4
U.S. RENTALS, INC.
1997 PERFORMANCE AWARD PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. THE PLAN................................................................ 1
--------
1.1 Purpose...................................................... 1
-------
1.2 Administration and Authorization; Power and Procedure.......... 1
-----------------------------------------------------
1.2.1 Committee.............................................. 1
---------
1.2.2 Plan Awards; Interpretation; Powers of Committee....... 1
------------------------------------------------
1.2.3 Binding Determinations................................. 2
----------------------
1.2.4 Reliance on Experts.................................... 2
-------------------
1.2.5 Delegation............................................. 3
----------
1.3 Participation.................................................. 3
-------------
1.4 Shares Available for Awards; Share Limits...................... 3
-----------------------------------------
1.4.1 Shares Available....................................... 3
----------------
1.4.2 Share Limits........................................... 3
------------
1.4.3 Share Reservation; Replenishment and Reissue of
-----------------------------------------------
Unvested Awards........................................ 3
---------------
1.5 Grant of Awards................................................ 4
---------------
1.6 Award Period................................................... 4
------------
1.7 Limitations on Exercise and Vesting of Awards.................. 4
---------------------------------------------
1.7.1 Provisions for Exercise................................ 4
-----------------------
1.7.2 Procedure.............................................. 4
---------
1.7.3 Fractional Shares/Minimum Issue........................ 4
-------------------------------
1.8 Acceptance of Notes to Finance Exercise........................ 5
---------------------------------------
1.8.1 Principal.............................................. 5
---------
1.8.2 Term................................................... 5
----
1.8.3 Recourse; Security..................................... 5
------------------
1.8.4 Termination of Employment.............................. 5
-------------------------
1.9 No Transferability; Limited Exception to Transfer
-------------------------------------------------
Restrictions................................................... 5
------------
1.9.1 Limit On Exercise and Transfer......................... 5
------------------------------
1.9.2 Exceptions............................................. 6
----------
1.9.3 Further Exceptions to Limits On Transfer............... 6
----------------------------------------
2. OPTIONS................................................................. 6
-------
2.1 Grants......................................................... 6
------
2.2 Option Price................................................... 7
------------
2.2.1 Pricing Limits......................................... 7
--------------
2.2.2 Payment Provisions..................................... 7
------------------
2.3 Limitations on Grant and Terms of Incentive Stock Options...... 7
---------------------------------------------------------
2.3.1 $100,000 Limit......................................... 7
--------------
2.3.2 Option Period.......................................... 8
-------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
2.3.3 Other Code Limits............................................ 8
-----------------
2.4 Limits on 10% Holders................................................ 8
---------------------
2.5 Option Repricing/Cancellation and Regrant/Waiver of Restrictions..... 8
----------------------------------------------------------------
2.6.1 Options - Resignation or Dismissal........................... 9
----------------------------------
2.6.2 Options - Death or Disability................................ 9
-----------------------------
2.6.3 Options - Retirement......................................... 9
--------------------
2.6.4 Certain SARs................................................. 10
------------
2.6.5 Other Awards................................................. 10
------------
2.6.6 Committee Discretion......................................... 10
--------------------
3. STOCK APPRECIATION RIGHTS
-------------------------
(INCLUDING LIMITED STOCK APPRECIATION RIGHTS)..................... 10
--------------------------------------------
3.1 Grants............................................................... 10
------
3.2 Exercise of Stock Appreciation Rights................................ 11
-------------------------------------
3.2.1 Exercisability............................................... 11
--------------
3.2.2 Effect on Available Shares................................... 11
--------------------------
3.2.3 Stand-Alone SARs............................................. 11
----------------
3.2.4 Proportionate Reduction...................................... 11
-----------------------
3.3 Payment.............................................................. 11
-------
3.3.1 Amount....................................................... 11
------
3.3.2 Form of Payment.............................................. 12
---------------
3.4 Limited Stock Appreciation Rights.................................... 12
---------------------------------
4. RESTRICTED STOCK AWARDS....................................................... 12
-----------------------
4.1 Grants............................................................... 12
------
4.2 Restrictions......................................................... 13
------------
4.2.1 Pre-Vesting Restraints....................................... 13
----------------------
4.2.2 Dividend and Voting Rights................................... 13
--------------------------
4.2.3 Cash Payments................................................ 13
-------------
4.3 Return to the Corporation............................................ 13
-------------------------
5. Performance Share Awards and Stock Bonuses.................................... 13
-------------------------------------------
5.1 Grants of Performance Share Awards................................... 13
----------------------------------
5.2.1 Eligible Class.............................................. 14
--------------
5.2.2 Maximum Award............................................... 14
-------------
5.2.3 Committee Certification..................................... 15
-----------------------
5.2.4 Terms and Conditions of Awards.............................. 15
------------------------------
5.2.5 Stock Payout Features....................................... 15
---------------------
5.3 Grants of Stock Bonuses.............................................. 15
-----------------------
5.4 Deferred Payments.................................................... 15
-----------------
5.5 Cash Bonus Awards.................................................... 15
-----------------
5.5.1 Performance Goals............................................ 15
-----------------
5.5.2 Maximum Annual Amount........................................ 16
---------------------
5.5.3 Payment in Restricted Stock.................................. 16
---------------------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
6. OTHER PROVISIONS.............................................................. 16
----------------
6.1 Rights of Eligible Persons, Participants and Beneficiaries........... 16
----------------------------------------------------------
6.1.1 Employment Status............................................. 16
-----------------
6.1.2 No Employment Contract....................................... 16
------------------
6.1.3 Plan Not Funded.............................................. 16
---------------
6.2 Adjustments; Acceleration............................................ 17
--------------------------
6.2.1 Adjustments.................................................. 17
-----------
6.2.2 Acceleration of Awards Upon Change in Control................ 18
---------------------------------------------
6.2.3 Possible Early Termination of Accelerated Awards............. 18
------------------------------------------------
6.2.4 Golden Parachute Limitations................................. 19
----------------------------
6.3 Effect of Termination of Employment.................................. 19
-----------------------------------
6.4 Compliance with Laws................................................. 19
--------------------
6.5 Tax Withholding...................................................... 19
---------------
6.5.1 Mandatory Tax Withholding Offset............................. 19
--------------------------------
6.5.2 Tax Loans.................................................... 20
---------
6.6 Plan Amendment, Termination and Suspension........................... 20
------------------------------------------
6.6.1 Board Authorization.......................................... 20
-------------------
6.6.2 Stockholder Approval......................................... 20
--------------------
6.6.3 Amendments to Awards......................................... 20
--------------------
6.6.4 Limitations on Amendments to Plan and Awards................. 20
--------------------------------------------
6.7 Privileges of Stock Ownership........................................ 21
-----------------------------
6.8 Effective Date of the Plan........................................... 21
--------------------------
6.9 Term of the Plan..................................................... 21
----------------
6.10 Governing Law/Construction/Severability.............................. 21
---------------------------------------
6.10.1 Choice of Law............................................... 21
-------------
6.10.2 Severability................................................ 21
------------
6.10.3 Plan Construction........................................... 21
-----------------
6.11 Captions............................................................. 22
--------
6.12 Effect of Change of Subsidiary Status............................... 22
-------------------------------------
7. DEFINITIONS................................................................... 22
-----------
8. NON-EMPLOYEE DIRECTOR OPTIONS................................................. 27
8.1 Participation........................................................ 28
-------------
8.2 Annual Option Grants................................................. 28
--------------------
8.2.1 Time of Initial Award........................................ 28
---------------------
8.2.2 Subsequent Annual Awards..................................... 28
------------------------
8.2.3 Maximum Number of Shares..................................... 28
------------------------
8.3 Option Price......................................................... 28
------------
8.4 Option Period and Exercisability..................................... 29
--------------------------------
8.5 Termination of Directorship.......................................... 29
---------------------------
8.6 Adjustments.......................................................... 29
-----------
8.7 Acceleration Upon a Change in Control Event.......................... 29
-------------------------------------------
</TABLE>
iii
<PAGE>
U.S. RENTALS, INC.
------------------
1997 PERFORMANCE AWARD PLAN
---------------------------
1. THE PLAN
--------
1.1 PURPOSE. The purpose of this Plan is to promote the success of the Company
-------
and the interests of its stockholders by attracting, motivating, retaining
and rewarding key employees, including officers, whether or not directors,
of the Company with awards and incentives for high levels of individual
performance and improved financial performance of the Company and to
attract, motivate and retain experienced and knowledgeable independent
directors through the benefits provided under Section 8. "CORPORATION"
means U.S. Rentals, Inc. and "COMPANY" means the Corporation and its
Subsidiaries, collectively. These terms and other capitalized terms are
defined in Section 7.
1.2 ADMINISTRATION AND AUTHORIZATION; POWER AND PROCEDURE.
-----------------------------------------------------
1.2.1 COMMITTEE. This Plan will be administered by and all Awards to
---------
Eligible Employees will be authorized by the Committee. Action of
the Committee with respect to the administration of this Plan will
be taken pursuant to a majority vote or by written consent of its
members.
1.2.2 PLAN AWARDS; INTERPRETATION; POWERS OF COMMITTEE. Subject to the
------------------------------------------------
express provisions of this Plan, the Committee will have the
authority to:
(a) determine eligible the particular Eligible Employees who will
receive Awards;
(b) grant Awards to Eligible Employees, determine the price at
which securities will be offered or awarded and the amount of
securities to be offered or awarded to any of such persons,
and determine the other specific terms and conditions of such
Awards consistent with the express limits of this Plan, and
establish the installments (if any) in which such Awards will
become exercisable or will vest, or determine that no delayed
exercisability or vesting is required, and establish the
events of termination or reversion of such Awards;
(c) approve the forms of Award Agreements (which need not be
identical either as to type of Award or among Participants);
1
<PAGE>
(d) construe and interpret this Plan and any agreements defining
the rights and obligations of the Company and Employee
Participants under this Plan, further define the terms used in
this Plan, and prescribe, amend and rescind rules and
regulations relating to the administration of this Plan;
(e) cancel, modify, or waive the Corporation's rights with respect
to, or modify, discontinue, suspend, or terminate any or all
outstanding Awards held by Eligible Employees, subject to any
required consent under Section 6.6;
(f) accelerate or extend the exercisability or extend the term of
any or all such outstanding Awards within the maximum ten-year
term of Awards under Section 1.6; and
(g) make all other determinations and take such other action as
contemplated by this Plan or as may be necessary or advisable
for the administration of this Plan and the effectuation of
its purposes.
but the provisions of Section 8 relating to Non-Employee Director Awards will be
automatic and, to the maximum extent possible, self-effectuating, and the
discretion of the Committee will not extend to such Awards in any manner that
would be impermissible under Rule 16b-3(c)(2).
1.2.3 BINDING DETERMINATIONS. Any action taken by, or inaction of, the
----------------------
Corporation, any Subsidiary, the Board or the Committee relating or
pursuant to this Plan will be within the absolute discretion of
that entity or body and will be conclusive and binding upon all
persons. No member of the Board or Committee, or officer of the
Corporation or any Subsidiary, will be liable for any such action
or inaction of the entity or body, of another person or, except in
circumstances involving bad faith, of himself or herself. Subject
only to compliance with the express provisions hereof, the Board
and Committee may act in their absolute discretion in matters
within their authority related to this Plan.
1.2.4 RELIANCE ON EXPERTS. In making any determination or in taking or
-------------------
not taking any action under this Plan, the Committee or the Board,
as the case may be, may obtain and may rely upon the advice of
experts, including professional advisors to the Corporation. No
director, officer or agent of the Company will be liable for any
such action or determination taken or made or omitted in good
faith.
2
<PAGE>
1.2.5 DELEGATION. The Committee may delegate ministerial, non-
----------
discretionary functions to individuals who are officers or
employees of the Company.
1.3 PARTICIPATION. Awards may be granted by the Committee only to those
-------------
persons that the Committee determines to be Eligible Persons. An Eligible
Person who has been granted an Award may, if otherwise eligible, be granted
additional Awards if the Committee so determines.
1.4 SHARES AVAILABLE FOR AWARDS; SHARE LIMITS.
-----------------------------------------
1.4.1 SHARES AVAILABLE. Subject to the provisions of Section 6.2, the
----------------
capital stock that may be delivered under this Plan will be shares
of the Corporation's authorized but unissued Common Stock and any
shares of its Common Stock held as treasury shares. The shares may
be delivered for any lawful consideration.
1.4.2 SHARE LIMITS. The maximum number of shares of Common Stock that
------------
may be delivered pursuant to Awards granted to Eligible Persons
under this Plan will not exceed 4,600,000 shares (the "SHARE
LIMIT"). The maximum number of shares subject to those options and
Stock Appreciation Rights that are granted during any calendar year
to any individual will be limited to 2,500,000 and the maximum
individual limit on the number of shares in the aggregate subject
to all Awards that during any calendar year are granted under this
Plan will be 2,500,000. The maximum number of shares of Common
Stock that may be delivered under the provisions of Section 8 will
not exceed 100,000 shares. Each of the foregoing numerical limits
will be subject to adjustment as contemplated by this Section 1.4
and Section 6.2.
1.4.3 SHARE RESERVATION; REPLENISHMENT AND REISSUE OF UNVESTED AWARDS.
---------------------------------------------------------------
No Award may be granted under this Plan unless, on the date of
grant, the sum of (a) the maximum number of shares issuable at any
time pursuant to such Award, plus (b) the number of shares that
have previously been issued pursuant to Awards granted under this
Plan, other than reacquired shares available for reissue consistent
with any applicable legal limitations, plus (c) the maximum number
of shares that may be issued at any time after such date of grant
pursuant to Awards that are outstanding on such date, does not
exceed the Share Limit. Shares that are subject to or underlie
Awards that expire or for any reason are cancelled or terminated,
are forfeited, fail to vest, or for any other reason are not paid
or delivered under this Plan, as well as reacquired shares, will
again, except to the extent prohibited by law, be available for
subsequent Awards
3
<PAGE>
under the Plan. Except as limited by law, if an Award is or may be
settled only in cash, such Award need not be counted against any of
the limits under this Section 1.4.
1.5 GRANT OF AWARDS. Subject to the express provisions of this Plan, the
---------------
Committee will determine the number of shares of Common Stock subject to
each Award, the price (if any) to be paid for the shares or the Award and,
in the case of performance share awards, in addition to matters addressed
in Section 1.2.2, the specific objectives, goals and performance criteria
(such as an increase in sales, market value, earnings or book value over a
base period, the years of service before vesting, the relevant job
classification or level of responsibility or other factors) that further
define the terms of the performance share award. Each Award will be
evidenced by an Award Agreement signed by the Corporation and, if required
by the Committee, by the Participant.
1.6 AWARD PERIOD. Each Award and all executory rights or obligations under the
------------
related Award Agreement will expire on such date (if any) as determined by
the Committee, but in the case of Options or other rights to acquire Common
Stock not later than ten (10) years after the Award Date.
1.7 LIMITATIONS ON EXERCISE AND VESTING OF AWARDS.
---------------------------------------------
1.7.1 PROVISIONS FOR EXERCISE. Unless the Committee otherwise expressly
-----------------------
provides, no Award will be exercisable or will vest until at least
six months after the initial Award Date, and once exercisable an
Award will remain exercisable until the expiration or earlier
termination of the Award.
1.7.2 PROCEDURE. Any exercisable Award will be deemed to be exercised
---------
when the Corporation receives written notice of such exercise from
the Participant, together with any required payment made in
accordance with Section 2.2.2 or 8.4, as the case may be.
1.7.3 FRACTIONAL SHARES/MINIMUM ISSUE. Fractional share interests will
-------------------------------
be disregarded, but may be accumulated. The Committee, however, may
determine in the case of Eligible Persons that cash, other
securities, or other property will be paid or transferred in lieu
of any fractional share interests. No fewer than 100 shares may be
purchased on exercise of any Award at one time unless the number
purchased is the total number at the time available for purchase
under the Award.
4
<PAGE>
1.8 ACCEPTANCE OF NOTES TO FINANCE EXERCISE. The Corporation may, with the
---------------------------------------
Committee's approval, accept one or more notes from any Eligible Person in
connection with the exercise or receipt of any outstanding Award; but any
such note will be subject to the following terms and conditions:
1.8.1 PRINCIPAL. The principal of the note will not exceed the amount
---------
required to be paid to the Corporation upon the exercise or receipt
of one or more Awards under the Plan and the note will be delivered
directly to the Corporation in consideration of such exercise or
receipt.
1.8.2 TERM. The initial term of the note will be determined by the
----
Committee; but the term of the note, including extensions, will not
exceed a period of five years.
1.8.3 RECOURSE; SECURITY. The note will provide for full recourse to the
------------------
Participant and will bear interest at a rate determined by the
Committee but not less than the interest rate necessary to avoid
the imputation of interest under the Code. If required by the
Committee or by applicable law, the note will be secured by a
pledge of any shares or rights financed thereby in compliance with
applicable law. The terms, repayment provisions, and collateral
release provisions of the note and the pledge securing the note
will conform with applicable rules and regulations of the Federal
Reserve Board as then in effect.
1.8.4 TERMINATION OF EMPLOYMENT. If the employment of the Participant
-------------------------
terminates, the unpaid principal balance of the note will become
due and payable on the 10th business day after such termination;
but if a sale of such shares would cause such Participant to incur
liability under Section 16(b) of the Exchange Act, the unpaid
balance will become due and payable on the 10th business day after
the first day on which a sale of such shares could have been made
without incurring such liability assuming for these purposes that
there are no other transactions (or deemed transactions in
securities of this Corporation) by the Participant after such
termination.
1.9 NO TRANSFERABILITY; LIMITED EXCEPTION TO TRANSFER RESTRICTIONS.
--------------------------------------------------------------
1.9.1 LIMIT ON EXERCISE AND TRANSFER. Unless otherwise expressly
------------------------------
provided in (or pursuant to) this Section 1.9, by applicable law
and by the Award Agreement, as the same may be amended, (a) all
Awards are non-transferable and will not be subject in any manner
to sale, transfer, anticipation, alienation, assignment, pledge,
encumbrance or charge; Awards will be exercised only by the
5
<PAGE>
Participant; and (b) amounts payable or shares issuable pursuant to
an Award will be delivered only to (or for the account of) the
Participant.
1.9.2 EXCEPTIONS. The Committee may permit Awards to be exercised by and
----------
paid only to certain persons or entities related to the Participant
pursuant to such conditions and procedures as the Committee may
establish. Any permitted transfer will be subject to the condition
that the Committee receive evidence satisfactory to it that the
transfer is being made for estate and/or tax planning purposes and
without consideration (other than nominal consideration). ISOs and
Restricted Stock Awards, however, will be subject to any and all
additional transfer restrictions under the Code.
1.9.3 FURTHER EXCEPTIONS TO LIMITS ON TRANSFER. The exercise and
----------------------------------------
transfer restrictions in Section 1.9.1 will not apply to:
(a) transfers to the Corporation,
(b) the designation of a beneficiary to receive benefits if the
Participant dies or, if the Participant has died, transfers to
or exercise by the Participant's beneficiary, or, in the
absence of a validly designated beneficiary, transfers by will
or the laws of descent and distribution,
(c) transfers pursuant to a QDRO order if approved or ratified by
the Committee,
(d) if the Participant has suffered a disability, permitted
transfers or exercises on behalf of the Participant by the
Participant's legal representative, or
(e) the authorization by the Committee of "cashless exercise"
procedures with third parties who provide financing for the
purpose of (or who otherwise facilitate) the exercise of
Awards consistent with applicable laws and the express
authorization of the Committee.
2. OPTIONS
-------
2.1 GRANTS. One or more Options may be granted under this Section to any
------
Eligible Person. Each Option granted will be designated in the applicable
Award Agreement, by the Committee as either an Incentive Stock Option,
subject to Section 2.3, or a Non-Qualified Stock Option.
6
<PAGE>
2.2 OPTION PRICE.
------------
2.2.1 PRICING LIMITS. The purchase price per share of the Common Stock
--------------
covered by each Option will be determined by the Committee at the
time of the Award, but in the case of Incentive Stock Options will
not be less than 100% (110% in the case of a Participant described
in Section 2.4) of the Fair Market Value of the Common Stock on the
date of grant and in all cases will not be less than the par value
thereof.
2.2.2 PAYMENT PROVISIONS. The purchase price of any shares purchased on
------------------
exercise of an Option granted under this Section will be paid in
full at the time of each purchase in one or a combination of the
following methods: (a) in cash or by electronic funds transfer; (b)
by certified or cashier's check payable to the order of the
Corporation; (c) if authorized by the Committee or specified in the
applicable Award Agreement, by a promissory note of the Participant
consistent with the requirements of Section 1.8; (d) by notice and
third party payment in such manner as may be authorized by the
Committee; or (e) by the delivery of shares of Common Stock of the
Corporation already owned by the Participant, but the Committee may
in its absolute discretion limit the Participant's ability to
exercise an Award by delivering such shares, and any shares
delivered that were initially acquired upon exercise of a stock
option must have been owned by the Participant at least six months
as of the date of delivery. Shares of Common Stock used to satisfy
the exercise price of an Option will be valued at their Fair Market
Value on the date of exercise. In addition to the payment methods
described above, the Committee may provide that the Option can be
exercised and payment made by delivering a properly executed
exercise notice together with irrevocable instructions to a broker
to promptly deliver to the Corporation the amount of sale proceeds
necessary to pay the exercise price and, unless otherwise
prohibited by the Committee or applicable law, any applicable tax
withholding under Section 6.5. The Corporation will not be
obligated to deliver certificates for the shares unless and until
it receives full payment of the exercise price therefor and any
related withholding obligations have been satisfied.
2.3 LIMITATIONS ON GRANT AND TERMS OF INCENTIVE STOCK OPTIONS.
---------------------------------------------------------
2.3.1 $100,000 LIMIT. To the extent that the aggregate "FAIR MARKET
--------------
VALUE" of stock with respect to which incentive stock options first
become exercisable by a Participant in any calendar year exceeds
$100,000, taking into account both Common Stock subject to
Incentive Stock Options under this Plan and stock subject to
7
<PAGE>
incentive stock options under all other plans of the Company or any
parent corporation, such options will be treated as Nonqualified
Stock Options. For this purpose, the "FAIR MARKET VALUE" of the
stock subject to options will be determined as of the date the
options were awarded. In reducing the number of options treated as
incentive stock options to meet the $100,000 limit, the most
recently granted options will be reduced first. To the extent a
reduction of simultaneously granted options is necessary to meet
the $100,000 limit, the Committee may, in the manner and to the
extent permitted by law, designate which shares of Common Stock are
to be treated as shares acquired pursuant to the exercise of an
Incentive Stock Option.
2.3.2 OPTION PERIOD. Each Option and all rights thereunder will expire
-------------
no later than 10 years after the Award Date.
2.3.3 OTHER CODE LIMITS. Incentive Stock Options may only be granted to
-----------------
Eligible Employees of the Corporation or a Subsidiary that
satisfies the other eligibility requirements of the Code. There
will be imposed in any Award Agreement relating to Incentive Stock
Options such other terms and conditions as from time to time are
required in order that the Option be an "incentive stock option" as
that term is defined in Section 422 of the Code.
2.4 LIMITS ON 10% HOLDERS. No Incentive Stock Option may be granted to any
---------------------
person who, at the time the Option is granted, owns (or is deemed to own
under Section 424(d) of the Code) shares of outstanding Common Stock
possessing more than 10% of the total combined voting power of all classes
of stock of the Corporation, unless the exercise price of such Option is at
least 110% of the Fair Market Value of the stock subject to the Option and
such Option by its terms is not exercisable after the expiration of five
years from the date such Option is granted.
2.5 OPTION REPRICING/CANCELLATION AND REGRANT/WAIVER OF RESTRICTIONS. Subject
----------------------------------------------------------------
to Section 1.4 and Section 6.6 and the specific limitations on Awards
contained in this Plan, the Committee from time to time may authorize,
generally or in specific cases only, for the benefit of any Eligible Person
any adjustment in the exercise or purchase price, the vesting schedule, the
number of shares subject to, the restrictions upon or the term of, an Award
granted under this Section by cancellation of an outstanding Award and a
subsequent regranting of an Award, by amendment, by substitution of an
outstanding Award, by waiver or by other legally valid means. Such
amendment or other action may result among other changes in an exercise or
purchase price that is higher or lower than the exercise or purchase price
of the original or prior Award, provide for a greater or lesser
8
<PAGE>
number of shares subject to the Award, or provide for a longer or
shorter vesting or exercise period.
2.6 EFFECTS OF TERMINATION OF EMPLOYMENT; TERMINATION OF SUBSIDIARY STATUS;
-----------------------------------------------------------------------
DISCRETIONARY PROVISIONS.
------------------------
2.6.1 OPTIONS - RESIGNATION OR DISMISSAL. If the Participant's
----------------------------------
employment by (or other service specified in the Award Agreement
to) the Company terminates for any reason (the date of such
termination being referred to as the "SEVERANCE DATE") other than
Retirement, Total Disability or death, or "FOR CAUSE" (as
determined in the discretion of the Committee), the Participant
will have, unless otherwise provided in the Award Agreement and
subject to earlier termination pursuant to or as contemplated by
Section 1.6 or 6.2, three months after the Severance Date to
exercise any Option to the extent it has become exercisable on the
Severance Date. In the case of a termination "for cause", the
Option will terminate on the Severance Date. In other cases, the
Option, to the extent not exercisable on the Severance Date, will
terminate.
2.6.2 OPTIONS - DEATH OR DISABILITY. If the Participant's employment by
-----------------------------
(or specified service to) the Company terminates as a result of
Total Disability or death, the Participant, Participant's Personal
Representative or the Participant's Beneficiary, as the case may
be, will have, unless otherwise provided in the Award Agreement and
subject to earlier termination pursuant to or as contemplated by
Section 1.6 or 6.2, until 12 months after the Severance Date to
exercise any Option to the extent it will have become exercisable
by the Severance Date. Any Option to the extent not exercisable on
the Severance Date will terminate.
2.6.3 OPTIONS - RETIREMENT. If the Participant's employment by (or
--------------------
specified service to) the Company terminates as a result of
Retirement, the Participant, Participant's Personal Representative
or the Participant's Beneficiary, as the case may be, will have,
unless otherwise provided in the Award Agreement and subject to
earlier termination pursuant to or as contemplated by Section 1.6
or 6.2, until 12 months after the Severance Date to exercise any
Nonqualified Stock Option (three months after the Severance Date in
the case of an Incentive Stock Option) to the extent it will have
become exercisable by the Severance Date. The Option, to the extent
not exercisable on the Severance Date, will terminate.
2.6.4 CERTAIN SARS. Any SAR granted concurrently or in tandem with an
------------
Option will have the same post-termination provisions and
9
<PAGE>
exercisability periods as the Option to which it relates, unless
the Committee otherwise provides.
2.6.5 OTHER AWARDS. The Committee will establish in respect of each
------------
other Award granted hereunder the Participant's rights and benefits
(if any) if the Participant's employment is terminated and in so
doing may make distinctions based upon the cause of termination and
the nature of the Award.
2.6.6 COMMITTEE DISCRETION. Notwithstanding the foregoing provisions of
--------------------
this Section 2.6, in the event of, or in anticipation of, a
termination of employment with the Company for any reason, other
than discharge for cause, the Committee may increase the portion of
the Participant's Award available to the Participant, or
Participant's Beneficiary or Personal Representative, as the case
may be, or, subject to the provisions of Section 1.6, extend the
exercisability period upon such terms as the Committee determines
and expressly sets forth in or by amendment to the Award Agreement.
2.7 OPTIONS AND RIGHTS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY OTHER
---------------------------------------------------------------------
CORPORATIONS. Options and Stock Appreciation Rights may be granted to
------------
Eligible Persons under this Plan in substitution for employee stock options
granted by other entities to persons who are or who will become Eligible
Persons in respect of the Company, in connection with a distribution,
merger or reorganization by or with the granting entity or an affiliated
entity, or the acquisition by the Company, directly or indirectly, of all
or a substantial part of the stock or assets of the employing entity.
3. STOCK APPRECIATION RIGHTS
-------------------------
(INCLUDING LIMITED STOCK APPRECIATION RIGHTS)
---------------------------------------------
3.1 GRANTS. The Committee may grant to any Eligible Person Stock Appreciation
------
Rights either concurrently with the grant of another Award or in respect of
an outstanding Award, in whole or in part, or independently of any other
Award. Any Stock Appreciation Right granted in connection with an
Incentive Stock Option will contain such terms as may be required to comply
with the provisions of Section 422 of the Code and the regulations
promulgated thereunder, unless the holder otherwise agrees.
3.2 EXERCISE OF STOCK APPRECIATION RIGHTS.
-------------------------------------
3.2.1 EXERCISABILITY. Unless the Award Agreement or the Committee
--------------
otherwise provides, a Stock Appreciation Right related to another
10
<PAGE>
Award will be exercisable at such time or times, and to the extent,
that the related Award will be exercisable.
3.2.2 EFFECT ON AVAILABLE SHARES. To the extent that a Stock
--------------------------
Appreciation Right is exercised, only the actual number of
delivered shares of Common Stock will be charged against the
maximum amount of Common Stock that may be delivered pursuant to
Awards under this Plan. The number of shares subject to the Stock
Appreciation Right and the related Option of the Participant will,
however, be reduced by the number of underlying shares as to which
the exercise related, unless the Award Agreement otherwise
provides.
3.2.3 STAND-ALONE SARS. A Stock Appreciation Right granted independently
----------------
of any other Award will be exercisable pursuant to the terms of the
Award Agreement but in no event earlier than six months after the
Award Date, except in the case of death or Total Disability.
3.2.4 PROPORTIONATE REDUCTION. If an SAR extends to less than all the
-----------------------
shares covered by the related Award and if a portion of the related
Award is thereafter exercised, the number of shares subject to the
unexercised SAR shall be reduced only if and to the extent that the
remaining number of shares covered by such related Award is less
than the remaining number of shares subject to such SAR.
3.3 PAYMENT.
-------
3.3.1 AMOUNT. Unless the Committee otherwise provides, upon exercise of
------
a Stock Appreciation Right and the attendant surrender of an
exercisable portion of any related Award, the Participant will be
entitled to receive subject to Section 6.5 payment of an amount
determined by multiplying
(a) the difference obtained by subtracting the exercise price per
share of Common Stock under the related Award (if applicable)
or the initial share value specified in the Award from the
Fair Market Value of a share of Common Stock on the date of
exercise of the Stock Appreciation Right, by
(b) the number of shares with respect to which the Stock
Appreciation Right has been exercised.
3.3.2 FORM OF PAYMENT. The Committee, in its sole discretion, will
---------------
determine the form in which payment will be made of the amount
determined under Section 3.3.1 above, either solely in cash, solely
11
<PAGE>
in shares of Common Stock (valued at Fair Market Value on the date
of exercise of the Stock Appreciation Right), or partly in such
shares and partly in cash, but the Committee will have determined
that such exercise and payment are consistent with applicable law.
If the Committee permits the Participant to elect to receive cash
or shares (or a combination thereof) on such exercise, any such
election will be subject to such conditions as the Committee may
impose.
3.4 LIMITED STOCK APPRECIATION RIGHTS. The Committee may grant to any
---------------------------------
Eligible Person Stock Appreciation Rights exercisable only upon or in
respect of a change in control or any other specified event ("LIMITED
SARS") and such Limited SARs may relate to or operate in tandem or
combination with or substitution for Options, other SARs or other Awards
(or any combination thereof), and may be payable in cash or shares based on
the spread between the base price of the SAR and a price based upon or
equal to the Fair Market Value of the Shares during a specified period or
at a specified time within a specified period before, after or including
the date of such event.
4. RESTRICTED STOCK AWARDS
-----------------------
4.1 GRANTS. The Committee may grant one or more Restricted Stock Awards to any
------
Eligible Person. Each Restricted Stock Award Agreement will specify the
number of shares of Common Stock to be issued to the Participant, the date
of such issuance, the consideration for such shares (but not less than the
minimum lawful consideration under applicable state law) by the
Participant, the extent (if any) to which and the time (if ever) at which
the Participant will be entitled to dividends, voting and other rights in
respect of the shares prior to vesting, and the restrictions (which may be
based on performance criteria, passage of time or other factors or any
combination thereof) imposed on such shares and the conditions of release
or lapse of such restrictions. Such restrictions will not lapse earlier
than six months after the Award Date, except to the extent the Committee
may otherwise provide. Stock certificates evidencing shares of Restricted
Stock pending the lapse of the restrictions ("RESTRICTED SHARES") will bear
a legend making appropriate reference to the restrictions imposed hereunder
and will be held by the Corporation or by a third party designated by the
Committee until the restrictions on such shares have lapsed and the shares
have vested in accordance with the provisions of the Award and Section 1.7.
Upon issuance of the Restricted Stock Award, the Participant may be
required to provide such further assurance and documents as the Committee
may require to enforce the restrictions.
12
<PAGE>
4.2 RESTRICTIONS.
------------
4.2.1 PRE-VESTING RESTRAINTS. Except as provided in Sections 4.1 and
----------------------
1.9, restricted shares comprising any Restricted Stock Award may
not be sold, assigned, transferred, pledged or otherwise disposed
of or encumbered, either voluntarily or involuntarily, until the
restrictions on such shares have lapsed and the shares have become
vested.
4.2.2 DIVIDEND AND VOTING RIGHTS. Unless otherwise provided in the
--------------------------
applicable Award Agreement, a Participant receiving a Restricted
Stock Award will be entitled to cash dividend and voting rights for
all shares issued even though they are not vested, but such rights
will terminate immediately as to any Restricted Shares which cease
to be eligible for vesting.
4.2.3 CASH PAYMENTS. If the Participant has been paid or received cash
-------------
(including any dividends) in connection with the Restricted Stock
Award, the Award Agreement will specify whether and to what extent
such cash will be returned (with or without an earnings factor) as
to any restricted shares that cease to be eligible for vesting.
4.3 RETURN TO THE CORPORATION. Unless the Committee otherwise expressly
-------------------------
provides, Restricted Shares that remain subject to restrictions at the time
of termination of employment or are subject to other conditions to vesting
that have not been satisfied by the time specified in the applicable Award
Agreement will not vest and will be returned to the Corporation in such
manner and on such terms as the Committee provides.
5. PERFORMANCE SHARE AWARDS AND STOCK BONUSES
------------------------------------------
5.1 GRANTS OF PERFORMANCE SHARE AWARDS. The Committee may grant Performance
----------------------------------
Share Awards to Eligible Persons based upon such factors as the Committee
deems relevant in light of the specific type and terms of the award. An
Award Agreement will specify the maximum number of shares of Common Stock
(if any) subject to the Performance Share Award, the consideration (but not
less than the minimum lawful consideration) to be paid for any such shares
as may be issuable to the Participant, the duration of the Award and the
conditions upon which delivery of any shares or cash to the Participant
will be based. The amount of cash or shares or other property that may be
deliverable pursuant to such Award will be based upon the degree of
attainment over a specified period of not more than 10 years (a
"PERFORMANCE CYCLE") as may be established by the Committee of such
measure(s) of the performance of the Company (or any part thereof) or the
Participant as may be established by the Committee. The Committee
13
<PAGE>
may provide for full or partial credit, prior to completion of such
performance cycle or the attainment of the performance achievement
specified in the Award, in the event of the Participant's death,
Retirement, or Total Disability, a Change in Control Event or in such other
circumstances as the Committee (consistent with Section 6.10.3(b), if
applicable) may determine.
5.2 SPECIAL PERFORMANCE-BASED SHARE AWARDS. Without limiting the generality of
--------------------------------------
the foregoing, and in addition to options granted under other provisions of
this Section 5, other performance-based awards within the meaning of
Section 162(m) of the Code ("PERFORMANCE-BASED AWARDS"), whether in the
form of restricted stock, performance stock, phantom stock or other rights,
the vesting of which depends on the performance of the Company on a
consolidated, segment, subsidiary, division, or station basis with
reference to revenues, net earnings (before or after taxes or before or
after taxes, interest, depreciation, and/or amortization), cash flow,
return on equity or on assets or on net investment, or cost containment or
reduction, or any combination thereof (the business criteria) relative to
preestablished performance goals, may be granted under this Plan. The
applicable business criteria and the specific performance goals must be
approved by the Committee in advance of applicable deadlines under the Code
and while the performance relating to such goals remains substantially
uncertain. The applicable performance measurement period may be not less
than one nor more than 10 years. Performance targets may be adjusted to
mitigate the unbudgeted impact of material, unusual or nonrecurring gains
and losses, accounting changes or other extraordinary events not foreseen
at the time the targets were set. Other types of performance and non-
performance awards may also be granted under the other provisions of this
Plan.
5.2.1 ELIGIBLE CLASS. The eligible class of persons for Awards under
--------------
this Section is executive officers of the Corporation.
5.2.2 MAXIMUM AWARD. In no event will grants in any calendar year to a
-------------
Participant under this Section 5.2 relate to more than 2,500,000
shares or a cash amount of more than $1,000,000.
5.2.3 COMMITTEE CERTIFICATION. Before any Performance-Based Award under
-----------------------
this Section 5.2 is paid, the Committee must certify that the
material terms of the Performance-Based Award were satisfied.
5.2.4 TERMS AND CONDITIONS OF AWARDS. The Committee will have discretion
------------------------------
to determine the restrictions or other limitations of the
individual Awards under this Section 5.2 (including the authority
to reduce Awards, payouts or vesting or to pay no Awards, in its
sole discretion, if the Committee preserves such authority at the
time of
14
<PAGE>
grant by language to this effect in its authorizing resolutions or
otherwise).
5.2.5 STOCK PAYOUT FEATURES. In lieu of cash payment of an Award, the
---------------------
Committee may require or allow a portion of the Award to be paid in
the form of stock, Restricted Shares or an Option.
5.3 GRANTS OF STOCK BONUSES. The Committee may grant a Stock Bonus to any
-----------------------
Eligible Person to reward exceptional or special services, contributions or
achievements in the manner and on such terms and conditions (including any
restrictions on such shares) as determined from time to time by the
Committee. The number of shares so awarded will be determined by the
Committee. The Award may be granted independently or in lieu of a cash
bonus.
5.4 DEFERRED PAYMENTS. The Committee may authorize for the benefit of any
-----------------
Eligible Person the deferral of any payment of cash or shares that may
become due or of cash otherwise payable under this Plan, and provide for
accredited benefits thereon based upon such deferment, at the election or
at the request of such Participant, subject to the other terms of this
Plan. Such deferral will be subject to such further conditions,
restrictions or requirements as the Committee may impose, subject to any
then vested rights of Participants.
5.5 CASH BONUS AWARDS.
-----------------
5.5.1 PERFORMANCE GOALS. The Committee may establish a program of annual
-----------------
incentive awards that are payable in cash to Eligible Persons based
upon the extent to which performance goals are met during the
performance period. The performance goals may depend upon the
performance of the Company on a consolidated, subsidiary division
basis with reference to revenues, net earnings (before or after
interest, taxes, depreciation, or amortization), cash flow, return
on equity or on assets or net investment, cost containment or
reduction, or achievement of strategic goals (or any combination of
such factors). In addition, the award may depend upon the Eligible
Employee's individual performance.
5.5.2 MAXIMUM ANNUAL AMOUNT. In no event may awards payable for any year
---------------------
to any Eligible Employee exceed $20 million.
5.5.3 PAYMENT IN RESTRICTED STOCK. In lieu of cash payment of the
---------------------------
awards, the Committee may require or allow a portion of the award
to be paid in the form of a Restricted Stock Award.
15
<PAGE>
6. OTHER PROVISIONS
----------------
6.1 RIGHTS OF ELIGIBLE PERSONS, PARTICIPANTS AND BENEFICIARIES.
----------------------------------------------------------
6.1.1 EMPLOYMENT STATUS. Status as an Eligible Person will not be
-----------------
construed as a commitment that any Award will be made under this
Plan to an Eligible Person or to Eligible Persons generally.
6.1.2 NO EMPLOYMENT CONTRACT. Nothing contained in this Plan (or in
----------------------
any other documents related to this Plan or to any Award) will
confer upon any Eligible Person or other Participant any right to
continue in the employ or other service of the Company or
constitute any contract or agreement of employment or other
service, nor will interfere in any way with the right of the
Company to otherwise change such person's compensation or other
benefits or to terminate the employment of such person, with or
without cause, but nothing contained in this Plan or any related
document will adversely affect any independent contractual right
of such person without the Participant's consent.
6.1.3 PLAN NOT FUNDED. Awards payable under this Plan will be payable
---------------
in shares or from the general assets of the Corporation, and
(except as provided in Section 1.4.3) no special or separate
reserve, fund or deposit will be made to assure payment of such
Awards. No Participant, Beneficiary or other person will have any
right, title or interest in any fund or in any specific asset
(including shares of Common Stock, except as expressly otherwise
provided) of the Company by reason of any Award hereunder.
Neither the provisions of this Plan (or of any related
documents), nor the creation or adoption of this Plan, nor any
action taken pursuant to the provisions of this Plan will create,
or be construed to create, a trust of any kind or a fiduciary
relationship between the Company and any Participant, Beneficiary
or other person. To the extent that a Participant, Beneficiary or
other person acquires a right to receive payment pursuant to any
Award hereunder, such right will be no greater than the right of
any unsecured general creditor of the Company.
6.2 ADJUSTMENTS; ACCELERATION.
-------------------------
6.2.1 ADJUSTMENTS. The following provisions will apply if any
-----------
extraordinary dividend or other extraordinary distribution occurs
in respect of the Common Stock (whether in the form of cash, Common
Stock, other securities, or other property), or any
reclassification, recapitalization,
16
<PAGE>
stock split (including a stock split in the form of a stock
dividend), reverse stock split, reorganization, merger, combination,
consolidation, split-up, spin-off, combination, repurchase, or
exchange of Common Stock or other securities of the Corporation, or
any similar, unusual or extraordinary corporate transaction (or
event in respect of the Common Stock) or a sale of substantially
all the assets of the Corporation as an entirety occurs. The
Committee will, in such manner and to such extent (if any) as it
deems appropriate and equitable
(a) proportionately adjust any or all of (i) the number and type of
shares of Common Stock (or other securities) that thereafter may
be made the subject of Awards (including the specific maxima and
numbers of shares set forth elsewhere in this Plan), (ii) the
number, amount and type of shares of Common Stock (or other
securities or property) subject to any or all outstanding
Awards,(iii) the grant, purchase, or exercise price of any or all
outstanding Awards, (iv) the securities, cash or other property
deliverable upon exercise of any outstanding Awards, or (v) the
performance standards appropriate to any outstanding Awards, or
(b) in the case of an extraordinary dividend or other distribution,
recapitalization, reclassification, merger, reorganization,
consolidation, combination, sale of assets, split up, exchange,
or spin off, make provision for a cash payment or for the
substitution or exchange of any or all outstanding Awards or the
cash, securities or property deliverable to the holder of any or
all outstanding Awards based upon the distribution or
consideration payable to holders of the Common Stock of the
Corporation upon or in respect of such event. In each case, with
respect to Awards of Incentive Stock Options, no such adjustment
will be made that would cause the Plan to violate Section 424(a)
of the Code or any successor provisions without the written
consent of holders materially adversely affected thereby. In any
of such events, the Committee may take such action sufficiently
prior to such event if necessary to permit the Participant to
realize the benefits intended to be conveyed with respect to the
underlying shares in the same manner as is available to
stockholders generally.
6.2.2 ACCELERATION OF AWARDS UPON CHANGE IN CONTROL. Unless prior to a
---------------------------------------------
Change in Control Event the Committee determines that, upon its
occurrence, benefits under Awards will not accelerate or determines
that only certain or limited benefits under Awards will be
accelerated
17
<PAGE>
and the extent to which they will be accelerated, and/or
establishes a different time in respect of such Event for such
acceleration, then upon the occurrence of a Change in Control Event
(a) each Option and Stock Appreciation Right will become
immediately exercisable,
(b) Restricted Stock will immediately vest free of restrictions,
and
(c) each Performance Share Award will become payable to the
Participant; but, in no event will any Award be accelerated
as to any Section 16 Person to a date less than six months
after the Award Date of such Award.
The Committee may override the limitations on acceleration in this
Section 6.2.2 by express provision in the Award Agreement and may
accord any Eligible Person a right to refuse any acceleration,
whether pursuant to the Award Agreement or otherwise, in such
circumstances as the Committee may approve. Any acceleration of
Awards will comply with applicable legal requirements.
6.2.3 POSSIBLE EARLY TERMINATION OF ACCELERATED AWARDS. If any Option or
------------------------------------------------
other right to acquire Common Stock under this Plan (other than
under Section 8) has been fully accelerated as permitted by Section
6.2.2 but is not exercised prior to (a) a dissolution of the
Corporation, or (b) an event described in Section 6.2.1 that the
Corporation does not survive, or (c) the consummation of an event
described in Section 6.1 that results in a Change of Control
approved by the Board, such Option or right will terminate, subject
to any provision that has been expressly made by the Committee for
the survival, substitution, exchange or other settlement of such
Option or right.
6.2.4 GOLDEN PARACHUTE LIMITATIONS. Unless otherwise specified in an
----------------------------
Award Agreement, no Award be accelerated under this Plan to an
extent or in a manner that would not be fully deductible by the
Company for federal income tax purposes because of Section 280G of
the Code, nor will any payment hereunder be accelerated if any
portion of such accelerated payment would not be deductible by the
Company because of Section 280G of the Code. If a holder would be
entitled to benefits or payments hereunder and under any other plan
or program that would constitute "parachute payments" as defined in
Section 280G of the Code, then the holder may by written notice to
the Company designate the order in which such parachute payments
will be reduced or modified so that the Company is not
18
<PAGE>
denied federal income tax deductions for any "parachute payments"
because of Section 280G of the Code.
6.3 EFFECT OF TERMINATION OF EMPLOYMENT. The Committee will establish in
-----------------------------------
respect of each Award granted to an Eligible Person the effect of a
termination of employment on the rights and benefits thereunder and in so
doing may make distinctions based upon the cause of termination.
6.4 COMPLIANCE WITH LAWS. This Plan, the granting and vesting of Awards under
--------------------
this Plan and the offer, issuance and delivery of shares of Common Stock
and/or the payment of money under this Plan or under Awards granted
hereunder are subject to compliance with all applicable federal and state
laws, rules and regulations (including but not limited to state and federal
securities law, federal margin requirements) and to such approvals by any
listing, regulatory or governmental authority as may, in the opinion of
counsel for the Corporation, be necessary or advisable in connection
therewith. Any securities delivered under this Plan will be subject to
such restrictions, and to any restrictions the Committee may require to
preserve a pooling of interests under generally accepted accounting
principles, and the person acquiring such securities will, if requested by
the Corporation, provide such assurances and representations to the
Corporation as the Corporation may deem necessary or desirable to assure
compliance withy all applicable legal requirements.
6.5 TAX WITHHOLDING.
---------------
6.5.1 MANDATORY TAX WITHHOLDING OFFSET. Subject only to Section 6.4, the
--------------------------------
number of shares or the payment of cash issuable or payable in
respect of an Award, will be reduced by the amount necessary to
satisfy the minimum applicable tax withholding requirements imposed
on the Company or any subsidiary in respect of such Award or event.
The participant will have no discretion as to whether such shares
or amount will or will not be withheld and offset by the Company.
Such withholding offset will be mandatory and nondiscretionary.
6.5.2 TAX LOANS. If so provided in the Award Agreement, the Company may,
---------
to the extent permitted by law, authorize a loan to an Eligible
Person in the amount of any taxes that the Company may be required
to withhold with respect to shares of Common Stock received (or
disposed of, as the case may be) pursuant to a transaction
described in Section 6.5.1. Such a loan will be for a term, at a
rate of interest and pursuant to such other terms and conditions as
the Company, under applicable law may establish and such loan need
not comply with the provisions of Section 1.8.
19
<PAGE>
6.6 PLAN AMENDMENT, TERMINATION AND SUSPENSION.
------------------------------------------
6.6.1 BOARD AUTHORIZATION. The Board may, at any time, terminate or,
-------------------
from time to time, amend, modify or suspend this Plan, in whole or
in part. No Awards may be granted during any suspension of this
Plan or after termination of this Plan, but the Committee will
retain jurisdiction as to Awards then outstanding in accordance
with the terms of this Plan.
6.6.2 STOCKHOLDER APPROVAL. To the extent then required under Sections
--------------------
422 and 424 of the Code or any other applicable law, or deemed
necessary or advisable by the Board, any amendment to this Plan
shall be subject to shareholder approval.
6.6.3 AMENDMENTS TO AWARDS. Without limiting any other express authority
--------------------
of the Committee under but subject to the express limits of this
Plan, the Committee by agreement or resolution may waive conditions
of or limitations on Awards to Eligible Persons that the Committee
in the prior exercise of its discretion has imposed, without the
consent of a Participant, and may make other changes to the terms
and conditions of Awards that do not affect in any manner
materially adverse to the Participant, the Participant's rights and
benefits under an Award.
6.6.4 LIMITATIONS ON AMENDMENTS TO PLAN AND AWARDS. No amendment,
--------------------------------------------
suspension or termination of this Plan or change of or affecting
any outstanding Award will, without written consent of the
Participant, affect in any manner materially adverse to the
Participant any rights or benefits of the Participant or
obligations of the Corporation under any Award granted under this
Plan prior to the effective date of such change. Changes
contemplated by Section 6.2 will not be deemed to constitute
changes or amendments for purposes of this Section 6.6.
6.7 PRIVILEGES OF STOCK OWNERSHIP. Except as otherwise expressly authorized by
-----------------------------
the Committee or this Plan, a Participant will not be entitled to any
privilege of stock ownership as to any shares of Common Stock not actually
delivered to and held of record by the Participant. No adjustment will be
made for dividends or other rights as a stockholder for which a record date
is prior to such date of delivery.
6.8 EFFECTIVE DATE OF THE PLAN. This Plan will be effective as of the date it
--------------------------
is approved by the Board, subject to stockholder approval of the
shareholders of the Corporation.
20
<PAGE>
6.9 TERM OF THE PLAN. No Award will be granted under this Plan after more
----------------
than ten years after the effective date of this Plan (the "TERMINATION
DATE"). Unless otherwise expressly provided in this Plan or in an
applicable Award Agreement, any Award granted prior to the termination date
may extend beyond such date, and all authority of the Committee with
respect to Awards hereunder, including the authority to amend an Award,
will continue during any suspension of this Plan and in respect of Awards
outstanding on the termination date.
6.10 GOVERNING LAW/CONSTRUCTION/SEVERABILITY.
---------------------------------------
6.10.1 CHOICE OF LAW. This Plan, the Awards, all documents evidencing
-------------
Awards and all other related documents will be governed by,
and construed in accordance with the laws of the state of
California.
6.10.2 SEVERABILITY. If a court of competent jurisdiction holds any
------------
provision invalid and unenforceable, the remaining provisions
of this Plan will continue in effect.
6.10.3 PLAN CONSTRUCTION.
-----------------
(a) RULE 16b-3. It is the intent of the Corporation that the
----------
Awards hereunder satisfy and be interpreted in a manner that,
in the case of Participants who are or may be subject to
Section 16 of the Exchange Act, satisfies the applicable
requirements of Rule 16b-3 so that such persons (unless they
otherwise agree) will be entitled to the benefits of Rule 16b-
3 or other exemptive rules under Section 16 of the Exchange
Act in respect of those transactions and will not be subjected
to avoidable liability thereunder. If any provision of this
Plan or of any Award would otherwise frustrate or conflict
with the intent expressed above, that provision to the extent
possible will be interpreted as to avoid such conflict. If the
conflict remains irreconcilable, the Committee may disregard
the provision if it concludes that to do so furthers the
interest of the Corporation and is consistent with the
purposes of this Plan as to such persons in the circumstances.
(b) SECTION 162(m). It is the further intent of the Company that
--------------
Options or SARs with an exercise or base price not less than
Fair Market Value on the date of grant and performance awards
under Section 5.2 of this Plan that are granted to or held by
a person subject to Section 162(m) of the Code will qualify as
performance-based compensation under
21
<PAGE>
Section 162(m) of the Code, and this Plan will be interpreted
consistent with such intent.
6.11 CAPTIONS. Captions and headings are given to the sections and subsections
--------
of this Plan solely as a convenience to facilitate reference. Such
headings will not be deemed in any way material or relevant to the
construction or interpretation of this Plan or any provision thereof.
6.12 EFFECT OF CHANGE OF SUBSIDIARY STATUS. For purposes of this Plan and any
-------------------------------------
award hereunder, if an entity ceases to be a subsidiary a termination of
employment and service will be deemed to have occurred with respect to
each eligible person in respect of such subsidiary who does not continue
as an eligible person in respect of another entity within the company.
6.13 NON-EXCLUSIVITY OF PLAN. Nothing in this Plan will limit or be deemed to
-----------------------
limit the authority of the Board or the Committee to grant awards or
authorize any other compensation, with or without reference to the Common
Stock, under any other plan or authority.
7. DEFINITIONS
-----------
"AWARD" means an award of any Option, Stock Appreciation Right, Restricted
Stock, Stock Bonus, performance share award, dividend equivalent or deferred
payment right or other right or security that would constitute a "derivative
security" under Rule 16a-1(c) of the Exchange Act, or any combination thereof,
whether alternative or cumulative, authorized by and granted under this Plan.
"AWARD AGREEMENT" means any writing setting forth the terms of an Award that has
been authorized by the Committee.
"AWARD DATE" means the date upon which the Committee took the action granting an
Award or such later date as the Committee designates as the Award Date at
the time of the Award or, in the case of Awards under Section 8, the applicable
dates set forth therein.
"AWARD PERIOD" means the period beginning on an Award Date and ending on the
expiration date of such Award.
"BENEFICIARY" means the person, persons, trust or trusts designated by a
Participant or, in the absence of a designation, entitled by will or the laws of
descent and distribution, to receive the benefits specified in the Award
Agreement and under this Plan if the Participant dies, and means the
Participant's executor or administrator if no other Beneficiary is designated
and able to act under the circumstances.
22
<PAGE>
"BOARD" means the Board of Directors of the Corporation.
"CHANGE IN CONTROL EVENT" means any of the following:
(a) Approval by the stockholders of the Corporation of the dissolution or
liquidation of the Corporation;
(b) Approval by the stockholders of the Corporation of an agreement to
merge or consolidate, or otherwise reorganize, with or into one or
more entities that are not Subsidiaries or other affiliates, as a
result of which less than 50% of the outstanding voting securities of
the surviving or resulting entity immediately after the reorganization
are, or will be, owned, directly or indirectly, by stockholders of the
Corporation immediately before such reorganization (assuming for
purposes of such determination that there is no change in the record
ownership of the Corporation's securities from the record date for
such approval until such reorganization and that such record owners
hold no securities of the other parties to such reorganization), but
including in such determination any securities of the other parties to
such reorganization held by affiliates of the Corporation);
(c) Approval by the stockholders of the Corporation of the sale of
substantially all of the Corporation's business and/or assets to a
person or entity that is not a Subsidiary or other affiliate; or;
(d) Any "PERSON" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act but excluding any person described in and satisfying the
conditions of Rule 13d-1(b)(1) thereunder), other than a Colburn
Affiliate, becomes the beneficial owner (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Corporation representing more than 50% of the combined voting power of
the Corporation's then outstanding securities entitled to then vote
generally in the election of directors of the Corporation; provided,
however, that a Change of Control will not be deemed to have occurred
if a Colburn Affiliate transfers to an organization described under
Section 501 of the Code beneficial ownership of more than 50% of the
combined voting power of the Corporation's then outstanding securities
entitled to then vote generally in the election of directors of the
Corporation; or
(e) During any period not longer than two consecutive years, individuals
who at the beginning of such period constituted the Board cease to
constitute at least a majority thereof, unless the election, or the
nomination for election by the Corporation's stockholders, of each new
Board member was approved by a vote of at least three-fourths
23
<PAGE>
of the Board members then still in office who were Board members at
the beginning of such period (including for these purposes, new
members whose election or nomination was so approved).
"COLBURN AFFILIATES" means Richard D. Colburn and his affiliates (within the
meaning of the Exchange Act), successors, heirs, descendants or members of his
immediate family.
"CODE" means the Internal Revenue Code of 1986, as amended from time to time.
"COMMISSION" means the Securities and Exchange Commission.
"COMMITTEE" means the Board or a committee appointed by the Board to administer
this Plan, which committee will be comprised only of two or more directors or
such greater number of directors as may be required under applicable law, each
of whom, in respect of any decision at a time when the Participant affected by
the decision may be subject to Section 162(m) of the Code, will be
Disinterested.
"COMMON STOCK" means the Common Stock of the Corporation and such other
securities or property as may become the subject of Awards, or become subject to
Awards, pursuant to an adjustment made under Section 6.2 of this Plan.
"COMPANY" means, collectively, the Corporation and its Subsidiaries.
"CORPORATION" means U.S. Rentals, Inc., a Delaware corporation, and its
successors.
"DISINTERESTED" means a disinterested director or an "outside director" within
the meaning of any mandatory legal or regulatory requirements, including Section
162(m) of the Code.
"ELIGIBLE EMPLOYEE" means an officer (whether or not a director) or key employee
of the Company.
"ELIGIBLE PERSON" means an Eligible Employee, or any Other Eligible Person, as
determined by the Committee.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time
to time.
24
<PAGE>
"FAIR MARKET VALUE" on any date means (a) if the stock is listed or admitted to
trade on a national securities exchange, the closing price of the stock on the
Composite Tape, as published in the Western Edition of The Wall Street Journal,
of the principal national securities exchange on which the stock is so listed or
admitted to trade, on such date, or, if there is no trading of the stock on such
date, then the closing price of the stock as quoted on such Composite Tape on
the next preceding date on which there was trading in such shares; (b) if the
stock is not listed or admitted to trade on a national securities exchange, the
last price for the stock on such date, as furnished by the National Association
of Securities Dealers, Inc. ("NASD") through the NASDAQ National Market
Reporting System or a similar organization if the NASD is no longer reporting
such information; (c) if the stock is not listed or admitted to trade on a
national securities exchange and is not reported on the National Market
Reporting System, the mean between the bid and asked price for the stock on such
date, as furnished by the NASD or a similar organization; or (d) if the stock is
not listed or admitted to trade on a national securities exchange, is not
reported on the National Market Reporting System and if bid and asked prices for
the stock are not furnished by the NASD or a similar organization, the value as
established by the Committee at such time for purposes of this Plan.
"INCENTIVE STOCK OPTION" means an Option that is designated and intended as an
incentive stock option within the meaning of Section 422 of the Code, the award
of that contains such provisions (including but not limited to the receipt of
stockholder approval of this Plan, if the award is made prior to such approval)
and is made under such circumstances and to such persons as may be necessary to
comply with that section.
"NONQUALIFIED STOCK OPTION" means an Option that is designated as a Nonqualified
Stock Option and will include any Option intended as an Incentive Stock Option
that fails to meet the applicable legal requirements thereof. Any Option
granted hereunder that is not designated as an incentive stock option will be
deemed to be designated a nonqualified stock option under this Plan and not an
incentive stock option under the Code.
"NON-EMPLOYEE DIRECTOR" means a member of the Board of Directors of the
Corporation who is not an employee of the Company but does not mean Richard D.
Colburn.
"NON-EMPLOYEE DIRECTOR PARTICIPANT" means a Non-Employee Director who holds an
outstanding Award under the provisions of Section 8.
"OPTION" means an option to purchase Common Stock granted under this Plan. The
Committee will designate any Option granted to an Eligible Person as a
Nonqualified Stock Option or an Incentive Stock Option.
25
<PAGE>
"OTHER ELIGIBLE PERSON" means any Non-Employee Director or any individual
consultant or advisor who or (to the extent provided in the next sentence) agent
who renders or has rendered bona fide services (other than services in
---- ----
connection with the offering or sale of securities of the Company in a capital
raising transaction) to the Company, and who is selected to participate in this
Plan by the Committee. If the Corporation's officers and directors are or
become subject to Section 16 of the Exchange Act, a Non-Employee Director will
not thereafter be selected as an Other Eligible Person. A non-employee agent
providing bona fide services to the Company (other than as an eligible advisor
---- ----
or consultant) may also be selected as an Other Eligible Person if such agent's
participation in this Plan would not adversely affect (a) the Corporation's
eligibility to use Form S-8 to register under the Securities Act of 1933, as
amended, the offering of shares issuable under this Plan by the Company or (b)
the Corporation's compliance with any other applicable laws.
"PARTICIPANT" means an Eligible Person who has been granted an Award under this
Plan and a Non-Employee Director who has been received an Award under Section 8
of this Plan.
"PERFORMANCE SHARE AWARD" means an Award of a right to receive shares of Common
Stock under Section 5.1, or to receive shares of Common Stock or other
compensation (including cash) under Section 5.2, the issuance or payment of that
is contingent upon, among other conditions, the attainment of performance
objectives specified by the Committee.
"PERSONAL REPRESENTATIVE" means the person or persons who, upon the disability
or incompetence of a Participant, has acquired on behalf of the Participant, by
legal proceeding or otherwise, the power to exercise the rights or receive
benefits under this Plan by virtue of having become the legal representative of
the Participant.
"PLAN" means this 1997 Performance Award Plan, as amended from time to time.
"QDRO" means a qualified domestic relations order.
"RESTRICTED SHARES" or "RESTRICTED STOCK" means shares of Common Stock awarded
to a Participant under this Plan, subject to payment of such consideration, if
any, and such conditions on vesting (which may include, among others, the
passage of time, specified performance objectives or other factors) and such
transfer and other restrictions as are established in or pursuant to this Plan
and the related Award Agreement, for so long as such shares remain unvested
under the terms of the applicable Award Agreement.
26
<PAGE>
"RETIREMENT" means retirement with the consent of the Company or, from active
service as an employee or officer of the Company on or after attaining age 55
with ten or more years of service or age 65.
"RULE 16b-3" means Rule 16b-3 as promulgated by the Commission pursuant to the
Exchange Act, as amended from time to time, but subject to any applicable
transition rules.
"SECTION 16 PERSON" means a person subject to Section 16(a) of the Exchange Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time to time.
"STOCK APPRECIATION RIGHT" means a right authorized under this Plan to receive a
number of shares of Common Stock or an amount of cash, or a combination of
shares and cash, the aggregate amount or value of which is determined by
reference to a change in the Fair Market Value of the Common Stock.
"STOCK BONUS" means an Award of shares of Common Stock granted under this Plan
for no consideration other than past services and without restriction other than
such transfer or other restrictions as the Committee may deem advisable to
assure compliance with law.
"SUBSIDIARY" means any corporation or other entity a majority of whose
outstanding voting stock or voting power is beneficially owned directly or
indirectly by the Corporation.
"TOTAL DISABILITY" means a disability where Participant is unable to effectively
engage in the material activities required for Participant's position with the
Company by reason of any medically determinable physical or mental impairment
that can be expected to result in death or that has lasted or can be expected to
last for a period of 90 consecutive days or for shorter periods aggregating 180
days in any consecutive 12 month period.
8. NON-EMPLOYEE DIRECTOR OPTIONS
8.1 PARTICIPATION. Awards under this Section 8 will be made only to Non-
-------------
Employee Directors and will be evidenced by Award Agreements substantially
in the form of EXHIBIT A.
27
<PAGE>
8.2 ANNUAL OPTION GRANTS.
--------------------
8.2.1 TIME OF INITIAL AWARD. Persons who are Non-Employee Directors in
---------------------
office at the time this Plan is first approved by the stockholders
of the Corporation will be granted without further action a
Nonqualified Stock Option to purchase 2,500 shares of Common Stock.
After approval of this Plan by the stockholders of the Corporation,
if any person who is not then an officer or employee of the Company
will become a director of the Corporation, such person will
automatically be granted (without any action by the Board or
Committee) a Non-qualified Stock Option (the Award Date of which
will be the date such person takes office) to purchase 2,500 shares
of Common Stock.
8.2.2 SUBSEQUENT ANNUAL AWARDS. At the close of trading on the day of
------------------------
the annual stockholders meeting in each year during the term of the
Plan commencing 1998, there will be granted automatically (without
any action by the Committee or the Board) a Nonqualified Stock
Option (the Award Date of which will be such date) to each Non-
Employee Director then continuing in office to purchase 1,000
shares of Common Stock.
8.2.3 MAXIMUM NUMBER OF SHARES. Annual grants that would otherwise
------------------------
exceed the maximum number of shares under Section 1.4.1 will be
prorated within such limitation. A Non-Employee Director will not
receive more than one Nonqualified Stock Option under this Section
8.2 in any calendar year, nor more than 10,000 shares on exercise
of all Options awarded under this Section 8.2.
8.3 OPTION PRICE. The purchase price per share of the Common Stock covered by
------------
each Option granted pursuant to Section 8.2 will be 100 percent of the Fair
Market Value of the Common Stock on the Award Date. The exercise price of
any Option granted under this Section will be paid in full at the time of
each purchase in cash or by check or in shares of Common Stock valued at
their Fair Market Value on the date of exercise of the Option, or partly in
such shares and partly in cash, but any such shares used in payment must be
owned by the Participant at least six months prior to the date of exercise.
8.4 OPTION PERIOD AND EXERCISABILITY. Each Option granted under this Section 8
--------------------------------
and all rights or obligations thereunder will expire ten years after the
Award Date and will be subject to earlier termination as provided below.
Each Option granted under Section 8.2 will become exercisable at the rate
of 20% per annum commencing on the first anniversary of the Award Date and
each of the next four anniversaries thereof.
28
<PAGE>
8.5 TERMINATION OF DIRECTORSHIP. If a Non-Employee Director's services as a
---------------------------
member of the Board of Directors terminate by reason of death, Disability
or Retirement, an Option granted pursuant to this Section held by such
Participant will immediately become and will remain exercisable for two
years after the date of such termination or until the expiration of the
stated term of such Option, whichever first occurs. If a Non-Employee
Director's services as a member of the Board of Directors terminate for any
other reason, any portion of an Option granted pursuant to this Section
that is not then exercisable will terminate and any portion of such Option
that is then exercisable may be exercised for six months after the date of
such termination or until the expiration of the stated term whichever first
occurs.
8.6 ADJUSTMENTS. Options granted under this Section 8 will be subject to
-----------
adjustment as provided in Section 6.2, but only to the extent that (a) such
adjustment and the Committee's actions in respect thereof satisfy any
applicable criteria in respect of formula plans under Rule 16, (b) such
adjustment in the case of a Change in Control Event is effected pursuant to
the terms of a reorganization agreement approved by stockholders of the
Corporation, and (c) such adjustment is consistent with adjustments to
Options held by persons other than executive officers or directors of the
Corporation.
8.7 ACCELERATION UPON A CHANGE IN CONTROL EVENT. Upon the occurrence of a
-------------------------------------------
Change in Control Event, each Option granted under Section 8.2 hereof will
become immediately exercisable in full;but none of the Options granted
under Section 8.2 will be accelerated to a date less than six months after
the Award Date of such Option. To the extent that any Option granted under
this Section 8 is not exercised prior to (a) a dissolution of the
Corporation or (b) a merger or other corporate event that the Corporation
does not survive, and no provision is (or consistent with the provisions of
Section 8.7 can be) made for the assumption, conversion, substitution or
exchange of the Option, the Option will terminate upon the occurrence of
such event.
29
<PAGE>
EXHIBIT A
---------
U.S. RENTALS, INC.
ELIGIBLE DIRECTOR
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT dated as of _____________, ____, is between U.S.
Rentals, Inc., a Delaware corporation (the "CORPORATION"), and ________________
(the "DIRECTOR"). The Corporation and the Director agree to the terms and
conditions set forth herein as required by the terms of the Plan.
BACKGROUND
A. The Corporation has adopted and the stockholders of the Corporation
have approved the 1997 Performance Award Plan (the "PLAN").
B. Pursuant to the Plan, the Corporation has granted an option (the
"OPTION") to the Director upon the terms and conditions evidenced hereby, as
required by the Plan, which Option is not intended as and will not be deemed to
be an incentive stock option within the meaning of Section 422 of the Code.
1. OPTION GRANT. This Agreement evidences the grant to the Director, as of
------------
___________, ____ (the "OPTION DATE"), of an Option to purchase an aggregate of
_____ shares of Common Stock, par value $.01 per share, under Section 8 of the
Plan, subject to the terms and conditions and to adjustment as set forth herein
or in pursuant to the Plan.
2. EXERCISE PRICE. The Option entitles the Director to purchase (subject
--------------
to the terms of Sections 3 through 5 below) all or any part of the Option shares
at a price per share of $_______, which represents the Fair Market Value of the
shares on the Option Date.
3. OPTION EXERCISABILITY AND TERM. Subject to adjustment pursuant to the
------------------------------
Plan, the Option will first become and remain exercisable as to ______________
of the shares on ___________________ and as to an additional _________ shares on
each of the following dates: ______________, ____, __________, ____
_____________, ____, and _____________, ____, in each case subject to
adjustments and acceleration under the Plan. The Option will terminate on
Exhibit A - 1
<PAGE>
____________, ____, * unless earlier terminated in accordance with the terms of
the Plan.
4. Service and Effect of Termination of Service. The Director
--------------------------------------------
agrees to serve as a director in accordance with the provisions of the
Corporation's Certificate of Incorporation, bylaws and applicable law. If the
Director's services as a member of the Board terminate, this Option will
terminate at the times and to the extent set forth in the Plan.
5. General Terms. The Option and this Agreement are subject to,
-------------
and the Corporation and the Director agree to be bound by, the provisions of the
Plan that apply to the Option. Such provisions are incorporated herein by this
reference. The Director has received a copy of the Plan and has read its
applicable provisions. Capitalized terms not otherwise defined herein have the
meaning set forth in the Plan.
The parties have signed this Agreement as of the date on page 1.
U.S. RENTALS, INC.
(a Delaware corporation)
By __________________________
Title ______________________
Optionee Director
_____________________________
(Signature)
_____________________________
(Print Name)
_____________________________
(Address)
_____________________________
(City, State, Zip Code)
_____________________________
[social security number]
- -----------------------
* insert day before tenth anniversary of date of grant.
Exhibit A - 2
<PAGE>
In consideration of the execution of the foregoing Stock Option
Agreement by U.S. Rentals, Inc., I, ____________________________, the spouse of
the Director named therein, agree to be bound by all of the terms and provisions
thereof and of the Plan.
DATED: ______________, ____.
___________________________________
Signature of Spouse
Exhibit A - 3
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
1. Employment......................................................... 1
----------
1.1 Term......................................................... 1
----
1.2 Title; Reporting; Policies................................... 1
--------------------------
1.2.1 Title................................................ 1
-----
1.2.2 Reporting............................................ 1
---------
1.2.3 Policies............................................. 1
--------
1.3 Place; Travel................................................ 1
-------------
1.3.1 Place of Employment.................................. 1
-------------------
1.3.2 Travel............................................... 2
------
1.4 Exclusive; Outside Activities................................. 2
-----------------------------
1.5 Consulting Services........................................... 2
-------------------
2. Compensation and Benefits........................................... 2
-------------------------
2.1 Base Salary................................................... 2
-----------
2.2 Discretionary Bonuses......................................... 3
---------------------
2.3 Benefit Plans................................................. 3
-------------
2.4 Expenses...................................................... 3
--------
2.5 Car........................................................... 3
---
2.6 D&O Insurance................................................. 3
-------------
2.7 Vacation...................................................... 3
--------
2.8 Indemnity..................................................... 3
---------
3. Deferred Compensation............................................... 3
---------------------
3.1 Calculation of Deferred Compensation.......................... 3
------------------------------------
3.1.1 Trigger Event Date.................................... 4
------------------
3.1.2 Early Termination Date................................ 4
----------------------
3.2 Vesting....................................................... 4
-------
4. Termination......................................................... 4
-----------
4.1 By Company.................................................... 4
----------
4.1.1 Death................................................. 4
-----
4.1.2 Unavailability........................................ 4
--------------
4.1.3 Good Cause............................................ 5
----------
4.1.4 Without Cause......................................... 5
-------------
4.2 By Employee................................................... 5
-----------
4.3 Notice of Termination......................................... 5
---------------------
4.4 Effect of Termination......................................... 5
---------------------
4.4.1 Death; Unavailability; or Good Cause.................. 5
------------------------------------
4.4.2 Without Good Cause or for Good Reason................. 6
-------------------------------------
4.4.3 Mitigation............................................ 7
----------
</TABLE>
(i)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
4.4.4 Effect on Benefit Programs...................... 7
--------------------------
4.4.5 Cooperation..................................... 7
-----------
4.5 Limitation on Severance Payments............................ 7
--------------------------------
4.6 Section 162(m) of the Code.................................. 8
--------------------------
5. Other Agreements.................................................. 8
----------------
5.1 Confidential Information; etc............................... 8
-----------------------------
5.1.1 Confidential Information............................ 8
------------------------
5.1.2 Customers; Employees................................ 8
--------------------
5.1.3 Documents........................................... 8
---------
5.2 Ownership of Work Product................................... 8
-------------------------
5.3 Insurance................................................... 9
---------
5.4 Assistance in Litigation.................................... 9
------------------------
5.5 Withholding; Employment Taxes............................... 9
-----------------------------
6. Dispute Resolution................................................ 10
------------------
6.1 Dispute Resolution.......................................... 10
------------------
6.1.1 Procedure for Claims................................ 10
--------------------
6.1.2 Negotiation......................................... 10
-----------
6.1.3 Mediation........................................... 10
---------
6.1.4 Arbitration......................................... 10
-----------
6.1.5 Extension of Time Periods........................... 11
-------------------------
6.2 Exclusivity................................................. 11
-----------
6.3 Prevailing Party............................................ 11
----------------
6.4 Specific Performance........................................ 11
--------------------
7. General Provisions................................................ 11
------------------
7.1 Assignment.................................................. 11
----------
7.2 Payment Obligations Absolute................................ 12
----------------------------
7.3 Successor................................................... 12
---------
7.4 Amendments; Waivers......................................... 12
-------------------
7.5 Integration................................................. 12
-----------
7.6 Interpretation; Governing Law............................... 12
-----------------------------
7.7 Headings.................................................... 12
--------
7.8 Counterparts................................................ 12
------------
7.9 Successors and Assigns...................................... 12
--------------------------------------------
7.10 Expenses.................................................... 12
--------
7.11 Representation by Counsel; Interpretation................... 13
-----------------------------------------
</TABLE>
(ii)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
7.12 Time is of the Essence..................................... 13
----------------------
7.13 Notices.................................................... 13
-------
</TABLE>
Exhibit A
DEFINED TERMS................................................Exhibit A - 1
- -------------
(iii)
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is entered into as of February __, 1997 by and
between U.S. Rentals, Inc., a Delaware corporation (the "COMPANY") and William
F. Berry ("EMPLOYEE"). The parties agree as follows. The capitalized terms on
EXHIBIT A have the meanings respectively assigned to them, which apply equally
to the singular and plural forms of the terms.
1. EMPLOYMENT
----------
1.1 TERM. Employee is hereby employed for the Term, and Employee accepts such
----
employment. Employee will faithfully perform the duties of Employee's office to
the best of Employee's ability.
1.2 TITLE; REPORTING; POLICIES.
--------------------------
1.2.1 TITLE. Employee will serve as President and Chief Executive Officer
-----
of the Company. Employee will have such duties and responsibilities
as are generally consistent with such position in a public company
of comparable present and projected size. Employee will also serve
without additional compensation in an executive capacity for one or
more direct or indirect subsidiaries of the Company if the Board
from time to time requests. Employee will also, subject to
Employee's election as such, serve as a member of the Board, as well
as a member of any committee of the Board to which Employee may be
elected or appointed. Employee will be entitled to serve as an ex-
officio member of any Executive Committee maintained by the Company
or as a regular member of such committee if Employee is a director
of the Company.
1.2.2 REPORTING. Employee will report directly to the Board and will be
---------
subject to the direction of the Board and to such limits on
Employee's authority as the Board may from time to time reasonably
impose.
1.2.3 POLICIES. Employee will be subject to and comply with the policies,
--------
standards and procedures generally applicable to senior executives
of the Company from time to time.
1.3 PLACE; TRAVEL.
-------------
1.3.1 PLACE OF EMPLOYMENT. Employee will be based at the Company's
-------------------
principal executive offices in Modesto, California.
<PAGE>
1.3.2 TRAVEL. Employee will be expected to engage in frequent travel as
------
the Company may reasonably request or as may be required for the
proper discharge of Employee's duties.
1.4 EXCLUSIVE; OUTSIDE ACTIVITIES. Employee will devote full and exclusive
-----------------------------
business time to the Company. The foregoing will not prohibit Employee
from: (a) passive ownership of real or personal property; (b) owning less
than 5% of any class of securities of a corporation that is publicly held;
(c) owning any class of securities of or being a partner in any other
corporation or business not competing directly or indirectly with the
Company or providing goods or services to the Company if, in each case, (x)
such interests are held for investment, (y) Employee does not become
involved in active management of an operating business, and (z) such
ownership or management does not materially interfere with the performance
of Employee's duties. Employee may also hold directorships or similar
positions with nonprofit, charitable, community or other similar
organizations, so long as such activities do not materially interfere with
the performance of Employee's duties. Any other directorships or similar
positions must be approved by the Board.
1.5 CONSULTING SERVICES. Following the Term, Employee will serve as an
-------------------
exclusive consultant to the Company in the equipment rental business for
two (2) years (the "CONSULTING PERIOD"). During the Consulting Period,
Employee will, at reasonable times and places, taking into account any
other employment or activities Employee may then have, be available to
consult with and advise the officers, directors and other representatives
of the Company on any subjects that were within Employee's scope of duties
during the Term. Employee will not be required to devote more than five (5)
Business Days per month to such consulting services. During the Consulting
Period, Employee will not be required to render any services at a distance
of more than 100 miles from Employee's then home, it being understood that
Employee may move from the metropolitan area in which Employee presently
resides. Since the other payments required under this Agreement are
intended in part to compensate Employee for the exclusive consulting
services set forth in this Section, no additional compensation will be paid
for such consulting services. During the Consulting Period, Employee will
not render services or advice directly or indirectly for any business
enterprise that competes directly or indirectly with the Company in either
(a) any county in the State of California, the names of all of which are
deemed to be specifically included herein by this reference, or (b)
anywhere else in the world.
2. COMPENSATION AND BENEFITS
-------------------------
2.1 BASE SALARY. Employee will be paid the Base Salary during the Term in
-----------
accordance with the Company's policies.
2
<PAGE>
2.2 DISCRETIONARY BONUSES. Employee will be eligible to receive additional
---------------------
annual bonuses to the extent, if any, awarded by the Board.
2.3 BENEFIT PLANS. During the Term, Employee will be entitled to participate
-------------
in all Benefit Programs that are available to the Company's executive
officers generally, to the extent Employee qualifies for participation
under their terms. The Company reserves the right to modify, suspend or
discontinue any and all Benefit Programs at any time without notice to or
recourse by Employee so long as such action is taken generally with respect
to other similarly situated persons and does not single Employee out.
2.4 EXPENSES. The Company will pay or reimburse Employee for reasonable
--------
travel, entertainment or other expenses Employee incurs on behalf of the
Company in connection with the performance of Employee's duties. Any such
expenses must be either specifically authorized by the Company or incurred
in accordance with Company policies. Employee must furnish the Company with
evidence relating to such expenses as the Company requires to substantiate
such expenses for tax and accounting purposes.
2.5 CAR. The Company will reimburse Employee for car expenses and will provide
---
maintenance and insurance in accordance with Company policies in effect
from time to time.
2.6 D&O INSURANCE. The Company will furnish Employee with the same Directors'
-------------
and Officers' liability insurance furnished to other executive officers
from time to time, and use reasonable efforts to name Employee as a named
insured for four (4) years after the Term ends.
2.7 VACATION. Employee will be entitled to paid vacation in accordance with the
--------
Company's policies applicable to other executive officers of the Company.
2.8 INDEMNITY. To the fullest extent permitted by applicable law, as from time
---------
to time for any acts or decisions made in good faith in performing services
for the Company. If Employee is a party to a definitive indemnification
agreement with the Company, the foregoing sentence will not be applicable.
3. DEFERRED COMPENSATION
---------------------
3.1 CALCULATION OF DEFERRED COMPENSATION. "DEFERRED COMPENSATION" will be
------------------------------------
calculated as follows.
3
<PAGE>
3.1.1 TRIGGER EVENT DATE. On the Trigger Event Date, Deferred Compensation
------------------
will be an amount equal to $2,666,683.
3.1.2 EARLY TERMINATION DATE. On the Early Termination Date, Deferred
----------------------
Compensation will be an amount equal to the sum of:
(a) $266,668; plus
(b) the result obtained by multiplying $2,400,015 by the vested
percentage set forth in Section 3.2.
3.2 VESTING. The portion of the Deferred Compensation determined under Section
-------
3.1.2(b) will be vested in the percentages set forth below for the date on
which the Early Termination Date occurs, with the percentages prorated in
the indicated range through the end of the quarter immediately preceding
the Early Termination Date.
<TABLE>
<S> <C>
Prior to January 1, 1998............................ 0%
January 1, 1998 through December 31, 1998........... 10%
January 1, 1999 through December 31, 1999........... 20%
January 1, 2000 through December 31, 2000........... 30%
January 1, 2001 through December 31, 2001........... 40%
January 1, 2002 through December 31, 2002........... 50%
January 1, 2003 through December 31, 2003........... 60%
January 1, 2004 through December 31, 2004........... 70%
January 1, 2005 through December 31, 2005........... 80%
January 1, 2006 through December 31, 2006........... 90%
After December 31, 2006............................. 100%
</TABLE>
4. TERMINATION
-----------
4.1 BY COMPANY. The compensation and other benefits provided to Employee under
----------
this Agreement, and the employment of Employee by the Company, may be
terminated prior to the expiration of the Term only as set forth in this
Section 4.1, with the effects set forth in Section 4.4.
4.1.1 DEATH. All payments and benefits under this Agreement will terminate
-----
upon Employee's death, except to the extent that the provisions of
any Benefit Program extend benefits to Employee's estate or family
after death.
4.1.2 UNAVAILABILITY. Employee's employment (other than the consulting
--------------
services set forth in Section 1.5) will terminate upon the date as
of which Employee is determined under this Agreement to have been
Unavailable, without further action or notice by the Company.
4
<PAGE>
4.1.3 GOOD CAUSE. Employee's employment will terminate, and all of
----------
Employee's rights to receive future compensation and other benefits
under this Agreement (except continuing benefits past such date
under the terms of any Benefit Programs, and the payment of Deferred
Compensation vested at the time) will terminate upon a determination
under this Agreement that there is Good Cause for such termination.
4.1.4 WITHOUT CAUSE. The Board has the right to terminate Employee's
-------------
employment at any time, with or without cause.
4.2 BY EMPLOYEE. Employee may terminate employment under this Agreement only
-----------
if Employee has established Good Reason under the terms of this Agreement.
4.3 NOTICE OF TERMINATION. Any termination by the Company for Good Cause, or
---------------------
by Employee for Good Reason, will be communicated by Notice of Termination
to the other party hereto. For purposes of this Agreement, a "NOTICE OF
TERMINATION" will (a) indicate the specific termination provision in this
Agreement relied upon, (b) to the extent applicable, set forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of Employee's employment under such provisions and (c) if
the Date of Termination is other than the date of receipt of such notice,
specify the termination date (which date shall be not more than 15 days
after the giving of such notice). The failure by Employee or the Company to
set forth in the Notice of Termination any fact or circumstance that
contributes to a showing of Good Reason or Good Cause will not waive any
right of Employee or the Company hereunder or preclude Employee or the
Company from asserting such fact or circumstance in enforcing Employee's or
the Company's rights hereunder.
4.4 EFFECT OF TERMINATION.
---------------------
4.4.1 DEATH; UNAVAILABILITY; OR GOOD CAUSE. If Employee dies during the
------------------------------------
Term, becomes Unavailable, or is terminated for Good Cause, the
Company will pay to Employee (or Employee's estate) the sum of (a)
Employee's Base Salary and any accrued bonus to which Employee was
entitled, through the Date of Termination, (b) any other previously
earned but unpaid compensation under this Agreement and (c) all
Deferred Compensation vested as of the Date of Termination as set
forth in Section 3, in each case to the extent not previously paid
(the "ACCRUED OBLIGATIONS"). The Accrued Obligations will be paid in
a lump sum in cash within thirty (30) days after the Date of
Termination. The foregoing amounts will be in addition to any amounts
payable through the Date of Termination under any Benefit Programs in
which Employee was participating as of the Date of Termination. If
employment is terminated due to Disability, Employee will, while
Disabled, continue to participate in any insurance programs that are
part of the Benefit Programs, to the extent that such continued
participation
5
<PAGE>
is possible under their terms. All accruals or vesting
of benefits will terminate as of the Date of Termination.
4.4.2 WITHOUT GOOD CAUSE OR FOR GOOD REASON.
-------------------------------------
(a) If Employee's employment is terminated by the Company for any
reason other than Employee's death, Unavailability or Good
Cause, or by Employee for Good Reason, the Company will pay to
Employee the sum of (i) the Base Salary and any non-
discretionary bonus to which Employee would have been entitled
for the remainder of the Term, and (ii) the total amount of
Deferred Compensation that would have been payable if Employee
had continued as an employee through the Term. Employee will
also be entitled to continue to participate in any insurance
programs that are part of the Benefit Programs, as though
Employee remained an employee, for such period. Such amounts
will be paid or provided to Employee at such times and in such
manner as they would have been paid or provided if no such
termination had occurred. If Employee becomes reemployed with
another employer and is eligible to receive insurance benefits
under another employer provided plan, the insurance benefits
described herein will be secondary to those provided under such
other plan during such applicable period of eligibility.
(b) The payments, set forth in this Section 4.4.2 will constitute
Employee's sole and exclusive right and entitlement in
connection with Employee's employment by the Company and the
termination of such employment and any and all matters related
to or arising in connection with such employment, unless prior
to the acceptance of the first such payment Employee elects not
to accept such payments and to pursue other remedies against
the Company. Employee's acceptance of the first payment will
release the Company and its affiliated entities (including all
directors, officers, employees and agents) from any claims that
Employee might otherwise have or assert in connection with such
matters, other than the Company's continuing obligation to make
the payments and provide the benefits required under this
Section 4. In addition, the Company is entitled to condition
such payments on Employee's execution of a normal release. If
Employee desires to pursue or enforce any such rights,
entitlements or remedies that would otherwise be waived and
released, then Employee must refuse the payments provided for
in this Section 4.4.2 in their entirety. If Employee accepts
such payments, Employee will be deemed to have agreed to the
foregoing exclusivity of rights and waiver of claims.
6
<PAGE>
4.4.3 MITIGATION. Employee has no obligation to seek or accept employment
----------
elsewhere after any termination under this Agreement. However, if
Employee accepts employment elsewhere after any termination under
this Agreement, the Company will have the right to offset any
amounts paid to Employee from such other employment during the
remaining term hereof, including any benefits to which Employee is
entitled under the other company's benefit plans and programs.
4.4.4 EFFECT ON BENEFIT PROGRAMS. The termination of this Agreement as
--------------------------
provided in this Section 4 will not affect the rights of Employee
under Section 3, and will not affect any vested rights that Employee
may have at the Date of Termination pursuant to any Benefit Program.
4.4.5 COOPERATION. Following termination of employment with the Company
-----------
or any reason, Employee will cooperate with the Company, as
reasonably requested by the Company, to effect a transition of
Employee's responsibilities and to ensure that the Company is aware
of all matters being handled by Employee. Employee will, upon
reasonable notice, furnish such information and assistance to the
Company as may reasonably be required by the Company in connection
with any legal or quasi-legal, proceeding, including any external or
internal investigation, involving the Company or any of its
affiliates or in which any of them is, or may become, a party.
4.5 LIMITATION ON SEVERANCE PAYMENTS. If the vesting of any options granted to
--------------------------------
Employee under the Plan upon a Change in Control Event together with all other
payments and the value of any benefit received or to be received by Employee
would result in all or a portion of such payments to be subject to excise tax
under Section 4999 of the Internal Revenue Code, then Employee's payments will
be either (a) the full payments or (b) such lesser amount that would result in
no portion of the payments being subject to excise tax under Section 4999 of the
Internal Revenue Code, whichever of the foregoing amounts, taking into account
the applicable Federal, state, and local employment taxes, income taxes, and the
excise tax imposed by Section 4999 of the Internal Revenue Code, results in the
receipt by Employee, on an after-tax basis, of the greatest amount of the
payments notwithstanding that all or some portion of the payments may be taxable
under Section 4999 of the Internal Revenue Code; Employee will be entitled to
receive the foregoing full payments, however, only if the excess of (c) the
"parachute payments" as defined in Section 280G(b)(2) of the Code, over (d) 2.99
times Employee's "base amount" as defined in Section 280G(b)(3) of the Code
exceeds the sum of (x) the greater of (i) $100,000 or (ii) ten (10) percent of
the payments under this Agreement plus (y) the excise tax imposed under Section
4999 of the Code, plus (z) the applicable federal, state, and local employment
taxes and income taxes imposed on the excess of (i) the "parachute payments" as
defined in Section 280G(b)(2) of the Code, over (b) 2.99 times Employee's "base
amount"
7
<PAGE>
as defined in Section 280G(b)(3) of the Code. All determinations
required to be made under this Section will be made by any nationally recognized
accounting firm that is the Company's outside auditor at the time of such
determination (the "ACCOUNTING FIRM"). The Company will cause the Accounting
Firm to provide detailed supporting calculations of its determinations to the
Company and Employee. Notice must be given to the Accounting Firm within
fifteen (15) Business Days after an event entitling Employee to a payment under
this Agreement. All fees and expenses of the Accounting Firm will be borne
solely by the Company. The Accounting Firm's determinations must be made with
substantial authority (within the meaning of Section 6662 of the Code).
4.6 SECTION 162(m) OF THE CODe. Notwithstanding anything to the contrary in
--------------------------
this Agreement, any payment under this Agreement that would not be
deductible because of Section 162(m) of the Code will not be paid or become
payable until the first day that the payment would be deductible under the
Code. Any such deferred payment will bear interest at the short term
federal rate determined as set forth in the Code.
5. OTHER AGREEMENTS
----------------
5.1 CONFIDENTIAL INFORMATION; ETC.
-----------------------------
5.1.1 CONFIDENTIAL INFORMATION. Employee will hold all Confidential
------------------------
Information in a fiduciary capacity for the benefit of the Company.
After termination of Employee's employment, Employee will not,
without the prior written consent of the Company or as may otherwise
be required by law or legal process, communicate or divulge any such
Confidential Information to anyone other than the Company and those
designated by it.
5.1.2 CUSTOMERS; EMPLOYEES. During the Term and afterwards for a period
--------------------
of two (2) years, Employee will not (a) solicit customers, suppliers
or clients of the Company to reduce or discontinue their business
with the Company or to engage in business with any competing entity
or (b) attempt to induce any employee of the Company to leave such
employment.
5.1.3 DOCUMENTS. On the Date of Termination, Employee will deliver to the
---------
Company and not keep or deliver to anyone else any and all notes,
notebooks, memoranda, documents and, in general, any and all
material, relating to the Company's business.
5.2 OWNERSHIP OF WORK PRODUCT. If Employee conceives of, discovers, invents
-------------------------
or creates inventions, improvements, new contributions, literary property,
material, ideas and discoveries, whether patentable or copyrightable or not
(all of the foregoing being collectively referred to herein as "WORK
PRODUCT"), or receives
8
<PAGE>
information about business opportunities for the Company, unless Company
otherwise agrees in writing, all of the foregoing will be owned by and
belong exclusively to Company and that Employee will have no personal
interest therein, if they are either related in any manner to the business
(commercial or experimental) of Company, or are, in the case of Work
Product, conceived or made on Company's time or with the use of Company's
facilities or materials, or, in the case of business opportunities, are
presented to Employee for the possible interest or participation of
Company. Employee will further, unless Company otherwise agrees in writing,
(a) promptly disclose any such Work Product and business opportunities to
Company; (b) assign to Company, upon request and without additional
compensation, the entire rights to such Work Product and business
opportunities; (c) sign all papers necessary to carry out the foregoing;
and (d) give testimony in support of Employee's inventorship or creation in
any appropriate case. Employee will not to assert any rights to any Work
Product or business opportunity as having been made or acquired by Employee
prior to the date of this Agreement except for Work Product or business
opportunities, if any, disclosed to and acknowledged by Company in writing
prior to the date hereof.
5.3 INSURANCE. The Company will have the right to take out life, health,
---------
accident, "Key-man" or other insurance covering Employee, in the name of
the Company and at the Company's expense in any amount deemed appropriate
by the Company. Employee will assist the Company in obtaining such
insurance, including, but not limited to, submitting to any reasonably
required medical examination.
5.4 ASSISTANCE IN LITIGATION. Employee will render assistance, advice and
------------------------
counsel to the Company at its request regarding any matter, dispute or
controversy with which the Company may become involved and of which
Employee has or may have reason to have knowledge, information or
expertise. Such services will be without additional compensation if
Employee is then employed by the Company and for reasonable compensation
and subject to Employee's reasonable availability if Employee is not. In
any event, the Company will pay all of Employee's reasonable out-of-pocket
expenses in connection therewith, including, but not limited to, reasonable
fees of Employee's legal counsel.
5.5 WITHHOLDING; EMPLOYMENT TAXES. To the extent required by the law in
-----------------------------
effect at the time any amounts under this Agreement are paid, the Company
will withhold from such payment the taxes required to be withheld by
applicable law.
6. DISPUTE RESOLUTION
------------------
6.1 DISPUTE RESOLUTION. The parties will attempt in good faith to resolve any
------------------
dispute arising out of or relating to this Agreement or any termination of
employment in the following priority:
9
<PAGE>
6.1.1 PROCEDURE FOR CLAIMS. The party filing a claim must give notice of
--------------------
it to the other party within six months of the date the party filing
the claim knew of it or the date of the termination, whichever is
earlier; provided, however, that in the case of a claim relating to
financial calculations, the filing date for such claim will be six
(6) months after the date Employee receives audited financial
statements of the Company (or such other financial information that
the Company indicates was utilized to compute the amounts in
question) for the period upon which such calculations were based.
Any claim not brought within the required time period will be waived
forever.
6.1.2 NEGOTIATION. The executives of the Company who have authority to
-----------
settle the controversy and have direct responsibility for
administration of the relationships established pursuant to this
Agreement, and Employee, will attempt in good faith to negotiate a
settlement. Any party having a dispute or claim will give the other
party written notice stating the nature of the dispute in reasonable
detail. Within ten (10) days after delivery of the notice, the
receiving party will submit to the other a written response also in
reasonable detail. The notice and the response will include (a) a
statement of each party's position and a summary of arguments
supporting that position and (b) the name and title of the person
who will represent that party and of any other person who will
accompany such person. Within ten (10) days after delivery of the
written response, both parties will meet at a mutually acceptable
time and place, and thereafter as often as they reasonably deem
necessary, to attempt to resolve the dispute. All reasonable
requests for information made by one party to the other will be
honored.
6.1.3 MEDIATION. If the matter has not been resolved by persons referred
---------
to above within thirty (30) days of the disputing party's notice,
the parties will endeavor to settle the dispute by non-binding
mediation in San Francisco, California under the CPR Model Procedure
for Mediation of Business Disputes then in effect on the date of
notice of dispute. Unless the parties agree otherwise in writing,
the neutral third party will be selected from the CPR Panels of
Neutrals, with the assistance of CPR.
6.1.4 ARBITRATION. If the matter has not been resolved pursuant to non-
-----------
binding mediation within thirty (30) days of the initiation of such
non-binding mediation procedure, or if either party does not agree
to participate in such mediation, then, at the written request of
either party, the dispute will be settled by binding arbitration in
accordance with the CPR Rules for Non-Administered Arbitration of
Business Disputes. Unless otherwise agreed to by the parties in
writing, there will be three arbitrators, each party to select one
such arbitrator and the third to be selected by the other two from
the CPR Panels of Distinguished Neutrals. The arbitration will be
governed by the United States Arbitration Act, 9 U.S.C. 1-16, and
judgment upon the
10
<PAGE>
arbitration award rendered may be entered by any court with
competent jurisdiction. The place of arbitration will be in San
Francisco, California unless otherwise agreed to by the parties. The
arbitrators are not empowered to award punitive damages or damages
in excess of actual damages.
6.1.5 EXTENSION OF TIME PERIODS. All time periods specified in this
-------------------------
Section regarding negotiation, mediation or arbitration may be
extended by mutual agreement.
6.2 EXCLUSIVITY. The dispute resolution procedures in Section 6.1 are the
-----------
exclusive method to resolve disputes of any nature arising out of or
relating to this Agreement, to the employment of Employee by the Company or
to the termination of such employment. Any actions, suits or litigation
relating to such matters will be brought only to enforce any final awards
resulting from arbitration under Section 6.1.
6.3 PREVAILING PARTY. 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.
6.4 SPECIFIC PERFORMANCE. In view of the uniqueness of the matters contemplated
--------------------
by this Agreement, the Company would not have an adequate remedy at law for
money damages if this Agreement is not being performed in accordance with
its terms. Employee therefore agrees that the Company will be entitled to
specific enforcement of the terms hereof in addition to any other remedy to
which the Company may be entitled.
7. GENERAL PROVISIONS
------------------
7.1 ASSIGNMENT. This Agreement is a personal contract, and the rights,
----------
interests and obligations of Employee under this Agreement may not be sold,
transferred, assigned, pledged or hypothecated, except that this Agreement
may be assigned by the Company to any corporation or other business entity
that succeeds to all or substantially all of the business of the Company
through merger, consolidation, corporate reorganization or by acquisition
of all or substantially all of the assets of the Company and that assumes
the Company's obligations under this Agreement. The terms and conditions of
this Agreement will inure to the benefit of and be binding upon any
successor to the business of the Company and Employee's heirs and legal
representatives.
7.2 PAYMENT OBLIGATIONS ABSOLUTE. The Company's obligation to pay Employee the
----------------------------
compensation and to make the arrangements provided herein will not be
affected by any circumstances, including, without limitation, any set-off,
counterclaim,
11
<PAGE>
recoupment, defense or other right that the Company may have against him or
anyone else. All amounts payable by the Company hereunder will be paid
without notice or demand.
7.3 SUCCESSOR. The Company will require any successor (whether direct or
---------
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by
agreement in form and substance satisfactory to Employee, to expressly
assume and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place.
7.4 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.
7.5 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.
7.6 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.
7.7 HEADINGS. Headings of Sections and subsections are for convenience only and
--------
are not a part of this Agreement.
7.8 COUNTERPARTS. This Agreement may be executed in one or more counterparts,
------------
all of which constitute one agreement.
7.9 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.
7.10 EXPENSES. Each party will pay its own expenses in the negotiation and
---------
preparation of this Agreement.
7.11 REPRESENTATION BY COUNSEL; INTERPRETATION. Each party acknowledges that it
------------------------------------------
has had the 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.
12
<PAGE>
7.12 TIME IS OF THE ESSENCE. Time is of the essence in the performance of each
----------------------
and every term, provision and covenant in this Agreement.
7.13 NOTICES. Any notice to be given hereunder must be in writing and delivered
-------
to the following addresses (or to another address as either shall
designate in writing). Such notice shall be effective (a) if given by
telecopy or if confirmed by return telecopy, (b) one Business Day after
delivery through a generally recognized and reputable overnight courier or
messenger for next day delivery or (c) if given by mail or any other
means, when actually delivered to the address specified.
<TABLE>
<CAPTION>
IF TO U.S. RENTALS, INC.: IF TO EMPLOYEE:
- ------------------------ --------------
<S> <C>
1581 Cummins Drive, Suite 155 At the most recent address on the books
Modesto, California 95358 and records of the Company for Employee
Attention: Board of Directors
</TABLE>
IN WITNESS WHEREOF, each of Company and Employee has caused this Agreement
to be duly executed on its behalf as of the date first above written.
Company:
U.S. RENTALS, INC.
By:____________________________
Name:__________________________
Title:_________________________
Employee:
_______________________________
William F. Berry
13
<PAGE>
EXHIBIT A
---------
DEFINED TERMS
-------------
"AGREEMENT" means this Employment Agreement, as amended from time to time.
"BASE SALARY" means the annual amount of $150,000.
"BENEFICIARY" has the meaning set forth in the Plan.
"BENEFIT PROGRAMS" means programs such as group health, dental, life and
disability, profit sharing, pension and similar programs made generally
available to the senior executives of the Company.
"BOARD" means the Company's Board of Directors as composed at the time, not
including Employee.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day national
banks in the State of California are authorized or required by law to close.
"CHANGE IN CONTROL EVENT" has the meaning set forth in the Plan.
"CODE" means the Internal Revenue Code of 1986, as amended from time to time.
"COMPANY" means U.S. Rentals, Inc., a Delaware corporation, together with its
subsidiaries.
"CONFIDENTIAL INFORMATION" means information not known by the trade generally or
not reasonably available to a knowledgeable person in the trade, even though
such information may have been disclosed to one or more third parties pursuant
to consulting agreements, joint research agreements, or other agreements entered
into by the Company. Confidential Information does not include information that
is required to be disclosed by law, statute, regulation or legal or
administrative process.
"DATE OF TERMINATION" means:
(a) if Employee's employment is terminated by the Company for
Good Cause, or by Employee for Good Reason, the date of receipt
of the Notice of Termination or any later date specified therein,
as the case may be;
Exhibit A - 1
<PAGE>
(b) if Employee's employment is terminated by the Company other
than for Good Cause or Unavailability, the date on which the
Company notifies Employee of such termination; and
(c) if Employee's employment is terminated by reason of death or
Unavailability, the date of death of Employee or the effective
date of the Unavailability, as the case may be.
"DEFERRED COMPENSATION" has the meaning set forth in Section 3.
"DISABILITY" or "DISABLED" means a disability where Employee is unable to
effectively engage in the material activities required for Employee's position
with the Company by reason of any medically determinable physical or mental
impairment that can be expected to result in death or that has lasted or can be
expected to last for a period of 90 consecutive days or for shorter periods
aggregating 180 days in any consecutive 12 month period.
"EARLY TERMINATION DATE" means the date of termination for Good Cause or
Employee's termination without Good Reason.
"GOOD CAUSE" means a finding by the Board in good faith that Employee has
(a) been guilty of a willful act or acts of dishonesty
constituting a felony that were intended to and did result
directly or indirectly in substantial gain or personal enrichment
to Employee at the expense of the Company;
(b) willfully failed to substantially perform Employee's duties
hereunder (other than failure resulting from Employee's
Unavailability due to Disability) persisting for a reasonable
period following the delivery to Employee of written notice
specifying the details of any alleged failure to perform, which
failure has resulted in demonstrable and material injury and
damage to the Company;
(c) engaged in any substantiated act involving moral turpitude;
(d) engaged in any act that, in each case, has subjected, or if
generally known would subject, the Company to public ridicule or
embarrassment;
(e) violated or failed to comply in any material respect with the
Company's published rules, regulations or policies, as in effect
from time to time;
(f) breached this Agreement; or
Exhibit A - 2
<PAGE>
(g) been incarcerated for more than 10 days.
An event specified in (b), (c), (d), (e) or (f) above will not constitute "GOOD
CAUSE" until the Board provides Employee with written notice of such event
setting forth in reasonable detail the specifics of such event and such event
has not been cured to the reasonable satisfaction of the Board within thirty
days of such notice (except upon the subsequent occurrence of a substantially
similar event, in which case such second event will constitute "Good Cause"
without any notice or cure period). Employee will be entitled to be heard by
the Board before any such determination is made. Action or inaction by Employee
will not be considered "willful" unless done or omitted by Employee
intentionally or not in good faith and without reasonable belief that Employee's
action or inaction was in the best interests of the Company, and will not
include failure to act by reason of total or partial Unavailability due to
physical or mental illness.
"GOOD REASON" means, other than an event also constituting Good Cause:
(a) a material diminution in Employee's duties, responsibilities
or title;
(b) a Change in Control Event; or
(c) the Company's material breach of this Agreement.
"INCLUDING" or "INCLUDES," when following any general provision, sentence,
clause, statement, term or matter, will be deemed to be followed by ", but not
limited to," and ", but is not limited to," respectively.
"PLAN" means the Company's 1997 Performance Award Plan.
"TERM" means the period from the date hereof through the earlier of (a) December
31, 2003 or (b) the date Employee dies, becomes Unavailable, is terminated for
any reason, or voluntarily terminates employment. The Term will be
automatically extended to December 31, 2006, unless Employee gives notice of
non-renewal not later than June 30, 2003. Any reference herein to the Term
includes such period of extension.
"TRIGGER EVENT DATE" means the earliest of December 31, 2006, the date of a
Change in Control Event, or the date of Employee's death, Disability or
Termination Without Cause.
"UNAVAILABILITY" or "UNAVAILABLE" means Employee being unable to fully perform
Employee's duties by reason of Disability, or by reason of any statute, law,
ordinance, regulation, order, judgment or decree, except for an instance that
would constitute Good Cause.
Exhibit A - 3
<PAGE>
EXHIBIT 10.11
CANCELLATION OF DEFERRED COMPENSATION AGREEMENT
-----------------------------------------------
This Cancellation of Deferred Compensation Agreement (this "AGREEMENT") is
entered into as of January 27, 1997 by and between U.S. Rentals, Inc., a
California corporation (the "COMPANY"), and William F. Berry ("EMPLOYEE"). The
parties agree as follows.
1. CONDITIONAL TERMINATION OF OLD PLAN. Employee agrees to the cancellation of
-----------------------------------
the Old Plan effective as of the close of business on December 31, 1996,
subject to the following conditions:
1.1 VESTED AMOUNT. Employee is entitled to the portion of the Deferred
-------------
Compensation earned as of December 31, 1996 in accordance with the Old
Plan. The payment of such earned amount will be in accordance with the
Employment Agreement.
1.2 CONTRIBUTION OF ASSETS. If the transactions contemplated by the Asset
----------------------
Contribution Agreement are not consummated by June 30, 1997, this
Agreement will terminate and the Old Plan will be reinstated effective
as of January 1, 1997.
1.3 GRANT OF STOCK OPTIONS. The Board of Directors of the Delaware Company
----------------------
will grant to Employee ,under the Delaware Company's 1997 Performance
Award Plan, options to purchase 7.333% of the shares of Common Stock
outstanding immediately after the IPO (excluding the shares subject the
underwriters' over-allotment option), presently estimated to be
2,254,925 shares. Employee will be granted such options as of the
closing date of the IPO, at the IPO price. Such options will vest
annually in 10 equal installments over a 9.5 year period commencing on
the first anniversary of the IPO.
1.4 NEW PAYMENT. The Company will pay Employee $13,333,333 (subject to
-----------
withholding required by law) immediately prior to the transfer of
assets and liabilities to the Delaware Company contemplated by the
Asset Contribution Agreement.
2. DISPUTE RESOLUTION. Any dispute will be settled by mediation and binding
------------------
arbitration using the procedures set forth in the Employment Agreement.
3. 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.
1
<PAGE>
4. 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.
5. DEFINED TERMS.
-------------
"ASSET CONTRIBUTION AGREEMENT" means the January 23, 1997 draft of the
proposed Asset Contribution Agreement to be entered into between the Company
and the Delaware Company immediately prior to the IPO, as modified at the
time it is signed.
"COMMON STOCK" means the Delaware Company's common stock, $0.01 par value.
"Employment Agreement" means the January 23, 1997 draft of the proposed
Employment Agreement between the Delaware Company and Employee to be entered
into in connection with the IPO, as modified at the time it is signed.
"DEFERRED COMPENSATION" has the meaning set forth in the Old Plan.
"DELAWARE COMPANY" means U.S. Rentals, Inc., a Delaware corporation.
"IPO" means the initial public offering of the Common Stock.
"OLD PLAN" means the Deferred Incentive Compensation Plan entered into as of
January 1, 1995 by and between Employee and the Company and the Guaranty by
Richard D. Colburn attached thereto.
The parties have signed this Agreement as of the date on page one, effective
as set forth in Section 1.
____________________
William F. Berry
U.S. RENTALS, INC., a
California corporation
By: ____________________
Richard D. Colburn
Chairman of the Board
of Directors
2
<PAGE>
EXHIBIT 10.12
CANCELLATION OF DEFERRED COMPENSATION AGREEMENT
-----------------------------------------------
This Cancellation of Deferred Compensation Agreement (this "AGREEMENT") is
entered into as of January 27, 1997 by and between U.S. Rentals, Inc., a
California corporation (the "COMPANY"), and John S. McKinney ("EMPLOYEE"). The
parties agree as follows.
1. CONDITIONAL TERMINATION OF OLD PLAN. Employee agrees to the cancellation of
-----------------------------------
the Old Plan effective as of the close of business on December 31, 1996,
subject to the following conditions:
1.1 VESTED AMOUNT. Employee is entitled to the portion of the Deferred
-------------
Compensation earned as of December 31, 1996 in accordance with the Old
Plan. The payment of such earned amount will be in accordance with the
Employment Agreement.
1.2 CONTRIBUTION OF ASSETS. If the transactions contemplated by the Asset
----------------------
Contribution Agreement are not consummated by June 30, 1997, this
Agreement will terminate and the Old Plan will be reinstated effective
as of January 1, 1997.
1.3 GRANT OF STOCK OPTIONS. The Board of Directors of the Delaware Company
----------------------
will grant to Employee ,under the Delaware Company's 1997 Performance
Award Plan, options to purchase 3.667% of the shares of Common Stock
outstanding immediately after the IPO (excluding the shares subject the
underwriters' over-allotment option), presently estimated to be
1,127,462 shares. Employee will be granted such options as of the
closing date of the IPO, at the IPO price. Such options will vest
annually in 10 equal installments over a 9.5 year period commencing on
the first anniversary of the IPO.
1.4 NEW PAYMENT. The Company will pay Employee $6,666,667 (subject to
-----------
withholding required by law) immediately prior to the transfer of
assets and liabilities to the Delaware Company contemplated by the
Asset Contribution Agreement.
2. DISPUTE RESOLUTION. Any dispute will be settled by mediation and binding
------------------
arbitration using the procedures set forth in the Employment Agreement.
3. 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.
1
<PAGE>
4. 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.
5. DEFINED TERMS.
-------------
"ASSET CONTRIBUTION AGREEMENT" means the January 23, 1997 draft of the
proposed Asset Contribution Agreement to be entered into between the Company
and the Delaware Company immediately prior to the IPO, as modified at the
time it is signed.
"COMMON STOCK" means the Delaware Company's common stock, $0.01 par value.
"EMPLOYMENT AGREEMENT" means the January 23, 1997 draft of the proposed
Employment Agreement between the Delaware Company and Employee to be entered
into in connection with the IPO, as modified at the time it is signed.
"DEFERRED COMPENSATION" has the meaning set forth in the Old Plan.
"DELAWARE COMPANY" means U.S. Rentals, Inc., a Delaware corporation.
"IPO" means the initial public offering of the Common Stock.
"OLD PLAN" means the Deferred Incentive Compensation Plan entered into as of
January 1, 1995 by and between Employee and the Company and the Guaranty by
Richard D. Colburn attached thereto.
The parties have signed this Agreement as of the date on page one, effective
as set forth in Section 1.
____________________
John S. McKinney
U.S. RENTALS, INC., a
California corporation
By: ____________________
Richard D. Colburn
Chairman of the Board
of Directors
2
<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
February 10, 1997
<PAGE>
EXHIBIT 99.1
CONSENT OF DIRECTORS
To U.S. Rentals, Inc.:
I hereby consent to the use of my name as a director in this Registration
Statement on Form S-1 of U.S. Rentals, Inc., registration number 333-17783, as I
have agreed to become a director of U.S. Rentals, Inc., effective after the
closing of the offering contemplated by the Registration Statement.
February 7, 1997
/s/ James P. Miscoll
-------------------------
James P. Miscoll